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.