Note 8 - Loans

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8.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; and Las Vegas, Nevada. The Company also has loan customers in Hong Kong. The Company has no specific industry concentration, and generally its loans are secured by real property or other collateral of the borrowers. The Company generally expects loans 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 September 30, 2019, and December 31, 2018, were as follows:

	September 30, 2019			December 31, 2018
	(In thousands)
Commercial loans	$	2,668,061		$	2,741,965
Residential mortgage loans		4,010,739			3,693,853
Commercial mortgage loans		7,135,599			6,724,200
Equity lines		315,252			249,967
Real estate construction loans		593,816			581,454
Installment and other loans		5,087			4,349
Gross loans	$	14,728,554		$	13,995,788
Allowance for loan losses		(125,908	)		(122,391	)
Unamortized deferred loan fees, net		(1,081	)		(1,565	)
Total loans, net	$	14,601,565		$	13,871,832
Loans held for sale	$	36,778		$	—

As of September 30, 2019, recorded investment in impaired loans totaled $88.8 million and was comprised of non-accrual loans of $47.2 million and accruing troubled debt restructured loans (“TDRs”) of $41.6 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 1.9% and 9.3% of the contractual balances for impaired loans as of September 30, 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 September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	38,659	$	208	$	48,772	$	461	$	41,132	$	705	$	46,920	$	1,152
Real estate construction loans		4,662		—		5,980		—		4,734		—		7,490		—
Commercial mortgage loans		40,699		332		55,375		576		51,323		1,034		59,314		1,757
Residential mortgage loans and equity lines		13,133		78		13,724		108		13,126		237		14,032		279
Total impaired loans	$	97,153	$	618	$	123,851	$	1,145	$	110,315	$	1,976	$	127,756	$	3,188

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

	September 30, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	24,711	$	20,492	$	—	$	32,015	$	30,368	$	—
Real estate construction loans		5,776		4,629		—		5,776		4,873		—
Commercial mortgage loans		11,663		11,517		—		34,129		24,409		—
Residential mortgage loans and equity lines		6,808		6,770		—		5,685		5,665		—
Subtotal	$	48,958	$	43,408	$	—	$	77,605	$	65,315	$	—
With allocated allowance
Commercial loans	$	13,251	$	13,234	$	744	$	6,653	$	6,570	$	1,837
Commercial mortgage loans		26,356		26,288		536		27,099		27,063		877
Residential mortgage loans and equity lines		7,011		5,917		221		8,934		7,938		1,088
Subtotal	$	46,618	$	45,439	$	1,501	$	42,686	$	41,571	$	3,802
Total impaired loans	$	95,576	$	88,847	$	1,501	$	120,291	$	106,886	$	3,802

The following tables present the aging of the loan portfolio by type as of September 30, 2019, and as of December 31, 2018:

	September 30, 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	$	29,905	$	8,736	$	—	$	22,970	$	61,611	$	2,606,450	$	2,668,061
Real estate construction loans		—		—		—		4,629		4,629		589,187		593,816
Commercial mortgage loans		2,926		3,687		683		12,330		19,626		7,115,973		7,135,599
Residential mortgage loans and equity lines		286		—		—		7,271		7,557		4,318,434		4,325,991
Installment and other loans		—		—		—		—		—		5,087		5,087
Total loans	$	33,117	$	12,423	$	683	$	47,200	$	93,423	$	14,635,131	$	14,728,554

	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, market 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 September 30, 2019, accruing TDRs were $41.6 million and non-accrual TDRs were $19.8 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 $141 thousand to non-accrual TDRs as of September 30, 2019, and $1.5 million to accruing TDRs and $826 thousand to non-accrual TDRs as of December 31, 2018. The following tables set forth TDRs that were modified during the three and nine months ended September 30, 2019 and 2018, their specific reserves as of September 30, 2019 and 2018, and charge-offs for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019								September 30, 2019
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		3	$	7,585	$	6,165	$	—	$	89
Total		3	$	7,585	$	6,165	$	—	$	89

	Three Months Ended September 30, 2018								September 30, 2018
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		3	$	4,621	$	4,621	$	—	$	2,467
Commercial mortgage loans		1		339		339		—		—
Residential mortgage loans and equity lines		2		413		413		—		16
Total		6	$	5,373	$	5,373	$	—	$	2,483

	Nine Months Ended September 30, 2019								September 30, 2019
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		23	$	25,937	$	10,814	$	—	$	125
Total		23	$	25,937	$	10,814	$	—	$	125

	Nine Months Ended September 30, 2018								September 30, 2018
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		21	$	12,212	$	12,212	$	—	$	2,493
Commercial mortgage loans		7		14,626		14,626		—		119
Residential mortgage loans and equity lines		4		1,213		1,213		—		24
Total		32	$	28,051	$	28,051	$	—	$	2,636

Modifications of the loan terms in the nine months ended September 30, 2019 were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date. 

We expect that the TDRs on accruing status as of September 30, 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 September 30, 2019, and December 31, 2018, is set forth in the table below:

	September 30, 2019
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	10,756	$	—	$	—	$	10,756
Commercial mortgage loans		782		5,757		18,936		25,475
Residential mortgage loans		2,931		319		2,166		5,416
Total accruing TDRs	$	14,469	$	6,076	$	21,102	$	41,647

	September 30, 2019
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	18,057	$	—	$	—	$	18,057
Residential mortgage loans		1,629		—		101		1,730
Total non-accrual TDRs	$	19,686	$	—	$	101	$	19,787

	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 set forth below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Accruing TDRs
Beginning balance	$	64,898		$	84,487		$	65,071		$	68,566
New restructurings		240			2,589			15,432			25,036
Restructured loans restored to accrual status		—			577			—			2,895
Charge-offs		(1,341	)		—			(1,341	)		—
Payments		(22,150	)		(13,055	)		(36,219	)		(19,801	)
Restructured loans placed on non-accrual status		—			—			(1,296	)		(2,098	)
Ending balance	$	41,647		$	74,598		$	41,647		$	74,598

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Non-accrual TDRs
Beginning balance	$	22,457		$	30,347		$	24,189		$	33,415
New restructurings		7,345			2,784			10,505			3,015
Restructured loans placed on non-accrual status		—			—			1,296			2,098
Charge-offs		(2,389	)		—			(3,607	)		(161	)
Payments		(7,626	)		(4,836	)		(12,596	)		(7,754	)
Restructured loans restored to accrual status		—			(577	)		—			(2,895	)
Ending balance	$	19,787		$	27,718		$	19,787		$	27,718

The Company considers a loan 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 had subsequently defaulted as of September 30, 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 September 30, 2019, 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 set forth the loan portfolio by risk rating as of September 30, 2019 and December 31, 2018:

	September 30, 2019
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,432,623	$	151,265	$	84,173	$	—	$	2,668,061
Real estate construction loans		514,725		74,462		4,629		—		593,816
Commercial mortgage loans		6,824,241		233,155		78,203		—		7,135,599
Residential mortgage loans and equity lines		4,317,793		927		7,271		—		4,325,991
Installment and other loans		5,087		—		—		—		5,087
Total gross loans	$	14,094,469	$	459,809	$	174,276	$	—	$	14,728,554

	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 tables set forth the balance in the allowance for loan losses by portfolio segment and based on impairment method as of September 30, 2019 and December 31, 2018:

	September 30, 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	$	744	$	—	$	536	$	221	$	—	$	1,501
Balance	$	33,726	$	4,629	$	37,805	$	12,687	$	—	$	88,847
Loans collectively evaluated for impairment
Allowance	$	57,805	$	21,698	$	32,931	$	11,948	$	25	$	124,407
Balance	$	2,634,335	$	589,187	$	7,097,794	$	4,313,304	$	5,087	$	14,639,707
Total allowance	$	58,549	$	21,698	$	33,467	$	12,169	$	25	$	125,908
Total balance	$	2,668,061	$	593,816	$	7,135,599	$	4,325,991	$	5,087	$	14,728,554

	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	$	36,940	$	4,873	$	51,471	$	13,602	$	—	$	106,886
Loans collectively evaluated for impairment
Allowance	$	53,141	$	19,626	$	32,610	$	13,194	$	18	$	118,589
Balance	$	2,705,025	$	576,581	$	6,672,729	$	3,930,218	$	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 set forth activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2019, and September 30, 2018. 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, 2019 and 2018

										Residential
				Real Estate			Commercial			Mortgage Loans			Installment
	Commercial			Construction			Mortgage			and			and Other
	Loans			Loans			Loans			Equity Lines			Loans			Total
	(In thousands)
June 30, 2019 Ending Balance	$	54,293		$	21,010		$	33,154		$	14,164		$	30		$	122,651
Provision/(reversal) for possible credit losses		7,400			(2,690	)		(4,648	)		(2,057	)		(5	)		(2,000	)
Charge-offs		(3,356	)		—			—			—			—			(3,356	)
Recoveries		212			3,378			4,961			62			—			8,613
Net (charge-offs)/recoveries		(3,144	)		3,378			4,961			62			—			5,257
September 30, 2019 Ending Balance	$	58,549		$	21,698		$	33,467		$	12,169		$	25		$	125,908

									Residential
				Real Estate		Commercial			Mortgage Loans		Installment
	Commercial			Construction		Mortgage			and		and Other
	Loans			Loans		Loans			Equity Lines		Loans		Total
	(In thousands)
June 30, 2018 Ending Balance	$	55,179		$	20,663	$	33,976		$	12,062	$	19	$	121,899
Provision/(reversal) for possible credit losses		1,270			519		(4,138	)		842		7		(1,500	)
Charge-offs		(122	)		—		—			—		—		(122	)
Recoveries		187			44		2,944			5		—		3,180
Net recoveries		65			44		2,944			5		—		3,058
September 30, 2018 Ending Balance	$	56,514		$	21,226	$	32,782		$	12,909	$	26	$	123,457

Nine months ended September 30, 2019 and 2018

										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		8,262			(2,540	)		(5,234	)		(2,495	)		7		(2,000	)
Charge-offs		(6,300	)		—			—			—			—		(6,300	)
Recoveries		1,609			4,612			5,214			382			—		11,817
Net (charge-offs)/recoveries		(4,691	)		4,612			5,214			382			—		5,517
September 30, 2019 Ending Balance	$	58,549		$	21,698		$	33,467		$	12,169		$	25	$	125,908
Reserve for impaired loans	$	744		$	—		$	536		$	221		$	—	$	1,501
Reserve for non-impaired loans	$	57,805		$	21,698		$	32,931		$	11,948		$	25	$	124,407
Reserve for off-balance sheet credit commitments	$	2,505		$	1,608		$	121		$	313		$	3	$	4,550

										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		6,097			(3,744	)		(8,672	)		1,815		4		(4,500	)
Charge-offs		(629	)		—			(390	)		—		—		(1,019	)
Recoveries		1,250			132			4,234			81		—		5,697
Net recoveries		621			132			3,844			81		—		4,678
September 30, 2018 Ending Balance	$	56,514		$	21,226		$	32,782		$	12,909	$	26	$	123,457
Reserve for impaired loans	$	2,506		$	—		$	917		$	281	$	—	$	3,704
Reserve for non-impaired loans	$	54,008		$	21,226		$	31,865		$	12,628	$	26	$	119,753
Reserve for off-balance sheet credit commitments	$	1,615		$	1,174		$	78		$	215	$	6	$	3,088

Loans Held-for-Sale

At the time of commitment to originate or purchase a loan, the loan is determined to be held for investment if it is in the Company’s intent to hold the loan to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s evaluation processes, including asset/liability and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value. As of September 30, 2019, there were approximately $36.8 million of loans held-for-sale, which were all comprised of residential mortgage loans. There were no loans held-for-sale as of December 31, 2018.

Loans Purchases, Transfers and Sales

The Company purchases and sells loans in the secondary market in the ordinary course of business. From time to time, purchased loans may be transferred from held-for-investment to held-for-sale, and write-downs to the allowance for loan losses are recorded, when appropriate. During the three and nine months ended September 30, 2019, the Company reclassified $75.3 million of residential mortgages from held-for-investment to held-for-sale. Net gains on sales of loans, excluding the lower of cost or fair value adjustments, were $0.8 million, for the three and nine months ended September 30, 2019. The Company recorded a lower of cost or fair value adjustment of $120 thousand during the three and nine months ended September 30, 2019. Noloan transfers were made during the three and nine months ended September 30, 2018.