Hanmi Financial Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Loans

Loans

6 Months Ended

Jun. 30, 2012

NOTE 5 — LOANS

The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect issues such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan delinquencies and non-performing loans, problem loans, and policy adjustments.

Real estate loans are subject to loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, and SBA loans. Consumer loans consist of auto loans, credit cards, personal loans, and home equity lines of credit. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

Concentrations of Credit: The majority of the Bank’s loan portfolio consists of commercial real estate loans and commercial and industrial loans. The Bank has been diversifying and monitoring commercial real estate loans based on property types, tightening underwriting standards, and portfolio liquidity and management, and has not exceeded certain specified limits set forth in the Bank’s loan policy. Most of the Bank’s lending activity occurs within Southern California.

Loans Receivable

Loans receivable consisted of the following as of the dates indicated:


	June 30, 2012			December 31, 2011
	(In Thousands)
Real Estate Loans:
Commercial Property	$	724,129		$	663,023
Construction		7,930			33,976
Residential Property		107,757			52,921

Total Real Estate Loans		839,816			749,920

Commercial and Industrial Loans
Commercial Term Loans ⁽¹⁾		854,499			944,836
Commercial Lines of Credit ⁽²⁾		53,916			55,770
SBA Loans ⁽³⁾		129,415			116,192
International Loans		32,639			28,676

Total Commercial and Industrial Loans		1,070,469			1,145,474

Consumer Loans		39,339			43,346

Total Gross Loans		1,949,624			1,938,740
Allowance for Loan Losses		(71,893	)		(89,936	)
Deferred Loan Costs		636			216

Loans Receivable, Net	$	1,878,367		$	1,849,020

⁽¹⁾

Includes owner-occupied property loans of $722.5 million and $786.3 million as of June 30, 2012 and December 31, 2011, respectively.

⁽²⁾

Includes owner-occupied property loans of $919,000 and $936,000 as of June 30, 2012 and December 31, 2011, respectively.

⁽³⁾

Includes owner-occupied property loans of $114.5 million and $93.6 million as of June 30, 2012 and December 31, 2011, respectively.

Accrued interest on loans receivable amounted to $5.2 million and $5.7 million at June 30, 2012 and December 31, 2011, respectively. At June 30, 2012 and December 31, 2011, loans receivable totaling $682.3 million and $797.1 million, respectively, were pledged to secure advances from the FHLB and the Federal Reserve Discount Window.

The following table details the information on the purchases, sales and reclassifications of loans receivable to loans held for sale by portfolio segment for the three months ended June 30, 2012 and 2011.


	Real Estate			Commercial and Industrial			Consumer		Total
	(In Thousands)
June 30, 2012:
Loans Held for Sale:
Beginning Balance	$	10,879		$	45,114		$	—	$	55,993
Origination of Loans Held for Sale		—			34,723			—		34,723
Reclassification from Loans Receivable to Loans Held for Sale		15,148			11,842			—		26,990
Reclassification from Loans Held for Sale to Loan Receivables		(1,647	)		(132	)		—		(1,779	)
Sales of Loans Held for Sale		(21,909	)		(87,552	)		—		(109,461	)
Principal Payoffs and Amortization		(58	)		(146	)		—		(204	)
Valuation Adjustments		(1,124	)		—			—		(1,124	)

Ending Balance	$	1,289		$	3,849		$	—	$	5,138

June 30, 2011:
Loans Held for Sale:
Beginning Balance	$	3,513		$	44,136		$	—	$	47,649
Origination of Loans Held for Sale		—			1,771			—		1,771
Reclassification from Loans Receivable to Loans Held for Sale		266			9,567			—		9,833
Sales of Loans Held for Sale		(2,664	)		(11,557	)		—		(14,221	)
Principal Payoffs and Amortization		(8	)		(237	)		—		(245	)
Valuation Adjustments		(133	)		(549	)		—		(682	)

Ending Balance	$	974		$	43,131		$	—	$	44,105

For the three months ended June 30, 2012, loans receivable of $27.0 million were reclassified as loans held for sale, and loans held for sale of $109.5 million were sold. For the three months ended June 30, 2011, loans receivable of $9.8 million were reclassified as loans held for sale and loans held for sale of $14.2 million were sold. For the three months ended June 30, 2012, $15.2 million of commercial real estate loans were purchased. There were no purchases of loans receivable for the three months ended June 30, 2011.

The following table details the information on the purchases, sales and reclassifications of loans receivable to loans held for sale by portfolio segment for the six months ended June 30, 2012 and 2011.


	Real Estate			Commercial and Industrial			Consumer		Total
	(In Thousands)
June 30, 2012:
Loans Held for Sale:
Beginning Balance	$	11,068		$	11,519		$	—	$	22,587
Origination of Loans Held for Sale		—			60,589			—		60,589
Reclassification from Loans Receivable to Loans Held for Sale		32,224			32,247			—		64,471
Reclassification from Loans Held for Sale to OREO		(360	)		—			—		(360	)
Reclassification from Loans Held for Sale to Loan Receivables		(1,647	)		(132	)		—		(1,779	)
Sales of Loans Held for Sale		(38,703	)		(99,455	)		—		(138,158	)
Principal Payoffs and Amortization		(169	)		(262	)		—		(431	)
Valuation Adjustments		(1,124	)		(657	)		—		(1,781	)

Ending Balance	$	1,289		$	3,849		$	—	$	5,138

June 30, 2011:
Loans Held for Sale:
Beginning Balance	$	3,666		$	32,954		$	—	$	36,620
Origination of Loans Held for Sale		—			16,056			—		16,056
Reclassification from Loans Receivable to Loans Held for Sale		18,175			19,631			—		37,806
Sales of Loans Held for Sale		(20,653	)		(22,140	)		—		(42,793	)
Principal Payoffs and Amortization		(14	)		(667	)		—		(681	)
Valuation Adjustments		(200	)		(2,703	)		—		(2,903	)

Ending Balance	$	974		$	43,131		$	—	$	44,105

For the six months ended June 30, 2012, loans receivable of $64.5 million were reclassified as loans held for sale, and loans held for sale of $138.2 million were sold. For the six months ended June 30, 2012, $15.2 million of commercial real estate loans and $67.4 million of residential mortgage loans were purchased. For the six months ended June 30, 2011, loans receivable of $37.8 million were reclassified as loans held for sale, and loans held for sale of $42.8 million were sold. There were no purchases of loans receivable for the six months ended June 30, 2011.

Allowance for Loan Losses and Allowance for Off-Balance Sheet Items

Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows for the periods indicated:


	As of and for the Three Months Ended									As of and for the Six Months Ended
	June 30, 2012			March 31, 2012			June 30, 2011			June 30, 2012			June 30, 2011
	(In Thousands)
Allowance for Loan Losses:
Balance at Beginning of Period	$	81,052		$	89,936		$	125,780		$	89,936		$	146,059
Actual Charge-Offs		(14,716	)		(12,321	)		(20,652	)		(27,037	)		(45,833	)
Recoveries on Loans Previously Charged Off		1,324			1,037			4,151			2,361			7,777

Net Loan Charge-Offs		(13,392	)		(11,284	)		(16,501	)		(24,676	)		(38,056	)
Provision Charged to Operating Expense		4,233			2,400			(250	)		6,633			1,026

Balance at End of Period	$	71,893		$	81,052		$	109,029		$	71,893		$	109,029

Allowance for Off-Balance Sheet Items:
Balance at Beginning of Period	$	2,581		$	2,981		$	2,141		$	2,981		$	3,417
Provision Charged to (Reversal of Charged to) Operating Expense		(233	)		(400	)		250			(633	)		(1,026	)

Balance at End of Period	$	2,348		$	2,581		$	2,391		$	2,348		$	2,391

The following table details the information on the allowance for credit losses by portfolio segment for the three months ended June 30, 2012 and 2011.


	Real Estate		Commercial andIndustrial		Consumer			Unallocated			Total
	(In Thousands)
June 30, 2012:
Allowance for Loan Losses:
Beginning Balance	$	22,230	$	54,638	$	2,244		$	1,940		$	81,052
Charge-Offs		5,243		9,393		80			—			14,716
Recoveries on Loans Previously Charged Off		517		789		18			—			1,324
Provision		3,902		776		(425	)		(20	)		4,233

Ending Balance	$	21,406	$	46,810	$	1,757		$	1,920		$	71,893

Ending Balance: Individually Evaluated for Impairment	$	437	$	7,224	$	—		$	—		$	7,661

Ending Balance: Collectively Evaluated for Impairment	$	20,969	$	39,586	$	1,757		$	1,920		$	64,232

Loans Receivable:
Ending Balance	$	839,816	$	1,070,469	$	39,339		$	—		$	1,949,624

Ending Balance: Individually Evaluated for Impairment	$	16,619	$	42,087	$	1,401		$	—		$	60,107

Ending Balance: Collectively Evaluated for Impairment	$	823,197	$	1,028,382	$	37,938		$	—		$	1,889,517

June 30, 2011:
Allowance for Loan Losses:
Beginning Balance	$	25,884	$	93,878	$	1,732		$	4,286		$	125,780
Charge-Offs		5,591		14,741		320			—			20,652
Recoveries on Loans Previously Charged Off		2,223		1,915		13			—			4,151
Provision		1,599		1,793		162			(3,804	)		(250	)

Ending Balance	$	24,115	$	82,845	$	1,587		$	482		$	109,029

Ending Balance: Individually Evaluated for Impairment	$	3,324	$	26,149	$	223		$	—		$	29,696

Ending Balance: Collectively Evaluated for Impairment	$	20,791	$	56,696	$	1,364		$	482		$	79,333

Loans Receivable:
Ending Balance	$	787,585	$	1,234,519	$	46,500		$	—		$	2,068,604

Ending Balance: Individually Evaluated for Impairment	$	78,065	$	114,560	$	870		$	—		$	193,495

Ending Balance: Collectively Evaluated for Impairment	$	709,520	$	1,119,959	$	45,630		$	—		$	1,875,109

The following table details the information on the allowance for credit losses by portfolio segment for the six months ended June 30, 2012 and 2011.


	Real Estate		Commercial and Industrial			Consumer			Unallocated			Total
	(In Thousands)
June 30, 2012:
Allowance for Loan Losses:
Beginning Balance	$	19,637	$	66,005		$	2,243		$	2,051		$	89,936
Charge-Offs		8,085		18,508			444			—			27,037
Recoveries on Loans Previously Charged Off		517		1,802			42			—			2,361
Provision		9,337		(2,489	)		(84	)		(131	)		6,633

Ending Balance	$	21,406	$	46,810		$	1,757		$	1,920		$	71,893

Ending Balance: Individually Evaluated for Impairment	$	437	$	7,224		$	—		$	—		$	7,661

Ending Balance: Collectively Evaluated for Impairment	$	20,969	$	39,586		$	1,757		$	1,920		$	64,232

Loans Receivable:
Ending Balance	$	839,816	$	1,070,469		$	39,339		$	—		$	1,949,624

Ending Balance: Individually Evaluated for Impairment	$	16,619	$	42,087		$	1,401		$	—		$	60,107

Ending Balance: Collectively Evaluated for Impairment	$	823,197	$	1,028,382		$	37,938		$	—		$	1,889,517

June 30, 2011:
Allowance for Loan Losses:
Beginning Balance	$	32,766	$	108,986		$	2,079		$	2,228		$	146,059
Charge-Offs		12,644		32,693			496			—			45,833
Recoveries on Loans Previously Charged Off		2,744		5,011			22			—			7,777
Provision		1,249		1,541			(18	)		(1,746	)		1,026

Ending Balance	$	24,115	$	82,845		$	1,587		$	482		$	109,029

Ending Balance: Individually Evaluated for Impairment	$	3,324	$	26,149		$	223		$	—		$	29,696

Ending Balance: Collectively Evaluated for Impairment	$	20,791	$	56,696		$	1,364		$	482		$	79,333

Loans Receivable:
Ending Balance	$	787,585	$	1,234,519		$	46,500		$	—		$	2,068,604

Ending Balance: Individually Evaluated for Impairment	$	78,065	$	114,560		$	870		$	—		$	193,495

Ending Balance: Collectively Evaluated for Impairment	$	709,520	$	1,119,959		$	45,630		$	—		$	1,875,109

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of our loan portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from (0) to (8)) for each and every loan in our loan portfolio. All loans are reviewed semi-annually. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:

Pass: pass loans, grade (0) to (4), are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention” (5), “Substandard” (6) or “Doubtful” (7). This is the strongest level of the Bank’s loan grading system. It incorporates all performing loans with no credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans. Following are sub categories within the Pass grade, or (0) to (4):


Pass or (0):		loans secured in full by cash or cash equivalents.

Pass or (1):		requires a very strong, well-structured credit relationship with an established borrower. The relationship should be supported by audited financial statements indicating cash flow, well in excess of debt service requirement, excellent liquidity, and very strong capital.

Pass or (2):

requires a well-structured credit that may not be as seasoned or as high quality as grade 1. Capital, liquidity, debt service capacity, and collateral coverage must all be well above average. This category includes individuals with substantial net worth centered in liquid assets and strong income.

Pass or (3):

loans or commitments to borrowers exhibiting a fully acceptable credit risk. These borrowers should have sound balance sheet proportions and significant cash flow coverage, although they may be somewhat more leveraged and exhibit greater fluctuations in earning and financing but generally would be considered very attractive to the Bank as a borrower. The borrower has historically demonstrated the ability to manage economic adversity. Real estate and asset-based loans which are designated this grade must have characteristics that place them well above the minimum underwriting requirements. Asset-based borrowers assigned this grade must exhibit extremely favorable leverage and cash flow characteristics and consistently demonstrate a high level of unused borrowing capacity.

Pass or (4):

loans or commitments to borrowers exhibiting either somewhat weaker balance sheet proportions or positive, but inconsistent, cash flow coverage. These borrowers may exhibit somewhat greater credit risk, and as a result of this the Bank may have secured its exposure in an effort to mitigate the risk. If so, the collateral taken should provide an unquestionable ability to repay the indebtedness in full through liquidation, if necessary. Cash flows should be adequate to cover debt service and fixed obligations, although there may be a question about the borrower’s ability to provide alternative sources of funds in emergencies. Better quality real estate and asset-based borrowers who fully comply with all underwriting standards and are performing according to projections would be assigned this grade.

Special Mention or (5): Special Mention credits are potentially weak, as the borrower is exhibiting deteriorating trends which, if not corrected, could jeopardize repayment of the debt and result in a substandard classification. Credits which have significant actual, not potential, weaknesses are considered more severely classified.

Substandard or (6): A Substandard credit has a well-defined weakness that jeopardizes the liquidation of the debt. A credit graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.

Doubtful or (7): A Doubtful credit is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the credit, and therefore the amount or timing of a possible loss cannot be determined at the current time.

Loss or (8): Loans classified as Loss are considered uncollectible and of such little value that their continuance as active bank assets 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 asset even though partial recovery may be possible in the future. Loans classified Loss will be charged off in a timely manner.


	Pass (Grade 0-4)		Criticized (Grade 5)		Classified (Grade 6-7)		Total Loans
	(In Thousands)
June 30, 2012:
Real Estate Loans:
Commercial Property
Retail	$	332,656	$	3,095	$	9,975	$	345,726
Land		6,163		—		12,340		18,503
Other		330,499		25,141		4,260		359,900
Construction		—		—		7,930		7,930
Residential Property		103,901		—		3,856		107,757
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		102,701		1,356		27,923		131,980
Secured by Real Estate		651,727		16,145		54,647		722,519
Commercial Lines of Credit		50,808		885		2,223		53,916
SBA Loans		113,925		1,382		14,108		129,415
International Loans		31,589		—		1,050		32,639
Consumer Loans		35,821		218		3,300		39,339

Total	$	1,759,790	$	48,222	$	141,612	$	1,949,624

December 31, 2011:
Real Estate Loans:
Commercial Property
Retail	$	292,914	$	8,858	$	10,685	$	312,457
Land		4,351		—		3,418		7,769
Other		297,734		8,428		36,635		342,797
Construction		—		14,080		19,896		33,976
Residential Property		48,592		—		4,329		52,921
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		100,804		8,680		41,796		151,280
Secured by Real Estate		634,822		36,290		122,444		793,556
Commercial Lines of Credit		44,985		7,676		3,109		55,770
SBA Loans		96,983		1,496		17,713		116,192
International Loans		26,566		—		2,110		28,676
Consumer Loans		40,454		676		2,216		43,346

Total	$	1,588,205	$	86,184	$	264,351	$	1,938,740

The following is an aging analysis of past due loans, disaggregated by class of loan, as of June 30, 2012 and December 31, 2011:


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Accruing 90 Days or More Past Due
	(In Thousands)
June 30, 2012:
Real Estate Loans:
Commercial Property
Retail	$	—	$	—	$	—	$	—	$	345,726	$	345,726	$	—
Land		—		—		—		—		18,503		18,503		—
Other		—		—		62		62		359,838		359,900		—
Construction		—		—		7,930		7,930		—		7,930		—
Residential Property		211		235		191		637		107,120		107,757		—
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		793		371		702		1,866		130,114		131,980		—
Secured by Real Estate		293		939		1,202		2,434		720,085		722,519		—
Commercial Lines of Credit		150		—		616		766		53,150		53,916		—
SBA Loans		2,145		228		5,534		7,907		121,508		129,415		—
International Loans		—		1,050		—		1,050		31,589		32,639		—
Consumer Loans		330		104		1,209		1,643		37,696		39,339		—

Total	$	3,922	$	2,927	$	17,446	$	24,295	$	1,925,329	$	1,949,624	$	—

December 31, 2011:
Real Estate Loans:
Commercial Property
Retail	$	485	$	—	$	—	$	485	$	311,972	$	312,457	$	—
Land		—		—		—		—		7,769		7,769		—
Other		—		—		—		—		342,797		342,797		—
Construction		—		—		8,310		8,310		25,666		33,976		—
Residential Property		277		1,613		2,221		4,111		48,810		52,921		—
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		438		611		1,833		2,882		148,398		151,280		—
Secured by Real Estate		3,162		6,496		1,202		10,860		782,696		793,556		—
Commercial Lines of Credit		—		—		416		416		55,354		55,770		—
SBA Loans		260		472		7,108		7,840		108,352		116,192		—
International Loans		—		—		—		—		28,676		28,676		—
Consumer Loans		126		7		154		287		43,059		43,346		—

Total	$	4,748	$	9,199	$	21,244	$	35,191	$	1,903,549	$	1,938,740	$	—

Impaired Loans

Loans are considered impaired when, non-accrual and principal or interest payments have been contractually past due for 90 days or more, unless the loan is both well-collateralized and in the process of collection; or they are classified as Troubled Debt Restructuring (“TDR”) loans to offer terms not typically granted by the Bank or when current information or events make it unlikely to collect in full according to the contractual terms of the loan agreements; or there is a deterioration in the borrower’s financial condition that raises uncertainty as to timely collection of either principal or interest; or full payment of both interest and principal is in doubt according to the original contractual terms.

We evaluate loan impairment in accordance with applicable GAAP. Loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, loans that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.

The allowance for collateral-dependent loans is determined by calculating the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.

The following table provides information on impaired loans, disaggregated by class of loans, as of the dates indicated:


	Recorded Investment		Unpaid Principal Balance		With No Related Allowance Recorded		With an Allowance Recorded		Related Allowance
	(In Thousands)
June 30, 2012:
Real Estate Loans:
Commercial Property
Retail	$	2,538	$	2,584	$	2,406	$	132	$	122
Land		2,112		2,235		2,112		—		—
Other		874		936		874		—		—
Construction		7,930		8,108		7,930		—		—
Residential Property		3,166		3,206		1,299		1,867		315
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		13,442		14,279		457		12,985		5,153
Secured by Real Estate		18,927		19,930		16,235		2,692		573
Commercial Lines of Credit		1,777		1,929		882		895		475
SBA Loans		7,941		12,231		6,073		1,868		1,023
Consumer Loans		1,401		1,433		1,401		—		—

Total	$	60,108	$	66,871	$	39,669	$	20,439	$	7,661

December 31, 2011:
Real Estate Loans:
Commercial Property
Retail	$	1,260	$	1,260	$	1,100	$	160	$	126
Land		3,178		3,210		—		3,178		360
Other		14,773		14,823		1,131		13,642		3,004
Construction		14,120		14,120		14,120		—		—
Residential Property		5,368		5,408		3,208		2,160		128
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		16,035		16,559		244		15,791		10,793
Secured by Real Estate		53,159		54,156		14,990		38,169		7,062
Commercial Lines of Credit		1,431		1,554		715		716		716
SBA Loans		11,619		12,971		9,445		2,174		1,167
International Loans		—		—		—		—		—
Consumer Loans		746		788		511		235		26

Total	$	121,689	$	124,849	$	45,464	$	76,225	$	23,382

Impaired Loans

The following table provides information on impaired loans, disaggregated by class of loans for the periods indicated:


	Average Recorded Investment for the Three Months Ended		Interest Income Recognized for the Three Months Ended		Average Recorded Investment for the Six Months Ended		Interest Income Recognized for the Six Months Ended
	(In Thousands)
June 30, 2012:
Real Estate Loans:
Commercial Property
Retail	$	2,546	$	19	$	1,945	$	48
Land		2,137		45		2,175		91
Other		878		11		1,138		33
Construction		7,983		89		8,090		178
Residential Property		3,177		48		3,259		84
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		13,474		192		14,257		430
Secured by Real Estate		19,021		525		22,756		958
Commercial Lines of Credit		1,788		22		1,835		30
SBA Loans		8,336		286		8,150		483
Consumer Loans		1,402		2		903		10

Total	$	60,742	$	1,239	$	64,508	$	2,345

June 30, 2011:
Real Estate Loans:
Commercial Property
Retail	$	17,260	$	26	$	17,633	$	51
Land		27,561		—		29,023		—
Other		21,849		60		21,864		121
Construction		12,535		—		12,578		—
Residential Property		2,371		—		2,386		—
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		15,365		53		15,571		105
Secured by Real Estate		84,898		456		85,504		821
Commercial Lines of Credit		3,076		2		3,090		4
SBA Loans		18,900		31		19,107		57
International Loans		3,243		—		2,255		—
Consumer Loans		889		1		893		1

Total	$	207,947	$	629	$	209,904	$	1,160

The following is a summary of interest foregone on impaired loans for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2012			2011			2012			2011
	(In Thousands)
Interest Income That Would Have Been Recognized Had Impaired	$	1,505		$	2,001		$	2,933		$	4,475
Loans Performed in Accordance With Their Original Terms
Less: Interest Income Recognized on Impaired Loans		(1,239	)		(629	)		(2,345	)		(1,160	)

Interest Foregone on Impaired Loans	$	266		$	1,372		$	588		$	3,315

There were no commitments to lend additional funds to borrowers whose loans are included above.

Non-Accrual Loans

Loans are placed on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectibility of principal is probable, in which case interest payments are credited to income. Non-accrual loans may be restored to accrual status when principal and interest payments become current and full repayment is expected.

The following table details non-accrual loans, disaggregated by class of loan, for the periods indicated:


	June 30,		December 31,
	2012		2011
	(In Thousands)
Real Estate Loans:
Commercial Property
Retail	$	1,203	$	1,260
Land		2,112		2,362
Other		936		1,199
Construction		7,930		8,310
Residential Property		1,298		2,097
Commercial and Industrial Loans:
Commercial Term Loans
Unsecured		6,953		7,706
Secured by Real Estate		5,826		11,725
Commercial Lines of Credit		1,585		1,431
SBA Loans		15,720		15,479
Consumer Loans		1,580		809

Total	$	45,143	$	52,378

The following table details non-performing assets as of the dates indicated:


	June 30,		December 31,
	2012		2011
	(In Thousands)
Non-Accrual Loans	$	45,143	$	52,378
Loans 90 Days or More Past Due and Still Accruing		—		—

Total Non-Performing Loans		45,143		52,378
Other Real Estate Owned		1,071		180

Total Non-Performing Assets	$	46,214	$	52,558

Loans on non-accrual status, excluding loans held for sale, totaled $45.1 million as of June 30, 2012, compared to $52.4 million as of December 31, 2011, representing a 13.8 percent decrease. Delinquent loans (defined as 30 days or more past due), excluding loans held for sale, were $24.3 million as of June 30, 2012, compared to $35.2 million as of December 31, 2011, representing a 31.0 percent decrease.

Non-Accrual Loans (Continued)

As of December 31, 2011, there was one real estate owned property, located in Colorado, with a net carrying value of $180,000. During the six months ended June 30, 2012, two properties, located in California, were transferred from loans receivable to other real estate owned at fair value less selling costs of $1.1 million. As of June 30, 2012, other real estate owned consisted of three properties with a combined carrying value of $1.1 million. The carrying value as of June 30, 2012 is net of a valuation adjustment of $57,000 that was recorded on the three properties during the six months ended June 30, 2012.

Troubled Debt Restructuring

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which clarifies the guidance for evaluating whether a restructuring constitutes a TDR. This guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For the purposes of measuring impairment of loans that are newly considered impaired, the guidance should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011.

As a result of the amendments in ASU No. 2011-02, we reassessed all restructurings that occurred on or after the beginning of the annual period and identified certain receivables as TDRs. Upon identifying those receivables as TDRs, we considered them impaired and applied the impairment measurement guidance prospectively for those receivables newly identified as impaired.

During the six months ended June 30, 2012, we restructured monthly payments on 40 loans, with a net carrying value of $7.7 million as of June 30, 2012, through temporary payment structure modifications or re-amortization. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms are probable.

The following table details troubled debt restructuring, disaggregated by type of concession and by type of loans as of June 30, 2012 and December 31, 2011.


	As of June 30, 2012
	Non-Accrual TDRs										Accrual TDRs
	(In Thousands)
	Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal or Interest		Extension of Maturity		Total		Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal or Interest		Extension of Maturity		Total
Trouble Debt Restructuring:
Real Estate Loans:
Commercial Property
Retail	$	—	$	—	$	—	$	1,202	$	1,202	$	—	$	—	$	—	$	—	$	—
Other		874		—		—		—		874		—		—		—		—		—
Residential Property		843		—		127		—		970		1,295		572		—		—		1,867
Commercial and Industrial Loans:
Commercial Term
Unsecured		—		622		4,686		664		5,972		1,029		—		2,639		2,211		5,879
Secured by Real Estate		1,202		1,436		358		—		2,996		441		—		1,619		6,521		8,581
Commercial Line of Credit		695		—		—		273		968		—		—		192		—		192
SBA		3,131		1,385		1,064		—		5,580		459		34		192		—		685

Total		$6,745	$	3,443	$	6,235	$	2,139	$	18,562	$	3,224	$	606	$	4,642	$	8,732	$	17,204


	As of December 31, 2011
	Non-Accrual TDRs										Accrual TDRs
	(In Thousands)
	Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal or Interest		Extension of Maturity		Total		Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal or Interest		Extension of Maturity		Total
Trouble Debt Restructuring:
Real Estate Loans:
Commercial Property
Retail	$	—	$	—	$	—	$	1,260	$	1,260	$	—	$	—	$	—	$	—	$	—
Other		900		—		—		—		900		1,480		—		—		—		1,480
Residential Property		—		—		138		—		138		2,167		572		—		—		2,739
Commercial and Industrial Loans:
Commercial Term
Unsecured		765		669		4,650		484		6,568		185		—		7,069		1,584		8,838
Secured by Real Estate		1,202		1,523		2,403		3,243		8,371		2,005		—		8,628		2,699		13,332
Commercial Line of Credit		715		—		—		198		913		—		—		—		—		—
SBA		2,758		1,524		794		—		5,076		1,354		468		—		—		1,986

Total	$	6,340	$	3,716	$	7,985	$	5,185	$	23,226	$	7,191	$	1,040	$	15,697	$	4,283	$	28,375

Troubled Debt Restructuring (Continued)

The following table details troubled debt restructurings, disaggregated by class of loans, for the three months ended June 30, 2012 and 2011.


	For the Three Months Ended
	June 30, 2012						June 30, 2011
	(In Thousands, Except for Number of Loans)
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructuring:
Real Estate Loans:
Commercial Property
Retail		—	$	—	$	—		—	$	—	$	—
Other		—		—		—		1		941		941
Residential Property		—		—		—		1		867		866
Commercial and Industrial Loans:
Commercial Term
Unsecured ⁽¹⁾		10		1,640		1,588		13		5,653		5,454
Secured by Real Estate ⁽²⁾		1		378		358		8		10,190		8,864
Commercial Line of Credit ⁽³⁾		1		196		192		—		—		—
SBA ⁽⁴⁾		4		681		653		6		4,909		4,607

Total		16	$	2,895	$	2,791		29	$	22,560	$	20,732

⁽¹⁾

Includes $893,000 of loan modifications made through deferred principal payments, $300,000 through deferred principal and accrued interest payments, and $394,000 through extensions of maturity.

⁽²⁾

Includes $358,000 of loan modifications made through reductions of principal or accrued interest payments.

⁽³⁾

Includes $192,000 of loan modifications made through reductions of principal or accrued interest payments.

⁽⁴⁾

Includes $373,000 of loan modifications made through deferred principal payments, and $291,000 through reductions of principal or accrued interest payments.

The following table details troubled debt restructurings, disaggregated by class of loans, for the six months ended June 30, 2012 and 2011.


	For the Six Months Ended
	June 30, 2012						June 30, 2011
	(In Thousands, Except for Number of Loans)
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructuring:
Real Estate Loans:
Commercial Property
Retail		—	$	—	$	—		3	$	8,542	$	8,409
Other		—		—		—		2		1,824		1,824
Residential Property		—		—		—		1		867		866
Commercial and Industrial Loans:
Commercial Term
Unsecured ⁽¹⁾		27		4,696		4,426		17		6,039		5,831
Secured by Real Estate ⁽²⁾		3		2,211		2,144		11		15,904		14,578
Commercial Line of Credit ⁽³⁾		1		202		192		—		—		—
SBA ⁽⁴⁾		9		975		934		7		5,008		4,706

Total		40	$	8,084	$	7,696		41	$	38,184	$	36,214

⁽¹⁾

Includes $893,000 of loan modifications made through deferred principal payments, $1.9 million through reductions of principal or accrued interest payment, and $1.6 million through extensions of maturity.

⁽²⁾

Includes $1.6 million of loan modifications made through reductions of principal or accrued interest payments, and $497,000 through extensions of maturity.

⁽³⁾

Includes $192,000 of loan modifications made through reductions of principal or accrued interest payments.

⁽⁴⁾

Includes $503,000 of loan modifications made through deferred principal payments, and $442,000 through reductions of principal or accrued interest payments.

Troubled Debt Restructuring (Continued)

As of June 30, 2012 and December 31, 2011, total TDR loans receivable, excluding loans held for sale, was $35.8 million and $51.6 million, respectively. A debt restructuring is considered a TDR if we grant a concession that we would not have otherwise considered to the borrower, for economic or legal reasons related to the borrower’s financial difficulties. Loans are considered to be TDRs if they were restructured through payment structure modifications such as reducing the amount of principal and interest due monthly and/or allowing for interest only monthly payments for six months or less. All TDR loans are impaired, and are individually evaluated for specific impairment using one of these three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent.

At June 30, 2012, TDR loans, excluding loans held for sale, were subjected to specific impairment analysis and a $6.3 million reserve relating to these loans was included in the allowance for loan losses. At December 31, 2011, TDR loans, excluding loans held for sale, were subjected to specific impairment analysis and the related allowance for loan losses was $14.2 million.

The following table details troubled debt restructurings that defaulted subsequent to the modifications occurring within the previous twelve months, disaggregated by class of loans, during the three months and six months ended June 30, 2012 and 2011.


	For the Three Months Ended								For the Six Months Ended
	June 30, 2012				June 30, 2011				June 30, 2012				June 30, 2011
	(In Thousands, Except for Number of Loans)								(In Thousands, Except for Number of Loans)
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Troubled Debt Restructuring:
Real Estate Loans:
Commercial Property
Retail		—	$	—		—	$	—		—	$	—		—	$	—
Other		—		—		—		—		—		—		—		—
Residential Property		—		—		—		—		—		—		—		—
Commercial and Industrial Loans:
Commercial Term
Unsecured		6		636		5		1,571		7		677		7		1,828
Secured by Real Estate		—		—		3		1,345		—		—		4		5,012
Commercial Line of Credit		1		273		—		—		1		273		—		—
SBA		12		1,042		4		2,658		12		1,042		4		2,658

Total		19	$	1,951		12	$	5,574		20	$	1,992		15	$	9,498

Servicing Assets

The changes in servicing assets were as follows for the periods indicated:


	June 30, 2012			June 30, 2011
	(In Thousands)
Balance at Beginning of Period	$	3,720		$	2,890
Additions		1,702			—
Amortization		(419	)		(345	)

Balance at End of Period	$	5,003		$	2,545

At June 30, 2012 and 2011, we serviced loans sold to unaffiliated parties in the amounts of $268.8 million and $175.6 million, respectively. These represented loans that have been sold for which the Bank continues to provide servicing. These loans are maintained off balance sheet and are not included in the loans receivable balance. All of the loans being serviced were SBA loans.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

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Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

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-Number 210

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Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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-Section S99

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-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

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-Publisher AICPA

-Name Statement of Position (SOP)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=7512638&loc=d3e5066-111524

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-Number 210

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