LOANS

12 Months Ended

Dec. 31, 2011

LOANS

LOANS

NOTE 6—LOANS

• Non-Covered Loans

        When we refer to non-covered loans we are referring to loans not covered by our FDIC loss sharing agreements.

        The Company funds commercial, real estate and consumer loans to customers in the regions the Bank serves, which are mainly in Southern California. The non-covered foreign loans are primarily to individuals and entities located in Mexico. All of our non-covered foreign loans are denominated in U.S. dollars and the majority is collateralized by assets located in the United States or guaranteed or insured by businesses located in the United States.

        The following table presents the composition of our non-covered loans by portfolio segment as of the dates indicated:

	December 31,
Loan Segment	2011			2010
	(In thousands)
Real estate mortgage	$	1,982,464		$	2,274,733
Real estate construction		113,059			179,479
Commercial		671,939			663,557
Consumer		23,711			25,058
Foreign		20,932			22,608
Total gross non-covered loans		2,812,105			3,165,435
Less:
Unearned income		(4,392	)		(4,380	)
Allowance for loan losses		(85,313	)		(98,653	)
Total net non-covered loans	$	2,722,400		$	3,062,402

        The following table presents a summary of the activity in the allowance for credit losses on non-covered loans for the years indicated:

	Components
						Total Allowance for Credit Losses
	Allowance for Loan Losses			Reserve for Unfunded Loan Commitments
	(In thousands)
Balance, December 31, 2008	$	63,519		$	5,271	$	68,790
Charge-offs		(88,119	)		—		(88,119	)
Recoveries		1,707			—		1,707
Provision		141,610			290		141,900
Balance, December 31, 2009		118,717			5,561		124,278
Charge-offs(1)		(203,222	)		—		(203,222	)
Recoveries		4,280			—		4,280
Provision		178,878			114		178,992
Balance, December 31, 2010		98,653			5,675		104,328
Charge-offs		(28,560	)		—		(28,560	)
Recoveries		4,715			—		4,715
Provision		10,505			2,795		13,300
Balance, December 31, 2011	$	85,313		$	8,470	$	93,783

⁽¹⁾

Charge-offs related to loans sold were $144.6 million in 2010.

        The following tables present summaries of the activity in the allowance for loan losses on non-covered loans by portfolio segment for the years indicated:

	Year Ended December 31, 2011
	Real Estate Mortgage			Real Estate Construction			Commercial			Consumer			Foreign			Total
	(In thousands)
Allowance for Loan Losses on Non-Covered Loans:
Beginning balance	$	51,657		$	8,766		$	33,229		$	4,652		$	349		$	98,653
Charge-offs		(10,180	)		(6,886	)		(10,072	)		(1,422	)		—			(28,560	)
Recoveries		513			1,025			1,668			1,394			115			4,715
Provision (recovery)		8,215			5,792			(1,517	)		(1,856	)		(129	)		10,505
Ending balance	$	50,205		$	8,697		$	23,308		$	2,768		$	335		$	85,313
The ending balance of the allowance is composed of amounts applicable to loans:
Individually evaluated for impairment	$	11,494		$	2,073		$	6,793		$	413		$	—		$	20,773
Collectively evaluated for impairment	$	38,711		$	6,624		$	16,515		$	2,355		$	335		$	64,540
Non-Covered Loan Balances:
Ending balance	$	1,982,464		$	113,059		$	671,939		$	23,711		$	20,932		$	2,812,105
The ending balance of the non-covered loan portfolio is composed of loans:
Individually evaluated for impairment	$	118,821		$	31,792		$	23,710		$	728		$	—		$	175,051
Collectively evaluated for impairment	$	1,863,643		$	81,267		$	648,229		$	22,983		$	20,932		$	2,637,054

	Year Ended December 31, 2010
	Real Estate Mortgage			Real Estate Construction			Commercial			Consumer			Foreign			Total
							(In thousands)
Allowance for Loan Losses on Non-Covered Loans:
Beginning balance	$	58,241		$	39,934		$	17,710		$	2,021		$	811		$	118,717
Charge-offs		(117,029	)		(63,590	)		(18,548	)		(3,749	)		(306	)		(203,222	)
Recoveries		1,222			708			1,652			565			133			4,280
Provision (recovery)		109,223			31,714			32,415			5,815			(289	)		178,878
Ending balance	$	51,657		$	8,766		$	33,229		$	4,652		$	349		$	98,653
The ending balance of the allowance is composed of amounts applicable to loans:
Individually evaluated for impairment	$	3,893		$	1,125		$	8,911		$	1,049		$	—		$	14,978
Collectively evaluated for impairment	$	47,764		$	7,641		$	24,318		$	3,603		$	349		$	83,675
Non-Covered Loan Balances:
Ending balance	$	2,274,733		$	179,479		$	663,557		$	25,058		$	22,608		$	3,165,435
The ending balance of the non-covered loan portfolio is composed of loans:
Individually evaluated for impairment	$	94,171		$	47,350		$	39,820		$	1,951		$	163		$	183,455
Collectively evaluated for impairment	$	2,180,562		$	132,129		$	623,737		$	23,107		$	22,445		$	2,981,980

        The following tables present the credit risk rating categories for non-covered loans by portfolio segment and class as of the dates indicated. Nonclassified loans are those with a credit risk rating of either pass or special mention, while classified loans are those with a credit risk rating of either substandard or doubtful.

	December 31, 2011						December 31, 2010
	Nonclassified		Classified		Total		Nonclassified		Classified		Total
	(In thousands)
Real estate mortgage:
Hospitality	$	123,071	$	21,331	$	144,402	$	137,952	$	18,700	$	156,652
SBA 504		51,522		6,855		58,377		55,774		13,513		69,287
Other		1,690,830		88,855		1,779,685		1,956,905		91,889		2,048,794
Total real estate mortgage		1,865,423		117,041		1,982,464		2,150,631		124,102		2,274,733
Real estate construction:
Residential		14,743		2,926		17,669		39,644		25,399		65,043
Commercial		64,667		30,723		95,390		82,291		32,145		114,436
Total real estate construction		79,410		33,649		113,059		121,935		57,544		179,479
Commercial:
Collateralized		395,041		18,979		414,020		342,607		15,820		358,427
Unsecured		75,017		3,920		78,937		119,326		10,417		129,743
Asset-based		149,947		40		149,987		141,813		1,354		143,167
SBA 7(a)		18,045		10,950		28,995		29,557		2,663		32,220
Total commercial		638,050		33,889		671,939		633,303		30,254		663,557
Consumer		22,730		981		23,711		22,949		2,109		25,058
Foreign		20,932		—		20,932		22,608		—		22,608
Total non-covered
loans	$	2,626,545	$	185,560	$	2,812,105	$	2,951,426	$	214,009	$	3,165,435

        In addition to our internal credit risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations. Risk rating downgrades generally result in higher allowances for credit losses.

        The following tables present an aging analysis of our non-covered loans by portfolio segment and class as of the dates indicated:

	December 31, 2011
	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Hospitality	$	—	$	—	$	—	$	—	$	144,402	$	144,402
SBA 504		718		—		842		1,560		56,817		58,377
Other		12,953		191		13,205		26,349		1,753,336		1,779,685
Total real estate mortgage		13,671		191		14,047		27,909		1,954,555		1,982,464
Real estate construction:
Residential		—		475		—		475		17,194		17,669
Commercial		2,290		—		2,182		4,472		90,918		95,390
Total real estate construction		2,290		475		2,182		4,947		108,112		113,059
Commercial:
Collateralized		275		423		1,701		2,399		411,621		414,020
Unsecured		4		—		151		155		78,782		78,937
Asset-based		—		—		—		—		149,987		149,987
SBA 7(a)		996		646		274		1,916		27,079		28,995
Total commercial		1,275		1,069		2,126		4,470		667,469		671,939
Consumer		72		40		17		129		23,582		23,711
Foreign		—		—		—		—		20,932		20,932
Total non-covered loans	$	17,308	$	1,775	$	18,372	$	37,455	$	2,774,650	$	2,812,105

        At December 31, 2011 and 2010, the Company had no loans that were greater than 90 days past due and still accruing interest. It is the Company's policy to discontinue accruing interest when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectibility in the normal course of business. At December 31, 2011, nonaccrual loans totaled $58.3 million. Nonaccrual loans included $2.5 million of loans 30 to 89 days past due and $37.4 million of current loans which were placed on nonaccrual status based on management's judgment regarding the collectibility of such loans.

        During 2011, all past due categories were reduced due to charge-offs and foreclosure activity. Reduction in the residential real estate construction past due category related to the foreclosure of two non-covered nonaccrual loans with an aggregate balance of $23.0 million secured by undeveloped land located in Ventura County, California.

	December 31, 2010
	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Hospitality	$	—	$	—	$	—	$	—	$	156,652	$	156,652
SBA 504		799		462		6,235		7,496		61,791		69,287
Other		426		2,566		13,936		16,928		2,031,866		2,048,794
Total real estate mortgage		1,225		3,028		20,171		24,424		2,250,309		2,274,733
Real estate construction:
Residential		—		—		24,004		24,004		41,039		65,043
Commercial		—		667		2,145		2,812		111,624		114,436
Total real estate construction		—		667		26,149		26,816		152,663		179,479
Commercial:
Collateralized		725		883		1,457		3,065		355,362		358,427
Unsecured		—		5,966		600		6,566		123,177		129,743
Asset-based		—		—		—		—		143,167		143,167
SBA 7(a)		1,254		494		751		2,499		29,721		32,220
Total commercial		1,979		7,343		2,808		12,130		651,427		663,557
Consumer		407		1,048		—		1,455		23,603		25,058
Foreign		—		—		163		163		22,445		22,608
Total non-covered loans	$	3,611	$	12,086	$	49,291	$	64,988	$	3,100,447	$	3,165,435

        Nonaccrual loans totaled $94.2 million at December 31, 2010, of which $12.0 million were 30 to 89 days past due and $32.9 million were current.

        The following tables present our nonaccrual and performing non-covered loans by portfolio segment and class as of the date indicated:

	December 31, 2011						December 31, 2010
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
	(In thousands)
Real estate mortgage:
Hospitality	$	7,251	$	137,151	$	144,402	$	4,151	$	152,501	$	156,652
SBA 504		2,800		55,577		58,377		9,346		59,941		69,287
Other		21,286		1,758,399		1,779,685		27,452		2,021,342		2,048,794
Total real estate
mortgage		31,337		1,951,127		1,982,464		40,949		2,233,784		2,274,733
Real estate construction:
Residential		1,086		16,583		17,669		24,004		41,039		65,043
Commercial		6,194		89,196		95,390		5,238		109,198		114,436
Total real estate construction		7,280		105,779		113,059		29,242		150,237		179,479
Commercial:
Collateralized		8,186		405,834		414,020		6,241		352,186		358,427
Unsecured		3,057		75,880		78,937		9,104		120,639		129,743
Asset-based		14		149,973		149,987		15		143,152		143,167
SBA 7(a)		7,801		21,194		28,995		6,518		25,702		32,220
Total commercial		19,058		652,881		671,939		21,878		641,679		663,557
Consumer		585		23,126		23,711		1,951		23,107		25,058
Foreign		—		20,932		20,932		163		22,445		22,608
Total non-covered loans	$	58,260	$	2,753,845	$	2,812,105	$	94,183	$	3,071,252	$	3,165,435

        Nonaccrual loans and performing restructured loans are considered impaired for reporting purposes. Impaired loans by portfolio segment are as follows as of the dates indicated:

	December 31, 2011						December 31, 2010
Loan Segment	Nonaccrual Loans		Performing Restructured Loans		Total Impaired Loans		Nonaccrual Loans		Performing Restructured Loans		Total Impaired Loans
	(In thousands)
Real estate mortgage	$	31,337	$	87,484	$	118,821	$	40,949	$	53,222	$	94,171
Real estate construction		7,280		24,512		31,792		29,242		18,108		47,350
Commercial		19,058		4,652		23,710		21,878		17,942		39,820
Consumer		585		143		728		1,951		—		1,951
Foreign		—		—		—		163		—		163
Total	$	58,260	$	116,791	$	175,051	$	94,183	$	89,272	$	183,455

        At December 31, 2011, we had commitments in the amount of $1,000 to lend on nonaccrual loans but are under no obligation to honor such commitment as long as the loan is on nonaccrual. We had commitments in the amount of $4.0 million to lend on performing restructured loans.

        During 2011, non-covered nonaccrual loans declined by $35.9 million, to $58.3 million; this decrease in nonaccrual loans was attributable primarily to reductions, payoffs and returns to accrual status of $33.4 million, charge-offs of $24.5 million, and foreclosures of $34.9 million, offset partially by additions of $56.9 million.

        During 2011, non-covered performing restructured loans increased by $27.5 million, to $116.8 million, at December 31, 2011. The growth in performing restructured loans was attributable to additions of $58.8 million, offset partially by the removal of $16.7 million in loans from restructured loan status due to the performance of the loans in accordance with their modified terms, and the transfers of performing restructured loans to nonaccrual status of $14.6 million. At December 31, 2011, we had $116.8 million in loans that were accruing interest under the terms of troubled debt restructurings. This amount consisted of $87.5 million in real estate mortgage loans, $24.5 million in real estate construction loans, $4.7 million in commercial loans and $144,000 in consumer loans.

        The majority of the performing restructured loans were on accrual status prior to the loan modifications and have remained on accrual status after their respective loan modifications due to the borrowers making payments before and after the restructurings. In these circumstances, generally, a borrower may have had a fixed rate loan that they continued to repay, but may be having cash flow difficulties. In an effort to work with certain borrowers, we have agreed to interest rate reductions to reflect the lower market interest rate environment and/or interest-only payments for a period of time. Generally, we do not forgive principal or extend the maturity date as part of the loan modification. As a result of the current economic environment in our market areas, we anticipate loan restructurings to continue.

        The Company measures its impaired loans by using the estimated fair value of the collateral, less estimated costs to sell, including senior obligations such as delinquent property taxes, if the loan is collateral-dependent and the present value of the expected future cash flows discounted at the loan's effective interest rate if the loan is not collateral-dependent. The Company recognizes income from non-covered impaired loans on an accrual basis unless the loan is on nonaccrual status. Income from loans on nonaccrual status is recognized to the extent cash is received and the loan's principal balance is deemed collectible. For the years ended December 31, 2011, 2010, and 2009, no interest income was recorded on non-covered impaired loans during the time such loans were on nonaccrual status; any interest payments received were credited to principal.

        The recorded investment in a loan reflects the contractual amount due from the borrower reduced by charge-offs and any participation amount sold to a third party. The Company's policy is to charge-off to the allowance the impairment amount on a collateral-dependent loan and to set up as a specific reserve within the allowance the impairment amount on a loan that is not collateral-dependent.

        The following table presents information regarding our non-covered impaired loans by portfolio segment and class as of the dates indicated:

	December 31, 2011						December 31, 2010
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Hospitality	$	17,548	$	17,890	$	4,369	$	15,081	$	15,138	$	564
SBA 504		1,147		1,245		206		4,161		6,180		280
Other		78,349		81,921		6,919		47,188		47,343		3,049
Real estate construction:
Residential		2,766		2,776		409		8,301		11,956		673
Other		12,477		12,520		1,664		5,341		5,701		452
Total real estate		112,287		116,352		13,567		80,072		86,318		5,018
Commercial:
Collateralized		5,515		5,741		3,901		2,192		2,363		1,174
Unsecured		2,864		3,061		2,513		9,361		9,445		7,696
SBA 7(a)		3,397		3,428		379		1,999		2,123		41
Consumer		433		459		413		1,125		1,127		1,049
Total other		12,209		12,689		7,206		14,677		15,058		9,960
With No Related Allowance Recorded:
Real estate mortgage:
Hospitality	$	—	$	—	$	—	$	667	$	667	$	—
SBA 504		2,262		3,007		—		5,185		6,320		—
Other		19,515		22,999		—		21,889		29,191		—
Real estate construction:
Residential		611		611		—		22,676		23,208		—
Other		15,938		19,536		—		11,032		12,603		—
Total real estate		38,326		46,153		—		61,449		71,989		—
Commercial:
Collateralized		4,759		4,927		—		20,519		20,668		—
Unsecured		643		716		—		224		236		—
Asset-based		14		14		—		15		15		—
SBA 7(a)		6,518		8,181		—		5,510		7,239		—
Consumer		295		351		—		826		876		—
Foreign		—		—		—		163		238		—
Total other		12,229		14,189		—		27,257		29,272		—
Total:
Real estate mortgage	$	118,821	$	127,062	$	11,494	$	94,171	$	104,839	$	3,893
Real estate construction		31,792		35,443		2,073		47,350		53,468		1,125
Commercial		23,710		26,068		6,793		39,820		42,089		8,911
Consumer		728		810		413		1,951		2,003		1,049
Foreign		—		—		—		163		238		—
Total non-covered loans	$	175,051	$	189,383	$	20,773	$	183,455	$	202,637	$	14,978

	Year Ended December 31, 2011
	Weighted Average Recorded Investment(1)		Interest Income Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Hospitality	$	17,399	$	962
SBA 504		895		54
Other		42,973		2,017
Real estate construction:
Residential		2,520		81
Other		5,375		158
Total real estate		69,162		3,272
Commercial:
Collateralized		4,745		183
Unsecured		2,767		154
SBA 7(a)		1,761		101
Consumer		291		15
Total other		9,564		453
With No Related Allowance Recorded:
Real estate mortgage:
SBA 504	$	1,916	$	187
Other		13,827		1,124
Real estate construction:
Residential		611		—
Other		14,904		451
Total real estate		31,258		1,762
Commercial:
Collateralized		1,584		131
Unsecured		499		49
Asset-based		14		—
SBA 7(a)		5,753		413
Consumer		234		27
Total other		8,084		620
Total:
Real estate mortgage	$	77,010	$	4,344
Real estate construction		23,410		690
Commercial		17,123		1,031
Consumer		525		42
Total non-covered loans	$	118,068	$	6,107

⁽¹⁾

For the loans reported as impaired as of December 31, 2011, amounts were calculated based on the period of time such loans were impaired during the reporting period.

        The following tables present non-covered new troubled debt restructurings and defaulted troubled debt restructurings for the periods indicated:

	Year Ended December 31, 2011
	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings:
Real estate mortgage:
Hospitality		4	$	17,053	$	17,053
SBA 504		4		2,124		2,124
Other		46		91,187		90,994
Real estate construction:
Residential		3		924		924
Other		7		16,539		16,539
Commercial:
Collateralized		20		4,226		4,226
Unsecured		6		857		857
SBA 7(a)		22		5,955		5,955
Consumer		3		415		415
Total		115	$	139,280	$	139,087

	Year Ended December 31, 2011
	Number of Loans		Recorded Investment(1)
	(Dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted(2):
Real estate mortgage:
Other		4	$	3,813
Real estate construction:
Other		1		1,492
Commercial:
SBA 7(a)		3		59
Total		8	$	5,364

⁽¹⁾

Represents the balance at December 31, 2011 and is net of charge-offs of $5.9 million for the year ended December 31, 2011.

⁽²⁾

The population of defaulted restructured loans for the period indicated includes only those loans restructured during the preceeding 12-month period. The table excludes defaulted troubled debt restructurings in those classes for which the recorded investment was zero at December 31, 2011.

• Covered Loans

        We refer to the loans acquired in the Los Padres and Affinity acquisitions subject to loss sharing agreements with the FDIC as "covered loans" as we will be reimbursed for a substantial portion of any future losses on them under the terms of the agreements. At the respective acquisition dates, the estimated fair values of the Los Padres and Affinity covered loans were $436.3 million and $675.6 million. Fair value of acquired loans is determined using a discounted cash flow model using assumptions about the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of defaults, and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date.

        The following table reflects the carrying values of the covered loans as of the dates indicated:

	December 31,
	2011						2010
	Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Real estate mortgage:
Hospitality	$	2,944			—		$	2,998			—
Other		733,414			91	%		916,300			87	%
Total real estate mortgage		736,358			91	%		919,298			87	%
Real estate construction:
Residential		21,521			3	%		44,637			4	%
Commercial		25,397			3	%		47,103			5	%
Total real estate construction		46,918			6	%		91,740			9	%
Commercial:
Collateralized		24,808			3	%		37,973			4	%
Unsecured		802			—			1,202			—
Asset-based		—			—			1,581			—
Total commercial		25,610			3	%		40,756			4	%
Consumer		735			—			947			—
Total gross covered loans		809,621			100	%		1,052,741			100	%
Discount		(75,323	)					(110,901	)
Allowance for loan losses		(31,275	)					(33,264	)
Covered loans, net	$	703,023					$	908,576

        The following table summarizes the changes in the carrying amount of covered acquired impaired loans and accretable yield on those loans for the periods indicated:

	Covered Acquired Impaired Loans
	Carrying Amount			Accretable Yield
	(In thousands)
Balance, December 31, 2008	$	—		$	—
Addition from the Affinity acquisition		675,616			(248,174	)
Accretion		17,622			17,622
Payments received		(53,552	)		—
Decrease in expected cash flows, net		—			4,106
Provision for credit losses		(18,000	)		—
Balance, December 31, 2009		621,686			(226,446	)
Addition from the Los Padres acquisition		405,619			(144,168	)
Accretion		52,539			52,539
Payments received		(166,858	)		—
Decrease in expected cash flows, net		—			27,410
Provision for credit losses		(33,500	)		—
Balance, December 31, 2010		879,486			(290,665	)
Accretion		65,282			65,282
Payments received		(254,484	)		—
Increase in expected cash flows, net		—			(33,882	)
Provision for credit losses		(13,270	)		—
Balance, December 31, 2011	$	677,014		$	(259,265	)

        The table above excludes the covered loans from the Los Padres acquisition which are accounted for as non-impaired loans and totaled $26.0 million and $29.1 million at December 31, 2011 and 2010, respectively.

        The following table presents changes in our allowance for credit losses on the covered loans for the years indicated:

	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Allowance for credit losses on covered loans, beginning of year	$	33,264		$	18,000		$	—
Provision		13,270			33,500			18,000
Charge-offs, net		(15,259	)		(18,236	)		—
Allowance for credit losses on covered loans, end of year	$	31,275		$	33,264		$	18,000

        The following tables present the credit risk rating categories for covered loans by portfolio segment as of the dates indicated. Nonclassified loans are those with a credit risk rating of either pass or special mention, while classified loans are those with a credit risk rating of either substandard or doubtful. It should be noted, however, that all of these loans are covered by loss sharing agreements with the FDIC.

	December 31, 2011						December 31, 2010
	Nonclassified		Classified		Total		Nonclassified		Classified		Total
	(In thousands)
Real estate mortgage	$	478,291	$	164,149	$	642,440	$	622,837	$	180,944	$	803,781
Real estate construction		5,762		35,337		41,099		21,370		51,729		73,099
Commercial		11,076		8,221		19,297		14,630		16,219		30,849
Consumer		6		181		187		722		125		847
Total covered loans, net	$	495,135	$	207,888	$	703,023	$	659,559	$	249,017	$	908,576

        Our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations.