Note 7 - Loans

3 Months Ended

Mar. 31, 2013

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 March 31, 2013, and December 31, 2012, were as follows:

	March 31, 2013			December 31, 2012
	(In thousands)
Type of Loans:
Commercial loans	$	2,031,789		$	2,127,107
Residential mortgage loans		1,183,460			1,146,230
Commercial mortgage loans		3,759,580			3,768,452
Equity lines		191,462			193,852
Real estate construction loans		184,067			180,950
Installment and other loans		13,982			12,556
Gross loans		7,364,340			7,429,147
Less:
Allowance for loan losses		(178,692	)		(183,322	)
Unamortized deferred loan fees		(10,186	)		(10,238	)
Total loans, net	$	7,175,462		$	7,235,587

At March 31, 2013, recorded investment in impaired loans totaled $230.5 million and was comprised of non-accrual loans of $100.3 million, and accruing troubled debt restructured (“TDR”) loans of $130.2 million.  At December 31, 2012, recorded investment in impaired loans totaled $248.6 million and was comprised of non-accrual loans of $103.9 million and accruing TDR’s of $144.7 million.  For impaired loans, the amounts previously charged off represent 22.1% at March 31, 2013, and 23.2% at December 31, 2012, 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
	Three months ended March 31,				Three months ended March 31,
	2013		2012		2013		2012
	(In thousands)
Commercial loans	$	22,126	$	45,142	$	183	$	257
Real estate construction loans		42,068		66,455		66		176
Commercial mortgage loans		162,257		184,867		1,562		1,088
Residential mortgage and equity lines		17,797		17,715		84		40
Total	$	244,248	$	314,179	$	1,895	$	1,561

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

	Impaired Loans
	March 31, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	14,437	$	12,294	$	-	$	29,359	$	18,963	$	-
Real estate construction loans		9,304		7,277		-		9,304		7,277		-
Commercial mortgage loans		153,872		120,563		-		189,871		152,957		-
Residential mortgage and equity lines		3,643		3,633		-		4,303		4,229		-
Subtotal	$	181,256	$	143,767	$	-	$	232,837	$	183,426	$	-
With allocated allowance
Commercial loans	$	11,854	$	7,180	$	1,717	$	7,804	$	4,959	$	1,467
Real estate construction loans		54,657		34,795		8,080		54,718		34,856		8,158
Commercial mortgage loans		31,407		30,187		6,242		14,163		12,928		1,336
Residential mortgage and equity lines		16,704		14,615		1,318		14,264		12,428		1,222
Subtotal	$	114,622	$	86,777	$	17,357	$	90,949	$	65,171	$	12,183
Total impaired loans	$	295,878	$	230,544	$	17,357	$	323,786	$	248,597	$	12,183

The following table presents the aging of the loan portfolio by type as of March 31, 2013, and as of December 31, 2012:

	March 31, 2013
	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	$	15,766	$	-	$	333	$	13,192	$	29,291	$	2,002,498	$	2,031,789
Real estate construction loans		634		-		-		36,237		36,871		147,196		184,067
Commercial mortgage loans		56,343		4,133		467		39,221		100,164		3,659,416		3,759,580
Residential mortgage loans		11,189		1,134		-		11,679		24,002		1,350,920		1,374,922
Installment and other loans		-		-		-		-		-		13,982		13,982
Total loans	$	83,932	$	5,267	$	800	$	100,329	$	190,328	$	7,174,012	$	7,364,340

	December 31, 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	$	16,832	$	1,610	$	630	$	19,958	$	39,030	$	2,088,077	$	2,127,107
Real estate construction loans		-		1,471		-		36,299		37,770		143,180		180,950
Commercial mortgage loans		21,570		3,627		-		35,704		60,901		3,707,551		3,768,452
Residential mortgage loans		5,324		1,972		-		11,941		19,237		1,320,845		1,340,082
Installment and other loans		-		-		-		-		-		12,556		12,556
Total loans	$	43,726	$	8,680	$	630	$	103,902	$	156,938	$	7,272,209	$	7,429,147

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 they 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 a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an 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 March 31, 2013, accruing TDRs were $130.2 million and non-accrual TDRs were $49.9 million compared to accruing TDRs of $144.7 million and non-accrual TDRs of $47.7 million at December 31, 2012.  The Company allocated specific reserves of $4.7 million to accruing TDRs and $7.6 million to non-accrual TDRs at March 31, 2013, and $1.1 million to accruing TDRs and $7.8 million to non-accrual TDRs at December 31, 2012.  The following table presents TDRs that were modified during the first quarter of 2013 and 2012, their specific reserve at March 31, 2013, and charge-offs during the first quarters of 2013 and 2012:

	Three months ended March 31, 2013								March 31, 2013
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)
Commercial loans		4		4,007		4,007	$	-	$	61
Commercial mortgage loans		2		1,175		1,175		-		10
Residential mortgage and equity lines		6		1,696		1,696		-		265
Total		12	$	6,878	$	6,878	$	-	$	336

	Three months ended March 31, 2012								March 31, 2012
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)
Commercial loans		5	$	1,988	$	1,988	$	-	$	68
Commercial mortgage loans		9		26,693		23,375		3,318		268
Residential mortgage and equity lines		2		1,587		1,587		-		-
Total		16	$	30,268	$	26,950	$	3,318	$	336

Modifications of the loan terms during the first quarter of 2013 were in the form of changes in the stated interest rate, and in payment terms to interest only from principal and interest, multiple note structure, and shortening of the maturity date.  The length of time for which modifications involving a reduction of the stated interest rate were documented ranged from six months to twelve months from the modification date.  Modifications involving a shortening of the maturity date were for periods up to three years from the modification date, adjusted from longer term original maturity dates of over 25 years. 

We expect that the TDR loans on accruing status as of March 31, 2013, 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 March 31, 2013, and December 31, 2012, is shown below:

	March 31, 2013
Accruing TDRs	Principal  Deferral		Rate Reduction		Rate Reduction and  Payment Deferral		Total
			(In thousands)
Commercial loans	$	491	$	2,994	$	2,797	$	6,282
Real estate construction loans		-		-		5,834		5,834
Commercial mortgage loans		27,565		16,153		67,812		111,530
Residential mortgage loans		1,455		1,604		3,510		6,569
Total accruing TDRs	$	29,511	$	20,751	$	79,953	$	130,215

	March 31, 2013
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	$	-	$	2,425	$	-	$	1,475	$	-	$	3,900
Real estate construction loans		-		16,577		9,449		-		-		26,026
Commercial mortgage loans		1,606		2,777		5,067		-		7,088		16,538
Residential mortgage loans		267		2,146		295		-		706		3,414
Total non-accrual TDRs	$	1,873	$	23,925	$	14,811	$	1,475	$	7,794	$	49,878

	December 31, 2012
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
			(In thousands)
Commercial loans	$	531	$	3,020	$	-	$	413	$	3,964
Real estate construction loans		-		-		-		5,834		5,834
Commercial mortgage loans		27,003		16,656		739		85,783		130,181
Residential mortgage loans		1,461		1,024		-		2,231		4,716
Total accruing TDRs	$	28,995	$	20,700	$	739	$	94,261	$	144,695

	December 31, 2012
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	$	-	$	912	$	-	$	1,518	$	-	$	2,430
Real estate construction loans		-		16,767		9,579		-		-		26,346
Commercial mortgage loans		1,685		2,817		5,746		-		5,076		15,324
Residential mortgage loans		275		2,010		586		-		760		3,631
Total non-accrual TDRs	$	1,960	$	22,506	$	15,911	$	1,518	$	5,836	$	47,731

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

	Three months ended March 31,
Accruing TDRs	2013			2012
	(In thousands)
Beginning balance	$	144,695		$	120,016
New restructurings		4,816			21,712
Restructured loans restored to accrual status		630			2,853
Payments		(17,892	)		(1,348	)
Restructured loans placed on nonaccrual		(2,034	)		-
Ending balance	$	130,215		$	143,233

	Three months ended March 31,
Non-accrual TDRs	2013			2012
	(In thousands)
Beginning balance	$	47,731		$	50,870
New restructurings		2,062			5,238
Restructured loans placed on nonaccrual		2,034			-
Charge-offs		(679	)		(4,018	)
Payments		(640	)		(27,694	)
Restructured loans restored to accrual status		(630	)		(2,853	)
Ending balance	$	49,878		$	21,543

A loan is considered to be in payment default once it is 60 to 90 days contractually past due under the modified terms.  One land loan of $2.0 million and two commercial loans of $111,000 were modified as TDRs within the previous twelve months and subsequently defaulted as of March 31, 2013, for the three months ended March 31, 2013.  Collectively, these three TDRs did not incur any charge-offs within the twelve months ended March 31, 2013.

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 March 31, 2013, 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 March 31, 2013, and as of December 31, 2012:

	March 31, 2013
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,870,832	$	72,872	$	82,957	$	5,128	$	2,031,789
Real estate construction loans		120,395		17,692		37,212		8,768		184,067
Commercial mortgage loans		3,360,744		148,987		249,608		241		3,759,580
Residential mortgage and equity lines		1,358,500		1,915		14,106		401		1,374,922
Installment and other loans		13,982		-		-		-		13,982
Total gross loans	$	6,724,453	$	241,466	$	383,883	$	14,538	$	7,364,340

	December 31, 2012
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,944,989	$	76,776	$	94,077	$	11,265	$	2,127,107
Real estate construction loans		109,269		18,000		45,171		8,510		180,950
Commercial mortgage loans		3,344,783		162,455		261,214		-		3,768,452
Residential mortgage and equity lines		1,322,768		816		16,084		414		1,340,082
Installment and other loans		12,556		-		-		-		12,556
Total gross loans	$	6,734,365	$	258,047	$	416,546	$	20,189	$	7,429,147

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 March 31, 2013, and as of December 31, 2012.

	Commercial Loans		Real Estate Construction Loans		Commercial Mortgage Loans		Residential Mortgage Loans and Equity Lines		Installment and Other Loans		Total
	(In thousands)
March 31, 2013
Loans individually evaluated for impairment
Allowance	$	1,717	$	8,080	$	6,242	$	1,318	$	-	$	17,357
Balance	$	19,474	$	42,071	$	150,750	$	18,249	$	-	$	230,544
Loans collectively evaluated for impairment
Allowance	$	59,339	$	12,617	$	78,574	$	10,773	$	32	$	161,335
Balance	$	2,012,315	$	141,996	$	3,608,830	$	1,356,673	$	13,982	$	7,133,796
Total allowance	$	61,056	$	20,697	$	84,816	$	12,091	$	32	$	178,692
Total balance	$	2,031,789	$	184,067	$	3,759,580	$	1,374,922	$	13,982	$	7,364,340
December 31, 2012
Loans individually evaluated for impairment
Allowance	$	1,467	$	8,158	$	1,336	$	1,222	$	-	$	12,183
Balance	$	23,922	$	42,133	$	165,885	$	16,657	$	-	$	248,597
Loans collectively evaluated for impairment
Allowance	$	64,634	$	14,859	$	81,137	$	10,481	$	28	$	171,139
Balance	$	2,103,185	$	138,817	$	3,602,567	$	1,323,425	$	12,556	$	7,180,550
Total allowance	$	66,101	$	23,017	$	82,473	$	11,703	$	28	$	183,322
Total balance	$	2,127,107	$	180,950	$	3,768,452	$	1,340,082	$	12,556	$	7,429,147

The following table details activity in the allowance for loan losses by portfolio segment for the three  months ended March 31, 2013, and March 31, 2012.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

	Commercial Loans			Real Estate Construction Loans			Commercial Mortgage Loans			Residential Mortgage and Equity Lines			Installment and Other Loans			Total
	(In thousands)
2013 Beginning Balance	$	66,101		$	23,017		$	82,473		$	11,703		$	28		$	183,322
Provision/(credit) for possible credit losses		(3,310	)		(2,399	)		2,968			795			4			(1,942	)
Charge-offs		(2,690	)		-			(990	)		(410	)		-			(4,090	)
Recoveries		955			79			365			3			-			1,402
Net (charge-offs)/recoveries		(1,735	)		79			(625	)		(407	)		-			(2,688	)
March 31, 2013 Ending Balance	$	61,056		$	20,697		$	84,816		$	12,091		$	32		$	178,692
Reserve for impaired loans	$	1,717		$	8,080		$	6,242		$	1,318		$	-		$	17,357
Reserve for non-impaired loans	$	59,339		$	12,617		$	78,574		$	10,773		$	32		$	161,335
Reserve for off-balance sheet credit commitments	$	837		$	311		$	2,122		$	33		$	2		$	3,305
2012 Beginning Balance	$	65,658		$	21,749		$	108,021		$	10,795		$	57		$	206,280
Provision/(credit) for possible credit losses		(1,041	)		(6,439	)		4,318			(260	)		15			(3,407	)
Charge-offs		(4,959	)		(875	)		(8,222	)		(779	)		(25	)		(14,860	)
Recoveries		746			3,557			2,058			366			3			6,730
Net (charge-offs)/recoveries		(4,213	)		2,682			(6,164	)		(413	)		(22	)		(8,130	)
March 31, 2012 Ending Balance	$	60,404		$	17,992		$	106,175		$	10,122		$	50		$	194,743
Reserve for impaired loans	$	1,272		$	-		$	2,529		$	1,806		$	-		$	5,607
Reserve for non-impaired loans	$	59,119		$	17,993		$	103,657		$	8,317		$	50		$	189,136
Reserve for off-balance sheet credit commitments	$	720		$	635		$	84		$	34		$	2		$	1,475