Note 8 - Loans

3 Months Ended

Mar. 31, 2021

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, when secured, 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, 2021, and December 31, 2020, were as follows:

	March 31, 2021			December 31, 2020
	(In thousands)
Commercial loans	$	2,890,693		$	2,836,833
Residential mortgage loans		4,102,203			4,145,389
Commercial mortgage loans		7,549,522			7,555,027
Real estate construction loans		677,816			679,492
Equity lines		428,318			424,555
Installment and other loans		3,296			3,100
Gross loans	$	15,651,848		$	15,644,396
Allowance for loan losses		(147,264	)		(166,538	)
Unamortized deferred loan fees, net		(6,872	)		(2,494	)
Total loans, net	$	15,497,712		$	15,475,364

As of March 31, 2021, recorded investment in non-accrual loans was $94.4 million. As of December 31, 2020, recorded investment in impaired loans totaled $95.4 million and was comprised of non-accrual loans of $67.7 million and accruing TDRs of $27.7 million. For non-accrual loans, the amounts previously charged off represent 15.1% of the contractual balances for non-accrual loans as of March 31, 2021. For impaired loans, the amounts previously charged off represent 7.1% of the contractual balances for impaired loans as of December 31, 2020.

The following table presents the average recorded investment and interest income recognized on non-accrual loans for the period indicated:

	Three Months Ended March 31,
	2021
	Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	28,268	$	12
Real estate construction loans		4,229		97
Commercial mortgage loans		40,116		57
Residential mortgage loans and equity lines		8,427		8
Total non-accrual loans	$	81,040	$	174

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following table presents the average recorded investment and interest income recognized on individually evaluated loans for the period indicated:

	Three Months Ended March 31,
	2020
	Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	28,316	$	70
Real estate construction loans		4,506		98
Commercial mortgage loans		36,040		459
Residential mortgage loans and equity lines		11,371		71
Total impaired loans	$	80,233	$	698

The following table presents non-accrual loans and the related allowance as of March 31, 2021:

	March 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	30,111	$	18,534	$	—
Real estate construction loans		5,776		4,189		—
Commercial mortgage loans		27,867		27,199		—
Residential mortgage loans and equity lines		9,205		8,545		—
Subtotal	$	72,959	$	58,467	$	—
With allocated allowance
Commercial loans	$	19,864	$	19,817	$	5,559
Commercial mortgage loans		16,233		16,162		5,133
Subtotal	$	36,097	$	35,979	$	10,692
Total non-accrual loans	$	109,056	$	94,446	$	10,692

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following table presents impaired loans and the related allowance as of December 31, 2020:

	December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance
				(In thousands)
With no allocated allowance
Commercial loans	$	23,784	$	20,698	$	—
Real estate construction loans		5,776		4,286		—
Commercial mortgage loans		22,877		22,287		—
Residential mortgage loans and equity lines		6,379		6,307		—
Subtotal	$	58,816	$	53,578	$	—
With allocated allowance
Commercial loans	$	13,703	$	6,372	$	1,030
Commercial mortgage loans		31,134		31,003		5,254
Residential mortgage loans and equity lines		5,005		4,452		145
Subtotal	$	49,842	$	41,827	$	6,429
Total impaired loans	$	108,658	$	95,405	$	6,429

The following tables present the aging of the loan portfolio by type as of March 31, 2021, and as of December 31, 2020:

	March 31, 2021
	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	$	13,845	$	1,645	$	1,880	$	38,351	$	55,721	$	2,834,972	$	2,890,693
Real estate construction loans		—		—		—		4,189		4,189		673,627		677,816
Commercial mortgage loans		6,659		274		258		43,361		50,552		7,498,970		7,549,522
Residential mortgage loans and equity lines		21,298		345		—		8,545		30,188		4,500,333		4,530,521
Installment and other loans		—		—		—		—		—		3,296		3,296
Total loans	$	41,802	$	2,264	$	2,138	$	94,446	$	140,650	$	15,511,198	$	15,651,848

	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
	(In thousands)
Commercial loans	$	52,601	$	3,182	$	2,947	$	23,087	$	81,817	$	2,755,016	$	2,836,833
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
Residential mortgage loans and equity lines		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

The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan.

The Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach discussed in the “Basis of Presentation and Summary of Significant Accounting Policies” above, for the quantitative baseline, and include non-accrual loans, TDRs, and other loans as deemed appropriate by management. In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a commercial loan expected to be classified as a TDR. Individually evaluated loans also includes “reasonably expected” TDRs, identified by the Company as a consumer loan for which a borrower’s application of loan modification due to hardship has been received by the Company. Management judgment is utilized to make this determination.

Although the Company took steps to incorporate the impact of the COVID-19 pandemic on the economic conditions and other factors (such as the severity and length of the COVID-19 pandemic and its impacts) utilized to determine the expected loan losses, if the economic conditions or other factors worsen relative to the assumptions the Company utilized, the expected 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. Although these loan modifications are considered TDRs, TDR 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 are 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. Loans classified as TDRs are reported as individually evaluated loans.

As of March 31, 2021, accruing TDRs were $27.9 million and non-accrual TDRs were $8.6 million compared to accruing TDRs of $27.7 million and non-accrual TDRs of $9.0 million as of December 31, 2020. The Company allocated specific reserves of $56 thousand to accruing TDRs and $1 thousand to non-accrual TDRs as of March 31, 2021, and $122 thousand to accruing TDRs and $24 thousand to non-accrual TDRs as of December 31, 2020. The following tables set forth TDRs that were modified during the three months ended March 31, 2021, and 2020, their specific reserves as of March 31, 2021 and 2020, and charge-offs for the three months ended March 31, 2021, and 2020:

	Three Months Ended March 31, 2021								March 31, 2021
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		1	$	686	$	686	$	—	$	—
Total		1	$	686	$	686	$	—	$	—

	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	$	—	$	—

Modifications of the loan terms in the three months ended March 31, 2021, 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, 2021, 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.  The ongoing impact of the COVID pandemic, however, could increase the risk of such TDRs becoming non-accrual due to the borrowers’ inability to continue to comply with their restructured terms. A summary of TDRs by type of concession and by type of loan, as of March 31, 2021, and December 31, 2020, is set forth in the table below:

	March 31, 2021
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	4,544	$	—	$	—	$	4,544
Commercial mortgage loans		524		5,607		13,322		19,453
Residential mortgage loans		1,686		262		1,919		3,867
Total accruing TDRs	$	6,754	$	5,869	$	15,241	$	27,864

	March 31, 2021
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	8,150	$	—	$	—	$	8,150
Residential mortgage loans		511		—		—		511
Total non-accrual TDRs	$	8,661	$	—	$	—	$	8,661

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

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

	Three Months Ended March 31,
	2021			2020
	(In thousands)
Accruing TDRs
Beginning balance	$	27,721		$	35,336
New restructurings		686			534
Payments		(543	)		(1,506	)
Ending balance	$	27,864		$	34,364

	Three Months Ended March 31,
	2021			2020
	(In thousands)
Non-accrual TDRs
Beginning balance	$	8,985		$	18,048
Payments		(324	)		(159	)
Ending balance	$	8,661		$	17,889

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, 2021.

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, 2021, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered individually evaluated, or were on non-accrual status.

The CARES Act, signed into law on March 27, 2020, and as extended by the CAA, 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 January 1, 2022 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 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.

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. The following table presents loan portfolio by risk rating as of December 31, 2020:

	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 loans 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

The following table summarizes the Company’s loan held for investment by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification:

	Loans Amortized Cost Basis by Origination Year
March 31, 2021	2021		2020		2019			2018			2017		Prior			Revolving Loans			Revolving Converted to Term Loans			Total
	(In thousands)
Commercial loans
Pass	$	255,423	$	527,049	$	316,832		$	245,195		$	125,699	$	94,080		$	1,088,480		$	8,055		$	2,660,813
Special Mention		—		100		16,458			7,535			3,265		31			43,466			246			71,101
Substandard		—		11,537		20,564			29,395			10,834		4,738			67,426			6,207			150,701
Doubtful		—		—		—			—			—		—			2,244			—			2,244
Total		255,423		538,686		353,854			282,125			139,798		98,849			1,201,616			14,508			2,884,859
YTD period charge-offs		—		23		50			366			—		—			8,699			—			9,138
YTD period recoveries		—		—		—			(4	)		—		(156	)		(1,109	)		—			(1,269	)
Net		—		23		50			362			—		(156	)		7,590			—			7,869
Real estate construction loans
Pass		38,405		224,620		162,973			131,063			58,557		—			—			—			615,618
Special Mention		—		33,083		6,373			15,822			—		—			—			—			55,278
Substandard		—		—		—			—			—		4,189			—			—			4,189
Total		38,405		257,703		169,346			146,885			58,557		4,189			—			—			675,085
YTD period charge-offs		—		—		—			—			—		—			—			—			—
YTD period recoveries		—		—		—			—			—		—			—			—			—
Net		—		—		—			—			—		—			—			—			—
Commercial mortgage loans
Pass		325,895		1,393,092		1,373,968			1,283,094			933,711		1,723,499			171,529			—			7,204,788
Special Mention		—		23,492		29,476			22,138			26,290		88,360			5,753			—			195,509
Substandard		—		628		6,832			47,145			3,608		89,479			377			—			148,069
Total		325,895		1,417,212		1,410,276			1,352,377			963,609		1,901,338			177,659			—			7,548,366
YTD period charge-offs		—		—		—			—			—		—			—			—			—
YTD period recoveries		—		—		(60	)		—			—		(7	)		(28	)		—			(95	)
Net		—		—		(60	)		—			—		(7	)		(28	)		—			(95	)
Residential mortgage loans
Pass		182,269		749,890		820,791			635,500			546,962		1,146,581			—			—			4,081,993
Special Mention		—		334		4,749			3,170			1,717		4,023			—			—			13,993
Substandard		—		18		809			2,300			564		4,140			—			—			7,831
Total		182,269		750,242		826,349			640,970			549,243		1,154,744			—			—			4,103,817
YTD period charge-offs		—		—		—			—			—		—			—			—			—
YTD period recoveries		—		—		—			—			—		(7	)		—			—			(7	)
Net		—		—		—			—			—		(7	)		—			—			(7	)
Equity lines
Pass		—		—		—			—			—		10			392,712			34,804			427,526
Special Mention		—		—		—			—			—		—			925			—			925
Substandard		—		—		—			—			—		—			330			729			1,059
Total		—		—		—			—			—		10			393,967			35,533			429,510
YTD period charge-offs		—		—		—			—			—		—			—			—			—
YTD period recoveries		—		—		—			—			—		—			(3	)		(6	)		(9	)
Net		—		—		—			—			—		—			(3	)		(6	)		(9	)
Installment and other loans
Pass		953		2,386		—			—			—		—			—			—			3,339
Total		953		2,386		—			—			—		—			—			—			3,339
YTD period charge-offs		—		—		—			—			—		—			—			—			—
YTD period recoveries		—		—		—			—			—		—			—			—			—
Net		—		—		—			—			—		—			—			—			—
Total loans	$	802,945	$	2,966,229	$	2,759,825		$	2,422,357		$	1,711,207	$	3,159,130		$	1,773,242		$	50,041		$	15,644,976
Net charge-offs/(recoveries)	$	—	$	23	$	(10	)	$	362		$	—	$	(170	)	$	7,559		$	(6	)	$	7,758

Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns.

The following table sets forth the balance in the allowance for loan losses by portfolio segment and based on impairment method as of December 31, 2020. This table is no longer presented after December 31, 2020, given the adoption of ASU 2016-13, which has a single impairment methodology.

	December 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	$	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

The following tables set forth activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021, and March 31, 2020. 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)
2021 Beginning Balance	$	68,742		$	30,854		$	49,205		$	17,737		$	—		$	166,538
Impact of ASU 2016-13 adoption		(28,748	)		(25,332	)		35,335			19,330			9			594
Allowance for loan losses, January 1, 2021		39,994			5,522			84,540			37,067			9			167,132
Provision/(reversal) for possible credit losses		12,627			446			(18,946	)		(6,231	)		(6	)		(12,110	)
Charge-offs		(9,138	)		—			—			—			—			(9,138	)
Recoveries		1,269			—			95			16			—			1,380
Net (charge-offs)/recoveries		(7,869	)		—			95			16			—			(7,758	)
March 31, 2021 Ending Balance	$	44,752		$	5,968		$	65,689		$	30,852		$	3		$	147,264
Allowance for unfunded credit commitments December 31, 2020	$	4,802		$	690		$	101		$	284		$	3		$	5,880
Impact of ASU 2016-13 adoption		(3,347	)		4,274			(101	)		(284	)		(3	)		539
Allowance for loan losses, January 1, 2021		1,455			4,964			—			—			—			6,419
Provision/(reversal) for possible credit losses		125			(1,574	)		—			—			—			(1,449	)
Allowance for unfunded credit commitments March 31, 2021	$	1,580		$	3,390		$	—		$	—		$	—		$	4,970

								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

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 March 31, 2021, 2,770 PPP loans with a current balance of $334.4 million have been approved by the Small Business Administration and an additional $71.9 million have been forgiven. These loans do not carry an allowance for loan losses.

• The Company has outstanding COVID-19 modifications on approximately seven commercial real estate loans totaling $56.1 million as of March 31, 2021, which represented 0.7% of the Bank’s commercial real estate loans and six commercial loans, totaling $38.0 million, which represented 1.3% of the total commercial loans.

• As of March 31, 2021, there were 52 COVID-19 residential mortgage loan modifications outstanding, or $31.4 million, that represented 0.8% of the total residential mortgage portfolio, and two HELOC loans totaling $1.1 million, which represented 0.3% of total HELOC loans.