Note 8 - Loans

3 Months Ended

Mar. 31, 2020

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 March 31, 2020, and December 31, 2019, were as follows:

	March 31, 2020			December 31, 2019
	(In thousands)
Commercial loans	$	2,973,078		$	2,778,744
Residential mortgage loans		4,173,876			4,088,586
Commercial mortgage loans		7,422,585			7,275,262
Real estate construction loans		577,240			579,864
Equity lines		385,317			347,975
Installment and other loans		2,116			5,050
Gross loans	$	15,534,212		$	15,075,481
Allowance for loan losses		(148,273	)		(123,224	)
Unamortized deferred loan fees, net		(277	)		(626	)
Total loans, net	$	15,385,662		$	14,951,631

As of March 31, 2020, recorded investment in impaired loans totaled $88.1 million and was comprised of non-accrual loans of $53.7 million and accruing troubled debt restructured loans (“TDRs”) of $34.4 million. As of December 31, 2019, recorded investment in impaired loans totaled $75.9 million and was comprised of non-accrual loans of $40.5 million and accruing TDRs of $35.4 million. For impaired loans, the amounts previously charged off represent 0.3% and 2.1% of the contractual balances for impaired loans as of March 31, 2020 and December 31, 2019, 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,
	2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	28,316	$	70	$	37,936	$	256
Real estate construction loans		4,506		98		4,815		—
Commercial mortgage loans		36,040		459		59,070		603
Residential mortgage loans and equity lines		11,371		71		13,264		88
Total impaired loans	$	80,233	$	698	$	115,085	$	947

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

	March 31, 2020						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	28,685	$	25,991	$	—	$	20,134	$	15,857	$	—
Real estate construction loans		5,776		4,482		—		5,776		4,580		—
Commercial mortgage loans		16,559		16,223		—		9,234		9,030		—
Residential mortgage loans and equity lines		6,046		6,024		—		6,171		6,073		—
Subtotal	$	57,066	$	52,720	$	—	$	41,315	$	35,540	$	—
With allocated allowance
Commercial loans	$	9,223	$	9,152	$	2,827	$	8,769	$	8,739	$	2,543
Commercial mortgage loans		20,513		20,420		405		26,117		26,040		473
Residential mortgage loans and equity lines		7,018		5,805		219		6,740		5,540		220
Subtotal	$	36,754	$	35,377	$	3,451	$	41,626	$	40,319	$	3,236
Total impaired loans	$	93,820	$	88,097	$	3,451	$	82,941	$	75,859	$	3,236

The following tables present the aging of the loan portfolio by type as of March 31, 2020, and as of December 31, 2019:

	March 31, 2020
	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	$	26,282	$	7,433	$	1,199	$	30,443	$	65,357	$	2,907,721	$	2,973,078
Real estate construction loans		—		—		—		4,482		4,482		572,758		577,240
Commercial mortgage loans		17,018		683		3,332		11,859		32,892		7,389,693		7,422,585
Residential mortgage loans and equity lines		39,946		—		—		6,949		46,895		4,512,298		4,559,193
Installment and other loans		—		—		—		—		—		2,116		2,116
Total loans	$	83,246	$	8,116	$	4,531	$	53,733	$	149,626	$	15,384,586	$	15,534,212

	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)
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 and equity lines		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

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. Although the Company took steps to incorporate the impact of the COVID-19 pandemic on the economic forecast and other factors utilized to determine the allowance for loan losses, if the economic forecast or other factors worsen relative to the assumptions the Company utilized, the allowance for loan losses will increase accordingly in future periods.

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, 2020, accruing TDRs were $34.4 million and non-accrual TDRs were $17.9 million compared to accruing TDRs of $35.3 million and non-accrual TDRs of $18.0 million as of December 31, 2019. The Company allocated specific reserves of $1.0 million to accruing TDRs and $2.2 million to non-accrual TDRs as of March 31, 2020, and $822 thousand to accruing TDRs and $2.2 million to non-accrual TDRs as of December 31, 2019. The following tables set forth TDRs that were modified during the three months ended March 31, 2020 and 2019, their specific reserves as of March 31, 2020 and 2019, and charge-offs for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31, 2020								March 31, 2020
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		2	$	534	$	534	$	—	$	—
Total		2	$	534	$	534	$	—	$	—

	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	$	1,948	$	—	$	—
Total		1	$	1,948	$	1,948	$	—	$	—

Modifications of the loan terms in the three months ended March 31, 2020 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 March 31, 2020, 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, 2020, and December 31, 2019, is set forth in the table below:

	March 31, 2020
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	4,700	$	—	$	—	$	4,700
Commercial mortgage loans		459		5,707		18,618		24,784
Residential mortgage loans		2,453		306		2,121		4,880
Total accruing TDRs	$	7,612	$	6,013	$	20,739	$	34,364

	March 31, 2020
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	16,561	$	—	$	—	$	16,561
Residential mortgage loans		1,199		—		129		1,328
Total non-accrual TDRs	$	17,760	$	—	$	129	$	17,889

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

The activity within TDRs for the periods indicated is set forth below:

	Three Months Ended March 31,
	2020			2019
	(In thousands)
Accruing TDRs
Beginning balance	$	35,336		$	65,071
New restructurings		534			1,948
Payments		(1,506	)		(4,071	)
Ending balance	$	34,364		$	62,948

	Three Months Ended March 31,
	2020			2019
	(In thousands)
Non-accrual TDRs
Beginning balance	$	18,048		$	24,189
Charge-offs		—			(407	)
Payments		(159	)		(481	)
Ending balance	$	17,889		$	23,301

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 March 31, 2020.

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, 2020, 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.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

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 March 31, 2020 and December 31, 2019:

	March 31, 2020
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,726,364	$	164,339	$	82,375	$	—	$	2,973,078
Real estate construction loans		463,971		108,787		4,482		—		577,240
Commercial mortgage loans		7,178,261		158,354		85,970		—		7,422,585
Residential mortgage loans and equity lines		4,544,015		5,916		9,262		—		4,559,193
Installment and other loans		2,116		—		—		—		2,116
Total gross loans	$	14,914,727	$	437,396	$	182,089	$	—	$	15,534,212

	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 loans 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

The following tables set forth the balance in the allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019:

	March 31, 2020
			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	$	2,827	$	—	$	405	$	219	$	—	$	3,451
Balance	$	35,143	$	4,482	$	36,643	$	11,829	$	—	$	88,097
Loans collectively evaluated for impairment
Allowance	$	64,972	$	23,222	$	39,481	$	17,147	$	—	$	144,822
Balance	$	2,937,935	$	572,758	$	7,385,942	$	4,547,364	$	2,116	$	15,446,115
Total allowance	$	67,799	$	23,222	$	39,886	$	17,366	$	—	$	148,273
Total balance	$	2,973,078	$	577,240	$	7,422,585	$	4,559,193	$	2,116	$	15,534,212

	December 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	$	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

The following tables set forth activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020, and March 31, 2019. 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)
2020 Beginning Balance	$	57,021		$	19,474	$	33,602	$	13,108	$	19		$	123,224
Provision/(reversal) for possible credit losses		10,891			3,748		6,129		4,251		(19	)		25,000
Charge-offs		(1,321	)		—		—		—		—			(1,321	)
Recoveries		1,208			—		155		7		—			1,370
Net (charge-offs)/recoveries		(113	)		—		155		7		—			49
March 31, 2020 Ending Balance	$	67,799		$	23,222	$	39,886	$	17,366	$	—		$	148,273
Reserve for impaired loans	$	2,827		$	—	$	405	$	219	$	—		$	3,451
Reserve for non-impaired loans	$	64,972		$	23,222	$	39,481	$	17,147	$	—		$	144,822
Reserve for off-balance sheet credit commitments	$	1,296		$	1,233	$	177	$	304	$	3		$	3,013

									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