Loans

Most of the Company’s business activities are with customers located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; Las Vegas, Nevada; and Hong Kong. The Company has

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 Company’s Condensed Consolidated Balance Sheets as of

March 31, 2019,

and

December 31, 2018,

were as follows:

	March 31, 2019			December 31, 2018
	(In thousands)

Commercial loans	$	2,736,195		$	2,741,965
Real estate construction loans		567,789			581,454
Commercial mortgage loans		6,888,898			6,724,200
Residential mortgage loans		3,803,692			3,693,853
Equity lines		273,215			249,967
Installment and other loans		7,633			4,349
Gross loans	$	14,277,422		$	13,995,788
Allowance for loan losses		(122,555	)		(122,391	)
Unamortized deferred loan fees, net		(1,549	)		(1,565	)
Total loans, net	$	14,153,318		$	13,871,832

As of

March 31, 2019,

recorded investment in impaired loans totaled

$119.6

million and was comprised of non-accrual loans of

$56.7

million and accruing troubled debt restructured loans (“TDRs”) of

$62.9

million. As of

December 31, 2018,

recorded investment in impaired loans totaled

$106.9

million and was comprised of non-accrual loans of

$41.8

million and accruing TDRs of

$65.1

million. For impaired loans, the amounts previously charged off represent

9.1%

and

9.3%

of the contractual balances for impaired loans as of

March 31, 2019

and

December 31, 2018,

respectively.

The following table presents the average recorded investment and interest income recognized on impaired loans for the periods indicated:

	Three Months Ended March 31,
	2019				2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)

Commercial loans	$	37,936	$	256	$	45,183	$	334
Real estate construction loans		4,815		—		8,137		—
Commercial mortgage loans		59,070		603		58,598		644
Residential mortgage loans and equity lines		13,264		88		13,709		100
Total impaired loans	$	115,085	$	947	$	125,627	$	1,078

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

	March 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	45,590	$	42,220	$	—	$	32,015	$	30,368	$	—
Real estate construction loans		5,776		4,801		—		5,776		4,873		—
Commercial mortgage loans		48,151		38,114		—		34,129		24,409		—
Residential mortgage loans and equity lines		7,122		7,096		—		5,685		5,665		—
Subtotal	$	106,639	$	92,231	$	—	$	77,605	$	65,315	$	—

With allocated allowance
Commercial loans	$	950	$	939	$	498	$	6,653	$	6,570	$	1,837
Commercial mortgage loans		20,289		20,238		667		27,099		27,063		877
Residential mortgage loans and equity lines		7,223		6,223		249		8,934		7,938		1,088
Subtotal	$	28,462	$	27,400	$	1,414	$	42,686	$	41,571	$	3,802
Total impaired loans	$	135,101	$	119,631	$	1,414	$	120,291	$	106,886	$	3,802

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

March 31, 2019,

and as of

December 31, 2018:

	March 31, 2019
	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)

Commercial loans	$	10,618	$	2,093	$	—	$	26,499	$	39,210	$	2,696,985	$	2,736,195
Real estate construction loans		19,823		—		—		4,801		24,624		543,165		567,789
Commercial mortgage loans		24,107		3,324		—		17,940		45,371		6,843,527		6,888,898
Residential mortgage loans and equity lines		12,298		—		—		7,443		19,741		4,057,166		4,076,907
Installment and other loans		—		—		—		—		—		7,633		7,633
Total loans	$	66,846	$	5,417	$	—	$	56,683	$	128,946	$	14,148,476	$	14,277,422

	December 31, 2018
	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)

Commercial loans	$	25,494	$	2,454	$	514	$	18,805	$	47,267	$	2,694,698	$	2,741,965
Real estate construction loans		—		3,156		—		4,872		8,028		573,426		581,454
Commercial mortgage loans		10,797		8,545		3,259		10,611		33,212		6,690,988		6,724,200
Residential mortgage loans and equity lines		9,687		336		—		7,527		17,550		3,926,270		3,943,820
Installment and other loans		—		—		—		—		—		4,349		4,349
Total loans	$	45,978	$	14,491	$	3,773	$	41,815	$	106,057	$	13,889,731	$	13,995,788

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 TDRs since they are considered to be impaired loans. 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.

A 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.

As of

March 31, 2019,

accruing TDRs were

$62.9

million and non-accrual TDRs were

$23.3

million compared to accruing TDRs of

$65.1

million and non-accrual TDRs of

$24.2

million as of

December 31, 2018.

The Company allocated specific reserves of

$1.2

million to accruing TDRs and

$56

thousand to non-accrual TDRs as of

March 31, 2019,

and

$1.5

million to accruing TDRs and

$826

thousand to non-accrual TDRs as of

December 31, 2018.

The following tables present TDRs that were modified during the

three

months ended

March 31, 2019

and

2018,

their specific reserves as of

March 31, 2019

and

2018,

and charge-offs for the

three

ended

March 31, 2019

and

2018:

	Three Months Ended March 31, 2019								March 31, 2019
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)

Commercial loans		1	$	1,948	$	1,622	$	—	$	—
Total		1	$	1,948	$	1,622	$	—	$	—

	Three Months Ended March 31, 2018								March 31, 2018
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)

Commercial loans		3	$	2,463	$	2,463	$	—	$	—
Commercial mortgage loans		6		14,287		14,287		—		134
Residential mortgage loans and equity lines		2		801		801		—		8
Total		11	$	17,551	$	17,551	$	—	$	142

Modifications of the loan terms in the

three

months ended

March 31, 2019

were in the form of extensions of maturity dates, which ranged from

three

twelve

months from the modification date.

We expect that the TDRs on accruing status as of

March 31, 2019,

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, 2019,

and

December 31, 2018,

is shown below:

	March 31, 2019
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	16,660	$	—	$	—	$	16,660
Commercial mortgage loans		13,773		7,391		19,249		40,413
Residential mortgage loans		3,177		324		2,374		5,875
Total accruing TDRs	$	33,610	$	7,715	$	21,623	$	62,948

	March 31, 2019
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	13,148	$	—	$	—	$	13,148
Commercial mortgage loans		3,636		—		4,695		8,331
Residential mortgage loans		1,714		—		108		1,822
Total non-accrual TDRs	$	18,498	$	—	$	4,803	$	23,301

	December 31, 2018
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	18,135	$	—	$	—	$	18,135
Commercial mortgage loans		14,022		7,420		19,418		40,860
Residential mortgage loans		3,353		327		2,396		6,076
Total accruing TDRs	$	35,510	$	7,747	$	21,814	$	65,071

	December 31, 2018
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	13,771	$	—	$	—	$	13,771
Commercial mortgage loans		3,682		—		4,884		8,566
Residential mortgage loans		1,741		—		111		1,852
Total non-accrual TDRs	$	19,194	$	—	$	4,995	$	24,189

The activity within TDRs for the periods indicated is shown below:

	Three Months Ended March 31,
	2019			2018
	(In thousands)
Accruing TDRs
Beginning balance	$	65,071		$	68,566
New restructurings		1,948			17,320
Restructured loans restored to accrual status		—			2,318
Payments		(4,071	)		(3,891	)
Restructured loans placed on non-accrual status		—			(1,528	)
Ending balance	$	62,948		$	82,785

	Three Months Ended March 31,
	2019			2018
	(In thousands)
Non-accrual TDRs
Beginning balance	$	24,189		$	33,415
New restructurings		—			231
Restructured loans placed on non-accrual status		—			1,528
Charge-offs		(407	)		—
Payments		(481	)		(1,661	)
Restructured loans restored to accrual status		—			(2,318	)
Ending balance	$	23,301		$	31,195

The Company considers a loan to be in payment default once it is

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 had subsequently defaulted as of

March 31, 2019.

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, 2019,

there were

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

longer warranted.

The following tables present the loan portfolio by risk rating as of

March 31, 2019,

and as of

December 31, 2018:

	March 31, 2019
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,547,294	$	113,451	$	75,450	$	—	$	2,736,195
Real estate construction loans		518,290		44,699		4,800		—		567,789
Commercial mortgage loans		6,556,203		250,331		82,364		—		6,888,898
Residential mortgage loans and equity lines		4,067,833		770		8,304		—		4,076,907
Installment and other loans		7,633		—		—		—		7,633
Total gross loans	$	13,697,253	$	409,251	$	170,918	$	—	$	14,277,422

	December 31, 2018
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,603,901	$	87,987	$	50,077	$	—	$	2,741,965
Real estate construction loans		514,406		62,175		4,873		—		581,454
Commercial mortgage loans		6,337,368		304,791		82,041		—		6,724,200
Residential mortgage loans and equity lines		3,934,762		—		9,058		—		3,943,820
Installment and other loans		4,349		—		—		—		4,349
Total gross loans	$	13,394,786	$	454,953	$	146,049	$	—	$	13,995,788

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of

March 31, 2019,

and as of

December 31, 2018:

	March 31, 2019
			Real Estate		Commercial		Residential		Installment
	Commercial		Construction		Mortgage		Mortgage Loans		and
	Loans		Loans		Loans		and Equity Lines		Other Loans		Total
	(In thousands)
Loans individually evaluated for impairment
Allowance	$	498	$	—	$	667	$	249	$	—	$	1,414
Balance	$	43,159	$	4,801	$	58,352	$	13,319	$	—	$	119,631
Loans collectively evaluated for impairment
Allowance	$	54,252	$	20,723	$	32,406	$	13,726	$	34	$	121,141
Balance	$	2,693,036	$	562,988	$	6,830,546	$	4,063,588	$	7,633	$	14,157,791
Total allowance	$	54,750	$	20,723	$	33,073	$	13,975	$	34	$	122,555
Total balance	$	2,736,195	$	567,789	$	6,888,898	$	4,076,907	$	7,633	$	14,277,422

	December 31, 2018
			Real Estate		Commercial		Residential		Installment
	Commercial		Construction		Mortgage		Mortgage Loans		and
	Loans		Loans		Loans		and Equity Lines		Other Loans		Total
	(In thousands)
Loans individually evaluated for impairment
Allowance	$	1,837	$	—	$	877	$	1,088	$	—	$	3,802
Balance	$	36,938	$	4,873	$	51,472	$	13,603	$	—	$	106,886
Loans collectively evaluated for impairment
Allowance	$	53,141	$	19,626	$	32,610	$	13,194	$	18	$	118,589
Balance	$	2,705,027	$	576,581	$	6,672,728	$	3,930,217	$	4,349	$	13,888,902
Total allowance	$	54,978	$	19,626	$	33,487	$	14,282	$	18	$	122,391
Total balance	$	2,741,965	$	581,454	$	6,724,200	$	3,943,820	$	4,349	$	13,995,788

The following tables detail activity in the allowance for loan losses by portfolio segment for the

three

months ended

March 31, 2019,

and

March 31, 2018.

Allocation of a portion of the allowance to

one

category of loans does

not

preclude its availability to absorb losses in other categories.

									Residential
				Real Estate		Commercial			Mortgage Loans			Installment
	Commercial			Construction		Mortgage			and			and Other
	Loans			Loans		Loans			Equity Lines			Loans		Total
	(In thousands)

2019 Beginning Balance	$	54,978		$	19,626	$	33,487		$	14,282		$	18	$	122,391
Provision/(reversal) for possible credit losses		962			53		(566	)		(465	)		16		—
Charge-offs		(1,231	)		—		—			—			—		(1,231	)
Recoveries		41			1,044		152			158			—		1,395
Net (charge-offs)/recoveries		(1,190	)		1,044		152			158			—		164
March 31, 2019 Ending Balance	$	54,750		$	20,723	$	33,073		$	13,975		$	34	$	122,555
Reserve for impaired loans	$	498		$	—	$	667		$	249		$	—	$	1,414
Reserve for non-impaired loans	$	54,252		$	20,723	$	32,406		$	13,726		$	34	$	121,141
Reserve for off-balance sheet credit commitments	$	1,759		$	1,668	$	146		$	275		$	2	$	3,850

										Residential
				Real Estate			Commercial			Mortgage Loans		Installment
	Commercial			Construction			Mortgage			and		and Other
	Loans			Loans			Loans			Equity Lines		Loans			Total
	(In thousands)

2018 Beginning Balance	$	49,796		$	24,838		$	37,610		$	11,013	$	22		$	123,279
Provision/(reversal) for possible credit losses		3,907			(3,018	)		(4,163	)		275		(1	)		(3,000	)
Charge-offs		(19	)		—			—			—		—			(19	)
Recoveries		913			44			783			84		—			1,824
Net recoveries		894			44			783			84		—			1,805
March 31, 2018 Ending Balance	$	54,597		$	21,864		$	34,230		$	11,372	$	21		$	122,084
Reserve for impaired loans	$	11		$	—		$	1,145		$	346	$	—		$	1,502
Reserve for non-impaired loans	$	54,586		$	21,864		$	33,085		$	11,026	$	21		$	120,582
Reserve for off-balance sheet credit commitments	$	2,747		$	1,515		$	138		$	182	$	6		$	4,588