. Loans

Most of the Company’s business activity is predominately with Asian customers located in Southern and Northern California; New York City; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; Nevada; 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 Consolidated Balance Sheets as of

December

31,

2016,

and

December

31,

2015,

were as follows:

	As of December 31,
	2016			2015
	(In thousands)
Type of Loans:
Commercial loans	$	2,248,187		$	2,316,863
Real estate construction loans		548,088			441,543
Commercial mortgage loans		5,785,248			5,301,218
Residential mortgage loans		2,444,048			1,932,355
Equity lines		171,711			168,980
Installment and other loans		3,993			2,493
Gross loans		11,201,275			10,163,452
Less:
Allowance for loan losses		(118,966	)		(138,963	)
Unamortized deferred loan fees		(4,994	)		(8,262	)
Total loans and leases, net	$	11,077,315		$	10,016,227
Loans held for sale	$	7,500		$	6,676

The Company pledged real estate loans of

$7.8

billion at

December

31,

2016

, and

$6.8

billion at

December

31,

2015,

to the Federal Home Loan Bank of San Francisco under its blanket lien pledging program. In addition, the Bank pledged

$30.0

million at

December

31,

2016,

and

$71.3

million at

December

31,

2015,

of its commercial loans to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program.

Loans serviced for others as of

December

31,

2016,

totaled

$367.6

million and were comprised of

$133.3

million of residential mortgages,

$112.8

million of commercial real estate loans,

$83.1

million of construction loans, and

$38.4

million of commercial loans.

The Company has entered into transactions with its directors, executive officers, or principal holders of its equity securities, or the associates of such persons (“Related Parties”). All loans to Related Parties were current as of

December

31,

2016.

An analysis of the activity with respect to loans to Related Parties for the years indicated is as follows:

	December 31,
	2016			2015
	(In thousands)
Balance at beginning of year	$	91,620		$	83,812
Additional loans made		62,206			54,975
Payment received		(102,499	)		(47,167	)
Balance at end of year	$	51,327		$	91,620

December

31,

2016,

recorded investment in impaired loans totaled

$115.1

million and was comprised of nonaccrual loans, excluding loans held for sale, of

$49.7

million and accruing TDR’s of

$65.4

million. At

December

31,

2015,

recorded investment in impaired loans totaled

$133.8

million and was comprised of nonaccrual loans, excluding loans held for sale, of

$52.1

million and accruing TDR’s of

$81.7

million. The average balance of impaired loans was

$131.0

million in

2016

and

$162.9

million in

2015.

We considered all non-accrual loans and troubled debt restructurings ("TDR") to be impaired. Interest recognized on impaired loans totaled

$3.5

million in

2016

and

$4.0

million in

2015

. The Bank recognizes interest income on impaired loans based on its existing method of recognizing interest income on non-accrual loans except accruing TDRs.

For impaired loans, the amounts previously charged off represent

8.4%

December

31,

2016,

and

22.4%

December

31,

2015,

of the contractual balances for impaired loans.

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

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

With no allocated allowance
Commercial loans	$	24,037	$	23,121	$	-	$	15,493	$	6,721	$	-
Real estate construction loans		5,776		5,458		-		51,290		22,002		-
Commercial mortgage loans		60,522		54,453		-		59,954		54,625		-
Residential mortgage and equity lines		5,472		5,310		-		3,233		3,026		-
Subtotal	$	95,807	$	88,342	$	-	$	129,970	$	86,374	$	-
With allocated allowance
Commercial loans	$	5,216	$	4,640	$	1,827	$	7,757	$	6,847	$	530
Commercial mortgage loans		10,158		10,017		573		28,258		27,152		6,792
Residential mortgage and equity lines		13,263		12,075		396		14,383		13,437		427
Subtotal	$	28,637	$	26,732	$	2,796	$	50,398	$	47,436	$	7,749
Total impaired loans	$	124,444	$	115,074	$	2,796	$	180,368	$	133,810	$	7,749

The following table presents the average balance and interest income recognized related to impaired loans for the periods indicated:

	For the year ended December 31,
	2016		2015		2014		2016		2015		2014
	Average Recorded Investment						Interest Income Recognized
	(In thousands)
Commercial loans	$	21,199	$	23,960	$	26,128	$	767	$	546	$	878
Real estate construction loans		10,362		22,066		32,439		-		261		264
Commercial mortgage loans		81,905		100,118		114,248		2,214		2,708		3,735
Residential mortgage and equity lines		17,553		16,801		17,411		481		482		462
Subtotal	$	131,019	$	162,945	$	190,226	$	3,462	$	3,997	$	5,339

The following is a summary of non-accrual loans as of

December

31,

2016,

2015,

and

2014

and the related net interest foregone for the years then ended:

	2016		2015		2014
	(In thousands)
Non-accrual portfolio loans	$	49,682	$	52,130	$	70,163
Non-accrual loans held-for-sale		7,500		5,944		973
Total non-accrual loans	$	57,182	$	58,074	$	71,136

Contractual interest due	$	1,573	$	5,732	$	6,663
Interest recognized		95		119		217
Net interest foregone	$	1,478	$	5,613	$	6,446

The following tables present the aging of the loan portfolio by type as of

December

31,

2016,

and

December

31,

2015:

	As of December 31, 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
Type of Loans:	(In thousands)
Commercial loans	$	22,753	$	27,190	$	-	$	15,710	$	65,653	$	2,182,534	$	2,248,187
Real estate construction loans		10,390		5,835		-		5,458		21,683		526,405		548,088
Commercial mortgage loans		5,886		700		-		20,078		26,664		5,758,584		5,785,248
Residential mortgage loans		4,390		-		-		8,436		12,826		2,602,933		2,615,759
Installment and other loans		-		-		-		-				3,993		3,993
Total loans	$	43,419	$	33,725	$	-	$	49,682	$	126,826	$	11,074,449	$	11,201,275

	As of 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
Type of Loans:	(In thousands)
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		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 credit losses for problem 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 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 TDRs since TDRs are considered to be impaired loans.

December

31,

2016,

accruing TDRs were

$65.4

million and non-accrual TDRs were

$29.7

million compared to accruing TDRs of

$81.7

million and non-accrual TDRs of

$39.9

million at

December

31,

2015.

The Company has allocated specific reserves of

$1.3

million to accruing TDRs and

$1.1

million to non-accrual TDRs at

December

31,

2016,

and

$2.0

million to accruing TDRs and

$5.4

million to non-accrual TDRs at

December

31,

2015.

The following table presents TDRs that were modified during

2016,

their specific reserve at

December

31,

2016,

and charge-offs during

2016:

	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve		Charge-offs
	(Dollars in thousands)

Commercial loans		24	$	30,215	$	29,385	$	1,746	$	830
Commercial mortgage loans		4		4,153		4,153		34		-
Residential mortgage and equity lines		2		367		367		-		-
Total		30	$	34,735	$	33,905	$	1,780	$	830

The following table presents TDRs that were modified during

2015,

their specific reserve at

December

31,

2015,

and charge-offs during

2015:

	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve		Charge-offs
	(Dollars in thousands)

Commercial loans		3	$	1,181	$	1,181	$	2	$	-
Commercial mortgage loans		20		17,204		17,204		708		-
Residential mortgage and equity lines		5		1,521		1,374		42		148
Total		28	$	19,906	$	19,759	$	752	$	148

The following table presents TDRs that were modified during

2014,

their specific reserve at

December

31,

2014,

and charge-offs during

2014:

	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve		Charge-off
	(Dollars in thousands)

Commercial loans		4	$	10,539	$	10,539	$	21	$	-
Commercial mortgage loans		3		11,817		11,817		5,550		-
Residential mortgage and equity lines		7		2,715		2,715		29		-
Total		14	$	25,071	$	25,071	$	5,600	$	-

A summary of

TDRs by type of concession and by type of loans as of

December

31,

2016,

and

December

31,

2015,

are shown below:

	December 31, 2016
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total

Commercial loans	$	7,971	$	-	$	4,081	$	12,052
Commercial mortgage loans		25,979		5,961		12,452		44,392
Residential mortgage loans		5,104		789		3,056		8,949
Total accruing TDRs	$	39,054	$	6,750	$	19,589	$	65,393

	December 31, 2016
Non-accrual TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	14,565	$	-	$	-	$	14,565
Commercial mortgage loans		2,510		1,795		10,328		14,633
Residential mortgage loans		356		-		168		524
Total non-accrual TDRs	$	17,431	$	1,795	$	10,496	$	29,722

	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 TDR loans for

2016,

2015,

and

2014

are shown below:

Accruing TDRs	2016			2015			2014
	(In thousands)
Beginning balance	$	81,680		$	104,356		$	117,597
New restructurings		26,965			17,752			23,740
Restructured loans restored to accrual status		10,303			723			962
Charge-offs		(88	)		(104	)		-
Payments		(24,192	)		(30,858	)		(13,256	)
Restructured loans placed on non-accrual		(13,984	)		(10,189	)		(24,687	)
Expiration of loan concession		(15,291	)		-			-
Ending balance	$	65,393		$	81,680		$	104,356

Non-accrual TDRs	2016			2015			2014
	(In thousands)
Beginning balance	$	39,923		$	41,618		$	38,769
New restructurings		6,940			2,006			1,331
Restructured loans placed on non-accrual		13,984			10,189			24,688
Charge-offs		(5,271	)		(3,246	)		(8,938	)
Payments		(15,551	)		(9,921	)		(11,710	)
Foreclosures		-			-			(1,560	)
Restructured loans restored to accrual status		(10,303	)		(723	)		(962	)
Ending balance	$	29,722		$	39,923		$	41,618

A loan is considered to be in payment default once it is

days contractually past due under the modified terms. There were

loans modified as TDRs during the previous

twelve

months that subsequently defaulted as of

December

31,

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

December

31,

2016,

there were

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, t

he Company utilizes a risk grading matrix to assign a risk grade to each loan. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of all sources of repayment, the borrower’s current financial and liquidity status and all other relevant information. 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 the 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 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 loans as an active asset is no longer warranted.

The following tables present loan portfolio by risk rating as of

December

31,

2016,

and as of

December

31,

2015:

	As of December 31, 2016
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,023,114	$	140,682	$	84,293	$	98	$	2,248,187
Real estate construction loans		469,909		44,129		34,050		-		548,088
Commercial mortgage loans		5,410,623		250,221		124,404		-		5,785,248
Residential mortgage and equity lines		2,605,834		-		9,925		-		2,615,759
Installment and other loans		3,993		-		-		-		3,993
Total gross loans	$	10,513,473	$	435,032	$	252,672	$	98	$	11,201,275

Loans held for sale	$	-	$	-	$	7,500	$	-	$	7,500

	As of 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 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

December

31,

2016,

and as of

December

31,

2015.

	Commercial Loans		Real Estate Construction Loans		Commercial Mortgage Loans		Residential Mortgage and Equity Lines		Consumer and Other		Total
	(In thousands)
December 31, 2016
Loans individually evaluated for impairment
Allowance	$	1,827	$	-	$	573	$	396	$	-	$	2,796
Balance	$	27,761	$	5,458	$	64,470	$	17,385	$	-	$	115,074

Loans collectively evaluated for impairment
Allowance	$	47,376	$	23,268	$	34,291	$	11,224	$	11	$	116,170
Balance	$	2,220,426	$	542,630	$	5,720,778	$	2,598,374	$	3,993	$	11,086,201

Total allowance	$	49,203	$	23,268	$	34,864	$	11,620	$	11	$	118,966
Total balance	$	2,248,187	$	548,088	$	5,785,248	$	2,615,759	$	3,993	$	11,201,275

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 table details activity in the allowance for loan losses by portfolio segment for the years ended

December

31,

2016

and

2015.

Allocation of a portion of the allowance to

one

category of loans does not preclude its availability to absorb losses in other categories.

				Real Estate			Commercial			Residential			Installment
	Commercial			Construction			Mortgage			Mortgage			and Other
	Loans			Loans			Loans			and Equity Lines			Loans			Total
	(In thousands)
2015 Beginning Balance	$	47,501		$	27,652		$	74,673		$	11,578		$	16		$	161,420

Provision/(reversal) for loan losses		20,505			(5,684	)		(26,035	)		(179	)		(7	)		(11,400	)

Charge-offs		(16,426	)		-			(3,716	)		(285	)		-			(20,427	)
Recoveries		4,619			202			4,518			31			-			9,370
Net (Charge-offs)/Recoveries		(11,807	)		202			802			(254	)		-			(11,057	)

2015 Ending Balance	$	56,199		$	22,170		$	49,440		$	11,145		$	9		$	138,963
Reserve for impaired loans	$	530		$	-		$	6,792		$	427		$	-		$	7,749
Reserve for non-impaired loans	$	55,669		$	22,170		$	42,648		$	10,718		$	9		$	131,214
Reserve for off-balance sheet credit commitments	$	810		$	526		$	158		$	-		$	-		$	1,494

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

Provision/(reversal) for loan losses		1,815			(6,819	)		(11,123	)		475			2			(15,650	)

Charge-offs		(12,955	)		-			(5,948	)		-			-			(18,903	)
Recoveries		4,144			7,917			2,495			-			-			14,556
Net (Charge-offs)/Recoveries		(8,811	)		7,917			(3,453	)		-			-			(4,347	)

2016 Ending Balance	$	49,203		$	23,268		$	34,864		$	11,620		$	11		$	118,966
Reserve for impaired loans	$	1,827		$	-		$	573		$	396		$	-		$	2,796
Reserve for non-impaired loans	$	47,376		$	23,268		$	34,291		$	11,224		$	11		$	116,170
Reserve for off-balance sheet credit commitments	$	2,091		$	940		$	41		$	146		$	6		$	3,224

An analysis of the activity in the allowance for credit losses for the years ended

December

31,

2016,

2015,

and

2014

is as follows:

	December 31,
	2016			2015			2014
Allowance for Loan Losses	(In thousands)
Balance at beginning of year	$	138,963		$	161,420		$	173,889
Reversal for credit losses		(15,650	)		(11,400	)		(10,800	)
Transfers to reserve for off-balance sheet credit commitments		-			-			(372	)
Loans charged off		(18,903	)		(20,427	)		(22,235	)
Recoveries of charged off loans		14,556			9,370			20,938
Balance at end of year	$	118,966		$	138,963		$	161,420

Reserve for Off-balance Sheet Credit Commitments
Balance at beginning of year	$	1,494		$	1,949		$	1,363
Provision/(reversal) for credit losses and transfers		1,730			(455	)		586
Balance at end of year	$	3,224		$	1,494		$	1,949

Residential mortgage loans in process of formal foreclosure proceedings were

$3.6

million at

December

31,

2016,

compared to

$2.0

million at

December

31,

2015