. 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

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, 2017,

and

December 31, 2016,

were as follows:

	201 7			201 6
	(In thousands )
Type of Loans :
Commercial loans	$	2,461,266		$	2,248,187
Real estate construction loans		678,805			548,088
Commercial mortgage loans		6,482,695			5,785,248
Residential mortgage loans		3,062,050			2,444,048
Equity lines		180,304			171,711
Installment and other loans		5,170			3,993
Gross loans		12,870,290			11,201,275
Less :
Allowance for loan losses		(123,279	)		(118,966	)
Unamortized deferred loan fees		(3,245	)		(4,994	)
Total loans and leases, net	$	12,743,766		$	11,077,315
Loans held for sale	$	8,000		$	7,500

he Company pledged real estate loans of

$8.4

billion at

December 31, 2017

, and

$7.8

billion at

December 31, 2016,

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

$36.1

million at

December 31, 2017,

and

$30.0

million at

December 31, 2016,

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

Loans serviced fo

r others as of

December 31, 2017

, totaled

$384.3

million and were comprised of

$116.9

million of residential mortgages,

$87.7

million of commercial real estate loans,

$138.3

million of construction loans, and

$41.4

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, 2017.

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

	December 31 ,
	201 7			201 6
	(In thousands )
Balance at beginning of year	$	51,327		$	91,620
Additional loans made		53,584			62,206
Payment received		(38,318	)		(102,499	)
Balance at end of year	$	66,593		$	51,327

December 31,

2017,

recorded investment in impaired loans totaled

$117.4

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

$48.8

million and accruing TDR’s of

$68.6

million. At

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. The average balance of impaired loans was

$127.1

million in

2017

and

$131.0

million in

2016.

We considered all non-accrual loans and TDRs to be impaired. Interest recognized on impaired loans totaled

$3.3

million in

2017

and

$3.5

million in

2016

. 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

7.2%

and

.4%

of the contractual balances for impaired loans at

December 31, 2017

and

2016,

respectively.

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

	Impaired Loan s
	As of December 31, 201 7						As of December 31, 201 6
	Unpaid Principal Balanc e		Recorded Investment		Allowance		Unpaid Principal Balanc e		Recorded Investment		Allowance
	(In thousands )

With no allocated allowanc e
Commercial loans	$	43,483	$	42,702	$	-	$	24,037	$	23,121	$	-
Real estate construction loans		8,821		8,185		-		5,776		5,458		-
Commercial mortgage loans		37,825		31,029		-		60,522		54,453		-
Residential mortgage and equity lines		1,301		1,301		-		5,472		5,310		-
Subtotal	$	91,430	$	83,217	$	-	$	95,807	$	88,342	$	-
With allocated allowanc e
Commercial loans	$	891	$	793	$	43	$	5,216	$	4,640	$	1,827
Commercial mortgage loans		21,733		21,635		1,738		10,158		10,017		573
Residential mortgage and equity lines		13,022		11,708		353		13,263		12,075		396
Subtotal	$	35,646	$	34,136	$	2,134	$	28,637	$	26,732	$	2,796
Total impaired loans	$	127,076	$	117,353	$	2,134	$	124,444	$	115,074	$	2,796

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

s indicated:

	For the year ended December 31 ,
	201 7		201 6		201 5		201 7		201 6		201 5
	Average Recorded Investment						Interest Income Recognized
	(In thousands )
Commercial loans	$	26,957	$	21,199	$	23,960	$	1,303	$	767	$	546
Real estate construction loans		26,695		10,362		22,066		-		-		261
Commercial mortgage loans		58,635		81,905		100,118		1,618		2,214		2,708
Residential mortgage and equity lines		14,780		17,553		16,801		381		481		482
Subtotal	$	127,067	$	131,019	$	162,945	$	3,302	$	3,462	$	3,997

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

December 31,

2017,

2016,

and

2015

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

	201 7		201 6		201 5
	(In thousands )
Non-accrual portfolio loans	$	48,787	$	49,682	$	52,130
Non-accrual loans held-for-sale		8,000		7,500		5,944
Total non-accrual loans	$	56,787	$	57,182	$	58,074

Contractual interest due	$	3,254	$	1,573	$	5,732
Interest recognized		86		95		119
Net interest foregone	$	3,168	$	1,478	$	5,613

The following table

s present the aging of the loan portfolio by type as of

December 31, 2017,

and

December 31, 2016:

	As of December 31, 201 7

	30-59 Days Past Du e		60-89 Days Past Du e		90 Days or More Past Du e		Non-accrual Loan s		Total Past Du e		Loans Not Past Du e		Tota l
Type of Loans :	(In thousands )
Commercial loans	$	11,079	$	5,192	$	-	$	14,296	$	30,567	$	2,430,699	$	2,461,266
Real estate construction loans		3,028		-		-		8,185		11,213		667,592		678,805
Commercial mortgage loans		17,573		5,602		-		19,820		42,995		6,439,700		6,482,695
Residential mortgage loans		6,613		732		-		6,486		13,831		3,228,523		3,242,354
Installment and other loans		103		-		-		-		103		5,067		5,170
Total loans	$	38,396	$	11,526	$	-	$	48,787	$	98,709	$	12,771,581	$	12,870,290

	As of December 31, 201 6

	30-59 Days Past Du e		60-89 Days Past Du e		90 Days or More Past Du e		Non-accrual Loan s		Total Past Du e		Loans Not Past Du e		Tota l
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

The determination o

f 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,

2017,

accruing TDRs were

$68.6

million and non-accrual TDRs were

$33.4

million compared to accruing TDRs of

$65.4

million and non-accrual TDRs of

$29.7

million at

December 31, 2016.

The Company has allocated specific reserves of

$1.9

million to accruing TDRs and

$83

,000

to non-accrual TDRs at

December 31, 2017,

and

$1.3

million to accruing TDRs and

$1.1

million to non-accrual TDRs at

December 31, 2016.

The following table presents TDRs that were modified during

2017,

their specific reserve at

December 31, 2017,

and charge-offs during

2017:

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

Commercial loans		16	$	29,590	$	29,590	$	7	$	-
Real estate construction loans		2		27,683		27,683		-		-
Commercial mortgage loans		9		19,380		19,075		1,496		305
Residential mortgage and equity lines		4		1,088		1,088		53		-
Total		31	$	77,741	$	77,436	$	1,556	$	305

The following table presents TDRs that were modified during

201

their specific reserve at

December 31, 2016,

and charge-offs during

2016:

	No. of Contract s		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

201

their specific reserve at

December 31, 2015,

and charge-offs during

2015:

	No. of Contract s		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve		Charge-off
	(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		1,522		1,374		42		148
Total		28	$	19,907	$	19,759	$	752	$	148

A summary of

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

December 31, 2017

, and

December 31, 2016

, are shown below:

	December 31, 201 7
Accruing TDR s	Payment Deferra l		Rate Reductio n		Rate Reduction and Payment Deferra l		Tota l
	(In thousands )
Commercial loans	$	29,199	$	-	$	-	$	29,199
Commercial mortgage loans		11,504		5,871		15,468		32,843
Residential mortgage loans		3,416		335		2,772		6,523
Total accruing TDRs	$	44,119	$	6,206	$	18,240	$	68,565

	December 31, 201 7

Non-accrual TDR s	Payment Deferra l		Rate Reductio n		Rate Reduction and Payment Deferra l		Tota l
	(In thousands )
Commercial loans	$	12,944	$	-	$	-	$	12,944
Commercial mortgage loans		6,231		1,677		11,113		19,021
Residential mortgage loans		1,297		-		154		1,451
Total non-accrual TDRs	$	20,472	$	1,677	$	11,267	$	33,416

	December 31, 201 6

Accruing TDR s	Payment Deferra l		Rate Reductio n		Rate Reduction and Payment Deferra l		Tota l
	(In thousands )
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, 201 6

Non-accrual TDR s	Payment Deferra l		Rate Reductio n		Rate Reduction and Payment Deferra l		Tota l
	(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

The activity within our TDR loans for

2017,

2016,

and

2015

are shown below:

Accruing TDR s	201 7			201 6			201 5
	(In thousands )
Beginning balance	$	65,393		$	81,680		$	104,356
New restructurings		73,426			26,965			17,752
Restructured loans restored to accrual status		-			10,303			723
Charge-offs		-			(88	)		(104	)
Payments		(54,095	)		(24,192	)		(30,858	)
Restructured loans placed on non-accrual		(13,919	)		(13,984	)		(10,189	)
Expiration of loan concession		(2,240	)		(15,291	)		-
Ending balance	$	68,565		$	65,393		$	81,680

Non-accrual TDRs	201 7			201 6			201 5
	(In thousands )
Beginning balance	$	29,722		$	39,923		$	41,618
New restructurings		4,009			6,940			2,006
Restructured loans placed on non-accrual		13,919			13,984			10,189
Charge-offs		(1,650	)		(5,271	)		(3,246	)
Payments		(11,341	)		(15,551	)		(9,921	)
Foreclosures		(1,243	)		-			-
Restructured loans restored to accrual status		-			(10,303	)		(723	)
Ending balance	$	33,416		$	29,722		$	39,923

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

days contractually past due under the modified terms.

One commercial real estate loan of

$582,000

which was modified as TDRs during the previous

twelve

months that subsequently defaulted as of

December 31, 2017

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, 2017,

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

longer warranted.

The following table

s present loan portfolio by risk rating as of

December 31, 2017,

and as of

December 31, 2016:

	As of December 31, 201 7
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,281,698	$	118,056	$	61,503	$	9	$	2,461,266
Real estate construction loans		616,411		54,209		8,185		-		678,805
Commercial mortgage loans		6,004,258		308,924		169,513		-		6,482,695
Residential mortgage and equity lines		3,232,606		-		9,748		-		3,242,354
Installment and other loans		5,170		-		-		-		5,170
Total gross loans	$	12,140,143	$	481,189	$	248,949	$	9	$	12,870,290

Loans held for sale	$	-	$	-	$	8,000	$	-	$	8,000

	As of December 31, 201 6
	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

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, 2017,

and as of

December 31, 2016

			Real Estat e		Commercia l		Residentia l
	Commercia l		Constructio n		Mortgag e		Mortgag e		Consume r
	Loan s		Loan s		Loan s		and Equity Line s		and Othe r		Tota l
	(In thousands )
December 31, 201 7
Loans individually evaluated for impairmen t
Allowance	$	43	$	-	$	1,738	$	353	$	-	$	2,134
Balance	$	43,495	$	8,185	$	52,664	$	13,009	$	-	$	117,353

Loans collectively evaluated for impairmen t
Allowance	$	49,753	$	24,838	$	35,872	$	10,660	$	22	$	121,145
Balance	$	2,417,771	$	670,620	$	6,430,031	$	3,229,345	$	5,170	$	12,752,937

Total allowance	$	49,796	$	24,838	$	37,610	$	11,013	$	22	$	123,279
Total balance	$	2,461,266	$	678,805	$	6,482,695	$	3,242,354	$	5,170	$	12,870,290

December 31, 201 6
Loans individually evaluated for impairmen t
Allowance	$	1,827	$	-	$	573	$	396	$	-	$	2,796
Balance	$	27,761	$	5,458	$	64,470	$	17,385	$	-	$	115,074

Loans collectively evaluated for impairmen t
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

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

December 31,

201

and

2016.

Allocation of a portion of the allowance to

one

category of loans does

not

preclude its availability to absorb losses in other categories.

				Real Estat e			Commercia l			Residentia l			Installment
	Commercia l			Constructio n			Mortgag e			Mortgag e			and Othe r
	Loan s			Loan s			Loan s			and Equity Line s			Loan s		Tota l
	(In thousands )
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

2017 Beginning Balance	$	49,203		$	23,268		$	34,864		$	11,620		$	11	$	118,966

Provision/(reversal) for loan losses		117			955			(2,778	)		(798	)		4		(2,500	)

Charge-offs		(3,313	)		-			(860	)		-			-		(4,173	)
Recoveries		3,402			229			7,329			19			7		10,986
Net (Charge-offs)/Recoveries		89			229			6,469			19			7		6,813

2017 Ending Balance	$	49,796		$	24,838		$	37,610		$	11,013		$	22	$	123,279
Reserve for impaired loans	$	43		$	-		$	1,738		$	353		$	-	$	2,134
Reserve for non-impaired loans	$	49,753		$	24,838		$	35,872		$	10,660		$	22	$	121,145
Reserve for off-balance sheet credit commitments	$	2,919		$	1,360		$	114		$	190		$	5	$	4,588

An analysis of the activity in the allowance for

credit losses for the years ended

December 31, 2017,

2016,

and

2015

is as follows:

	For the year ended December 31 ,
	201 7			201 6			201 5
Allowance for Loan Losses	(In thousands )
Balance at beginning of year	$	118,966		$	138,963		$	161,420
Reversal for credit losses		(2,500	)		(15,650	)		(11,400	)
Loans charged off		(4,173	)		(18,903	)		(20,427	)
Recoveries of charged off loans		10,986			14,556			9,370
Balance at end of year	$	123,279		$	118,966		$	138,963

Reserve for Off-balance Sheet Credit Commitment s
Balance at beginning of year	$	3,224		$	1,494		$	1,949
Provision/(reversal) for credit losses and transfers		1,364			1,730			(455	)
Balance at end of year	$	4,588		$	3,224		$	1,494

Residential mortgage loans in process of formal f

oreclosure proceedings were

$3.5

million at

December 31, 2017,

compared to

$3.6

million at

December 31, 2016