Loans Receivable and Allowance for Loan Losses

The following is a summary of loans receivable by major category:


	March 31, 2012			December 31, 2011
	(In thousands)
Loan portfolio composition
Real estate loans:
Residential	$	1,995		$	2,043
Commercial & industrial		2,626,530			2,631,880
Construction		48,064			44,756

Total real estate loans		2,676,589			2,678,679
Commercial business		846,307			849,576
Trade finance		152,704			146,684
Consumer and other		64,095			66,631

Total loans outstanding		3,739,695			3,741,570
Less: deferred loan fees		(2,496	)		(2,744	)

Gross loans receivable		3,737,199			3,738,826
Less: allowance for loan losses		(62,309	)		(61,952	)

Loans receivable, net	$	3,674,890		$	3,676,874

Our loan portfolio is made up of four segments: real estate loans, commercial business, trade finance and consumer and other. These segments are further segregated between our loans accounted for under the amortized cost method (referred to as "legacy" loans) and loans acquired from Center Financial (referred to as "acquired" loans), as acquired loans were originally recorded at fair value with no carryover of the related allowance for loan losses. The acquired loans are further segregated between Credit Impaired Loans (ASC 310-30 loans acquired with the credit deterioration) and performing loans (pass graded loans acquired from Center at the time of merger). The following table presents the outstanding principal balance and the related carrying amount of the acquired Center Financial loans included in our Consolidated Statements of Condition at March 31, 2012 and December 31, 2011:


	March 31, 2012		December 31, 2011
	(In thousands)
Outstanding principal balance	$	1,327,898	$	1,458,133
Carrying amount		1,229,410		1,347,525

The following table presents changes in the accretable discount on the acquired Credit Impaired Loans in the Center merger for the dates indicated:


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

Balance at December 31, 2011		31,999
Accretion		(3,561	)
Changes in expected cash flows		1,350

Balance at March 31, 2012	$	29,788

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2012 is as follows:


	Legacy											Acquired
	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 period	$	39,040		$	20,681		$	1,786		$	445	$	0		$	0		$	0	$	0		$	61,952
Provision (credit) for loan losses		(1,317	)		1,627			(23	)		548		1,254			477			16		18			2,600
Loans charged off		(1,934	)		(1,362	)		0			0		(14	)		(47	)		0		(25	)		(3,382	)
Recoveries of charged offs		20			645			60			17		303			87			0		7			1,139

Balance, end of period	$	35,809		$	21,591		$	1,823		$	1,010	$	1,543		$	517		$	16	$	0		$	62,309

Allowance for loan losses:
Individually evaluated for impairment	$	6,624		$	8,434		$	1		$	479	$	673		$	241		$	0	$	0		$	16,452
Collectively evaluated for impairment		29,185			13,157			1,822			531		56			276			16		0			45,043
Loans acquired with credit deterioration		0			0			0			0		814			0			0		0			814

Total	$	35,809		$	21,591		$	1,823		$	1,010	$	1,543		$	517		$	16	$	0		$	62,309

Loans outstanding:
Individually evaluated for impairment	$	55,448		$	27,423		$	4,702		$	624	$	10,770		$	821		$	0	$	0		$	99,788
Collectively evaluated for impairment		1,737,254			530,484			132,926			21,424		725,865			211,926			14,108		17,931			3,391,918
Loans acquired with credit deterioration		0			0			0					147,252			75,653			968		24,116			247,989

Total	$	1,792,702		$	557,907		$	137,628		$	22,048	$	883,887		$	288,400		$	15,076	$	42,047		$	3,739,695

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011 is as follows:


	Legacy
	Real Estate			Commercial Business			Trade Finance			Consumer and Other			Total
	(In thousands)
Allowance for loan losses:
Balance, beginning of period	$	36,563		$	24,930		$	192		$	635		$	62,320
Provision (credit) for loan losses		7,195			(1,705	)		(22	)		(206	)		5,262
Loans charged off		(3,082	)		(2,113	)		0			(115	)		(5,310	)
Recoveries of charged offs		234			659			0			175			1,068

Balance, end of period	$	40,910		$	21,771		$	170		$	489		$	63,340

Allowance for loan losses:
Individually evaluated for impairment	$	10,651		$	7,839		$	0		$	0		$	18,490
Collectively evaluated for impairment		30,259			13,932			170			489			44,850

Total	$	40,910		$	21,771		$	170		$	489		$	63,340

Loans outstanding:
Individually evaluated for impairment	$	79,142		$	29,866		$	460		$	170		$	109,638
Collectively evaluated for impairment		1,498,889			478,104			57,064			12,465			2,046,522

Total	$	1,578,031		$	507,970		$	57,524		$	12,635		$	2,156,160

As of March 31, 2012 and December 31, 2011, we had a liability for unfunded commitments of $686 thousand and $686 thousand, respectively. For the three months ended March 31, 2012 and 2011, we recognized provision for credit losses related to our unfunded commitments of $0.

Individually impaired loans were as follows:


	March 31, 2012			December 31, 2011
	(In Thousands)
With Allocated Allowance
Without charge-off	$	79,838		$	67,202
With charge-off		628			341
With No Allocated Allowance
Without charge-off		13,138			8,123
With charge-off		6,184			6,383
Allowance on Impaired Loans		(16,452	)		(18,035	)

Impaired Loans, net of allowance	$	83,336		$	64,014

Average Impaired Loans	$	89,398		$	93,627


	For the Three Months Ended March 31,
	2012		2011
	(In Thousands)
Interest income recognized during impairment	$	823	$	991

Interest income recognized during impairment represents the related amount of interest income recognized during the time within the period that the loans were impaired.

The following table details the amount of our 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 March 31, 2012 and December 31, 2011. Loans with no related allowance for loan losses have adequate collateral securing their carrying value, and in some circumstances, have been written down to their current carrying value, which is based on the fair value of the collateral.


	As of March 31, 2012
	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		2,563		2,529		(1,179	)		2,518
Hotel & Motel		22,762		22,553		(3,351	)		18,064
Gas Station & Car Wash		5,449		5,389		(1,310	)		3,286
Mixed Use		5,120		5,108		(162	)		3,156
Industrial & Warehouse		5,265		5,254		(405	)		4,371
Other		12,564		12,527		(890	)		8,166
Real Estate - Construction		0		0		0			1,346
Commercial Business		26,269		26,187		(8,675	)		20,990
Trade Finance		442		440		(1	)		994
Consumer and Other		479		479		(479	)		96

	$	80,913	$	80,466	($	16,452	)	$	62,987


With No Related Allowance
Real Estate - Residential	$	0	$	0	$	0		$	0
Real Estate - Commercial
Retail		1,622		1,591		0			2,984
Hotel & Motel		0		0		0			2,046
Gas Station & Car Wash		928		924		0			1,767
Mixed Use		0		0		0			1,136
Industrial & Warehouse		5,684		5,663		0			3,444
Other		2,977		2,970		0			6,023
Real Estate - Construction		1,723		1,710		0			2,733
Commercial Business		2,063		2,057		0			4,598
Trade Finance		4,285		4,262		0			1,523
Consumer and Other		145		145		0			157

	$	19,427	$	19,322	$	0		$	26,411

Total	$	100,340	$	99,788	($	16,452	)	$	89,398


	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

The following table presents the aging of past due loans as of March 31, 2012 and December 31, 2011 by class of loans:


	As of March 31, 2012
	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	$	34	$	0	$	0	$	34	$	0	$	34	$	0
Real estate - Commercial
Retail		606		273		0		879		2,979		3,858		0
Hotel & Motel		228		0		0		228		487		715		0
Gas Station & Car Wash		377		2,881		0		3,258		1,934		5,192		0
Mixed Use		0		0		0		0		805		805		0
Industrial & Warehouse		358		0		0		358		3,054		3,412		0
Other		745		118		0		863		7,810		8,673		0
Real estate - Construction		0		0		0		0		0		0		0
Commercial business		745		542		0		1,287		11,065		12,352		0
Trade finance		0		0		0		0		0		0		0
Consumer and other		0		0		0		0		624		624		0

Subtotal	$	3,093	$	3,814	$	0	$	6,907	$	28,758	$	35,665	$	0

Acquired Loans ⁽¹⁾
Real estate - Residential	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Real estate - Commercial
Retail		79		8		2,047		2,134		0		2,134		2,047
Hotel & Motel		990		15		0		1,005		6,341		7,346		0
Gas Station & Car Wash		1,467		146		3,206		4,819		384		5,203		3,206
Mixed Use		1,392		1,564		19		2,975		0		2,975		19
Industrial & Warehouse		3		5		32		40		3,028		3,068		32
Other		639		623		4,529		5,791		705		6,496		4,529
Real estate - Construction		0		0		6,363		6,363		0		6,363		6,363
Commercial business		1,036		513		1,335		2,884		371		3,255		1,335
Trade finance		100		13		0		113		0		113		0
Consumer and other		633		243		726		1,602		348		1,950		726

Subtotal		6,339		3,130		18,257		27,726		11,177		38,903		18,257

TOTAL		9,432		6,944		18,257		34,633		39,935		74,568		18,257

⁽¹⁾	The acquired loans include credit impaired loans (ASC 310-30 loans) and performing loans (pass graded loans acquired from Center at the time of merger).


	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 ⁽¹⁾
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

⁽¹⁾	The acquired loans include credit impaired loans (ASC 310-30 loans) and performing loans (pass graded loans acquired from Center at the time of merger).

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 March 31, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


	As of March 31, 2012
	Special Mention		Substandard		Doubtful/Loss		Total
	(In thousands)
Legacy Loans:
Real estate - Residential	$	0	$	34	$	0	$	34
Real estate - Commercial
Retail		3,710		13,657		0		17,367
Hotel & Motel		2,279		16,854		0		19,133
Gas Station & Car Wash		3,484		5,994		0		9,478
Mixed Use		2,224		5,319		0		7,543
Industrial & Warehouse		3,976		8,245		398		12,619
Other		11,326		12,486		0		23,812
Real estate - Construction		0		1,723		0		1,723
Commercial business		12,234		30,352		5,845		48,431
Trade finance		516		4,727		0		5,243
Consumer and other		0		1,521		0		1,521

Subtotal	$	39,749	$	100,912	$	6,243	$	146,904

Acquired Loans:
Real estate - Residential	$	0	$	0	$	0	$	0
Real estate - Commercial
Retail		13,101		11,671		0		24,772
Hotel & Motel		16,870		23,280		0		40,150
Gas Station & Car Wash		5,696		5,892		0		11,588
Mixed Use		2,467		4,184		0		6,651
Industrial & Warehouse		3,675		6,821		0		10,496
Other		6,704		13,161		0		19,865
Real estate - Construction		0		7,514		0		7,514
Commercial business		18,486		32,853		210		51,549
Trade finance		284		589		0		873
Consumer and other		649		3,941		341		4,931

Subtotal	$	67,932	$	109,906	$	551	$	178,389

Total	$	107,681	$	210,818	$	6,794	$	325,293


	As of December 31, 2011
	Special Mention		Substandard		Doubtful/Loss		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

The following table presents loans sold from loans held for investment during the three months ended March 31, 2012 and 2011 by portfolio segment:


	Real estate - Commercial		Real estate - Construction		Commercial Business		Total
	(In thousands)
March 31, 2012:
Sales or reclassification to held for sale	$	0	$	0	$	0	$	0
March 31, 2011:
Sales or reclassification to held for sale	$	2,713	$	0	$	0	$	2,713

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. For the Performing Loans acquired from Center, a general loan loss allowance is provided to the extent that there has been credit deterioration since the acquisition. The estimate of that credit deterioration becomes more evident as time passes since the acquisition. As of March 31, 2012, the historical loss experience from Center was utilized to provide for a nominal allowance. The quantitative general loan loss allowance was $19.5 million ($19.1 million for legacy loans and $348 thousand for acquired loans) at March 31, 2012, compared to $20.4 million at December 31, 2011.

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 $25.6 million at March 31, 2012, compared to $23.5 million at December 31, 2011.

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.

Impaired loans at March 31, 2012, were $99.8 million, a net increase of $17.7 million from $82.1 million at December 31, 2011. This net increase in impaired loans is due primarily to three commercial real estate (CRE) loans, aggregating $9.9 million, which were placed on non-accrual status and three loans, two CRE and one C&I, totaling $5.4 million, which were restructured.

For our Credit Impaired Loans, our allowance for loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.

The following table presents loans by portfolio segment and impairment method at March 31, 2012 and December 31, 2011:


	As of March 31, 2012
	Real estate - Residential			Real estate - Commercial			Real estate - Construction			Commercial business			Trade finance			Consumer and other			Total
	(In Thousands)
Impaired loans	$	0		$	64,508		$	1,710		$	28,244		$	4,702		$	624		$	99,788
Specific allowance	$	0		$	7,297		$	0		$	8,675		$	1		$	479		$	16,452
Loss coverage ratio		0.0	%		11.3	%		0.0	%		30.7	%		0.0	%		76.8	%		16.5	%
Non-impaired loans	$	1,995		$	2,562,022		$	46,354		$	818,063		$	148,002		$	63,471		$	3,639,907
General allowance	$	9		$	29,406		$	640		$	13,433		$	1,838		$	531		$	45,857
Loss coverage ratio		0.5	%		1.1	%		1.4	%		1.6	%		1.2	%		0.8	%		1.3	%
Total loans	$	1,995		$	2,626,530		$	48,064		$	846,307		$	152,704		$	64,095		$	3,739,695
Total allowance for loan losses	$	9		$	36,703		$	640		$	22,108		$	1,839		$	1,010		$	62,309
Loss coverage ratio		0.5	%		1.4	%		1.3	%		2.6	%		1.2	%		1.6	%		1.7	%


	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	%

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 March 31, 2012, total modified loans were $43.7 million, compared to $32.7 million at December 31, 2011. 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 March 31, 2012 and December 31, 2011 is presented below:


	As of March 31, 2012
	TDR on accrual								TDR on non-accrual
(In thousands)	Real estate - Commercial		Commercial Business		Trade Finance		Total		Real estate - Commercial		Commercial Business		Consumer & Other		Total		TOTAL
Payment concession	$	2,230	$	1,578	$	442	$	4,250	$	9,729	$	3,790	$	0	$	13,519	$	17,769
Maturity / Amortization concession		0		2,899		0		2,899		963		1,450		145		2,558		5,457
Rate concession		14,389		2,637		0		17,026		3,320		0		0		3,320		20,346
Principal forgiveness		0		0		0		0		0		112		0		112		112

	$	16,619	$	7,114	$	442	$	24,175	$	14,012	$	5,352	$	145	$	19,509	$	43,684


	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

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 March 31, 2012 were comprised of 10 commercial real estate loans totaling $16.4 million and 25 commercial business loans totaling $7.1 million. 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. We expect that the TDRs on accrual status as of March 31, 2012, 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 restructurings that occurred during the three months ended March 31, 2012:


(In thousands)	Number of Loans		Pre- Modification		Post- Modification
Real estate - Commercial
Retail		4	$	903	$	906
Hotel & Motel		0		0		0
Gas Station & Car Wash		1		218		217
Mixed Use		1		2,319		2,317
Industrial & Warehouse		1		1,064		1,064
Other		2		7,335		5,733
Real estate - Construction		0		0		0
Commercial business		8		2,538		2,524

Total		17	$	14,377	$	12,761

The specific reserves for the troubled debt restructurings described above as of March 31, 2012 was $1.3 million and the charge offs for the three months ended March 31, 2012 was $1.7 million.

The following table presents loans by class for TDR loans that have been modified within the previous twelve months and have subsequently had a payment default during the three months ended March 31, 2012:


	Number of Loans		Balance
	(In thousands)
Real estate - Commercial
Retail		1	$	258
Industrial & Warehouse		2		1,102
Other		2		1,031
Commercial Business		7		2,883

		12	$	5,274

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The specific reserves for the troubled debt restructurings described above as of March 31, 2012 was $472 thousand and the charge offs for the three months ended March 31, 2012 was $0.

We have allocated $7.2 million and $6.4 million of specific reserves to TDRs as of March 31, 2012 and December 31, 2011, respectively. As of March 31, 2012 and December 31, 2011, 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 $3.7 million and $3.6 million at March 31, 2012 and December 31, 2011, respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at March 31, 2012 and December 31, 2011 were as follows:


(in thousands)	March 31, 2012		December 31, 2011
Covered loans on non-accrual status	$	0	$	0
Covered other real estate owned		3,677		3,575

Total covered nonperforming assets	$	3,677	$	3,575

Acquired covered loans	$	78,748	$	89,959

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans and the accretable discount is accreted 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 loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.