Note 4 - Loans

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

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

4. 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; Las Vegas, 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. The Company generally expects its loans 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, 2020, and December 31, 2019, were as follows:

	As of December 31,
	2020			2019
	(In thousands)
Type of Loans:
Commercial loans	$	2,836,833		$	2,778,744
Real estate construction loans		679,492			579,864
Commercial mortgage loans		7,555,027			7,275,262
Residential mortgage loans		4,145,389			4,088,586
Equity lines		424,555			347,975
Installment and other loans		3,100			5,050
Gross loans		15,644,396			15,075,481
Less:
Allowance for loan losses		(166,538	)		(123,224	)
Unamortized deferred loan fees		(2,494	)		(626	)
Total loans and leases, net	$	15,475,364		$	14,951,631

The Company pledged real estate loans of $11.2 billion at December 31, 2020, and $10.6 billion at December 31, 2019, to the Federal Home Loan Bank of San Francisco under its blanket lien pledging program. In addition, the Bank pledged $7.5 million at December 31, 2020, and $31.9 million at December 31, 2019, 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, 2020, totaled $173.5 million and were comprised of $110.5 million of residential mortgages, $30.9 million of commercial real estate loans, $29.0 million of construction loans, and $3.1 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, 2020. An analysis of the activity with respect to loans to Related Parties for the years indicated is as follows:

	December 31,
	2020			2019
	(In thousands)
Balance at beginning of year	$	43,952		$	47,263
Additional loans made		23,102			19,036
Payment received		(15,766	)		(22,347	)
Balance at end of year	$	51,288		$	43,952

At December 31, 2020, recorded investment in impaired loans totaled $95.4 million and were comprised of nonaccrual loans of $67.7 million and accruing TDR’s of $27.7 million. At December 31, 2019, recorded investment in impaired loans totaled $75.9 million and were comprised of nonaccrual loans of $40.5 million and accruing TDR’s of $35.4 million. The average balance of impaired loans was $91.4 million in 2020 and $102.6 million in 2019. We considered all non-accrual loans and TDRs to be impaired. Interest recognized on impaired loans totaled $2.4 million in 2020 and $2.1 million in 2019. 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 7.1% and 2.1% of the contractual balances for impaired loans at December 31, 2020 and 2019, respectively.          

The following table presents impaired loans and the related allowance as of December 31, 2020 and 2019:

	Impaired Loans
	As of December 31, 2020						As of December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	23,784	$	20,698	$	—	$	20,134	$	15,857	$	—
Real estate construction loans		5,776		4,286		—		5,776		4,580		—
Commercial mortgage loans		22,877		22,287		—		9,234		9,030		—
Residential mortgage and equity lines		6,379		6,307		—		6,171		6,073		—
Subtotal	$	58,816	$	53,578	$	—	$	41,315	$	35,540	$	—
With allocated allowance
Commercial loans	$	13,703	$	6,372	$	1,030	$	8,769	$	8,739	$	2,543
Commercial mortgage loans		31,134		31,003		5,254		26,117		26,040		473
Residential mortgage and equity lines		5,005		4,452		145		6,740		5,540		220
Subtotal	$	49,842	$	41,827	$	6,429	$	41,626	$	40,319	$	3,236
Total impaired loans	$	108,658	$	95,405	$	6,429	$	82,941	$	75,859	$	3,236

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,
	2020		2019		2018		2020		2019		2018
	Average Recorded Investment						Interest Income Recognized
	(In thousands)
Commercial loans	$	31,009	$	37,475	$	44,486	$	246	$	412	$	685
Real estate construction loans		4,408		4,697		6,835		294		—		—
Commercial mortgage loans		41,649		47,612		57,596		1,602		1,366		2,125
Residential mortgage and equity lines		14,287		12,799		13,679		252		306		356
Subtotal	$	91,353	$	102,583	$	122,596	$	2,394	$	2,084	$	3,166

The following table is a summary of non-accrual loans as of December 31, 2020, 2019, and 2018 and the related net interest foregone for the years then ended:

	2020		2019		2018
	(In thousands)
Non-accrual portfolio loans	$	67,684	$	40,523	$	41,815
Contractual interest due	$	3,093	$	1,775	$	1,618
Interest recognized		1,008		85		66
Net interest foregone	$	2,085	$	1,690	$	1,552

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

	As of December 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		Amortized Cost > 90 days and Accruing
Type of Loans:	(In thousands)
Commercial loans	$	52,601	$	3,182	$	2,947	$	23,087	$	81,817	$	2,755,016	$	2,836,833	$	2,947
Real estate construction loans		6,257		—		—		4,286		10,543		668,949		679,492		—
Commercial mortgage loans		45,186		18,069		2,035		33,715		99,005		7,456,022		7,555,027		2,035
Residential mortgage loans		14,315		4,223		—		6,596		25,134		4,544,810		4,569,944		—
Installment and other loans		43		—		—		—		43		3,057		3,100		—
Total loans	$	118,402	$	25,474	$	4,982	$	67,684	$	216,542	$	15,427,854	$	15,644,396	$	4,982

	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		Amortized Cost > 90 days and Accruing
Type of Loans:	(In thousands)
Commercial loans	$	24,681	$	9,954	$	6,409	$	19,381	$	60,425	$	2,718,319	$	2,778,744	$	6,409
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	$	6,409

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, 2020, accruing TDRs were $27.7 million and non-accrual TDRs were $9.0 million compared to accruing TDRs of $35.3 million and non-accrual TDRs of $18.0 million at December 31, 2019. The Company had allocated specific reserves of $122 thousand to accruing TDRs and $24 thousand to non-accrual TDRs at December 31, 2020, and $822 thousand to accruing TDRs and $2.2 million to non-accrual TDRs at December 31, 2019. The following table presents TDRs that were modified during 2020, their specific reserve at December 31, 2020, and charge-offs during 2020:

	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve		Charge-offs
	(Dollars in thousands)
Commercial loans		5	$	5,417	$	5,417	$	—	$	—
Total		5	$	5,417	$	5,417	$	—	$	—

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-off
	(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	$	—

A summary of TDRs by type of concession and by type of loans as of December 31, 2020, and December 31, 2019, are shown below:

	December 31, 2020
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	3,983	$	—	$	—	$	3,983
Commercial mortgage loans		515		5,635		13,425		19,575
Residential mortgage loans		1,724		275		2,164		4,163
Total accruing TDRs	$	6,222	$	5,910	$	15,589	$	27,721

	December 31, 2020
Non-accrual TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	8,462	$	—	$	—	$	8,462
Residential mortgage loans		523		—		—		523
Total non-accrual TDRs	$	8,985	$	—	$	—	$	8,985

	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

The activity within our TDR loans for 2020, 2019, and 2018 are shown below:

Accruing TDRs	2020			2019			2018
	(In thousands)
Beginning balance	$	35,336		$	65,071		$	68,565
New restructurings		5,417			15,432			26,114
Restructured loans restored to accrual status		263			365			2,896
Charge-offs		—			(1,341	)		—
Payments		(13,295	)		(42,895	)		(30,406	)
Restructured loans placed on non-accrual		—			(1,296	)		(2,098	)
Ending balance	$	27,721		$	35,336		$	65,071

Non-accrual TDRs	2020			2019			2018
	(In thousands)
Beginning balance	$	18,048		$	24,189		$	33,416
New restructurings		—			10,547			3,015
Restructured loans placed on non-accrual		—			1,296			2,098
Charge-offs		(4,970	)		(3,607	)		(2,347	)
Payments		(3,830	)		(14,012	)		(9,097	)
Restructured loans restored to accrual status		(263	)		(365	)		(2,896	)
Ending balance	$	8,985		$	18,048		$	24,189

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, 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 December 31, 2020, 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.

The CARES Act, signed into law on March 27, 2020, and as extended by the CAA, 2021, 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, 2021 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. 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, 2020 and December 31, 2019:

	As of December 31, 2020
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,581,128	$	141,344	$	108,788	$	5,573	$	2,836,833
Real estate construction loans		593,196		82,010		4,286		—		679,492
Commercial mortgage loans		7,202,568		186,283		166,176		—		7,555,027
Residential mortgage and equity lines		4,547,052		11,647		11,245		—		4,569,944
Installment and other loans		3,100		—		—		—		3,100
Total gross loans	$	14,927,044	$	421,284	$	290,495	$	5,573	$	15,644,396

	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

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of December 31, 2020 and December 31, 2019.

			Real Estate		Commercial		Residential
	Commercial		Construction		Mortgage		Mortgage		Consumer
	Loans		Loans		Loans		and Equity Lines		and Other		Total
	(In thousands)
December 31, 2020
Loans individually evaluated for impairment
Allowance	$	1,030	$	—	$	5,254	$	145	$	—	$	6,429
Balance	$	27,070	$	4,286	$	53,289	$	10,760	$	—	$	95,405
Loans collectively evaluated for impairment
Allowance	$	67,712	$	30,854	$	43,951	$	17,592	$	—	$	160,109
Balance	$	2,809,763	$	675,206	$	7,501,738	$	4,559,184	$	3,100	$	15,548,991
Total allowance	$	68,742	$	30,854	$	49,205	$	17,737	$	—	$	166,538
Total balance	$	2,836,833	$	679,492	$	7,555,027	$	4,569,944	$	3,100	$	15,644,396
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

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2020 and 2019. 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)
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
2020 Beginning Balance	$	57,021		$	19,474		$	33,602		$	13,108		$	19		$	123,224
Provision/(reversal) for loan losses		26,450			11,380			15,164			4,525			(19	)		57,500
Charge-offs		(21,996	)		—			—			—			—			(21,996	)
Recoveries		7,267			—			439			104			—			7,810
Net (Charge-offs)/Recoveries		(14,729	)		—			439			104			—			(14,186	)
2020 Ending Balance	$	68,742		$	30,854		$	49,205		$	17,737		$	—		$	166,538
Reserve for impaired loans	$	1,030		$	—		$	5,254		$	145		$	—		$	6,429
Reserve for non-impaired loans	$	67,712		$	30,854		$	43,951		$	17,592		$	—		$	160,109
Reserve for off-balance sheet credit commitments	$	4,802		$	690		$	101		$	284		$	3		$	5,880

An analysis of the activity in the allowance for credit losses for the years ended December 31, 2020, 2019, and 2018 is as follows:

	For the year ended December 31,
	2020			2019			2018
Allowance for Loan Losses	(In thousands)
Balance at beginning of year	$	123,224		$	122,391		$	123,279
Provision/(reversal) for credit losses		57,500			(7,000	)		(4,500	)
Loans charged off		(21,996	)		(6,997	)		(3,206	)
Recoveries of charged off loans		7,810			14,830			6,818
Balance at end of year	$	166,538		$	123,224		$	122,391
Reserve for Off-balance Sheet Credit Commitments
Balance at beginning of year	$	3,855		$	2,250		$	4,588
Provision/(reversal) for credit losses and transfers		2,025			1,605			(2,338	)
Balance at end of year	$	5,880		$	3,855		$	2,250

Residential mortgage loans in process of formal foreclosure proceedings were $808 thousand at December 31, 2020, compared to $1.0 million at December 31, 2019.

The ongoing COVID-19 pandemic has caused significant disruption in the United States and international economies and financial markets. Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions to our business and operations in the future. The Company has continued its efforts to support its customers affected by the pandemic and to maintain asset quality and balance sheet strength, including the following:

• The Company has provided loans through the SBA's Paycheck Protection Program, or “PPP”. As of December 31, 2020, 1,362 PPP loans with a current balance of $240.9 million have been approved by the Small Business Administration and an additional $23.3 million have been forgiven. These loans do not carry an allowance for loan losses.

• The Company has outstanding COVID-19 modifications on approximately 23 commercial real estate loans totaling $81.0 million as of December 31, 2020, which represented 1.1% of the Bank’s commercial real estate loans and 12 commercial loans, totaling $56.7 million, which represented 2.0% of the total commercial loans.

• As of December 31, 2020, COVID-19 modifications outstanding include 78, or $40.7 million, in residential mortgage loans, that represented 1.0% of the total residential mortgage portfolio, and 7 HELOC loans totaling $2.2 million, which represented 0.5% of total HELOC loans.