. 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; Rockville, Maryland; Las Vegas, Nevada, and Hong Kong. The Company has no specific industry concentration, and generally its loans are secured by real property or other collateral of the borrowers. Loans are generally expected to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

The types of loans in the condensed consolidated balance sheets as of September 30, 2016, and December 31, 2015, were as follows:

	September 30, 2016			December 31, 2015
	(in thousands)
Commercial loans	$	2,248,996		$	2,316,863
Residential mortgage loans		2,329,402			1,932,355
Commercial mortgage loans		5,743,991			5,301,218
Real estate construction loans		515,236			441,543
Equity lines		170,022			168,980
Installment & other loans		2,810			2,493
Gross loans	$	11,010,457		$	10,163,452
Allowance for loan losses		(117,942	)		(138,963	)
Unamortized deferred loan fees		(5,519	)		(8,262	)
Total loans, net	$	10,886,996		$	10,016,227
Loans held for sale	$	4,750		$	6,676

As of September 30, 2016, recorded investment in impaired loans totaled $130.9 million and was comprised of non-accrual loans of $44.4 million and accruing troubled debt restructured loans (TDRs) of $86.6 million. As of December 31, 2015, recorded investment in impaired loans totaled $133.8 million and was comprised of non-accrual loans of $52.1 million and accruing TDRs of $81.7 million. For impaired loans, the amounts previously charged off represent 7.7% as of September 30, 2016, and 22.4% as of December 31, 2015, 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				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
	2016		2015		2016		2015		2016		2015		2016		2015
	(In thousands)
Commercial loans	$	28,091	$	23,894	$	18,602	$	24,974	$	170	$	170	$	488	$	519
Real estate construction loans		5,869		22,392		12,005		22,056		66		66		196		196
Commercial mortgage loans		81,005		97,557		86,456		104,508		776		777		2,124		2,126
Residential mortgage loans and equity lines		18,256		16,506		17,456		16,934		148		139		401		380
Total impaired loans	$	133,221	$	160,349	$	134,519	$	168,472	$	1,160	$	1,152	$	3,209	$	3,221

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

	Impaired Loans
	September 30, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	29,794	$	29,414	$	-	$	15,493	$	6,721	$	-
Real estate construction loans		5,776		5,507		-		51,290		22,002		-
Commercial mortgage loans		72,319		64,298		-		59,954		54,625		-
Residential mortgage loans and equity lines		4,832		4,675		-		3,233		3,026		-
Subtotal	$	112,721	$	103,894	$	-	$	129,970	$	86,374	$	-
With allocated allowance
Commercial loans	$	3,315	$	3,217	$	1,320	$	7,757	$	6,847	$	530
Commercial mortgage loans		10,425		10,289		1,248		28,258		27,152		6,792
Residential mortgage loans and equity lines		14,637		13,514		375		14,383		13,437		427
Subtotal	$	28,377	$	27,020	$	2,943	$	50,398	$	47,436	$	7,749
Total impaired loans	$	141,098	$	130,914	$	2,943	$	180,368	$	133,810	$	7,749

The following tables present the aging of the loan portfolio by type as of September 30, 2016, and as of December 31, 2015:

	September 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)

Type of Loans:
Commercial loans	$	45,409	$	6,807	$	-	$	9,251	$	61,467	$	2,187,529	$	2,248,996
Real estate construction loans		-		-		-		5,507		5,507		509,729		515,236
Commercial mortgage loans		12,949		12,205		-		21,077		46,231		5,697,760		5,743,991
Residential mortgage loans and equity lines		-		477		-		8,524		9,001		2,490,423		2,499,424
Installment and other loans		-		-		-		-		-		2,810		2,810
Total loans	$	58,358	$	19,489	$	-	$	44,359	$	122,206	$	10,888,251	$	11,010,457

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)

Type of Loans:
Commercial loans	$	8,367	$	221	$	-	$	3,545	$	12,133	$	2,304,730	$	2,316,863
Real estate construction loans		7,285		-		-		16,306		23,591		417,952		441,543
Commercial mortgage loans		2,243		2,223		-		25,231		29,697		5,271,521		5,301,218
Residential mortgage loans and equity lines		4,959		1,038		-		7,048		13,045		2,088,290		2,101,335
Installment and other loans		-		-		-		-		-		2,493		2,493
Total loans	$	22,854	$	3,482	$	-	$	52,130	$	78,466	$	10,084,986	$	10,163,452

The determination of the amount of the allowance for loan 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 collectability when determining the appropriate level for the allowance for loan losses. The nature of the process by which the Bank determines the appropriate allowance for loan 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 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 it would not otherwise consider. 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.

As of September 30, 2016, accruing TDRs were $86.6 million and non-accrual TDRs were $20.9 million compared to accruing TDRs of $81.7 million and non-accrual TDRs of $39.9 million as of December 31, 2015. The Company allocated specific reserves of $1.3 million to accruing TDRs and $0.3 million to non-accrual TDRs as of September 30, 2016, and $2.0 million to accruing TDRs and $5.4 million to non-accrual TDRs as of December 31, 2015.

The following tables present TDRs that were modified during the three and nine months ended September 30, 2016 and 2015, their specific reserve

s as of September 30, 2016 and 2015 and charge-off

for

the three and nine months ended September 30, 2016 and 2015:

	Three months ended September 30, 2016								September 30, 2016
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		7	$	18,258	$	18,258	$	-	$	208
Commercial mortgage loans		1		738		738		-		-
Total		8	$	18,996	$	18,996	$	-	$	208

	Three months ended September 30, 2015								September 30, 2015
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		2	$	306	$	306	$	-	$	1
Commercial mortgage loans		15		1,918		1,918		-		-
Total		17	$	2,224	$	2,224	$	-	$	1

	Nine months ended September 30, 2016								September 30, 2016
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		11	$	23,102	$	23,102	$	-	$	222
Commercial mortgage loans		1		738		738		-		-
Residential mortgage loans and equity lines		2		367		367		-		-
Total		14	$	24,207	$	24,207	$	-	$	222

	Nine months ended September 30, 2015								September 30, 2015
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		3	$	1,156	$	1,156	$	-	$	1
Commercial mortgage loans		19		16,329		16,329		-		38
Residential mortgage loans and equity lines		5		1,522		1,374		148		45
Total		27	$	19,007	$	18,859	$	148	$	84

Modifications of the loan terms during the first nine months of 2016 were in the form of changes in the stated interest rate, extensions of maturity dates, and/or reductions in monthly payment amounts. The length of time for which modifications involving a reduction of the stated interest rate or changes in payment terms that were documented ranged from three to ten months from the modification date.

We expect that the TDRs on accruing status as of September 30, 2016, 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, 2016, and December 31, 2015, is shown below:

	September 30, 2016
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	22,019	$	-	$	1,360	$	23,379
Commercial mortgage loans		26,835		5,986		20,690		53,511
Residential mortgage loans		5,048		989		3,628		9,665
Total accruing TDRs	$	53,902	$	6,975	$	25,678	$	86,555

	September 30, 2016


Non-accrual TDRs	Payment Deferral		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	3,477	$	90	$	3,567
Commercial mortgage loans		1,508		15,260		16,768
Residential mortgage loans		364		171		535
Total non-accrual TDRs	$	5,349	$	15,521	$	20,870

	December 31, 2015


Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	8,298	$	-	$	1,726	$	10,024
Real estate construction loans		-		-		5,696		5,696
Commercial mortgage loans		16,701		6,045		33,800		56,546
Residential mortgage loans		5,201		999		3,214		9,414
Total accruing TDRs	$	30,200	$	7,044	$	44,436	$	81,680

	December 31, 2015


Non-accrual TDRs	Payment Deferral		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	1,033	$	90	$	1,123
Real estate construction loans		9,981		5,825		15,806
Commercial mortgage loans		1,544		20,362		21,906
Residential mortgage loans		388		700		1,088
Total non-accrual TDRs	$	12,946	$	26,977	$	39,923

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

	Three months ended September 30,						Nine months ended September 30,
Accruing TDRs	2016			2015			2016			2015
	(In thousands)
Beginning balance	$	74,708		$	100,011		$	81,680		$	104,355
New restructurings		18,347			427			20,412			16,853
Restructured loans restored to accrual status		-			723			10,303			723
Charge-offs		-			-			-			(148	)
Payments		(6,500	)		(11,280	)		(9,816	)		(21,714	)
Restructured loans placed on non-accrual status		-			-			(1,138	)		(10,188	)
Expiration of loan concession upon renewal		-			-			(14,886	)		-
Ending balance	$	86,555		$	89,881		$	86,555		$	89,881

	Three months ended September 30,						Nine months ended September 30,
Non-accrual TDRs	2016			2015			2016			2015
	(In thousands)
Beginning balance	$	25,442		$	42,595		$	39,923		$	41,618
New restructurings		649			1,796			3,794			2,006
Restructured loans placed on non-accrual status		-			-			1,138			10,188
Charge-offs		(3,407	)		(3	)		(4,352	)		(3,246	)
Payments		(1,814	)		(1,859	)		(9,330	)		(8,037	)
Restructured loans restored to accrual status		-			(723	)		(10,303	)		(723	)
Ending balance	$	20,870		$	41,806		$	20,870		$	41,806

A loan is considered to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company did not have any loans that were modified as a TDR during the previous twelve months and which subsequently defaulted as of September 30, 2016.

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, 2016, there were no commitments to lend additional funds to those borrowers whose loans had 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 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 tables present the loan portfolio by risk rating as of September 30, 2016, and as of December 31, 2015:

	September 30, 2016
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,027,815	$	133,858	$	86,806	$	517	$	2,248,996
Real estate construction loans		489,473		20,256		5,507		-		515,236
Commercial mortgage loans		5,391,701		219,081		133,209		-		5,743,991
Residential mortgage loans and equity lines		2,488,495		391		10,538		-		2,499,424
Installment and other loans		2,810		-		-		-		2,810
Total gross loans	$	10,400,294	$	373,586	$	236,060	$	517	$	11,010,457

Loans held for sale	$	-	$	-	$	-	$	4,750	$	4,750

	December 31, 2015
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,143,270	$	110,338	$	61,297	$	1,958	$	2,316,863
Real estate construction loans		413,765		5,776		21,502		500		441,543
Commercial mortgage loans		5,018,199		155,553		118,196		9,270		5,301,218
Residential mortgage loans and equity lines		2,091,434		399		9,502		-		2,101,335
Installment and other loans		2,493		-		-		-		2,493
Total gross loans	$	9,669,161	$	272,066	$	210,497	$	11,728	$	10,163,452

Loans held for sale	$	732	$	-	$	5,944	$	-	$	6,676

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, 2016, and as of December 31, 2015:

	Commercial Loans		Real Estate Construction Loans		Commercial Mortgage Loans		Residential Mortgage Loans and Equity Lines		Installment and Other Loans		Total
	(In thousands)
September 30, 2016
Loans individually evaluated for impairment
Allowance	$	1,320	$	-	$	1,248	$	375	$	-	$	2,943
Balance	$	32,631	$	5,507	$	74,587	$	18,189	$	-	$	130,914

Loans collectively evaluated for impairment
Allowance	$	52,379	$	9,245	$	43,685	$	9,682	$	8	$	114,999
Balance	$	2,216,365	$	509,729	$	5,669,404	$	2,481,235	$	2,810	$	10,879,543

Total allowance	$	53,699	$	9,245	$	44,933	$	10,057	$	8	$	117,942
Total balance	$	2,248,996	$	515,236	$	5,743,991	$	2,499,424	$	2,810	$	11,010,457

December 31, 2015
Loans individually evaluated for impairment
Allowance	$	530	$	-	$	6,792	$	427	$	-	$	7,749
Balance	$	13,568	$	22,002	$	81,776	$	16,464	$	-	$	133,810

Loans collectively evaluated for impairment
Allowance	$	55,669	$	22,170	$	42,648	$	10,718	$	9	$	131,214
Balance	$	2,303,295	$	419,541	$	5,219,442	$	2,084,871	$	2,493	$	10,029,642

Total allowance	$	56,199	$	22,170	$	49,440	$	11,145	$	9	$	138,963
Total balance	$	2,316,863	$	441,543	$	5,301,218	$	2,101,335	$	2,493	$	10,163,452

The following tables detail activity in the allowance for loan losses by portfolio segment for the three months and nine months ended September 30, 2016, and September 30, 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended September 30, 2016 and 2015
				Real Estate			Commercial			Residential			Installment
	Commercial			Construction			Mortgage			Mortgage Loans			and Other
	Loans			Loans			Loans			and Equity Lines			Loans			Total
	(In thousands)

June 30, 2016 Ending Balance	$	50,590		$	10,753		$	46,090		$	15,503		$	12			122,948
Provision/(credit) for possible credit losses		4,380			(2,056	)		3,132			(5,452	)		(4	)		-
Charge-offs		(3,277	)		-			(4,626	)		-			-			(7,903	)
Recoveries		2,006			548			337			6			-			2,897
Net (charge-offs)/recoveries		(1,271	)		548			(4,289	)		6			-			(5,006	)
September 30, 2016 Ending Balance	$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942

June 30, 2015 Ending Balance	$	47,540		$	26,304		$	67,245		$	12,323		$	25		$	153,437
Provision/(credit) for possible credit losses		10,040			121			(11,762	)		353			(2	)		(1,250	)
Charge-offs		(3,310	)		-			(97	)		-			-			(3,407	)
Recoveries		607			41			647			1			-			1,296
Net (charge-offs)/recoveries		(2,703	)		41			550			1			-			(2,111	)
September 30, 2015 Ending Balance	$	54,877		$	26,466		$	56,033		$	12,677		$	23		$	150,076

Nine months ended September 30, 2016 and 2015
				Real Estate			Commercial			Residential			Installment
	Commercial			Construction			Mortgage			Mortgage Loans			and Other
	Loans			Loans			Loans			and Equity Lines			Loans			Total
	(In thousands)

2016 Beginning Balance	$	56,199		$	22,170		$	49,440		$	11,145		$	9		$	138,963

Provision/(credit) for possible credit losses		5,815			(20,796	)		295			(963	)		(1	)		(15,650	)

Charge-offs		(12,035	)		-			(5,681	)		(149	)		-			(17,865	)
Recoveries		3,720			7,871			879			24						12,494
Net (charge-offs)/recoveries		(8,315	)		7,871			(4,802	)		(125	)		-			(5,371	)

September 30, 2016 Ending Balance	$	53,699		$	9,245		$	44,933		$	10,057		$	8		$	117,942
Reserve for impaired loans	$	1,320		$	-		$	1,248		$	375		$	-		$	2,943
Reserve for non-impaired loans	$	52,379		$	9,245		$	43,685		$	9,682		$	8		$	114,999
Reserve for off-balance sheet credit commitments	$	2,112		$	-		$	35		$	80		$	2		$	2,229

2015 Beginning Balance	$	47,501		$	27,652		$	74,673		$	11,578		$	16		$	161,420

Provision/(credit) for possible credit losses		11,045			(1,349	)		(19,342	)		1,239			7			(8,400	)

Charge-offs		(6,754	)		-			(3,613	)		(161	)		-			(10,528	)
Recoveries		3,085			163			4,315			21			-			7,584
Net (charge-offs)/recoveries		(3,669	)		163			702			(140	)		-			(2,944	)

September 30, 2015 Ending Balance	$	54,877		$	26,466		$	56,033		$	12,677		$	23		$	150,076
Reserve for impaired loans	$	7,561		$	-		$	6,389		$	373		$	-		$	14,323
Reserve for non-impaired loans	$	47,316		$	26,466		$	49,644		$	12,304		$	23		$	135,753
Reserve for off-balance sheet credit commitments	$	703		$	477		$	202		$	37		$	1		$	1,420