Note 7 - Loans

9 Months Ended

Sep. 30, 2012

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

7. Loans

Most of the Company’s business activity is with Asian customers located in Southern and Northern California; New York City, New York; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; and Hong Kong.  The Company has no specific industry concentration, and generally its loans are collateralized with real property or other pledged collateral of the borrowers.  Loans are generally expected to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the secured collateral.

The components of loans in the condensed consolidated balance sheets as of September 30, 2012, and December 31, 2011, were as follows:

	September 30, 2012			December 31, 2011
	(In thousands)
Type of Loans:
Commercial loans	$	2,082,920		$	1,868,275
Residential mortgage loans		1,073,880			972,262
Commercial mortgage loans		3,704,777			3,748,897
Equity lines		199,403			214,707
Real estate construction loans		187,248			237,372
Installment and other loans		11,702			17,699
Gross loans		7,259,930			7,059,212
Less:
Allowance for loan losses		(184,438	)		(206,280	)
Unamortized deferred loan fees		(9,036	)		(8,449	)
Total loans, net	$	7,066,456		$	6,844,483
Loans held for sale	$	-		$	760

No loans were held for sale at September 30, 2012, compared to $760,000 at December 31, 2011.  In the first nine months of 2012, we added three new loans of $16.0 million, sold four loans of $16.2 million for a net loss on sale of $26,000, and transferred a loan of $500,000 to held for investment.

At September 30, 2012, recorded investment in impaired loans totaled $265.1 million and was comprised of nonaccrual loans of $94.9 million, and accruing troubled debt restructured (“TDR”) loans of $170.2 million.  At December 31, 2011, recorded investment in impaired loans totaled $322.0 million and was comprised of nonaccrual loans of $201.2 million, nonaccrual loans held for sale of $760,000, and accruing TDR’s of $120.0 million.  For impaired loans, the amounts previously charged off represent 22.1% at September 30, 2012, and 25.6% at December 31, 2011, of the contractual balances for impaired loans.  The following table presents the average balance and interest income recognized related to impaired loans for the periods  indicated:

	Impaired Loans
	Average Recorded Investment								Interest Income Recognized
	For the three months ended September 30,				For the nine months ended September 30,				For the three months ended September 30,				For the nine months ended September 30,
	2012		2011		2012		2011		2012		2011		2012		2011
	(In thousands)
Commercial loans	$	25,987	$	55,599	$	33,672	$	49,370	$	49	$	264	$	146	$	789
Real estate construction loans		41,404		78,307		51,176		83,011		177		488		531		1,461
Commercial mortgage loans		178,206		180,554		180,959		225,195		1,971		895		5,477		3,100
Residential mortgage and equity lines		18,370		17,798		18,420		17,252		49		9		148		28
Total	$	263,967	$	332,258	$	284,227	$	374,828	$	2,246	$	1,656	$	6,302	$	5,378

The following table presents impaired loans and the related allowance for credit losses as of the dates indicated:

	Impaired Loans
	September 30, 2012						December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	22,832	$	17,561	$	-	$	46,671	$	38,194	$	-
Real estate construction loans		53,613		40,877		-		134,836		78,767		-
Commercial mortgage loans		204,549		165,440		-		187,580		149,034		-
Residential mortgage and equity lines		4,318		4,244		-		8,555		7,987		-
Subtotal	$	285,312	$	228,122	$	-	$	377,642	$	273,982	$	-
With allocated allowance
Commercial loans	$	15,182	$	9,490	$	1,791	$	11,795	$	7,587	$	3,336
Real estate construction loans		9,932		779		279		-		-		-
Commercial mortgage loans		13,902		12,969		1,729		29,722		28,023		2,969
Residential mortgage and equity lines		16,072		13,736		1,626		13,813		12,381		1,249
Subtotal	$	55,088	$	36,974	$	5,425	$	55,330	$	47,991	$	7,554
Total impaired loans	$	340,400	$	265,096	$	5,425	$	432,972	$	321,973	$	7,554

The following table presents the aging of the loan portfolio by type as of September 30, 2012, and as of December 31, 2011:

	As of September 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)
Commercial loans	$	4,498	$	2,930	$	-	$	23,035	$	30,463	$	2,052,457	$	2,082,920
Real estate construction loans		-		17,095		-		9,422		26,517		160,731		187,248
Commercial mortgage loans		8,424		6,523		-		48,754		63,701		3,641,076		3,704,777
Residential mortgage and equity lines		344		4,006		-		13,733		18,083		1,255,200		1,273,283
Installment and other loans		-		40		-		-		40		11,662		11,702
Total loans	$	13,266	$	30,594	$	-	$	94,944	$	138,804	$	7,121,126	$	7,259,930

	As of December 31, 2011
	30-59 Days  Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)
Commercial loans	$	1,683	$	-	$	-	$	30,661	$	32,344	$	1,835,931	$	1,868,275
Real estate construction loans		20,326		-		-		46,012		66,338		171,034		237,372
Commercial mortgage loans		13,627		20,277		6,726		107,784		148,414		3,600,483		3,748,897
Residential mortgage and equity lines		5,871		-		-		16,740		22,611		1,164,358		1,186,969
Installment and other loans		-		-		-		-		-		17,699		17,699
Total loans	$	41,507	$	20,277	$	6,726	$	201,197	$	269,707	$	6,789,505	$	7,059,212

The determination of the amount of the allowance for credit losses for impaired loans is based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectibility when determining the appropriate level for the allowance for credit losses.   The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment.   This allowance evaluation process is also applied to troubled debt restructurings since trouble debt restructurings are  considered  to be impaired loans.

A troubled debt restructuring (“TDR”) is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower.  The concessions may be granted in various forms, including change in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date that causes significant delay in payment.

TDRs on accrual status are comprised of the loans that have, pursuant to the Bank’s policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months before being returned to accrual status.  The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms.  This would include cash paid by the borrower prior to the restructure to set up interest reserves.

At September 30, 2012, accruing TDRs were $170.2 million and non-accrual TDRs were $19.1 million compared to accruing TDRs of $120.0 million and non-accrual TDRs of $50.9 million at December 31, 2011.  The Company has allocated specific reserves of $1.1 million to accruing TDRs and $208,000 to non-accrual TDRs at September 30, 2012, and $1.4 million to accruing TDRs and $1.6 million to non-accrual TDRs at December 31, 2011.  The following table presents TDRs that were modified during the first nine months of 2012 and 2011, their specific reserve at September 30, and charge-offs during the first nine months of 2012 and 2011:

	For the nine months ended September 30, 2012								As of September 30, 2012
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
					(Dollars in thousands)
Commercial loans		8		2,144	$	2,144	$	-	$	75
Commercial mortgage loans		15		59,299		55,610		3,689		-
Residential mortgage and equity lines		7		2,895		2,895		-		70
Total		30	$	64,338	$	60,649	$	3,689	$	145

	For the nine months ended September 30, 2011								As of September 30, 2011
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
					(Dollars in thousands)
Commercial loans		11	$	39,584	$	39,584	$	-	$	112
Real estate construction loans		2		26,175		25,317		858		-
Commercial mortgage loans		3		3,176		3,176		-		1
Residential mortgage and equity lines		3		1,577		1,577		-		116
Total		19	$	70,512	$	69,654	$	858	$	229

Modifications of the loan terms during the first nine months of 2012 and 2011 were in the form of changes in the stated interest rate, multiple note structure, or extensions of the maturity date.  The length of time for which modifications involving a reduction of the stated interest rate were documented ranged from two months to seven years from the existing maturity date.  Modifications involving an extension of the maturity date were for periods ranging from two months to seven years from the existing maturity date. 

Accruing TDRs at September 30, 2012, were comprised of loans collateralized by eighteen retail shopping and commercial use buildings of $94.7 million, ten office and commercial use buildings of $37.4 million, two hotels of $12.6 million, fifteen single family residences of $19.0 million, two pieces of land of $2.4 million, two warehouses of $1.6 million, six unsecured commercial loans of $1.4 million, and three multi-family residences of $1.1 million.  We expect that the troubled debt restructuring loans on accruing status as of September 30, 2012, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. A summary of TDRs by type of concession, and by type of loan as of September 30, 2012, and as of December 31, 2011, is shown below:

	As of September 30, 2012
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	553	$	3,044	$	-	$	418	$	4,015
Real estate construction loans		16,820		9,581		-		5,834		32,235
Commercial mortgage loans		27,091		16,597		1,138		84,829		129,655
Residential mortgage loans		1,465		1,027		-		1,754		4,246
Total accruing TDRs	$	45,929	$	30,249	$	1,138	$	92,835	$	170,151

	As of September 30, 2012
Non-accrual TDRs	Interest Deferral		Principal Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	-	$	669	$	-	$	-	$	669
Commercial mortgage loans		2,584		1,140		5,743		6,123		15,590
Residential mortgage loans		283		1,600		595		339		2,817
Total non-accrual TDRs	$	2,867	$	3,409	$	6,338	$	6,462	$	19,076

	As of December 31, 2011
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	12,933	$	1,756	$	-	$	431	$	15,120
Real estate construction loans		16,820		9,659		-		5,776		32,255
Commercial mortgage loans		471		37,796		2,071		28,935		69,273
Residential mortgage loans		1,294		587		-		1,487		3,368
Total accruing TDRs	$	31,518	$	49,798	$	2,071	$	36,629	$	120,016

	As of December 31, 2011
Non-accrual TDRs	Interest Deferral		Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	-	$	616	$	1,859	$	1,506	$	-	$	3,981
Real estate construction loans		-		13,579		12,376		-		-		25,955
Commercial mortgage loans		2,633		9,727		-		-		5,076		17,436
Residential mortgage loans		311		2,427		449		-		311		3,498
Total non-accrual TDRs	$	2,944	$	26,349	$	14,684	$	1,506	$	5,387	$	50,870

The activity within our TDR loans for the period indicated are shown below:

	For the three months ended September 30,						For the nine months ended September 30,
Accruing TDRs	2012			2011			2012			2011
	(In thousands)
Beginning balance	$	153,249		$	116,328		$	120,016		$	136,800
New restructurings		14,765			43,182			53,524			57,181
Restructured loans restored to accrual status		3,957			34			6,810			1,071
Charge-offs		(251	)		(1	)		(251	)		(660	)
Payments		(1,569	)		(33,273	)		(4,124	)		(37,347	)
Restructured loans placed on nonaccrual		-			-			(5,824	)		(30,042	)
Expiration of loan concession		-			-			-			(733	)
Ending balance	$	170,151		$	126,270		$	170,151		$	126,270

	For the three months ended September 30,						For the nine months ended September 30,
Non-accrual TDRs	2012			2011			2012			2011
	(In thousands)
Beginning balance	$	23,285		$	38,230		$	50,870		$	28,147
New restructurings		1,153			8,918			7,124			12,474
Restructured loans placed on nonaccrual		-			1			5,824			30,042
Charge-offs		-			(1,279	)		(4,285	)		(6,108	)
Payments		(1,405	)		(929	)		(33,647	)		(11,332	)
Foreclosures		-			(832	)		-			(8,077	)
Restructured loans restored to accrual status		(3,957	)		(34	)		(6,810	)		(1,071	)
Ending balance	$	19,076		$	44,075		$	19,076		$	44,075

A loan is considered to be in payment default once it is 60 to 90 days contractually past due under the modified terms.  Four commercial mortgage TDRs of $12.0 million, one land TDR of $1.2 million, one residential mortgage TDR of $1.2 million, and one commercial TDR of $234,000 had payment defaults within the twelve months ended September 30, 2012.  The TDRs that subsequently defaulted incurred no charge-offs within the twelve months ended September 30, 2012.

Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of September 30, 2012, there were no commitments to lend additional funds to those borrowers whose loans have been restructured, were considered impaired, or were on non-accrual status.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan.  The risk rating categories can be generally described by the following grouping for non-homogeneous loans: 

· Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

· Special Mention – Borrower is fundamentally sound and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay.  Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

· Substandard – These loans are inadequately protected by current sound net worth, paying capacity or pledged collateral.  Well-defined weaknesses exist that could jeopardize repayment of debt.  Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

· Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan) a loss classification is deferred until the situation is better defined.

· Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

The following table presents loan portfolio by risk rating as of September 30, 2012, and as of December 31, 2011:

	As of September 30, 2012
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,900,049	$	77,797	$	90,684	$	14,390	$	2,082,920
Real estate construction loans		114,649		21,718		43,022		7,859		187,248
Commercial mortgage loans		3,276,291		165,415		263,071		-		3,704,777
Residential mortgage and equity lines		1,256,683		344		16,115		141		1,273,283
Installment and other loans		11,702		-		-		-		11,702
Total gross loans	$	6,559,374	$	265,274	$	412,892	$	22,390	$	7,259,930
Loans held for sale	$	-	$	-	$	-	$	-	$	-

	As of December 31, 2011
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,689,842	$	64,290	$	108,858	$	5,285	$	1,868,275
Real estate construction loans		115,538		23,555		90,132		8,147		237,372
Commercial mortgage loans		3,275,431		69,925		403,541		-		3,748,897
Residential mortgage and equity lines		1,149,225		4,439		33,160		145		1,186,969
Installment and other loans		17,636		63		-		-		17,699
Total gross loans	$	6,247,672	$	162,272	$	635,691	$	13,577	$	7,059,212
Loans held for sale	$	-	$	-	$	260	$	500	$	760

The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic and environmental conditions, among other factors.

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of September 30, 2012, and as of December 31, 2011.

	Commercial Loans		Real Estate Construction Loans		Commercial Mortgage Loans		Residential Mortgage Loans and Equity Lines		Consumer and Other Loans		Total
	(In thousands)
September 30, 2012
Loans individually evaluated for impairment
Allowance	$	1,791	$	279	$	1,729	$	1,626	$	-	$	5,425
Balance	$	27,051	$	41,656	$	178,409	$	17,980	$	-	$	265,096
Loans collectively evaluated for impairment
Allowance	$	63,947	$	15,849	$	90,282	$	8,902	$	33	$	179,013
Balance	$	2,055,869	$	145,592	$	3,526,368	$	1,255,303	$	11,702	$	6,994,834
Total allowance	$	65,738	$	16,128	$	92,011	$	10,528	$	33	$	184,438
Total balance	$	2,082,920	$	187,248	$	3,704,777	$	1,273,283	$	11,702	$	7,259,930
December 31, 2011
Loans individually evaluated for impairment
Allowance	$	3,336	$	-	$	2,969	$	1,247	$	-	$	7,552
Balance	$	45,781	$	78,766	$	177,058	$	20,368	$	-	$	321,973
Loans collectively evaluated for impairment
Allowance	$	62,322	$	21,749	$	105,052	$	9,548	$	57	$	198,728
Balance	$	1,822,494	$	158,606	$	3,571,839	$	1,166,601	$	17,699	$	6,737,239
Total allowance	$	65,658	$	21,749	$	108,021	$	10,795	$	57	$	206,280
Total balance	$	1,868,275	$	237,372	$	3,748,897	$	1,186,969	$	17,699	$	7,059,212

The following table details activity in the allowance for loan losses by portfolio segment for the three  and nine months ended September 30, 2012, and September 30, 2011.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

For the three months ended September 30, 2012 and 2011
	Commercial Loans			Real Estate Construction Loans			Commercial Mortgage Loans			Residential Mortgage and Equity Lines			Installment and Other Loans			Total
	(In thousands)
June 30, 2011 Ending Balance	$	65,860		$	37,683		$	117,014		$	9,307		$	36		$	229,900
Provision/(credit) for possible credit losses		(1,366	)		9,324			951			(224	)		(1	)		8,684
Charge-offs		(1,219	)		(23,539	)		(5,264	)		(818	)		-			(30,840	)
Recoveries		513			408			373			78			-			1,372
Net (charge-offs)/recoveries		(706	)		(23,131	)		(4,891	)		(740	)		-			(29,468	)
September 30, 2011 Ending Balance	$	63,788		$	23,876		$	113,074		$	8,343		$	35		$	209,116
June 30, 2012 Ending Balance	$	66,595		$	16,360		$	99,009		$	10,254		$	56		$	192,274
Provision/(credit) for possible credit losses		6,199			(670	)		(6,350	)		740			(23	)		(104	)
Charge-offs		(7,387	)		(39	)		(966	)		(477	)		-			(8,869	)
Recoveries		331			477			318			11			-			1,137
Net (charge-offs)/recoveries		(7,056	)		438			(648	)		(466	)		-			(7,732	)
September 30, 2012 Ending Balance	$	65,738		$	16,128		$	92,011		$	10,528		$	33		$	184,438

For the nine months ended September 30, 2012 and 2011
	Commercial Loans			Real Estate Construction Loans			Commercial Mortgage Loans			Residential Mortgage and Equity Lines			Installment and OthLoans			Total
	(In thousands)
January 1, 2011 Beginning Balance	$	63,919		$	43,261		$	128,347		$	9,668		$	36		$	245,231
Provision/(credit) for possible credit losses		9,516			10,713			5,704			(458	)		(1	)		25,474
Charge-offs		(11,215	)		(34,394	)		(24,083	)		(1,044	)		-			(70,736	)
Recoveries		1,568			4,296			3,106			177			-			9,147
Net (charge-offs)/recoveries		(9,647	)		(30,098	)		(20,977	)		(867	)		-			(61,589	)
September 30, 2011 Ending Balance	$	63,788		$	23,876		$	113,074		$	8,343		$	35		$	209,116
Reserve for impaired loans	$	2,270		$	-		$	3,930		$	1,203		$	-		$	7,403
Reserve for non-impaired loans	$	61,518		$	23,876		$	109,144		$	7,140		$	35		$	201,713
Reserve for off-balance sheet credit commitments	$	757		$	967		$	103		$	34		$	2		$	1,863
January 1 2012, Beginning Balance	$	65,658		$	21,749		$	108,021		$	10,795		$	57		$	206,280
Provision/(credit) for possible credit losses		13,329			(10,081	)		(12,937	)		1,150			(2	)		(8,541	)
Charge-offs		(14,479	)		(1,165	)		(10,647	)		(1,805	)		(25	)		(28,121	)
Recoveries		1,230			5,625			7,574			388			3			14,820
Net (charge-offs)/recoveries		(13,249	)		4,460			(3,073	)		(1,417	)		(22	)		(13,301	)
September 30, 2012 Ending Balance	$	65,738		$	16,128		$	92,011		$	10,528		$	33		$	184,438
Reserve for impaired loans	$	1,791		$	279		$	1,729		$	1,626		$	-		$	5,425
Reserve for non-impaired loans	$	63,947		$	15,849		$	90,282		$	8,902		$	33		$	179,013
Reserve for off-balance sheet credit commitments	$	801		$	668		$	104		$	34		$	3		$	1,610