Quarterly report pursuant to Section 13 or 15(d)

Loans

v2.4.0.8
Loans
6 Months Ended
Jun. 30, 2014
Receivables [Abstract]  
Loans

Note 5 — Loans

The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect issues such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan delinquencies and non-performing loans, problem loans, and policy adjustments.

Real estate loans are loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, and Small Business Administration (“SBA”) loans. Consumer loans consist of auto loans, credit cards, personal loans, and home equity lines of credit. We maintain management loan review and monitoring functions that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

The majority of the Bank’s loan portfolio consists of commercial real estate and commercial and industrial loans. The Bank has been diversifying and monitoring commercial real estate loans based on property types, tightening underwriting standards, and portfolio liquidity and management, and has not exceeded certain specified limits set forth in the Bank’s loan policy. Most of the Bank’s lending activity occurs within Southern California.

Loans Receivable

Loans receivable consisted of the following as of the dates indicated:

 

     June 30,     December 31,  
     2014     2013  
     (In thousands)  

Real estate loans:

    

Commercial property (1)

    

Retail

   $ 561,654      $ 543,619   

Hotel/Motel

     338,128        322,927   

Gas station

     283,097        292,557   

Other

     797,176        731,617   

Construction

     1,467        —     

Residential property

     108,561        79,078   
  

 

 

   

 

 

 

Total real estate loans

     2,090,083        1,969,798   

Commercial and industrial loans:

    

Commercial term

     115,493        124,391   

Commercial lines of credit

     70,801        71,042   

International loans

     44,015        36,353   
  

 

 

   

 

 

 

Total commercial and industrial loans

     230,309        231,786   

Consumer loans

     28,843        32,505   
  

 

 

   

 

 

 

Total gross loans

     2,349,235        2,234,089   

Allowance for loans losses

     (51,886     (57,555

Deferred loan costs

     3,461        964   
  

 

 

   

 

 

 

Loans receivable, net

   $ 2,300,810      $ 2,177,498   
  

 

 

   

 

 

 

 

 

(1)  Includes owner-occupied property loans of $962.7 million and $957.3 million as of June 30, 2014 and December 31, 2013, respectively.

Accrued interest on loans receivable was $5.1 million and $5.4 million at June 30, 2014 and December 31, 2013, respectively. At June 30, 2014 and December 31, 2013, loans receivable totaling $921.2 million and $568.7 million, respectively, were pledged to secure advances from the FHLB and the Federal Reserve Bank’s (“FRB”) federal discount window.

 

The following table details the information on the sales and reclassifications of loans receivable to loans held for sale by portfolio segment for the three months ended June 30, 2014 and 2013:

 

     Real Estate     Commercial
and Industrial
    Consumer      Total  
     (In thousands)  

June 30, 2014

         

Balance at beginning of period

   $ 390      $ —        $ —         $ 390   

Origination of loans held for sale

     8,124        2,091        —           10,215   

Sales of loans held for sale

     (5,944     (815     —           (6,759

Principal payoffs and amortization

     (2     (2     —           (4
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 2,568      $ 1,274      $ —         $ 3,842   
  

 

 

   

 

 

   

 

 

    

 

 

 

June 30, 2013

         

Balance at beginning of period

   $ 5,769      $ 274      $ —         $ 6,043   

Origination of loans held for sale

     21,752        1,082        —           22,834   

Reclassification from loans receivable to loans held for sale

     1,066        3,571        —           4,637   

Sales of loans held for sale

     (25,213     (5,743     —           (30,956

Principal payoffs and amortization

     (1     (4     —           (5
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 3,373      $ (820   $ —         $ 2,553   
  

 

 

   

 

 

   

 

 

    

 

 

 

For the three months ended June 30, 2014, there was no reclassification of loans receivable as loans held for sale, and loans held for sale of $6.8 million were sold. For the three months ended June 30, 2013, loans receivable of $4.6 million were reclassified as loans held for sale, and loans held for sale of $31.0 million were sold.

The following table details the information on the sales and reclassifications of loans receivable to loans held for sale by portfolio segment for the six months ended June 30, 2014 and 2013:

 

     Real Estate     Commercial
and Industrial
    Consumer      Total  
     (In thousands)  

June 30, 2014

         

Balance at beginning of period

   $ —        $ —        $ —         $ —     

Origination of loans held for sale

     14,393        2,176        —           16,569   

Sales of loans held for sale

     (11,818     (899     —           (12,717

Principal payoffs and amortization

     (7     (3     —           (10
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 2,568      $ 1,274      $ —         $ 3,842   
  

 

 

   

 

 

   

 

 

    

 

 

 

June 30, 2013

         

Balance at beginning of period

   $ 7,977      $ 329      $ —         $ 8,306   

Origination of loans held for sale

     43,092        2,886        —           45,978   

Reclassification from loans receivable to loans held for sale

     4,439        3,571        —           8,010   

Sales of loans held for sale

     (52,120     (7,601     —           (59,721

Principal payoffs and amortization

     (15     (5     —           (20
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 3,373      $ (820   $ —         $ 2,553   
  

 

 

   

 

 

   

 

 

    

 

 

 

For the six months ended June 30, 2014, there was no reclassification of loans receivable as loans held for sale, and loans held for sale of $12.7 million were sold. For the six months ended June 30, 2013, loans receivable of $8.0 million were reclassified as loans held for sale, and loans held for sale of $59.7 million were sold.

 

Allowance for Loan Losses and Allowance for Off-Balance Sheet Items

Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows for the periods indicated:

 

     As of and for the     As of and for the  
     Three Months Ended     Six Months Ended  
     June 30,     June 30,     June 30,     June 30,  
     2014     2013     2014     2013  
     (In thousands)  

Allowance for loan losses:

        

Balance at beginning of period

   $ 56,593      $ 61,191      $ 57,555      $ 63,305   

Charge-offs

     (2,547     (3,490     (4,151     (6,514

Recoveries on loans previously charged off

     1,741        1,867        5,992        2,581   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loan (charge-offs) recoveries

     (806     (1,623     1,841        (3,933

(Negative provision) provision charged to operating expense

     (3,901     308        (7,510     504   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 51,886      $ 59,876      $ 51,886      $ 59,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for off-balance sheet items:

        

Balance at beginning of period

   $ 1,557      $ 1,628      $ 1,248      $ 1,822   

Provision (negative provision) charged to operating expense

     35        (308     344        (502
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 1,592      $ 1,320      $ 1,592      $ 1,320   
  

 

 

   

 

 

   

 

 

   

 

 

 

The allowance for off-balance sheet items is maintained at a level believed to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the allowance adequacy is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. As of June 30, 2014 and December 31, 2013, the allowance for off-balance sheet items amounted to $1.6 million and $1.2 million, respectively. Net adjustments to the allowance for off-balance sheet items are included in the provision for credit losses.

 

The following table details the information on the allowance for loan losses by portfolio segment for the three months ended June 30, 2014 and 2013:

 

     Real Estate     Commercial
and Industrial
    Consumer     Unallocated     Total  
     (In thousands)  

June 30, 2014

          

Allowance for loan losses:

          

Beginning balance

   $ 44,230      $ 10,425      $ 633      $ 1,305      $ 56,593   

Charge-offs

     (60     (2,474     (13     —          (2,547

Recoveries on loans previously charged off

     87        1,652        2        —          1,741   

(Negative provision) provision

     (3,954     135        (82     —          (3,901
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 40,303      $ 9,738      $ 540      $ 1,305      $ 51,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 2,448      $ 2,605      $ 113      $ —        $ 5,166   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 37,855      $ 7,133      $ 427      $ 1,305      $ 46,720   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

          

Ending balance

   $ 2,090,083      $ 230,309      $ 28,843      $ —        $ 2,349,235   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 35,616      $ 10,741      $ 1,529      $ —        $ 47,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 2,054,467      $ 219,568      $ 27,314      $ —        $ 2,301,349   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2013

          

Allowance for loan losses:

          

Beginning balance

   $ 46,328      $ 11,064      $ 1,795      $ 2,004      $ 61,191   

Charge-offs

     (2,289     (1,165     (36     —          (3,490

Recoveries on loans previously charged off

     1,101        760        6        —          1,867   

Provision (negative provision)

     1,256        459        119        (1,526     308   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 46,396      $ 11,118      $ 1,884      $ 478      $ 59,876   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 711      $ 4,328      $ 385      $ —        $ 5,424   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 45,685      $ 6,790      $ 1,499      $ 478      $ 54,452   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

          

Ending balance

   $ 1,964,853      $ 187,156      $ 35,380      $ —        $ 2,187,389   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 28,267      $ 15,760      $ 1,647      $ —        $ 45,674   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,936,586      $ 171,396      $ 33,733      $ —        $ 2,141,715   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following table details the information on the allowance for loan losses by portfolio segment for the six months ended June 30, 2014 and 2013:

 

     Real Estate     Commercial
and Industrial
    Consumer     Unallocated     Total  
     (In thousands)  

June 30, 2014

          

Allowance for loan losses:

          

Beginning balance

   $ 43,550      $ 11,287      $ 1,427      $ 1,291      $ 57,555   

Charge-offs

     (1,188     (2,896     (67     —          (4,151

Recoveries on loans previously charged off

     3,005        2,973        14        —          5,992   

(Negative provision) provision

     (5,064     (1,626     (834     14        (7,510
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 40,303      $ 9,738      $ 540      $ 1,305      $ 51,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 2,448      $ 2,605      $ 113      $ —        $ 5,166   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 37,855      $ 7,133      $ 427      $ 1,305      $ 46,720   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

          

Ending balance

   $ 2,090,083      $ 230,309      $ 28,843      $ —        $ 2,349,235   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 35,616      $ 10,741      $ 1,529      $ —        $ 47,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 2,054,467      $ 219,568      $ 27,314      $ —        $ 2,301,349   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2013

          

Allowance for loan losses:

          

Beginning balance

   $ 49,472      $ 10,636      $ 2,280      $ 917      $ 63,305   

Charge-offs

     (3,575     (2,740     (199     —          (6,514

Recoveries on loans previously charged off

     1,282        1,244        55        —          2,581   

(Negative provision) provision

     (783     1,978        (251     (440     504   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 46,396      $ 11,118      $ 1,885      $ 477        59,876   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 711      $ 4,328      $ 385      $ —          5,424   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 45,685      $ 6,790      $ 1,500      $ 477        54,452   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

          

Ending balance

   $ 1,964,853      $ 187,156      $ 35,380      $ —          2,187,389   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 28,267      $ 15,760      $ 1,647      $ —          45,674   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,936,586      $ 171,396      $ 33,733      $ —          2,141,715   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of our loan portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from (0) to (8)) for each and every loan in our loan portfolio. A third party loan review is required on an annual basis. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:

Pass and Pass-Watch: Pass and Pass-Watch loans, grades (0-4), are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention,” “Substandard” or “Doubtful.” This category is the strongest level of the Bank’s loan grading system. It incorporates all performing loans with no credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans.

Special Mention: A Special Mention credit, grade (5), has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment of the debt and result in a Substandard classification. Loans that have significant actual, not potential, weaknesses are considered more severely classified.

Substandard: A Substandard credit, grade (6), has a well-defined weakness that jeopardizes the liquidation of the debt. A credit graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.

Doubtful: A Doubtful credit, grade (7), is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the credit, and therefore the amount or timing of a possible loss cannot be determined at the current time.

 

Loss: A loan classified as Loss, grade (8), is considered uncollectible and of such little value that their continuance as active bank assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans classified as Loss will be charged off in a timely manner.

As of June 30, 2014 and December 31, 2013, pass/pass-watch (grade 0-4), criticized (grade 5) and classified (grade 6-7) loans, disaggregated by loan class, were as follows:

 

     Pass/Pass-Watch
(Grade 0-4)
     Criticized
(Grade 5)
     Classified
(Grade 6-7)
     Total Loans  
     (In thousands)  

June 30, 2014

           

Real estate loans:

           

Commercial property

           

Retail

   $ 549,750       $ 6,625       $ 5,279       $ 561,654   

Hotel/Motel

     325,745         7,386         4,997         338,128   

Gas station

     273,300         1,846         7,951         283,097   

Other

     773,540         10,903         12,733         797,176   

Construction

     1,467         —           —           1,467   

Residential property

     106,801         —           1,760         108,561   

Commercial and industrial loans:

           

Commercial term

     103,734         1,953         9,806         115,493   

Commercial lines of credit

     69,070         —           1,731         70,801   

International loans

     43,764         251         —           44,015   

Consumer loans

     26,795         148         1,900         28,843   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 2,273,966       $ 29,112       $ 46,157       $ 2,349,235   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2013

           

Real estate loans:

           

Commercial property

           

Retail

   $ 531,014       $ 5,309       $ 7,296       $ 543,619   

Hotel/Motel

     308,483         1,796         12,648         322,927   

Gas station

     279,636         3,104         9,817         292,557   

Other

     690,481         8,524         32,612         731,617   

Residential property

     77,422         —           1,656         79,078   

Commercial and industrial loans:

           

Commercial term

     107,712         2,007         14,672         124,391   

Commercial lines of credit

     69,823         —           1,219         71,042   

International loans

     35,777         576         —           36,353   

Consumer loans

     30,044         163         2,298         32,505   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 2,130,392       $ 21,479       $ 82,218       $ 2,234,089   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The following is an aging analysis of past due loans, disaggregated by loan class, as of the dates indicated:

 

     30-59 Days Past
Due
     60-89 Days Past
Due
     90 Days or
More Past Due
     Total Past Due      Current      Total Loans      Accruing 90
Days or More
Past Due
 
     (In thousands)  

June 30, 2014

                    

Real estate loans:

                    

Commercial property

                    

Retail

   $ 820       $ —         $ 732       $ 1,552       $ 560,102       $ 561,654       $ —     

Hotel/Motel

     53         —           2,462         2,515         335,613         338,128         —     

Gas station

     166         —           3,947         4,113         278,984         283,097         —     

Other

     356         11         930         1,297         795,879         797,176         —     

Construction

     —           —           —           —           1,467         1,467         —     

Residential property

     884         —           113         997         107,564         108,561         —     

Commercial and industrial loans:

                    

Commercial term

     1,975         587         2,623         5,185         110,308         115,493         —     

Commercial lines of credit

     140         795         —           935         69,866         70,801         —     

International loans

     —           —           —           —           44,015         44,015         —     

Consumer loans

     249         21         46         316         28,527         28,843         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 4,643       $ 1,414       $ 10,853       $ 16,910       $ 2,332,325       $ 2,349,235       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2013

                    

Real estate loans:

                    

Commercial property

                    

Retail

   $ 202       $ 426       $ 2,196       $ 2,825       $ 540,794       $ 543,619       $ —     

Hotel/Motel

     1,087         —           1,532         2,619         320,308         322,927         —     

Gas station

     141         410         153         704         291,853         292,557         —     

Other

     423         2,036         839         3,297         728,320         731,617         —     

Residential property

     —           122         279         401         78,677         79,078         —     

Commercial and industrial loans:

                    

Commercial term

     1,443         886         3,269         5,598         118,793         124,391         —     

Commercial lines of credit

     —           150         250         400         70,642         71,042         —     

International loans

     —           —           —           —           36,353         36,353         —     

Consumer loans

     311         42         77         430         32,075         32,505         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 3,607       $ 4,072       $ 8,595       $ 16,274       $ 2,217,815       $ 2,234,089       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired Loans

Loans are considered impaired when non-accrual and principal or interest payments have been contractually past due for 90 days or more, unless the loan is both well-collateralized and in the process of collection; or they are classified as Troubled Debt Restructuring (“TDR”) loans to offer terms not typically granted by the Bank; or when current information or events make it unlikely to collect in full according to the contractual terms of the loan agreements; or there is a deterioration in the borrower’s financial condition that raises uncertainty as to timely collection of either principal or interest; or full payment of both interest and principal is in doubt according to the original contractual terms.

We evaluate loan impairment in accordance with applicable GAAP. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, loans that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.

The allowance for collateral-dependent loans is determined by calculating the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage, using recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.

 

The following table provides information on impaired loans, disaggregated by loan class, as of the dates indicated:

 

     Recorded
Investment
     Unpaid Principal
Balance
     With No
Related
Allowance
Recorded
     With an
Allowance
Recorded
     Related
Allowance
 
     (In thousands)  

June 30, 2014

              

Real estate loans:

              

Commercial property

              

Retail

   $ 5,198       $ 5,427       $ 2,665         2,533       $ 403   

Hotel/Motel

     4,627         5,337         4,166         461         1,500   

Gas station

     12,400         12,905         11,779         621         238   

Other

     10,569         11,905         8,475         2,094         307   

Residential property

     2,822         2,942         2,822         —           —     

Commercial and industrial loans:

              

Commercial term

     8,952         9,429         2,400         6,552         2,570   

Commercial lines of credit

     704         799         521         183         3   

International loans

     1,085         1,085         450         635         32   

Consumer loans

     1,529         1,664         622         907         113   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 47,886       $ 51,493       $ 33,900       $ 13,986       $ 5,166   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2013

              

Real estate loans:

              

Commercial property

              

Retail

   $ 6,244       $ 6,332       $ 3,767       $ 2,477       $ 305   

Hotel/Motel

     6,200         6,940         4,668         1,532         1,183   

Gas station

     9,389         9,884         8,592         797         209   

Other

     11,451         12,882         9,555         1,896         351   

Residential property

     2,678         2,773         2,678         —           —     

Commercial and industrial loans:

              

Commercial term

     13,834         14,308         2,929         10,905         3,806   

Commercial lines of credit

     614         686         173         441         252   

International loans

     1,087         1,087         286         801         78   

Consumer loans

     1,569         1,671         644         925         284   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 53,066       $ 56,563       $ 33,292       $ 19,774       $ 6,468   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The following table provides information on impaired loans, disaggregated by loan class, as of the dates indicated:

 

     Average
Recorded
Investment for
the Three
Months Ended
     Interest Income
Recognized for
the Three
Months Ended
     Average
Recorded
Investment for
the Six Months
Ended
     Interest Income
Recognized for
the Six Months
Ended
 
     (In thousands)  

June 30, 2014

           

Real estate loans:

           

Commercial property

           

Retail

   $ 5,286       $ 108       $ 6,295       $ 179   

Hotel/Motel

     4,712         80         4,121         129   

Gas station

     12,432         181         10,944         369   

Other

     10,624         228         11,124         451   

Residential property

     2,833         30         2,692         57   

Commercial and industrial loans:

           

Commercial term

     9,085         140         10,952         317   

Commercial lines of credit

     713         11         729         25   

International loans

     1,131         —           1,130         —     

Consumer loans

     1,535         16         1,547         30   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 48,351       $ 794       $ 49,534       $ 1,557   
  

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2013

           

Real estate loans:

           

Commercial property

           

Retail

   $ 3,098       $ 24       $ 4,193       $ 78   

Hotel/Motel

     3,944         121         3,940         257   

Gas station

     8,739         173         8,773         340   

Other

     9,583         290         9,919         536   

Residential property

     3,027         31         3,043         59   

Commercial and industrial loans:

           

Commercial term

     13,687         263         13,836         501   

Commercial lines of credit

     1,060         9         1,286         24   

International loans

     1,330         —           1,414         —     

Consumer loans

     1,649         15         1,646         27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gross loans

   $ 46,117       $ 926       $ 48,050       $ 1,822   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of interest foregone on impaired loans for the periods indicated:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,     June 30,     June 30,  
     2014     2013     2014     2013  
     (In thousands)  

Interest income that would have been recognized had impaired loans performed in accordance with their original terms

   $ 1,215      $ 1,057      $ 2,427      $ 2,125   

Less: Interest income recognized on impaired loans

     (794     (926     (1,557     (1,822
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest foregone on impaired loans

   $ 421      $ 131      $ 870      $ 303   
  

 

 

   

 

 

   

 

 

   

 

 

 

There were no commitments to lend additional funds to borrowers whose loans are included above.

 

Non-Accrual Loans

Loans are placed on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Non-accrual loans may be restored to accrual status when principal and interest payments become current and full repayment is expected.

The following table details non-accrual loans, disaggregated by loan class, as of the dates indicated:

 

     June 30,      December 31,  
     2014      2013  
     (In thousands)  

Real estate loans:

     

Commercial property

     

Retail

   $ 2,802       $ 2,946   

Hotel/Motel

     3,631         5,200   

Gas station

     5,356         2,492   

Other

     4,369         4,808   

Residential property

     1,162         1,365   

Commercial and industrial loans:

     

Commercial term

     5,965         7,146   

Commercial lines of credit

     521         423   

Consumer loans

     1,575         1,497   
  

 

 

    

 

 

 

Total non-accrual loans

   $ 25,381       $ 25,877   
  

 

 

    

 

 

 

The following table details non-performing assets as of the dates indicated:

 

     June 30,      December 31,  
     2014      2013  
     (In thousands)  

Non-accrual loans

   $ 25,381       $ 25,877   

Loans 90 days or more past due and still accruing

     —           —     
  

 

 

    

 

 

 

Total non-performing loans

     25,381         25,877   

Other real estate owned

     1,714         756   
  

 

 

    

 

 

 

Total non-performing assets

   $ 27,095       $ 26,633   
  

 

 

    

 

 

 

Loans on non-accrual status, excluding loans held for sale, totaled $25.4 million as of June 30, 2014, compared to $25.9 million as of December 31, 2013, representing a 1.9 percent decrease. Delinquent loans (defined as 30 days or more past due), excluding loans held for sale, were $16.9 million as of June 30, 2014, compared to $16.3 million as of December 31, 2013, representing a 3.9 percent increase.

As of June 30, 2014, other real estate owned (“OREO”) consisted of two properties in California with a combined carrying value of $1.7 million and no valuation adjustment. As of December 31, 2013, there were three OREOs located in Washington and California with a combined carrying value of $756,000 and a valuation adjustment of $56,000.

Troubled Debt Restructuring

In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which clarifies the guidance for evaluating whether a restructuring constitutes a TDR. This guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For the purposes of measuring impairment of loans that are newly considered impaired, the guidance should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011.

As a result of the amendments in ASU 2011-02, we reassessed all restructurings that occurred on or after the beginning of the annual period and identified certain receivables as TDRs. Upon identifying those receivables as TDRs, we considered them impaired and applied the impairment measurement guidance prospectively for those receivables newly identified as impaired.

The following table details troubled debt restructurings, disaggregated by concession type and by loan type, as of June 30, 2014 and December 31, 2013:

 

    Non-Accrual TDRs     Accrual TDRs  
    Deferral of
Principal
    Deferral of
Principal and
Interest
    Reduction of
Principal and
Interest
    Extension of
Maturity
    Total     Deferral of
Principal
    Deferral of
Principal and
Interest
    Reduction of
Principal and
Interest
    Extension of
Maturity
    Total  
    (In thousands)  

June 30, 2014

                   

Real estate loans:

                   

Commercial property

                   

Retail

  $ —        $ —        $ —        $ 2,614      $ 2,614      $ 309      $ —        $ —        $ —        $ 309   

Hotel/Motel

    1,200        738        —          —          1,938        996        —          —          —          996   

Gas station

    1,138        —          —          —          1,138        363        —          —          —          363   

Other

    —          1,199        494        62        1,755        3,334        —          798        1,380        5,512   

Residential property

    769        —          —          —          769        —          —          —          313        313   

Commercial and industrial loans:

                   

Commercial term

    62        4        1,246        902        2,214        129        227        2,169        2,286        4,811   

Commercial lines of credit

    238        —          140        143        521        —          —          183        —          183   

Consumer loans

    —          —          139        —          139        —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,407      $ 1,941      $ 2,019      $ 3,721      $ 11,088      $ 5,131      $ 227      $ 3,150      $ 3,979      $ 12,487   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

                   

Real estate loans:

                   

Commercial property

                   

Retail

  $ —        $ —        $ —        $ 750      $ 750      $ —        $ —        $ —        $ 474      $ 474   

Hotel/Motel

    1,272        758        —          —          2,030        1,000        —          —          —          1,000   

Gas station

    1,291        —          729        —          2,020        365        —          —          2,609        2,974   

Other

    403        1,279        555        —          2,237        2,956        —          1,253        2,027        6,236   

Residential property

    795        —          —          —          795        —          —          —          —          —     

Commercial and industrial loans:

                   

Commercial term

    25        206        1,449        851        2,531        1,203        —          2,286        3,817        7,306   

Commercial lines of credit

    —          —          —          173        173        —          —          191        —          191   

International loans

    —          —          —          —          —          —          —          1,087        —          1,087   

Consumer loans

    —          —          —          —          —          —          —          149        —          149   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,786      $ 2,243      $ 2,733      $ 1,774      $ 10,536      $ 5,524      $ —        $ 4,966      $ 8,927      $ 19,417   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of June 30, 2014 and December 31, 2013, total TDRs, excluding loans held for sale, were $23.6 million and $30.0 million, respectively. A debt restructuring is considered a TDR if we grant a concession that we would not have otherwise considered to the borrower, for economic or legal reasons related to the borrower’s financial difficulties. Loans are considered to be TDRs if they were restructured through payment structure modifications such as reducing the amount of principal and interest due monthly and/or allowing for interest only monthly payments for six months or less. All TDRs are impaired and are individually evaluated for specific impairment using one of these three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent.

At June 30, 2014 and December 31, 2013, TDRs, excluding loans held for sale, were subjected to specific impairment analysis, and $2.6 million and $2.8 million, respectively, of reserves relating to these loans were included in the allowance for loan losses.

 

The following table details troubled debt restructurings, disaggregated by loan class, for the three months ended June 30, 2014 and 2013:

 

     June 30, 2014      June 30, 2013  
     Number of
Loans
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
     Number of
Loans
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 
     (In thousands, except number of loans)  

Real estate loans:

                 

Commercial property

                 

Retail (1)

     1       $ 2,002       $ 1,882         —         $ —         $ —     

Other (2)

     1       $ 65       $ 62         1       $ 148       $ 140   

Residential property (3)

     1         316         313         —           —           —     

Commercial and industrial loans:

                 

Commercial term (4)

     2         59         53         6         518         498   

Commercial lines of credit (5)

     1         146         140         —           —           —     

Consumer loans (6)

     —           —           —           1         149         149   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     6       $ 2,588       $ 2,450         8       $ 815       $ 787   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes a modification of $1.9 million through an extension of maturity for the three months ended June 30, 2014.
(2)  Includes a modification of $62,000 through an extension of maturity for the three months ended June 30, 2014 and a modification of $140,000 through a reduction of principal or accrued interest for the three months ended June 30, 2013.
(3)  Includes a modification of $313,000 through an extension of maturity for the three months ended June 30, 2014.
(4)  Includes modifications of $41,000 through a payment deferral and $12,000 through a reduction of principal or accrued interest for the three months ended June 30, 2014, and modifications of $42,000 through a reduction of principal or accrued interest and $456,000 through extensions of maturity for the three months ended June 30, 2013.
(5)  Includes a modification of $140,000 through a reduction of principal or accrued interest for the three months ended June 30, 2014.
(6)  Includes a modification of $149,000 through a reduction of principal or accrued interest for the three months ended June 30, 2013.

During the three months ended June 30, 2014, we restructured monthly payments on six loans, with a net carrying value of $2.5 million as of June 30, 2014, through temporary payment structure modifications or re-amortization. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms are probable.

 

The following table details troubled debt restructurings, disaggregated by loan class, for the six months ended June 30, 2014 and 2013:

 

     June 30, 2014      June 30, 2013  
     Number of
Loans
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
     Number of
Loans
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 
     (In thousands, except number of loans)  

Real estate loans:

                 

Commercial property

                 

Retail (1)

     1       $ 2,002       $ 1,882         —         $ —         $ —     

Other (2)

     2         1,011         1,005         1         153         140   

Residential property (3)

     1         317         313         —           —           —     

Commercial and industrial loans:

                 

Commercial term (4)

     5         327         287         8         772         699   

Commercial lines of credit (5)

     2         400         378         —           —           —     

International loans (6)

     —           —           —           2         1,584         1,280   

Consumer loans (7)

     —           —           —           1         149         149   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     11       $ 4,057       $ 3,865         12       $ 2,658       $ 2,268   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes a modification of $1.9 million through an extension of maturity for the six months ended June 30, 2014.
(2)  Includes modifications of $62,000 through an extension of maturity and $943,000 through a payment deferral for the six months ended June 30, 2014, and a modification of $140,000 through a reduction of principal or accrued interest for the six months ended June 30, 2013.
(3)  Includes a modification of $313,000 through an extension of maturity for the six months ended June 30, 2014.
(4)  Includes modifications of $41,000 through a payment deferral, $65,000 through reductions of principal or accrued interest and $181,000 through an extension of maturity for the six months ended June 30, 2014, and modifications of $7,000 through a payment deferral, $42,000 through a reduction of principal or accrued interests and $650,000 through extensions of maturity for the six months ended June 30, 2013.
(5)  Includes modifications of $140,000 through a reduction of principal or accrued interest and $238,000 through a payment deferral for the six months ended June 30, 2014.
(6)  Includes a modification of $1.3 million through reductions of principal or accrued interest for the six months ended June 30, 2013.
(7)  Includes a modification of $149,000 through a reduction of principal or accrued interest for the six months ended June 30, 2013.

During the six months ended June 30, 2014, we restructured monthly payments on eleven loans, with a net carrying value of $3.9 million as of June 30, 2014, through temporary payment structure modifications or re-amortization. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms are probable.

The following table details troubled debt restructurings that defaulted subsequent to the modifications occurring within the previous twelve months, disaggregated by loan class, for the three and six months ended June 30, 2014 and 2013, respectively:

 

     Three Months Ended      Six Months Ended  
     June 30, 2014      June 30, 2013      June 30, 2014      June 30, 2013  
     Number of
Loans
     Recorded
Investment
     Number of
Loans
     Recorded
Investment
     Number of
Loans
     Recorded
Investment
     Number of
Loans
     Recorded
Investment
 
     (In thousands, except number of loans)  

Real estate loans:

                       

Commercial property

                       

Retail

     —         $ —           —         $ —           1       $ 309         —         $ —     

Hotel/Motel

     —           —           —           —           1         996         —           —     

Gas station

     —           —           —           —           —           —           1         1,274   

Other

     —           —           1         140         1         364         1         140   

Commercial and industrial loans:

                       

Commercial term

     2         212         5         341         2         212         5         341   

Commercial lines of credit

     1         140         —           —           1         140         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3       $  352         6       $ 481         6       $  2,021         7       $  1,755   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Servicing Assets

The changes in servicing assets for the six months ended June 30, 2014 and 2013 were as follows:

 

     Six Months Ended June 30,  
     2014     2013  
     (In thousands)  

Balance at beginning of period

   $ 6,833      $ 5,542   

Additions

     413        1,580   

Amortization

     (891     (739
  

 

 

   

 

 

 

Balance at end of period

   $ 6,355      $ 6,383   
  

 

 

   

 

 

 

At June 30, 2014 and 2013, we serviced loans sold to unaffiliated parties in the amounts of $333.0 million and $330.4 million, respectively. These represented loans that have been sold for which the Bank continues to provide servicing. These loans are maintained off balance sheet and are not included in the loans receivable balance. All of the loans being serviced were SBA loans.