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Loan and Lease Finance Receivables and Allowance for Credit Losses
 12 Months Ended
Dec. 31, 2011
Allowance for Credit Losses and Loans & Lease Real Estate Owned (Non-Covered Loans) [Abstract]  
LOAN AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

4. LOAN AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

The following is a summary of the components of loan and lease finance receivables:

 

 

                         
    As of December 31, 2011  
    Non-Covered
Loans		     Covered Loans     Total  
    (Dollars in thousands)  

Commercial and Industrial

   $ 494,299     $ 29,651     $ 523,950  

Real Estate:

                        

Construction

     76,146       18,685       94,831  

Commercial Real Estate

     1,948,292       223,107       2,171,399  

SFR Mortgage

     176,442       3,289       179,731  

Consumer

     51,436       8,353       59,789  

Municipal lease finance receivables

     113,460       169       113,629  

Auto and equipment leases, net of unearned discount

     17,370       —         17,370  

Dairy and Livestock

     343,350       199       343,549  

Agribusiness

     4,327       24,196       28,523  
   

 

 

    

 

 

    

 

 

  

Gross Loans

   $ 3,225,122     $ 307,649     $ 3,532,771  

Less:

                        

Purchase accounting discount

     —         (50,780 )      (50,780 ) 

Deferred loan fees, net

     (5,395 )      —         (5,395 ) 
   

 

 

    

 

 

    

 

 

  

Gross loans, net of deferred loan fees

   $ 3,219,727     $ 256,869     $ 3,476,596  

Less: Allowance for credit losses

     (93,964 )      —         (93,964 ) 
   

 

 

    

 

 

    

 

 

  

Net Loans

   $ 3,125,763     $ 256,869     $ 3,382,632  
   

 

 

    

 

 

    

 

 

  

 

                         
    As of December 31, 2010  
    Non-Covered
Loans		     Covered Loans     Total  
    (Dollars in thousands)  

Commercial and Industrial

   $ 460,399     $ 39,587     $ 499,986  

Real Estate:

                        

Construction

     138,980       84,498       223,478  

Commercial Real Estate

     1,980,256       292,014       2,272,270  

SFR Mortgage

     218,467       5,858       224,325  

Consumer

     56,747       10,624       67,371  

Municipal lease finance receivables

     128,552       576       129,128  

Auto and equipment leases, net of unearned discount

     17,982       —         17,982  

Dairy and Livestock

     376,143       —         376,143  

Agribusiness

     1,686       55,618       57,304  
   

 

 

    

 

 

    

 

 

  

Gross Loans

   $ 3,379,212     $ 488,775     $ 3,867,987  

Less:

                        

Purchase accounting discount

     —         (114,763 )      (114,763 ) 

Deferred loan fees, net

     (5,484 )      —         (5,484 ) 
   

 

 

    

 

 

    

 

 

  

Gross loans, net of deferred loan fees

   $ 3,373,728     $ 374,012     $ 3,747,740  

Less: Allowance for credit losses

     (105,259 )      —         (105,259 ) 
   

 

 

    

 

 

    

 

 

  

Net Loans

   $ 3,268,469     $ 374,012     $ 3,642,481  
   

 

 

    

 

 

    

 

 

  

At December 31, 2011, the Company held approximately $1.31 billion of fixed rate loans. As of December 31, 2011, 61.5% of the loan portfolio consisted of commercial real estate loans and 2.7% of the loan portfolio consisted of construction loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California.

 

The following is the activity of loans held for sale for the year ended December 31, 2011 and 2010:

Non-Covered Loans Held for Sale Activity

 

                 
    For the Year Ended December 31,  
            2011                     2010          
    (Dollars in thousands)  

Balance, beginning of period

   $ 2,954     $ 1,439  

Originations of mortage loans

     37,304       33,391  

Sales of mortgage loans

     (34,962 )      (29,212 ) 

Transfer of mortgage loans to held for investment

     (3,292 )      (4,320 ) 

Sales of other loans

     (6,000 )      —    

Transfers of other loans to held for sale

     6,000       2,521  

Write-down of loans held for sale

     (1,656 )      (865 ) 
   

 

 

    

 

 

  

Balance, end of period

   $ 348     $ 2,954  
   

 

 

    

 

 

  

Covered Loans Held for Sale Activity

 

                 
   
    For the Year Ended December 31,  
            2011                     2010          
    (Dollars in thousands)  

Balance, beginning of period

   $ —       $ —    

Originations of mortage loans

     —         —    

Sales of mortgage loans

     —         —    

Transfer of other loans to held for investment

     —         —    

Sales of other loans

     —         —    

Transfers of other loans to held for sale

     5,726       —    

Write-down of loans held for sale

     —         —    

Payment on other loans

     (62 )         
   

 

 

    

 

 

  

Balance, end of period

   $ 5,664     $ —    
   

 

 

    

 

 

  

During the second quarter ended June 30, 2011, a decision was made to sell one loan and it was transferred to held for sale at a fair value of $6.0 million and resulted in a charge-off against the allowance for credit losses of $619,000 at the time of transfer. This loan was subsequently sold in July, 2011 at a small gain. Also, in the nine months ended September 30, 2011, another loan classified as held for sale with a book value of $1.7 million was written-off to zero with the write-off reported as part of non-interest income. The loan was the subject of legal proceedings regarding our lien position and a preliminary decision by the court found that our lien was not in a first priority position. After careful analysis of the preliminary court decision and valuation of the subject collateral, we wrote off the remaining carrying amount.

During 2011, 12 covered loans in an aggregate carrying balance of $5.7 million were transferred to held-for-sale.

Occasionally, the Company may decide to retain and not sell certain mortgage loans originated and will transfer them to its held for investment loan portfolio. This is generally done for customer service purposes.

Credit Quality Indicators

 

Central to our credit risk management is our loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is reviewed and possibly changed by Credit Management, which is based primarily on a thorough analysis of each borrower’s financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.

Loans are risk rated into the following categories (Credit Quality Indicators): Pass, Pass Watch List, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

Pass – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

Pass Watch List — Pass Watch list loans usually require more than normal management attention. Loans which qualify for the Pass Watch List may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.

Special Mention — Loans assigned to this category are currently protected but are weak. Although concerns exist, the Company is currently protected and loss is unlikely. They have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date.

Substandard – Loans classified as substandard include poor liquidity, high leverage, and erratic earnings or losses. The primary source of repayment is no longer realistic, and asset or collateral liquidation may be the only source of repayment. Loans are marginal and require continuing and close supervision by credit management. Substandard loans have the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.

Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added provision that the weaknesses make collection or the liquidation, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the assets, their classifications as losses are deferred until their more exact status may be determined.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as active assets of the Company is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

 

The following table summarizes our internal credit risk rating categories by loan class as of December 31, 2011 and 2010:

Credit Quality Indicators

As of December 31, 2011 and 2010

(Dollars in thousands)

Credit Risk Profile by Internally Assigned Grade

 

 

                                                 
    December 31, 2011  
    Pass     Watch List     Special
Mention		     Substandard     Doubtful &
Loss		     Total  

Commercial & Industrial

   $ 323,653     $ 94,059     $ 55,140     $ 21,447     $ —       $ 494,299  

Construction—Speculative

     2,654       —         25,610       35,191       —         63,455  

Construction—Non-Speculative

     1,314       137       687       10,553       —         12,691  

Commercial Real Estate—Owner-Occupied

     370,801       176,958       74,315       77,884       —         699,958  

Commercial Real Estate—Non-Owner-

                                                

Occupied

     836,465       193,751       108,798       108,482       838       1,248,334  

Residential Real Estate (SFR 1-4)

     143,841       8,336       6,807       17,458       —         176,442  

Dairy & Livestock

     73,074       106,024       91,416       72,619       217       343,350  

Agribusiness

     2,800       860       667       —         —         4,327  

Municipal Lease Finance Receivables

     70,781       23,106       8,927       10,646       —         113,460  

Consumer

     42,295       3,474       3,906       1,740       21       51,436  

Auto & Equipment Leases

     11,742       39       3,506       522       1,561       17,370  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Non-covered Loans

     1,879,420       606,744       379,779       356,542       2,637       3,225,122  

Covered Loans

     48,440       73,718       20,728       164,198       565       307,649  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Loans excluding held-for-sale

     1,927,860       680,462       400,507       520,740       3,202       3,532,771  

Non-covered loans held-for-sale

     348       —         —         —         —         348  

Covered loans held-for-sale

     —         —         —         5,664       —         5,664  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Gross Loans

   $ 1,928,208     $ 680,462     $ 400,507     $ 526,404     $ 3,202     $ 3,538,783  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   
    December 31, 2010  
    Pass     Watch List     Special
Mention		     Substandard     Doubtful &
Loss		     Total  

Commercial & Industrial

   $ 310,207     $ 79,860     $ 35,526     $ 34,741     $ 65     $ 460,399  

Construction—Speculative

     428       16,022       24,773       78,672       —         119,895  

Construction—Non-Speculative

     3,168       3,422       2,346       10,149       —         19,085  

Commercial Real Estate—Owner-Occupied

     371,575       109,784       91,751       139,320       —         712,430  

Commercial Real Estate—Non-Owner-

                                                

Occupied

     851,980       197,696       64,808       153,342       —         1,267,826  

Residential Real Estate (SFR 1-4)

     190,022       11,002       801       16,642       —         218,467  

Dairy & Livestock

     4,373       4,917       152,891       213,962       —         376,143  

Agribusiness

     1,096       446       144       —         —         1,686  

Municipal Lease Finance Receivables

     92,064       11,540       21,746       3,202       —         128,552  

Consumer

     47,927       4,885       2,367       1,484       84       56,747  

Auto & Equipment Leases

     10,925       3,450       1,122       2,483       2       17,982  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Non-covered Loans

     1,883,765       443,024       398,275       653,997       151       3,379,212  

Covered Loans

     139,038       59,996       42,147       247,407       187       488,775  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Loans excluding held-for-sale

     2,022,803       503,020       440,422       901,404       338       3,867,987  

Non-covered loans held-for-sale

     1,298       —         —         1,656       —         2,954  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Gross Loans

   $ 2,024,101     $ 503,020     $ 440,422     $ 903,060     $ 338     $ 3,870,941  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

Allowance for Credit Losses

The Credit Management Division is responsible for regularly reviewing the allowance for credit losses (“ALLL”) methodology, including loss factors and economic risk factors. The Bank’s Director Loan Committee provides Board oversight of the ALLL process and approves the ALLL methodology on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers all loans. The systematic methodology consists of two major phases.

In the first phase, individual loans are reviewed to identify loans for impairment. A loan is generally considered impaired when principal and interest are deemed uncollectible in accordance with the contractual terms of the loan. A loan for which there is an insignificant delay or amount of payments is not considered an impaired loan. Impairment is measured as either the expected future cash flows discounted at each loan’s effective interest rate, the fair value of the loan’s collateral if the loan is collateral dependent, or an observable market price of the loan (if one exists). If we determine that the value of the impaired loan is less than the recorded investment of the loan, we either recognize an impairment reserve as a Specific Allowance to be provided for in the allowance for credit losses or charge-off the impaired balance if it is determined that such amount represents a confirmed loss. Loans determined to be impaired are excluded from the formula allowance so as not to double-count the loss exposure.

The second phase is conducted by evaluating or segmenting the remainder of the loan portfolio into groups or pools of loans with similar characteristics. In this second phase, groups or pools of homogeneous loans are reviewed to determine a portfolio formula allowance. In the case of the portfolio formula allowance, homogeneous portfolios, such as small business loans, consumer loans, agricultural loans, and real estate loans, are aggregated or pooled in determining the appropriate allowance. The risk assessment process in this case emphasizes trends in the different portfolios for delinquency, loss, and other-behavioral characteristics of the subject portfolios.

Included in this second phase is our considerations of qualitative factors, including, all known relevant internal and external factors that may affect the collectability of a loan. This includes our estimates of the amounts necessary for concentrations, economic uncertainties, the volatility of the market value of collateral, and other relevant factors. These qualitative factors are used to adjust the historical loan loss rates for each pool of loans to determine the probable credit losses inherent in the portfolio.

The methodology is consistently applied across all the portfolio segments taking into account the applicable historical loss rates and the qualitative factors applicable to each pool of loans. There have been no significant changes to the methodology or policies in the periods presented, except for one new factor added to the allowance for credit losses methodology during the quarter ended December 31, 2011. As part of the qualitative analysis, this new factor is used to adjust the historical loan loss rates to include an adjustment for indicated volatility in the value of various types of real estate collateral in our market area.

Management believes that the ALLL was appropriate at December 31, 2011. No assurance can be given that economic conditions which adversely affect our service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.

 

The following table presents the balance and activity in the allowance for credit losses; and the recorded investment in held-for-investment loans by portfolio segment and based on impairment method as of December 31, 2011 and 2010:

 

 

                                                                         
Allowance for Credit Losses and Recorded Investment in Financing Receivables  
(Dollars in thousands)  
                   
    Commercial
and
Industrial		     Construction     Real
Estate		     Municipal
Lease
Finance
Receivables		     Dairy
and
Livestock		     Consumer,
Auto & Other		     Covered
Loans (1)		     Unallocated     Total  

2011

                                                                        

Allowance for Credit Losses:

                                                                        

Beginning balance, January 1, 2011

   $ 11,472     $ 10,188     $ 43,529     $ 2,172     $ 36,061     $ 1,034     $ —       $ 803     $ 105,259  

Charge-offs

     (1,980 )      (7,976 )      (5,870 )      0       (3,291 )      (511 )      (893 )      —         (20,521 ) 

Recoveries

     302       757       748       0       151       200       0       0       2,158  

Provision

     860       1,978       13,466       231       (15,691 )      915       893       4,416       7,068  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance, December 31, 2011

   $ 10,654     $ 4,947     $ 51,873     $ 2,403     $ 17,230     $ 1,638     $ —       $ 5,219     $ 93,964  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Individually evaluated for impairment

   $ 165     $ —       $ 1,339     $ —       $ 1,371     $ 93     $ —       $ —       $ 2,968  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Collectively evaluated for impairment

   $ 10,489     $ 4,947     $ 50,534     $ 2,403     $ 15,859     $ 1,545     $ —       $ 5,219     $ 90,996  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Loans and financing receivables: (1)

                                                                        

Ending balance, December 31, 2011

   $ 494,299     $ 76,146     $ 2,124,734     $ 113,460     $ 343,350     $ 73,133     $ 256,869     $ —       $ 3,481,991  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Individually evaluated for impairment

   $ 4,954     $ 33,402     $ 52,141     $ —       $ 10,251     $ 478     $ 83,745     $ —       $ 184,971  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Collectively evaluated for impairment

   $ 489,345     $ 42,744     $ 2,072,593     $ 113,460     $ 333,099     $ 72,655     $ 173,124     $ —       $ 3,297,020  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
                   
    Commercial
and
Industrial		     Construction     Real
Estate		     Municipal
Lease
Finance
Receivables		     Dairy
and
Livestock		     Consumer,
Auto & Other		     Covered
Loans (1)		     Unallocated     Total  

2010

                                                                        

Allowance for Credit Losses:

                                                                        

Beginning balance, January 1, 2010

   $ 7,530     $ 21,222     $ 42,215     $ 1,724     $ 31,051     $ 1,004     $ —       $ 4,178     $ 108,924  

Charge-offs

     (6,290 )      (15,648 )      (41,356 )      (13 )      (1,205 )      (627 )      (385 )      —         (65,524 ) 

Recoveries

     242       291       35       —         —         76       15       —         659  

Provision

     9,990       4,323       42,635       461       6,215       581       370       (3,375 )      61,200  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance, December 31, 2010

   $ 11,472     $ 10,188     $ 43,529     $ 2,172     $ 36,061     $ 1,034     $ —       $ 803     $ 105,259  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Individually evaluated for impairment

   $ 50     $ 3,300     $ 681     $ —       $ —       $ 28     $ —       $ —       $ 4,059  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Collectively evaluated for impairment

   $ 11,422     $ 6,888     $ 42,848     $ 2,172     $ 36,061     $ 1,006     $ —       $ 803     $ 101,200  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Loans and financing receivables: (1)

                                                                        

Ending balance, December 31, 2010

   $ 460,399     $ 138,980     $ 2,198,723     $ 128,552     $ 377,829     $ 74,729     $ 374,012     $ —       $ 3,753,224  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Individually evaluated for impairment

   $ 9,404     $ 63,025     $ 90,416     $ —       $ 5,207     $ 586     $ 15,879     $ —       $ 184,517  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance: Collectively evaluated for impairment

   $ 450,995     $ 75,955     $ 2,108,307     $ 128,552     $ 372,622     $ 74,143     $ 358,133     $ —       $ 3,568,707  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) The ending balance of loans and financing receivables excludes deferred loan fees of $5.4 million and $5.5 million as of December 31, 2011 and 2010, respectively.

 

Past Due and Non-Performing Loans

We manage asset quality and control credit risk through diversification of the non-covered loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due non-covered loans and larger credits, designed to identify potential charges to the allowance for credit losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors.

Loans are reported as a troubled debt restructuring when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of these concessions, restructured loans are classified as impaired. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan and credit losses.

Generally, when loans are identified as impaired they are moved to our Special Assets Division. When we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of collateral, less selling costs. The starting point for determining the fair value of collateral is through obtaining external appraisals.

The accrual of interest on loans is discontinued when the loan becomes 90 days past due based on the contractual term of the loan, or when the full collection of principal and interest is in doubt. When an asset is placed on nonaccrual status, previously accrued but unpaid interest is reversed against income. Subsequent collections of cash are applied as reductions to the principal balance unless the loan is returned to accrual status. Nonaccrual loans may be restored to accrual status when principal and interest become current and full payment of principal and interest is expected. Had nonaccrual loans for which interest was no longer accruing complied with the original terms and conditions of their notes, interest income would have been $3.5 million, $5.2 million and $4.1 million greater for 2011, 20010 and 2009, respectively.

Speculative construction loans are generally for properties where there is not an identified buyer or renter.

 

The following table presents the recorded investment in non-covered past due and nonaccrual loans and loans past due by class of loans as of December 31, 2011 and 2010:

Non-Covered Past Due and Nonaccrual Loans

As of December 31, 2011 and December 31, 2010

(Dollars in Thousands)

 

 

                                                         

December 31, 2011

   30-59 Days
Past Due		     60-89 Days
Past Due		     Greater
Than 90
Days
Past Due
and
Accruing		     Total Past
Due and
Accruing		     Nonaccrual     Current     Total Loans
and Financing
Receivables		  

Commercial & Industrial

   $ 2,872     $ 150     $ —       $ 3,022     $ 3,432     $ 487,845     $ 494,299  

Construction—Speculative

     —         —         —         —         13,317       42,203       55,520  

Construction—Non-Speculative

     —         —         —         —         —         20,626       20,626  

Commercial Real Estate—Owner-Occupied

     133       280       —         413       9,474       690,071       699,958  

Commercial Real Estate—Non-Owner-Occupied

     374       —         —         374       16,518       1,231,442       1,248,334  

Residential Real Estate (SFR 1-4)

     1,568       —         —         1,568       16,970       157,904       176,442  

Dairy & Livestock

     —         —         —         —         2,475       340,875       343,350  

Agribusiness

     —         —         —         —         —         4,327       4,327  

Municipal Lease Finance Receivables

     —         —         —         —         —         113,460       113,460  

Consumer

     59       —         —         59       382       50,995       51,436  

Auto & Equipment Leases

     14       6       —         20       104       17,246       17,370  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Non-covered Loans excluding held-for-sale

     5,020       436       —         5,456       62,672       3,156,994       3,225,122  

Loans Held-for-Sale Residential Real Estate (SFR 1-4)

     —         —         —         —         —         348       348  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 5,020     $ 436     $ —       $ 5,456     $ 62,672     $ 3,157,342     $ 3,225,470  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                         

December 31, 2010

   30-59 Days
Past Due		     60-89 Days
Past Due		     Greater
Than 90
Days
Past Due
and
Accruing		     Total Past
Due and
Accruing		     Nonaccrual     Current     Total Loans
and Financing
Receivables		  

Commercial & Industrial

   $ 2,177     $ 1,036     $ —         3,213     $ 3,887     $ 453,299     $ 460,399  

Construction—Speculative

     —         —         —         —         53,552       66,343       119,895  

Construction—Non-Speculative

     —         —         —         —         9,473       9,612       19,085  

Commercial Real Estate—Owner-Occupied

     62       —         —         62       5,457       706,911       712,430  

Commercial Real Estate—Non-Owner-Occupied

     3,132       —         —         3,132       59,402       1,205,292       1,267,826  

Residential Real Estate (SFR 1-4)

     1,473       1,124       —         2,597       17,800       198,070       218,467  

Dairy & Livestock

     —         —         —         —         5,207       370,936       376,143  

Agribusiness

     —         —         —         —         —         1,686       1,686  

Municipal Lease Finance Receivables

     —         —         —         —         —         128,552       128,552  

Consumer

     —         29       —         29       537       56,181       56,747  

Auto & Equipment Leases

     93       14       —         107       49       17,826       17,982  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Non-covered Loans excluding held-for-sale

     6,937       2,203       —         9,140       155,364       3,214,708       3,379,212  

Loans Held-for-Sale Construction—Speculative

     —         —         —         —         1,656       —         1,656  

Loans Held-for-Sale Residential Real Estate (SFR 1-4)

     —         —         —         —         —         1,298       1,298  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 6,937     $ 2,203     $ —       $ 9,140     $ 157,020     $ 3,216,006     $ 3,382,166  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

At December 31, 2011, the Company had non-covered impaired loans of $101.2 million. Of this amount, $920,000 consisted of nonaccrual residential construction and land loans, $12.4 million in nonaccrual commercial construction loans, $17.0 million of nonaccrual single family mortgage loans, $26.0 million of nonaccrual commercial real estate loans, $3.5 million of nonaccrual commercial and industrial loans, $2.5 million of nonaccrual dairy and livestock loans and $478,000 of nonaccrual consumer loans. Non-covered impaired loans also include $62.4 million of loans whose terms were modified in a troubled debt restructure, of which $23.8 million are classified as nonaccrual. The remaining balance of $38.6 million consists of 16 loans performing according to the restructured terms. These impaired loans had specific allowance of $3.0 million at December 31, 2011. At December 31, 2010, the Company had classified as impaired, non-covered loans with a balance of $170.3 million with a related allowance of $4.1 million.

The following table presents held-for-investment and held-for-sale loans, individually evaluated for impairment by class of loans, as of December 31, 2011 and 2010:

Non-Covered Impaired Loans

As of December 31, 2011 and 2010

(Dollars in Thousands)

 

 

                                         
     Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		     Average
Recorded
Investment		     Interest
Income
Recognized		  

December 31, 2011

                              

With no related allowance recorded:

                                        

Commercial & Industrial

   $ 3,566     $ 4,630     $ —       $ 4,649     $ 93  

Held for Sale Construction—Speculative

     —         —         —         —         —    

Construction—Speculative

     13,317       15,718       —         15,434       —    

Construction—Non-Speculative

     20,085       20,085       —         16,437       1,123  

Commercial Real Estate—Owner-Occupied

     13,567       14,013       —         11,941       449  

Commercial Real Estate—Non-Owner-Occupied

     16,435       23,656       —         21,096       67  

Residential Real Estate (SFR 1-4)

     14,069       17,411       —         15,120       47  

Dairy & Livestock

     8,879       10,358       —         10,535       446  

Municipal Lease Finance Receivables

     —         —         —         —         —    

Consumer

     104       150       —         127       —    

Auto & Equipment Leases

     —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
      90,022       106,021       —         95,339       2,225  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

With a related allowance recorded:

                                        

Commercial & Industrial

   $ 1,388     $ 1,410     $ 165     $ 1,554     $ —    

Construction—Speculative

     —         —         —         —         —    

Construction—Non-Speculative

     —         —         —         —         —    

Commercial Real Estate—Owner-Occupied

     3,900       3,900       928       3,900       —    

Commercial Real Estate—Non-Owner-Occupied

     83       85       5       86       —    

Residential Real Estate (SFR 1-4)

     4,087       4,369       406       3,967       —    

Dairy, Livestock & Agribusiness

     1,372       3,324       1,372       2,402       —    

Municipal Lease Finance Receivables

     —         —         —         —         —    

Consumer

     270       278       77       276       —    

Auto & Equipment Leases

     104       110       15       141       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
      11,204       13,476       2,968       12,326       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 101,226     $ 119,497     $ 2,968     $ 107,665     $ 2,225  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

December 31, 2010

                              

With no related allowance recorded:

                                        

Commercial & Industrial

   $ 9,060     $ 9,600     $ —       $ 9,972     $ 339  

Held for Sale Construction—Speculative

     1,656       3,739       —         2,311       —    

Construction—Speculative

     45,672       61,382       —         54,299       —    

Construction—Non-Speculative

     9,473       10,149       —         9,777       —    

Commercial Real Estate—Owner-Occupied

     4,528       4,528       —         4,541       —    

Commercial Real Estate—Non-Owner-Occupied

     66,856       103,010       —         93,807       498  

Residential Real Estate (SFR 1-4)

     13,766       16,285       —         14,556       —    

Dairy & Livestock

     5,207       5,780       —         6,334       —    

Municipal Lease Finance Receivables

     —         —         —         —         —    

Consumer

     334       334       —         336       —    

Auto & Equipment Leases

     —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
      156,552       214,807       —         195,933       837  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

With a related allowance recorded:

                                        

Commercial & Industrial

   $ 344     $ 352     $ 50     $ 371     $ —    

Construction—Speculative

     7,880       12,588       3,300       8,966       —    

Construction—Non-Speculative

     —         —         —         —         —    

Commercial Real Estate—Owner-Occupied

     929       929       136       934       —    

Commercial Real Estate—Non-Owner-Occupied

     303       311       25       308       —    

Residential Real Estate (SFR 1-4)

     4,034       4,086       520       4,067       —    

Dairy, Livestock & Agribusiness

     —         —         —         —         —    

Municipal Lease Finance Receivables

     —         —         —         —         —    

Consumer

     203       205       21       207       —    

Auto & Equipment Leases

     49       49       7       77       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
      13,742       18,520       4,059       14,930       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 170,294     $ 233,327     $ 4,059     $ 210,863     $ 837  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The Company recognizes the charge-off of impairment allowance on impaired loans in the period it arises for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of December 31, 2011 and December 31, 2010 have already been written-down to their estimated net realizable value. The impaired loans with a related allowance recorded are on nonaccrual loans where a charge-off is not yet processed, on nonaccrual SFR loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans.

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the loan and lease portfolio at the same time it evaluates credit risk associated with the off-balance sheet commitments. As of December 31, 2011, the balance in this reserve was $9.6 million compared to a balance of $10.5 million as of December 31, 2010.

As a result of adopting the amendments in ASU 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the current fiscal year (January 1, 2011) for identification as troubled debt restructurings. Loans that are reported as TDRs are considered impaired and charged off on an individual loan basis, as deemed appropriate. The majority of restructured loans during 2011 are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal.

As of December 31, 2011, we had loans of $62.4 million classified as a troubled debt restructured, of which $23.8 million are non-performing and $38.6 million are performing. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. TDRs on accrual status at December 31, 2011 were mainly comprised of commercial real estate loans including construction loans.

As of December 31, 2011, there were no loans for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired as a result of adopting the amendments in ASU 2011-02. The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged-off at the time a probable loss is determined. We have allocated $27,000 and zero specific allowance to TDRs as of December 31, 2011 and December 31, 2010.

 

The following are the loans modified as troubled debt restructurings for the year ended December 31, 2011:

Modifications

(Dollars in thousands)

 

 

                                 
    For the Year Ended December 31, 2011  
    Number
of
Loans		     Pre-modification
Outstanding
Recorded
Investment		     Post-Modification
Outstanding  Recorded
Investment		     Outstanding
Recorded  Investment
at December 31,
2011		  
       
       
       

Troubled Debt Restructurings

                                

Commercial & Industrial

     5     $ 1,673     $ 1,372     $ 1,224  

Construction—Speculative

     2       16,886       16,886       15,394  

Construction—Non-Speculative

     1       9,219       9,219       9,219  

Commercial Real Estate—Owner-Occupied

     3       3,195       3,195       3,067  

Commercial Real Estate—Non- Owner- Occupied

     3       11,707       11,707       10,236  

Residential Real Estate (SFR 1-4)

     6       2,162       2,161       2,049  

Dairy & Lives tock

     5       11,750       11,750       8,662  

Agribusiness

     —         —         —         —    

Municipal Lease Finance Receivables

     —         —         —         —    

Consumer

     —         —         —         —    

Auto & Equipment Leases

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Non-Covered Loans

     25       56,592       56,290       49,851  

Covered Loans

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Gross Loans

     25     $ 56,592     $ 56,290     $ 49,851  
   

 

 

    

 

 

    

 

 

    

 

 

  

As of December 31, 2011, there were two dairy and livestock loans with a total outstanding balance of $886,000 and two commercial real estate loans with a total outstanding balance of $3.4 million modified as troubled debt restructurings within the previous 12 months that subsequently defaulted during the 12 months ended December 31, 2011.