4. LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES

The following is a summary of loans by major category at December 31:


	2011			2010
	(In thousands)
Loan portfolio composition
Real estate loans:
Residential	$	2,043		$	2,263
Commercial & industrial		2,631,880			1,525,687
Construction		44,756			46,900

Total real estate loans		2,678,679			1,574,850
Commercial business		849,576			504,458
Trade finance		146,684			57,430
Consumer and other		66,631			13,268

Total loans outstanding		3,741,570			2,150,006
Less: deferred loan fees		(2,744	)		(2,261	)

Gross loans receivable		3,738,826			2,147,745
Less: allowance for loan losses		(61,952	)		(62,320	)

Loans receivable, net	$	3,676,874		$	2,085,425

The following table presents the outstanding principal balance and the related carrying amount of the acquired Center Financial loans as of November 2011 included in our Consolidated Statements of Condition at December 31, 2011:


Outstanding principal balance	$	1,458,133
Carrying amount		1,347,525

The following table presents changes in the accretable discount on the acquired Credit Impaired Loans in the Center merger for the year ended December 31, 2011:


Balance at January 1, 2011	$	0
Center merger		32,872
Accretion		(873	)

Balance at December 31, 2011	$	31,999

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2011 is as follows:


	Legacy												Acquired								Total
	Real Estate			Commercial Business			Trade Finance			Consumer and Other			Real Estate		Commercial Business		Trade Finance		Consumer and Other		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	36,295		$	24,930		$	192		$	903		$	0	$	0	$	0	$	0	$	62,320
Provision (credit) for loan losses		23,604			2,067			2,714			(446	)		0		0		0		0		27,939
Loans charged off		(22,187	)		(8,603	)		(1,153	)		(256	)		0		0		0		0		(32,199	)
Recoveries of charged offs		1,328			2,287			33			244			0		0		0		0		3,892

Balance, end of year	$	39,040		$	20,681		$	1,786		$	445		$	0	$	0	$	0	$	0	$	61,952

Allowance for loan losses:
Individually evaluated for impairment	$	10,525		$	7,168		$	342		$	0		$	0	$	0	$	0	$	0	$	18,035
Collectively evaluated for impairment		28,515			13,513			1,444			445			0		0		0		0		43,917

Total	$	39,040		$	20,681		$	1,786		$	445		$	0	$	0	$	0	$	0	$	61,952

Loans receivable:
Individually evaluated for impairment	$	51,752		$	25,150		$	4,997		$	150		$	0	$	0	$	0	$	0	$	82,049
Collectively evaluated for impairment		1,694,483			507,841			97,013			12,660			0		0		0		0		2,311,997
Loans acquired from Center		0			0			0			0			932,444		316,585		44,674		53,821		1,347,524

Total	$	1,746,235		$	532,991		$	102,010		$	12,810		$	932,444	$	316,585	$	44,674	$	53,821	$	3,741,570

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2010 is as follows:


	Legacy												Total
	Real Estate			Commercial Business			Trade Finance			Consumer and Other			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	41,772		$	15,656		$	410		$	1,586		$	59,424
Provision (credit) for loan losses		53,441			30,930			(218	)		477			84,630
Loans charged off		(59,689	)		(23,607	)		0			(1,356	)		(84,652	)
Recoveries of charged offs		771			1,951			0			196			2,918

Balance, end of year	$	36,295		$	24,930		$	192		$	903		$	62,320

Allowance for loan losses:
Individually evaluated for impairment	$	7,831		$	13,271		$	0		$	0		$	21,102
Collectively evaluated for impairment		28,464			11,659			192			903			41,218

Total	$	36,295		$	24,930		$	192		$	903		$	62,320

Loans receivable:
Individually evaluated for impairment	$	81,140		$	40,990		$	469		$	88		$	122,687
Collectively evaluated for impairment		1,493,710			463,468			56,961			13,180			2,027,319

Total	$	1,574,850		$	504,458		$	57,430		$	13,268		$	2,150,006

Activity in the allowance for loan losses is as follows for the year ended December 31, 2009:


	(In Thousands)
Balance, beginning of year	$	43,419
Provision for loan losses		61,023
Loans charged off		(45,686	)
Recoveries of charge-offs		668

Balance, end of year	$	59,424

Individually impaired loans were as follows:


	As of and for the Year Ended December 31,
	2011			2010
	(In Thousands)
With Allocated Allowance
Without charge-off	$	67,202		$	63,944
With charge-off		341			4,188
With No Allocated Allowance
Without charge-off		8,123			42,015
With charge-off		6,383			12,540
Allowance on Impaired Loans		(18,035	)		(21,102	)

Impaired Loans, net of allowance	$	64,014		$	101,585

Average Impaired Loans	$	93,627		$	123,242
Interest income recognized during impairment	$	3,121		$	6,188
Cash-basis interest income recognized	$	3,021		$	6,135

The following table details the amount of our legacy impaired loans by class with no related allowance for loan losses, as well as the amount of impaired loans for which there is a related allowance for loan losses as of December 31, 2011 and 2010. Loans with no related allowance for loan losses have adequate collateral securing their carrying value and in some circumstances, have been charged down to their current carrying value, which is based on the fair value of the collateral.


	As of December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment
	(In Thousands)
With Related Allowance:
Real Estate—Residential	$	0	$	0	$	0		$	0
Real Estate—Commercial
Retail		1,810		1,810		(668	)		3,475
Hotel & Motel		17,439		17,441		(4,093	)		14,581
Gas Station & Car Wash		2,266		2,265		(550	)		2,825
Mixed Use		2,828		2,822		(128	)		1,953
Industrial & Warehouse		4,262		4,242		(407	)		4,826
Other		14,870		14,982		(4,630	)		6,192
Real Estate—Construction		127		128		(49	)		2,504
Commercial Business		19,413		19,416		(7,168	)		22,929
Trade Finance		4,528		4,497		(342	)		906
Consumer and Other		0		0		0			0

	$	67,543	$	67,603	$	(18,035	)	$	60,191
With No Related Allowance
Real Estate—Residential	$	0	$	0	$	0		$	0
Real Estate—Commercial
Retail		1,388		1,391		0			4,485
Hotel & Motel		0		0		0			3,770
Gas Station & Car Wash		288		287		0			2,621
Mixed Use		0		0		0			1,868
Industrial & Warehouse		2,651		2,662		0			2,380
Other		2,102		2,092		0			8,934
Real Estate—Construction		1,721		1,710		0			3,283
Commercial Business		5,737		5,740		0			5,191
Trade Finance		469		467		0			759
Consumer and Other		150		150		0			145

	$	14,506	$	14,499	$	0		$	33,436

Total	$	82,049	$	82,102	$	(18,035	)	$	93,627


	As of December 31, 2010
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment
	(In Thousands)
With Related Allowance:
Real Estate—Residential	$	0	$	0	$	0		$	0
Real Estate—Commercial
Retail		7,379		7,347		(1,518	)		7,498
Hotel & Motel		5,326		5,349		(987	)		11,439
Gas Station & Car Wash		3,140		3,142		(1,411	)		8,844
Mixed Use		307		308		(53	)		2,334
Industrial & Warehouse		7,549		7,539		(1,729	)		2,453
Other		2,701		2,697		(448	)		5,711
Real Estate—Construction		5,789		5,789		(1,686	)		4,027
Commercial Business		35,926		35,961		(13,270	)		29,753
Trade Finance		0		0		0			0
Consumer and Other		0		0		0			89

	$	68,117	$	68,132	$	(21,102	)	$	72,148

With No Related Allowance
Real Estate—Residential	$	0	$	0	$	0		$	0
Real Estate—Commercial
Retail		9,121		9,127		0			10,100
Hotel & Motel		8,626		8,619		0			7,299
Gas Station & Car Wash		5,205		5,197		0			8,361
Mixed Use		3,660		3,660		0			4,635
Industrial & Warehouse		367		367					2,510
Other		17,558		17,530		0			10,853
Real Estate—Construction		4,457		4,469		0			2,481
Commercial Business		5,018		5,029		0			4,550
Trade Finance		469		469		0			287
Consumer and Other		89		88		0			18

	$	54,570	$	54,555	$	0		$	51,094

Total	$	122,687	$	122,687	$	(21,102	)	$	123,242

The following table provides nonaccrual loans by class of loans as of December 31, 2011 and 2010:


	December 31, 2011		December 31, 2010*
	(In Thousands)
Real estate loans:
Residential	$	0	$	0
Commercial
Retail		2,612		1,615
Hotel & Motel		482		1,187
Gas Station & Car Wash		1,368		3,054
Mixed Use		822		3,968
Industrial & Warehouse		3,055		3,690
Other		10,865		4,834
Construction		127		8,547

Total	$	19,331	$	26,895
Commercial business		11,462		15,991
Trade finance		117		469
Consumer and other		150		448

	$	31,060	$	43,803

Recorded investment, which is net of unpaid principal, accrued interest receivable, deferred loan fees and discounts is not materially different from loan balance in this presentation. Accrued interest receivable on loans is $6.1 million and deferred loan fees on total loans are $(2.3) million at December 31, 2010.

The following table presents the aging of past due loans as of December 31, 2011 and 2010 by class of loans:


	As of December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Non-accrual loans		Total Delinquent loans		Greater than 90 days and accruing
	(In Thousands)
Legacy Loans
Real estate—Residential	$	36	$	0	$	0	$	36	$	0	$	36	$	0
Real estate—Commercial
Retail		431		0		0		431		2,612		3,043		0
Hotel & Motel		0		0		0		0		482		482		0
Gas Station & Car Wash		634		0		0		634		1,368		2,002		0
Mixed Use		0		0		0		0		822		822		0
Industrial & Warehouse		360		0		0		360		3,055		3,415		0
Other		0		119		0		119		10,865		10,984		0
Real estate—Construction		0		0		0		0		127		127		0
Commercial business		1,396		392		0		1,788		11,462		13,250		0
Trade finance		0		0		0		0		117		117		0
Consumer and other		5		0		0		5		150		155		0

Subtotal	$	2,862	$	511	$	0	$	3,373	$	31,060	$	34,433	$	0
Acquired Loans
Real estate—Residential	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Real estate—Commercial
Retail		147		64		1,675		1,886		0		1,886		1,675
Hotel & Motel		0		45		0		45		0		45		0
Gas Station & Car Wash		2,547		177		817		3,541		0		3,541		817
Mixed Use		1,178		1,702		389		3,269		0		3,269		389
Industrial & Warehouse		3,393		0		110		3,503		0		3,503		110
Other		1,472		228		4,237		5,937		0		5,937		4,237
Real estate—Construction		0		4,499		0		4,499		0		4,499		0
Commercial business		1,747		1,402		9,125		12,274		0		12,274		9,125
Trade finance		0		0		202		202		0		202		202
Consumer and other		705		370		700		1,775		0		1,775		700

Subtotal	$	11,189	$	8,487	$	17,255	$	36,931	$	0	$	36,931	$	17,255

TOTAL	$	14,051	$	8,998	$	17,255	$	40,304	$	31,060	$	71,364	$	17,255


	As of December 31, 2010
	30-59 Days Past Due*		60-89 Days Past Due*		Greater than 90 Days Past Due		Total Past Due*		Non Accrual*		Total Delinquent Loans*		Greater than 90 days and accruing
	(In Thousands)
Legacy Loans
Real estate—Residential	$	46	$	0	$	0	$	46	$	0	$	46	$	0
Real estate—Commercial
Retail		950		188		0		1,138		1,615		2,753		0
Hotel & Motel		455		0		0		455		1,187		1,642		0
Gas Station & Car Wash		0		0		0		0		3,054		3,054		0
Mixed Use		401		0		0		401		3,968		4,369		0
Industrial & Warehouse		133		239		0		372		3,690		4,062		0
Other		302		0		0		302		4,834		5,136		0
Real estate—Construction		0		0		0		0		8,547		8,547		0
Commercial business		684		855		0		1,539		15,991		17,530		0
Trade finance		0		0		0		0		469		469		0
Consumer and other		41		2		0		43		448		491		0

Total	$	3,012	$	1,284	$	0	$	4,296	$	43,803	$	48,099	$	0

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. This analysis is performed at least on a quarterly basis. We use the following definitions for risk ratings:

•

Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

•

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

•

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass-rated loans. As of December 31, 2011 and 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


	As of December 31, 2011
	Special Mention		Substandard		Doubtful		Total
	(In thousands)
Legacy Loans:
Real estate—Residential	$	0	$	36	$	0	$	36
Real estate—Commercial
Retail		3,430		13,477		0		16,907
Hotel & Motel		5,008		17,875		0		22,883
Gas Station & Car Wash		3,489		2,554		0		6,043
Mixed Use		2,279		3,026		0		5,305
Industrial & Warehouse		3,998		7,238		404		11,640
Other		5,914		15,393		0		21,307
Real estate—Construction		0		1,848		0		1,848
Commercial business		11,357		30,114		5,994		47,465
Trade finance		274		4,997		0		5,271
Consumer and other		0		1,081		0		1,081
Subtotal	$	35,749	$	97,639	$	6,398	$	139,786
Acquired Loans:
Real estate—Residential	$	0	$	0	$	0	$	0

Real estate—Commercial
Retail		11,591		11,334		0		22,925
Hotel & Motel		13,138		16,746		0		29,884
Gas Station & Car Wash		5,665		5,760		0		11,425
Mixed Use		3,532		2,829		0		6,361
Industrial & Warehouse		2,673		3,770		0		6,443
Other		6,702		12,598		0		19,300
Real estate—Construction		0		5,489		0		5,489
Commercial business		16,096		39,630		353		56,079
Trade finance		128		829		0		957
Consumer and other		1,662		2,526		0		4,188

Subtotal	$	61,187	$	101,511	$	353	$	163,051

Total	$	96,936	$	199,150	$	6,751	$	302,837


	As of December 31, 2010
	Special Mention		Substandard		Doubtful		Total
	(In thousands)
Real estate—Residential	$	0	$	46	$	0	$	46
Real estate—Commercial
Retail		1,948		18,898		0		20,846
Hotel & Motel		10,896		15,490		0		26,386
Gas Station & Car Wash		8,798		8,923		0		17,721
Mixed Use		364		5,887		0		6,251
Industrial & Warehouse		385		8,871		0		9,256
Other		1,865		21,431				23,296
Real estate—Construction		0		10,257		0		10,257
Commercial business		4,182		45,054		260		49,496
Trade finance		305		469		0		774
Consumer and other		830		448		0		1,278

Total Watch List Loans	$	29,573	$	135,774	$	260	$	165,607

The following table presents loans sold during the years ended December 31, 2011 and 2010 by portfolio segment:


	Real estate - Commercial		Real estate - Construction		Commercial Business		Total
	(In Thousands)
December 31, 2011:
Sales or reclassification to held for sale	$	25,358	$	5,920	$	193	$	31,471
December 31, 2010:
Sales or reclassification to held for sale	$	69,280	$	10,295	$	502	$	80,077

The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.

The Migration Analysis is a formula methodology based on the Bank's actual historical net charge-off experience for each loan pool and loan risk grade (Pass, Special Mention, Substandard and Doubtful). The migration analysis is centered on the Bank's internal credit risk rating system. Our internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower's background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors.

A general loan loss allowance is provided on loans not specifically identified as impaired ("non-impaired loans"). The allowance is determined first based on a quantitative analysis using a loss migration methodology. The loans are classified by type and loan grade, and the historical loss migration is tracked for the various stratifications. Loss experience is quantified for the most recent 12 quarters and then weighted to give more weight to the most recent losses. That loss experience is then applied to the stratified portfolio at each quarter end. During 2009, the non-impaired Commercial Real Estate loan portfolio was stratified into ten different loan pools based on property types and the non-impaired Commercial and Industrial loan portfolio was stratified into five different loan pools based on loan type, to allocate historic loss experience to more granular loan pools. Effective June 30, 2010 four additional pools, primarily in the commercial real estate portfolio, were further stratified. In addition, a new software program was implemented effective June 30, 2010 and is used to track and allocate charge-offs to the various loan grades by loan pools. The quantitative general loan loss allowance was $20.4 million at December 31, 2011, compared to $23.9 million at December 31, 2010.

Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (Major, Moderate, and Minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio or individual specific reserve allocations by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:

•

Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

•

Changes in national and local economic and business conditions and developments, including the condition of various market segments.

•

Changes in the nature and volume of the loan portfolio.

•

Changes in the experience, ability, and depth of lending management and staff.

•

Changes in the trends of the volume and severity of past due and classified loans; and changes in trends in the volume of non-accrual loans and troubled debt restructurings, and other loan modifications.

•

Changes in the quality of our loan review system and the degree of oversight by the Directors.

•

Changes in the value of underlying collateral for collateral-dependent loans.

•

The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

•

The effect of external factors such as competition and legal and regulatory requirements on the level of estimated losses in our loan portfolio.

The qualitative loan loss allowance on the loan portfolio was $23.5 million at December 31, 2011 compared to compared to $17.0 million at December 31, 2010.

We also establish specific loss allowances for loans where we have identified potential credit risk conditions or circumstances related to a specific individual credit. The specific allowance amounts are determined by a method prescribed by FASB ASC 310-10-35-22, Measurement of Impairment. The loans identified as impaired will be accounted for in accordance with one of the three acceptable valuation methods: 1) the present value of 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. For the collateral dependent impaired loans, we obtain a new appraisal to determine the amount of impairment as of the date that the loan become impaired. The appraisals are based on an "as is" valuation. To ensure that appraised values remain current, we generally obtain an updated appraisal every twelve months from a qualified independent appraiser. Furthermore, if the most current appraisal is dated more than six months prior to the effective date of the impairment test, we validate the most current value with third party market data appropriate to the location and property type of the collateral. If the third party market data indicates that the value of our collateral property has declined since the most recent valuation date, we adjust the value of the property downward to reflect current market conditions. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the collateral, the loan is deemed to be collateral dependent and the amount of impairment is charged off against the allowance for loan losses.

The Bank considers a loan to be impaired when it is probable that not all amounts due (principal and interest) will be collectible in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis by taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.

For commercial business loans, real estate loans and certain consumer loans, we base the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan's effective interest rate or on the fair value of the loan's collateral if the loan is collateral dependent. We evaluate most consumer loans for impairment on a collective basis, because these loans have generally smaller balances and are homogeneous in the underwriting terms and conditions, and in the type of collateral. If a loan is deemed to be impaired, the amount of the impairment is supported by a specific allowance amount which is included in the allowance for loan losses through a charge to the provision for loan losses.

In the third quarter, 2010, based on current market conditions, we expanded the criteria for evaluating loans for potential impairment which resulted in an increase in impaired loans from the prior quarter. Prior to the third quarter of 2010, loans graded Substandard were not individually evaluated for impairment and only considered impaired if they were 60+ days past due, unless other events existed that qualified the loan for impairment review. Therefore, a Substandard credit that was current in its contractual payments, but was classified due to other risk issues would not necessarily be subject to individual review for impairment analysis. Effective September 30, 2010, we expanded the scope of the loans reviewed for individual impairment by including all loans of $2.0 million or more that were risk-graded as Substandard, even though such loans were less than 60 days delinquent and were performing under their contractual terms. Effective December 31, 2010, we expanded the scope to include all loans of $1 million or more. This enhancement to our impairment analysis provided more coverage in terms of current fair values on classified loans as updated market values are required as part of the impairment analysis process. Effective March 31, 2011, we implemented a higher-level, preliminary non-impairment test, that is applied to loans for $1.0 million or more that are graded Substandard, are less than 60 days past due and accruing, and are not TDRs. We use a five-step test with the following criteria: (1) the loan is current with no 30-day late payments in the past six months; (2) the loan payments are the contractual, non-modified amount; (3) the financial information that supports payment capacity is not aged over one year; (4) the global cash flow supports the current payment amount at a ratio of 1:1 or better; and (5) for CRE loans secured by a first lien on real estate collateral, the most current LTV is below 100%. If the loan meets all of these criteria, it is not considered impaired and is subject to the general loan loss allowance for non-impaired loans. Impaired loans at December 31, 2011, were $82.1 million , a net decrease of $40.6 million from $122.7 million at December 31, 2010. This net decrease in impaired loans is due primarily to the sales of 24 impaired loans, totaling $33.1 million, and the return of 34 loans totaling $22.4 million to non-impaired status year-to-date. The return to non-impaired status was based on a review of the current financial information and payment performance.

The following table presents loans by portfolio segment and impairment method at December 31, 2011 and 2010:


	As of December 31, 2011
	Real estate - Residential			Real estate - Commercial			Real estate - Construction			Commercial business			Trade finance			Consumer and other			Total
	(In Thousands)
Impaired loans	$	0		$	49,904		$	1,848		$	25,150		$	4,997		$	150		$	82,049
Specific allowance	$	0		$	10,476		$	49		$	7,168		$	342		$	0		$	18,035
Loss coverage ratio		0.0	%		21.0	%		2.7	%		28.5	%		6.8	%		0.0	%		22.0	%
Non-impaired loans	$	2,043		$	2,581,976		$	42,908		$	824,426		$	141,687		$	66,482		$	3,659,522
General allowance	$	9		$	27,831		$	675		$	13,513		$	1,444		$	445		$	43,917
Loss coverage ratio		0.4	%		1.1	%		1.6	%		1.6	%		1.0	%		0.7	%		1.2	%
Total loans	$	2,043		$	2,631,880		$	44,756		$	849,576		$	146,684		$	66,632		$	3,741,571
Total allowance for loan losses	$	9		$	38,307		$	724		$	20,681		$	1,786		$	445		$	61,952
Loss coverage ratio		0.4	%		1.5	%		1.6	%		2.4	%		1.2	%		0.7	%		1.7	%


	As of December 31, 2010
	Real estate - Residential			Real estate - Commercial			Real estate - Construction			Commercial business			Trade finance			Consumer and other			Total
	(In Thousands)
Impaired loans*	$	0		$	70,882		$	10,258		$	40,990		$	469		$	88		$	122,687
Specific allowance	$	0		$	6,145		$	1,686		$	13,271		$	0		$	0		$	21,102
Loss coverage ratio		0.0	%		8.7	%		16.4	%		32.4	%		0.0	%		0.0	%		17.2	%
Non-impaired loans	$	2,263		$	1,453,768		$	36,642		$	450,821		$	56,961		$	13,180		$	2,013,635
General allowance	$	14		$	26,740		$	1,710		$	11,659		$	192		$	903		$	41,218
Loss coverage ratio		0.6	%		1.8	%		4.7	%		2.6	%		0.3	%		6.9	%		2.0	%
Total loans	$	2,263		$	1,524,650		$	46,900		$	491,811		$	57,430		$	13,268		$	2,136,322
Total allowance for loan losses	$	14		$	32,885		$	3,396		$	24,930		$	192		$	903		$	62,320
Loss coverage ratio		0.6	%		2.2	%		7.2	%		5.1	%		0.3	%		6.8	%		2.9	%

Under certain circumstances, we provide borrowers relief through loan modifications. These modifications are either temporary in nature ("temporary modifications"), or are more substantive troubled debt restructurings. At December 31, 2011, total modified loans were $32.7 million, compared to $55.6 million at December 31, 2010. The temporary modifications generally consist of interest only payments for a three- to six- month period, whereby principal payments are deferred. At the end of the modification period, the remaining principal balance is re-amortized based on the original maturity date. Loans subject to temporary modifications are generally downgraded to Substandard or Special Mention. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.

Troubled Debt Restructured ("TDR") loans are defined by ASC 310-40, "Troubled Debt Restructurings by Creditors" and ASC 470-60, "Troubled Debt Restructurings by Debtors," and evaluated for impairment in accordance with ASC 310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, 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. This evaluation is performed under our internal underwriting policy.

A summary of TDRs on accrual and non-accrual by type of concession as of December 31, 2011 and 2010 is presented below:


	As of December 31, 2011
	TDR on accrual								TDR on non-accrual
(In Thousands)	Real estate - Commercial		Commercial Business		Trade Finance		Total		Real estate - Commercial		Commercial Business		Trade Finance and Other		Total		TOTAL
Payment concession	$	949	$	1,365	$	0	$	2,314	$	3,769	$	3,441	$	0	$	7,210	$	9,524
Maturity / Amortization concession		0		888		469		1,357		1,178		1,578		150		2,906		4,263
Rate concession		12,384		2,740		0		15,124		3,335		396		0		3,731		18,855
Principal forgiveness		0		0		0		0		0		78		0		78		78

	$	13,333	$	4,993	$	469	$	18,795	$	8,282	$	5,493	$	150	$	13,925	$	32,720


	December 31, 2010
	TDR on accrual						TDR on non-accrual
(In Thousands)	Real estate - Commercial		Commercial Business		Total		Real estate - Commercial		Commercial Business		Trade Finance and Other		Total		TOTAL
Payment concession	$	975	$	8,744	$	9,719	$	3,018	$	2,773	$	0	$	5,791	$	15,510
Maturity / Amortization concession		4,968		7,144		12,112		2,847		4,055		557		7,459		19,571
Rate concession		12,250		1,022		13,272		4,346		2,834		0		7,180		20,452
Principal forgiveness		0		0		0		0		91		0		91		91

	$	18,193	$	16,910	$	35,103	$	10,211	$	9,753	$	557	$	20,521	$	55,624

TDRs on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification if the prior performance met or exceeded the modified terms. TDRs on accrual status at December 31, 2011 were comprised of 6 commercial real estate loans totaling $13.3 million and 19 commercial business loans totaling $5.0 million. TDRs on accrual status at December 31, 2010 were comprised of 17 commercial real estate loans totaling $18.2 million and 43 commercial business loans totaling $16.9 million. We expect that the TDRs on accrual status as of December 31, 2011, which are all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDRs that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDRs after each year end.

The following table presents loans by class modified as troubled debt restructuring that occurred during the year ended December 31, 2011:


(In thousands)	Number of Loans		Pre- Modification		Post- Modification as of December 31, 2011
Real estate—Commercial
Retail		2	$	2,105	$	1,210
Hotel & Motel		3		8,847		8,704
Gas Station & Car Wash		0		0		0
Mixed Use		2		1,794		1,771
Industrial & Warehouse		5		464		456
Other		4		962		880
Real estate—Construction		0		0		0
Commercial business		24		2,039		1,919
Trade finance		1		500		469
Consumer and other		1		84		69

Total		42	$	16,795	$	15,478

The allowance for loan losses for the troubled debt restructuring described above as of December 31, 2011 was $4.2 million and the charge offs for the year ended December 31, 2011 was $3.2 million.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2011:


	Number of Loans		Balance
			(In thousands)
Real estate—Commercial
Retail		1	$	769
Hotel & Motel		0		0
Gas Station & Car Wash		0		0
Industrial & Warehouse		3		139
Other		1		294
Commercial Business		3		284
Consumer and Other		0		0

		8	$	1,486

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The allowance for loan losses for the troubled debt restructuring described above as of December 31, 2011 was $0.3 million and the charge offs for the year ended December 31, 2011 was $2.0 million.

We have allocated $6.4 million and $15.8 million of specific reserves to TDRs as of December 31, 2011 and December 31, 2010, respectively. As of December 31, 2011 and December 31, 2010, we did not have any outstanding commitments to extend additional funds to these borrowers.

Covered Loans

On April 16, 2010, the Department of Financial Institutions closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement and two related loss sharing agreements with the FDIC. Upon the merger between Nara Bancorp and Center Financial, the Company assumed the loss sharing agreements with the FDIC.

Covered nonperforming assets totaled $3.6 million at December 31, 2011. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at December 31, 2011 were as follows:


(in thousands)	December 31, 2011
Covered loans on non-accrual status	$	0
Covered other real estate owned		3,575

Total covered nonperforming assets	$	3,575

Acquired covered loans	$	89,959
Covered nonperforming assets to net covered loans		3.97	%

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete the accretable discount to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.