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Note 4 - Loans

12 Months Ended

Dec. 31, 2019

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

Loans

Most of the Company’s business activity is in markets with a concentration of Chinese-American individuals and businesses 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, 2019, and December 31, 2018, were as follows:

	As of December 31,
	2019			2018
	(In thousands)
Type of Loans:
Commercial loans	$	2,778,744		$	2,741,965
Real estate construction loans		579,864			581,454
Commercial mortgage loans		7,275,262			6,724,200
Residential mortgage loans		4,088,586			3,693,853
Equity lines		347,975			249,967
Installment and other loans		5,050			4,349
Gross loans		15,075,481			13,995,788
Less:
Allowance for loan losses		(123,224	)		(122,391	)
Unamortized deferred loan fees		(626	)		(1,565	)
Total loans and leases, net	$	14,951,631		$	13,871,832

The Company pledged real estate loans of $10.6 billion at December 31, 2019, and $9.7 billion at December 31, 2018, to the Federal Home Loan Bank of San Francisco under its blanket lien pledging program. In addition, the Bank pledged $31.9 million at December 31, 2019, and $21.2 million at December 31, 2018, 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, 2019, totaled $263.4 million and were comprised of $128.4 million of residential mortgages, $54.7 million of commercial real estate loans, $68.7 million of construction loans, and $11.6 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, 2019. An analysis of the activity with respect to loans to Related Parties for the years indicated is as follows:

	December 31,
	2019			2018
	(In thousands)
Balance at beginning of year	$	47,263		$	66,593
Additional loans made		19,036			18,580
Payment received		(22,347	)		(37,910	)
Balance at end of year	$	43,952		$	47,263

At December 31, 2019, recorded investment in impaired loans totaled $75.9 million and were comprised of nonaccrual loans, excluding loans held for sale, of $40.5 million and accruing TDR’s of $35.4 million. At December 31, 2018, recorded investment in impaired loans totaled $106.9 million and were comprised of nonaccrual loans, excluding loans held for sale, of $41.8 million and accruing TDR’s of $65.1 million. The average balance of impaired loans was $102.6 million in 2019 and $122.6 million in 2018. We considered all non-accrual loans and TDRs to be impaired. Interest recognized on impaired loans totaled $2.1 million in 2019 and $3.2 million in 2018. 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 2.1% and 9.3% of the contractual balances for impaired loans at December 31, 2019 and 2018, respectively.

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

	Impaired Loans
	As of December 31, 2019						As of December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	20,134	$	15,857	$	—	$	32,015	$	30,368	$	—
Real estate construction loans		5,776		4,580		—		5,776		4,873		—
Commercial mortgage loans		9,234		9,030		—		34,129		24,409		—
Residential mortgage and equity lines		6,171		6,073		—		5,685		5,665		—
Subtotal	$	41,315	$	35,540	$	—	$	77,605	$	65,315	$	—
With allocated allowance
Commercial loans	$	8,769	$	8,739	$	2,543	$	6,653	$	6,570	$	1,837
Commercial mortgage loans		26,117		26,040		473		27,099		27,063		877
Residential mortgage and equity lines		6,740		5,540		220		8,934		7,938		1,088
Subtotal	$	41,626	$	40,319	$	3,236	$	42,686	$	41,571	$	3,802
Total impaired loans	$	82,941	$	75,859	$	3,236	$	120,291	$	106,886	$	3,802

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,
	2019		2018		2017		2019		2018		2017
	Average Recorded Investment						Interest Income Recognized
	(In thousands)
Commercial loans	$	37,475	$	44,486	$	26,957	$	412	$	685	$	1,303
Real estate construction loans		4,697		6,835		26,695		—		—		—
Commercial mortgage loans		47,612		57,596		58,635		1,366		2,125		1,618
Residential mortgage and equity lines		12,799		13,679		14,780		306		356		381
Subtotal	$	102,583	$	122,596	$	127,067	$	2,084	$	3,166	$	3,302

The following is a summary of non-accrual loans as of December 31, 2019, 2018, and 2017 and the related net interest foregone for the years then ended:

	2019		2018		2017
	(In thousands)
Non-accrual portfolio loans	$	40,523	$	41,815	$	48,787
Non-accrual loans held-for-sale		—		—		8,000
Total non-accrual loans	$	40,523	$	41,815	$	56,787

Contractual interest due	$	1,775	$	1,618	$	3,254
Interest recognized		85		66		86
Net interest foregone	$	1,690	$	1,552	$	3,168

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

	As of December 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)
Type of Loans:
Commercial loans	$	24,681	$	9,954	$	6,409	$	19,381	$	60,425	$	2,718,319	$	2,778,744
Real estate construction loans		5,846		6,753		—		4,580		17,179		562,685		579,864
Commercial mortgage loans		7,694		2,609		—		9,928		20,231		7,255,031		7,275,262
Residential mortgage loans		26,028		965		—		6,634		33,627		4,402,934		4,436,561
Installment and other loans		—		—		—		—		—		5,050		5,050
Total loans	$	64,249	$	20,281	$	6,409	$	40,523	$	131,462	$	14,944,019	$	15,075,481

	As of December 31, 2018
	30-59 Days Past Due		60-89 Days Pas t 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	$	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		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 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 the Bank deems TDRs 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.

At December 31, 2019, accruing TDRs were $35.3 million and non-accrual TDRs were $18.0 million compared to accruing TDRs of $65.1 million and non-accrual TDRs of $24.2 million at December 31, 2018. The Company had allocated specific reserves of $822 thousand to accruing TDRs and $2.2 million to non-accrual TDRs at December 31, 2019, and $1.5 million to accruing TDRs and $826 thousand to non-accrual TDRs at December 31, 2018. The following table presents TDRs that were modified during 2019, their specific reserve at December 31, 2019, and charge-offs during 2019:

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

Commercial loans		23	$	25,937	$	21,874	$	2,190	$	4,063
Residential mortgage and equity lines		1		42		42		—		—
Total		24	$	25,979	$	21,916	$	2,190	$	4,063

The following table presents TDRs that were modified during 2018, their specific reserve at December 31, 2018, and charge-offs during 2018:

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

Commercial loans		23	$	13,290	$	13,290	$	1,384	$	—
Commercial mortgage loans		7		14,626		14,626		111		—
Residential mortgage and equity lines		4		1,214		1,214		23		—
Total		34	$	29,130	$	29,130	$	1,518	$	—

The following table presents TDRs that were modified during 2017, their specific reserve at December 31, 2017, and charge-offs during 2017:

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

A summary of TDRs by type of concession and by type of loans as of December 31, 2019, and December 31, 2018, are shown below:

	December 31, 2019
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	5,215	$	—	$	—	$	5,215
Commercial mortgage loans		615		5,748		18,779		25,142
Residential mortgage loans		2,525		311		2,143		4,979
Total accruing TDRs	$	8,355	$	6,059	$	20,922	$	35,336

	December 31, 2019
Non-accrual TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	16,692	$	—	$	—	$	16,692
Residential mortgage loans		1,220		—		136		1,356
Total non-accrual TDRs	$	17,912	$	—	$	136	$	18,048

	December 31, 2018
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
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
Non-accrual TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
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 our TDR loans for 2019, 2018, and 2017 are shown below:

Accruing TDRs	2019			2018			2017
	(In thousands)
Beginning balance	$	65,071		$	68,565		$	65,393
New restructurings		15,432			26,114			73,426
Restructured loans restored to accrual status		365			2,896			—
Charge-offs		(1,341	)		—			—
Payments		(42,895	)		(30,406	)		(54,095	)
Restructured loans placed on non-accrual		(1,296	)		(2,098	)		(13,919	)
Expiration of loan concession		—			—			(2,240	)
Ending balance	$	35,336		$	65,071		$	68,565

Non-accrual TDRs	2019			2018			2017
	(In thousands)
Beginning balance	$	24,189		$	33,416		$	29,722
New restructurings		10,547			3,015			4,009
Restructured loans placed on non-accrual		1,296			2,098			13,919
Charge-offs		(3,607	)		(2,347	)		(1,650	)
Payments		(14,012	)		(9,097	)		(11,341	)
Foreclosures		—			—			(1,243	)
Restructured loans restored to accrual status		(365	)		(2,896	)		—
Ending balance	$	18,048		$	24,189		$	33,416

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 had subsequently defaulted as of December 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 December 31, 2019, there were no 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, the 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 sources of repayment, the borrower’s current financial and liquidity status and 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 deemed 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 deemed 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 deemed 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 deemed 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, 2019 and December 31, 2018:

	As of December 31, 2019
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,528,944	$	166,016	$	83,784	$	—	$	2,778,744
Real estate construction loans		461,597		113,687		4,580		—		579,864
Commercial mortgage loans		6,992,933		196,454		85,875		—		7,275,262
Residential mortgage and equity lines		4,427,205		914		8,442		—		4,436,561
Installment and other loans		5,050		—		—		—		5,050
Total gross loans	$	14,415,729	$	477,071	$	182,681	$	—	$	15,075,481

	As of 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 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 December 31, 2019 and December 31, 2018.

			Real Estate		Commercial		Residential
	*Commercial*		*Construction*		*Mortgage*		*Mortgage*		*Consumer*
	*Loans*		*Loans*		*Loans*		*and Equity Lines*		*and Other*		*Total*
	(In thousands)
December 31, 2019
Loans individually evaluated for impairment
Allowance	$	2,543	$	—	$	473	$	220	$	—	$	3,236
Balance	$	24,596	$	4,580	$	35,070	$	11,613	$	—	$	75,859

Loans collectively evaluated for impairment
Allowance	$	54,478	$	19,474	$	33,129	$	12,888	$	19	$	119,988
Balance	$	2,754,148	$	575,284	$	7,240,192	$	4,424,948	$	5,050	$	14,999,622

Total allowance	$	57,021	$	19,474	$	33,602	$	13,108	$	19	$	123,224
Total balance	$	2,778,744	$	579,864	$	7,275,262	$	4,436,561	$	5,050	$	15,075,481

December 31, 2018
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 table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019 and 2018. 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)
2018 Beginning Balance	$	49,796		$	24,838		$	37,610		$	11,013		$	22		$	123,279

Provision/(reversal) for loan losses		3,936			(5,389	)		(6,289	)		3,246			(4	)		(4,500	)

Charge-offs		(629	)		—			(2,348	)		(229	)		—			(3,206	)
Recoveries		1,875			177			4,514			252			—			6,818
Net Recoveries		1,246			177			2,166			23			—			3,612

2018 Ending Balance	$	54,978		$	19,626		$	33,487		$	14,282		$	18		$	122,391
Reserve for impaired loans	$	1,837		$	—		$	877		$	1,088		$	—		$	3,802
Reserve for non-impaired loans	$	53,141		$	19,626		$	32,610		$	13,194		$	18		$	118,589
Reserve for off-balance sheet credit commitments	$	1,161		$	745		$	95		$	246		$	3		$	2,250

2019 Beginning Balance	$	54,978		$	19,626		$	33,487		$	14,282		$	18		$	122,391

Provision/(reversal) for loan losses		4,885			(4,764	)		(5,216	)		(1,906	)		1			(7,000	)

Charge-offs		(6,997	)		—			—			—			—			(6,997	)
Recoveries		4,155			4,612			5,331			732			—			14,830
Net (Charge-offs)/Recoveries		(2,842	)		4,612			5,331			732			—			7,833

2019 Ending Balance	$	57,021		$	19,474		$	33,602		$	13,108		$	19		$	123,224
Reserve for impaired loans	$	2,543		$	—		$	473		$	220		$	—		$	3,236
Reserve for non-impaired loans	$	54,478		$	19,474		$	33,129		$	12,888		$	19		$	119,988
Reserve for off-balance sheet credit commitments	$	2,301		$	1,047		$	193		$	311		$	3		$	3,855

An analysis of the activity in the allowance for credit losses for the years ended December 31, 2019, 2018, and 2017 is as follows:

	For the year ended December 31,
	2019			2018			2017
	(In thousands)
Allowance for Loan Losses
Balance at beginning of year	$	122,391		$	123,279		$	118,966
Reversal for credit losses		(7,000	)		(4,500	)		(2,500	)
Loans charged off		(6,997	)		(3,206	)		(4,173	)
Recoveries of charged off loans		14,830			6,818			10,986
Balance at end of year	$	123,224		$	122,391		$	123,279

*Reserve for Off-balance Sheet Credit Commitments*
Balance at beginning of year	$	2,250		$	4,588		$	3,224
Provision/(reversal) for credit losses and transfers		1,605			(2,338	)		1,364
Balance at end of year	$	3,855		$	2,250		$	4,588

Residential mortgage loans in process of formal foreclosure proceedings were $1.0 million at December 31, 2019, compared to $862 thousand at December 31, 2018.