NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2012

NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 8 — NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a summary of loans receivable, excluding covered loans (“non-covered loans”) for the periods indicated:

	June 30,			December 31,
	2012			2011
	(In thousands)
Residential:
Single-family	$	2,017,877		$	1,796,635
Multifamily	912,941			933,168
Total residential	2,930,818			2,729,803
Commercial Real Estate (“CRE”):
Income producing	3,444,957			3,487,866
Construction	134,621			171,410
Land	165,118			173,089
Total CRE	3,744,696			3,832,365
Commercial and Industrial (“C&I”):
Commercial business	2,860,172			2,655,917
Trade finance	558,465			486,555
Total C&I	3,418,637			3,142,472
Consumer:
Student loans	436,527			306,325
Other consumer	264,192			277,461
Total consumer	700,719			583,786
Total gross loans receivable, excluding covered loans	10,794,870			10,288,426
Unearned fees, premiums, and discounts, net	(19,762		)	(16,762		)
Allowance for loan losses, excluding covered loans	(219,454		)	(209,876		)
Loans receivable, excluding covered loans, net	$	10,555,654		$	10,061,788

Accrued interest on covered and non-covered loans receivable amounted to $70.2 million and $68.5 million at June 30, 2012 and December 31, 2011, respectively.

At June 30, 2012 and December 31, 2011, covered and non-covered loans receivable totaling $8.83 billion and $8.65 billion, respectively, were pledged to secure borrowings from the FHLB and the Federal Reserve Bank.

The Bank offers both fixed and adjustable rate (“ARM”) first mortgage loans secured by one-to-four unit residential properties located in its primary lending areas. The Bank originated $369.7 million and $294.7 million in new residential single-family loans during the six months ended June 30, 2012 and 2011, respectively.

The Bank also offers both fixed and ARM residential multifamily loan programs. For the six months ended June 30, 2012 and 2011, the Bank originated $52.7 million and $23.9 million, respectively, in multifamily residential loans. The Bank primarily offers ARM multifamily loan programs that have six-month, three-year, or five-year initial fixed periods. The Bank originates single family residential loans where limited verification or documentation of a borrower’s income is obtained. However, such loans are originated at an original loan to value ratio of below 65%. The Bank considers all of the single-family and multifamily loans originated to be prime loans and the underwriting criteria include minimum FICO scores, maximum loan-to-value ratios and minimum debt coverage ratios, as applicable. The Bank has single-family loans with interest-only features which represent less than 1% and 1% of total single-family loans at June 30, 2012 and December 31, 2011, respectively. Additionally, the Bank owns residential loans that were purchased several years ago that permit different repayment options. For these loans, there is the potential for negative amortization if the borrower so chooses. These residential loans that permit different repayment options represents less than 1%, and 1%, of total residential loans at June 30, 2012 and December 31, 2011, respectively. None of these loans were negatively amortizing as of June 30, 2012 and December 31, 2011.

In addition to residential lending, the Bank’s lending activities also include commercial real estate, commercial and industrial, and consumer lending. Our CRE lending activities include loans to finance income producing properties and also construction and land loans. Our C&I lending activities include commercial business financing for small and middle-market businesses in a wide spectrum of industries. Included in commercial business loans are loans for working capital, accounts receivable lines, inventory lines, small business administration loans, and lease financing. We also offer a variety of international trade finance services and products, including letters of credit, revolving lines of credit, import loans, bankers’ acceptances, working capital lines, domestic purchase financing, and pre-export financing. Consumer loans are primarily comprised of fully guaranteed student loans, home equity lines of credit, and auto loans.

All of the loans that the Bank originates are subject to its underwriting guidelines and loan origination standards. Management believes that the Bank’s underwriting criteria and procedures adequately consider the unique risks which may come from these products. The Bank conducts a variety of quality control procedures and periodic audits to ensure compliance with its origination standards, including criteria for lending and legal requirements.

Credit Risk and Concentrations—The real estate market in California, including the areas of Los Angeles, Riverside, San Bernardino, and Orange counties, where a significant portion of the Company’s loan customers are based, has been negatively impacted over the past few years. As of June 30, 2012, the Company had $3.74 billion in non-covered commercial real estate loans and $2.93 billion in non-covered residential loans, of which approximately 91% are secured by real properties located in California. Potential further deterioration in the real estate market generally and residential building in particular could result in additional loan charge-offs and provisions for loan losses in the future, which could have a material adverse effect on the Company’s financial condition, net income and capital. In addition, although most of the Company’s trade finance loans relate to trade in the greater China region, the majority of these loans are made to companies domiciled in the United States. A substantial portion of this business involves California based customers engaged in import and export activities. We offer export-import financing to various domestic and foreign customers; we also offer export loans which are guaranteed by the Export-Import Bank of the United States.

Purchased Loans—During the first six months of 2012, the Company purchased loans with an unpaid principal balance of $288.2 million and a carrying amount of $274.0 million. 98% of these loans are student loans which are guaranteed by the U.S. Department of Education and pose limited credit risk.

Loans Held for Sale—Loans held for sale totaled $137.8 million and $278.6 million as of June 30, 2012 and December 31, 2011, respectively. Loans held for sale are recorded at the lower of cost or fair market value. Fair market value, if lower than cost, is determined based on valuations obtained from market participants or the value of the underlying collateral. As of June 30, 2012, approximately 93% of these loans were student loans, the majority of which are guaranteed by the U.S. Department of Education. During the first six months of 2012, in total, net loans receivable of $21.3 million were reclassified to loans held for sale. Some of these loans were purchased by the Company with the intent to be held for investment; however, subsequent to their purchase, the Company’s intent for these loans changed and they were consequently reclassified to loans held for sale. Proceeds from sales of loans held for sale were $199.4 million in the first six months of 2012, resulting in net gains on sale of $9.3 million. Proceeds from sales of loans held for sale were $376.6 million in the first half of 2011 with $10.2 million net gains on sale.

Credit Quality Indicators—Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes review of all sources of repayment, the borrower’s current financial and liquidity status, and all other relevant information. The Company utilizes an eight grade risk rating system, where a higher grade represents a higher level of credit risk. The eight grade risk rating system can be generally classified by the following categories: Pass or Watch, Special Mention, Substandard, Doubtful, and Loss. The risk ratings reflect the relative strength of the sources of repayment.

Pass or Watch loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. These borrowers may have some credit risk that requires monitoring, but full repayment is expected. Special Mention loans are considered to have potential weaknesses that warrant closer attention by management. Special Mention is considered a transitory grade and, generally, the Company does not grade a loan as Special Mention for longer than six months. If any potential weaknesses are resolved, the loan is upgraded to a Pass or Watch grade. If negative trends in the borrower’s financial status or other information is presented that indicates the repayment sources may become inadequate, the loan is downgraded to a Substandard grade. Substandard loans are considered to have well-defined weaknesses that jeopardize the full and timely repayment of the loan. Substandard loans have a distinct possibility of loss if the deficiencies are not corrected. Additionally, when management has assessed a potential for loss but a distinct possibility of loss is not recognizable, the loan is still classified as Substandard. Doubtful loans have insufficient sources of repayment and a high probability of loss. Loss loans are considered to be uncollectible and of such little value that they are no longer considered bankable assets. These internal risk ratings are reviewed routinely and adjusted due to changes in borrower status and likelihood of loan repayment. The tables below present the non-covered loan portfolio by credit quality indicator as of June 30, 2012 and December 31, 2011. There were no Loss grade loans as of June 30, 2012 and December 31, 2011.

			Special
	Pass/Watch		Mention		Substandard		Doubtful		Total
					(In thousands)
June 30, 2012
Residential:
Single-family	$	1,988,413	$	11,631	$	17,833	$	—	$	2,017,877
Multifamily	803,952		15,981		93,008		—		912,941
CRE:
Income producing	3,212,664		38,219		194,074		—		3,444,957
Construction	95,598		—		39,023		—		134,621
Land	116,262		8,404		40,452		—		165,118
C&I:
Commercial business	2,716,974		66,844		76,354		—		2,860,172
Trade finance	541,332		6,214		10,919		—		558,465
Consumer:
Student loans	436,239		189		99		—		436,527
Other consumer	259,020		—		5,172		—		264,192
Total	$	10,170,454	$	147,482	$	476,934	$	—	$	10,794,870

			Special
	Pass/Watch		Mention		Substandard		Doubtful		Total
					(In thousands)
December 31, 2011
Residential:
Single-family	$	1,768,149	$	11,239	$	17,247	$	—	$	1,796,635
Multifamily	810,458		25,531		97,179		—		933,168
CRE:
Income producing	3,211,386		63,066		213,414		—		3,487,866
Construction	109,184		—		62,226		—		171,410
Land	125,534		7,954		39,601		—		173,089
C&I:
Commercial business	2,492,904		62,409		100,357		247		2,655,917
Trade finance	467,822		7,161		11,572		—		486,555
Consumer:
Student loans	305,880		188		257		—		306,325
Other consumer	273,692		—		3,769		—		277,461
Total	$	9,565,009	$	177,548	$	545,622	$	247	$	10,288,426

Nonaccrual and Past Due Loans—Loans are tracked by the number of days borrower payments are past due. The tables below present an aging analysis of nonaccrual loans, past due non-covered loans and loans held for sale, segregated by class of loans, as of June 30, 2012 and December 31, 2011:

	Accruing		Accruing		Total		Nonaccrual		Nonaccrual		Total
	Loans		Loans		Accruing		Loans Less		Loans		Nonaccrual
	30-59 Days		60-89 Days		Past Due		Than 90 Days		90 or More		Past Due		Current
	Past Due		Past Due		Loans		Past Due		Days Past Due		Loans		Loans		Total
							(In thousands)
June 30, 2012
Residential:
Single-family	$	4,899	$	893	$	5,792	$	1,350	$	6,405	$	7,755	$	2,004,330	$	2,017,877
Multifamily	2,592		3,907		6,499		11,129		9,278		20,407		886,035		912,941
CRE:
Income producing	11,596		324		11,920		2,092		13,109		15,201		3,417,836		3,444,957
Construction	—		—		—		—		24,480		24,480		110,141		134,621
Land	498		1,437		1,935		669		7,911		8,580		154,603		165,118
C&I:
Commercial business	4,236		900		5,136		6,000		15,152		21,152		2,833,884		2,860,172
Trade finance	—		—		—		—		1,919		1,919		556,546		558,465
Consumer:
Student loans	227		189		416		—		99		99		436,012		436,527
Other consumer	1,169		—		1,169		—		3,199		3,199		259,824		264,192
Loans held for sale	—		—		—		—		9,642		9,642		128,170		137,812
Total	$	25,217	$	7,650	$	32,867	$	21,240	$	91,194	$	112,434	$	10,787,381	10,932,682
Unearned fees, premiums and discounts, net															(19,762		)
Total recorded investment in non-covered loans and loans held for sale															$	10,912,920

	Accruing		Accruing		Total		Nonaccrual		Nonaccrual		Total
	Loans		Loans		Accruing		Loans Less		Loans		Nonaccrual
	30-59 Days		60-89 Days		Past Due		Than 90 Days		90 or More		Past Due		Current
	Past Due		Past Due		Loans		Past Due		Days Past Due		Loans		Loans		Total
							(In thousands)
December 31, 2011
Residential:
Single-family	$	6,991	$	1,198	$	8,189	$	—	$	3,569	$	3,569	$	1,784,877	$	1,796,635
Multifamily	6,366		745		7,111		6,889		11,306		18,195		907,862		933,168
CRE:
Income producing	18,179		1,549		19,728		6,885		25,690		32,575		3,435,563		3,487,866
Construction	—		—		—		26,482		14,688		41,170		130,240		171,410
Land	—		573		573		1,136		9,589		10,725		161,791		173,089
C&I:
Commercial business	342		2,957		3,299		4,394		6,843		11,237		2,641,381		2,655,917
Trade finance	—		—		—		—		—		—		486,555		486,555
Consumer:
Student loans	109		188		297		—		257		257		305,771		306,325
Other consumer	1,130		—		1,130		—		2,249		2,249		274,082		277,461
Loans held for sale	—		—		—		—		25,655		25,655		252,948		278,603
Total	$	33,117	$	7,210	$	40,327	$	45,786	$	99,846	$	145,632	$	10,381,070	10,567,029
Unearned fees, premiums and discounts, net															(16,762		)
Total recorded investment in non-covered loans and loans held for sale															$	10,550,267

Generally, loans 90 or more days past due are placed on nonaccrual status, at which point interest accrual is discontinued and all unpaid accrued interest is reversed against interest income. Additionally, loans that are not 90 or more days past due but have identified deficiencies, including delinquent TDR loans, are also placed on nonaccrual status. Nonaccrual loans totaled $112.4 million and $145.6 million at June 30, 2012 and December 31, 2011, respectively. Loans not 90 or more days past due totaled $21.2 million and $45.8 million as of June 30, 2012 and December 31, 2011, respectively, and were included in non-covered nonaccrual loans.

The following is a summary of interest income foregone on nonaccrual loans:

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
				(In thousands)
Interest income that would have been recognized had nonaccrual loans performed in accordance with their original terms	$	1,767		$	2,798		$	3,497		$	5,563
Less: Interest income recognized on nonaccrual loans on a cash basis	(609		)	(415		)	(1,073		)	(830		)
Interest income foregone on nonaccrual loans	$	1,158		$	2,383		$	2,424		$	4,733

Troubled debt restructurings—A troubled debt restructuring (“TDR”) is a modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a below-market change in the stated interest rate, reduction in the loan balance or accrued interest, extension of the maturity date with a stated interest rate lower than the current market rate or note splits referred to as A/B notes. In A/B note restructurings, the original note is bifurcated into two notes where the A note represents the portion of the original loan which allows for acceptable loan-to-value and debt coverage on the collateral and is expected to be collected in full and the B note represents the portion of the original loan where there is a shortfall in value and is fully charged-off.  The A/B note balance is comprised of the A note balances only.  A notes are not disclosed as TDRs in years after the restructuring if the restructuring agreement specifies an interest rate equal to or greater than the rate that the Bank was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan is not impaired based on the terms specified by the restructuring agreement.

TDRs may be designated as performing or nonperforming. A TDR may be designated as performing if the loan has demonstrated sustained performance under the modified terms. The period of sustained performance may include the periods prior to modification if prior performance met or exceeded the modified terms. For nonperforming restructured loans, the loan will remain on nonaccrual status until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments. The Company had $69.8 million and $99.6 million in total performing restructured loans as of June 30, 2012 and December 31, 2011, respectively. Nonperforming restructured loans were $13.4 million and $38.9 million at June 30, 2012 and December 31, 2011, respectively. Included as TDRs were $11.2 million and $22.8 million of performing A/B notes as of June 30, 2012 and December 31, 2011, respectively.  All TDRs are included in the balance of impaired loans.

The following table provides information on loans modified as of June 30, 2012 that were modified as TDRs during the six months ended June 30, 2012:

	Loans Modified as TDRs During the
	Three Months Ended June 30, 2012
		Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding
	of	Recorded		Recorded		Financial
	Contracts	Investment		Investment (1)		Impact (2)
		(Dollars in thousands)
Residential:
Single-family	1	$	965	$	960	$	207
Multifamily	6	$	10,289	$	10,162	$	861
CRE:
Income producing	1	$	1,146	$	1,144	$	—
Construction	—	$	—	$	—	$	—
Land	—	$	—	$	—	$	—
C&I:
Commercial business	5	$	1,940	$	1,931	$	399
Trade finance	—	$	—	$	—	$	—
Consumer:
Student loans	—	$	—	$	—	$	—
Other consumer	1	$	108	$	108	$	—

	Loans Modified as TDRs During the
	Six Months Ended June 30, 2012
		Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding
	of	Recorded		Recorded		Financial
	Contracts	Investment		Investment (1)		Impact (2)
		(Dollars in thousands)
Residential:
Single-family	2	$	1,267	$	1,165	$	302
Multifamily	7	$	10,687	$	10,549	$	861
CRE:
Income producing	4	$	4,465	$	4,040	$	469
Construction	—	$	—	$	—	$	—
Land	1	$	432	$	70	$	76
C&I:
Commercial business	11	$	4,465	$	4,333	$	689
Trade finance	—	$	—	$	—	$	—
Consumer:
Student loans	—	$	—	$	—	$	—
Other consumer	1	$	108	$	108	$	—

(1)Includes subsequent payments after modification and reflects the balance as of June 30, 2012.

(2)The financial impact includes charge-offs and specific reserves recorded at modification date.

Potential TDRs are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty in order to maximize the bank’s recovery. As of June 30, 2012, modifications of residential TDRs, including single and multi-family loans, primarily included principal and/or interest deferments, rate reductions, extensions and A/B note splits. A/B note splits result in a partial charge-off or loss for the bank at the modification date. For the six months ended June 30, 2012 residential TDRs modified using principal and/or interest deferment and/or rate reductions totaled $4.1 million, as of June 30, 2012. For the six months ended June 30, 2012 residential TDRs modified using extensions and/or A/B note splits totaled $7.6 million, as of June 30, 2012. Commercial real estate TDRs, including income producing, construction and land loans, were primarily modified through A/B note splits, principal reductions and/or non-market interest rate changes with an impact of a partial charge-off or loss for the bank and reduction of interest collected over the life of the loan. Commercial real estate TDRs modified through A/B note splits, principal reductions and/or non-market interest changes totaled $4.1 million as of June 30, 2012. Commercial and industrial TDRs, including commercial business and trade finance loans, were restructured in various ways, including forbearance payments, principal deferment and/or maturity extensions with an impact of both a reduction of interest collected over the life of the loan and/or an extended time period for collection of principal and interest, for a total of $4.3 million as of June 30, 2012. Consumer TDRs, including student loans and other consumer loans, were restructured through principal deferments. Consumer TDRs modified through principal deferment totaled $108 thousand as of June 30, 2012. Performing TDRs at June 30, 2012 were comprised of $21.5 million in residential loans, $43.7 million in commercial real estate loans, $4.5 million in commercial and industrial loans and $108 thousand for consumer loans. Performing TDRs at December 31, 2011 were comprised of $19.1 million in residential loans, $60.2 million in commercial real estate loans and $20.3 million in commercial and industrial loans. Nonperforming TDRs at June 30, 2012 were comprised of $6.7 million in residential loans, $4.8 million in commercial real estate loans and $1.9 million in commercial and industrial loans. Nonperforming TDRs at December 31, 2011 were comprised of $2.7 million in residential loans, $34.6 million in commercial real estate loans and $1.6 million in commercial and industrial loans.

Subsequent to restructuring, a TDR that becomes delinquent, generally beyond 30 days for commercial and industrial, and commercial real estate and consumer loans, and beyond 90 days for residential loans, becomes nonaccrual and is considered to have defaulted. The following table provides information for loans modified as TDRs within the previous 12 months that have subsequently defaulted as of June 30, 2012 for the three and six months ended June 30, 2012.

	Loans Modified as TDRs during the Prior 12
	Months, that Subsequently Defaulted During the
	Three Months Ended June 30, 2012
	Number of	Recorded
	Contracts	Investment
	(Dollars in thousands)
Residential:
Single-family	—	$	—
Multifamily	—	$	—
CRE:
Income producing	—	$	—
Construction	—	$	—
Land	—	$	—
C&I:
Commercial business	1	$	337
Trade finance	—	$	—
Consumer:
Student loans	—	$	—
Other consumer	—	$	—

	Loans Modified as TDRs during the Prior 12
	Months, that Subsequently Defaulted During the
	Six Months Ended June 30, 2012
	Number of	Recorded
	Contracts	Investment (1)
	(Dollars in thousands)
Residential:
Single-family	—	$	—
Multifamily	—	$	—
CRE:
Income producing	1	$	2,916
Construction	—	$	—
Land	—	$	—
C&I:
Commercial business	3	$	793
Trade finance	—	$	—
Consumer:
Student loans	—	$	—
Other consumer	—	$	—

(1)Included in the six months ended table is $456 thousand of recorded investment which has been charged-off and is not included in the condensed consolidated balance sheet as of June 30, 2012.

All TDRs are included in the impaired loan quarterly valuation allowance process.  See the sections below Impaired Loans and Allowance for Loan Losses for the complete discussion. All portfolio segments of TDRs are reviewed for necessary specific reserves in the same manner as impaired loans of the same portfolio segment which have not been identified as TDRs. The modification of the terms of each TDR is considered in the current impairment analysis of the respective TDR. For all portfolio segments of delinquent TDRs and when the restructured loan is less than the recorded investment in the loan, the deficiency is charged-off against the allowance for loan losses. If the loan is a performing TDR the deficiency is included in the specific allowance, as appropriate. As of June 30, 2012, the allowance for loan losses associated with TDRs was $4.5 million for performing TDRs and $688 thousand for nonperforming TDRs. As of December 31, 2011, the allowance for loan losses associated with TDRs was $10.5 million for performing TDRs and $139 thousand for nonperforming TDRs.

Impaired Loans—A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all scheduled payments of principal or interest due according to the original contractual terms of the loan agreement. Impaired loans include non-covered loans held for investment on nonaccrual status, regardless of the collateral coverage, and loans modified in a TDR.

The Bank’s loans are grouped into heterogeneous and homogeneous (mostly consumer loans) categories. Classified loans (graded Substandard or Doubtful) in the heterogeneous category are selected and evaluated for impairment on an individual basis. The Bank considers loans individually reviewed to be impaired if, based on current information and events, it is probable the Bank will not be able to collect all amounts due according to the original contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an 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. When the value of an impaired loan is less than the recorded investment in the loan and the loan is classified as nonperforming, the deficiency is charged-off against the allowance for loan losses.

At June 30, 2012 and December 31, 2011, impaired loans totaled $172.6 million and $219.6 million, respectively. Impaired non-covered loans as of June 30, 2012 and December 31, 2011 are set forth in the following tables. The interest income recognized on impaired loans, excluding performing TDRs, is recognized on a cash basis when received.

												For the three months				For the six months
				Recorded		Recorded						ended June 30, 2012				ended June 30, 2012
		Unpaid		Investment		Investment		Total				Average		Interest		Average		Interest
		Principal		With No		With		Recorded		Related		Recorded		Income		Recorded		Income
		Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized (1)		Investment		Recognized (1)
								(In thousands)
As of and for the three and six months ended June 30, 2012
Residential:
Single-family	$		15,049	$	11,049	$	2,565	$	13,614	$	806	$	13,922	$	15	$	14,453	$	15
Multifamily	38,668			27,311		8,796		36,107		1,136		36,615		125		37,031		229
CRE:
Income producing	54,372			44,018		3,985		48,003		416		42,038		73		51,892		105
Construction	33,051			25,371		—		25,371		—		26,712		184		27,422		369
Land	20,918			10,034		8,512		18,546		2,044		18,627		26		18,878		48
C&I:
Commercial business	33,384			12,427		13,204		25,631		5,161		28,043		183		29,320		304
Trade finance	1,919			1,919		—		1,919		—		1,980		—		2,028		—
Consumer:
Student loans	99			99		—		99		—		99		—		98		—
Other consumer	3,628			3,306		—		3,306		—		3,437		3		3,488		3
Total	$		201,088	$	135,534	$	37,062	$	172,596	$	9,563	$	171,473	$	609	$	184,610	$	1,073

											For the year
			Recorded		Recorded						ended December 31, 2011
	Unpaid		Investment		Investment		Total				Average		Interest
	Principal		With No		With		Recorded		Related		Recorded		Income
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized (1)
							(In thousands)
As of and for the year ended December 31, 2011
Residential:
Single-family	$	10,248	$	6,578	$	2,535	$	9,113	$	1,131	$	9,408	$	65
Multifamily	37,450		28,272		3,520		31,792		1,124		35,855		473
CRE:
Income producing	69,664		55,701		7,941		63,642		1,187		68,087		1,030
Construction	75,714		45,413		1,067		46,480		815		64,398		1,099
Land	40,615		25,806		8,692		34,498		3,949		36,002		341
C&I:
Commercial business	38,857		20,772		6,650		27,422		4,835		32,033		484
Trade finance	4,127		4,127		—		4,127		—		4,127		—
Consumer:
Student loans	257		257		—		257		—		257		—
Other consumer	2,249		2,249		—		2,249		—		2,251		27
Total	$	279,181	$	189,175	$	30,405	$	219,580	$	13,041	$	252,418	$	3,519

(1)Excludes interest from performing TDRs.

Allowance for Loan Losses

The allowance consists of specific reserves and a general reserve. The Bank’s loans fall into heterogeneous and homogeneous (mostly consumer loans) categories. Impaired loans are subject to specific reserves. Loans in the homogeneous category, as well as non-impaired loans in the heterogeneous category, are evaluated as part of the general reserve. The general reserve is calculated by utilizing both quantitative and qualitative factors. There are different qualitative risks for the loans in each portfolio segment. As of June 30, 2012, the Residential and CRE segments’ predominant risk characteristic is the collateral and the geographic location of the property collateralizing the loan. The risk is qualitatively assessed based on the change in the real estate market in those geographic areas. The C&I segment’s predominant risk characteristics are global cash flows of the guarantors and businesses we lend to and economic and market conditions. Consumer loans, excluding the student loan portfolio guaranteed by the U.S. Department of Education, are largely comprised of home equity lines of credit, for which the predominant risk characteristic is the real estate collateral securing the loan.

Our methodology to determine the overall appropriateness of the allowance is based on a classification migration model and qualitative considerations. The migration analysis examines pools of loans having similar characteristics and analyzes their loss rates over a historical period. We utilize historical loss factors derived from trends and losses associated with each pool over a specified period of time. Based on this process, we assign loss factors to each loan grade within each pool of loans. Loss rates derived by the migration model are based predominantly on historical loss trends that may not be entirely indicative of the actual or inherent loss potential. As such, we utilize qualitative and environmental factors as adjusting mechanisms to supplement the historical results of the classification migration model. Qualitative considerations include, but are not limited to, prevailing economic or market conditions, relative risk profiles of various loan segments, volume concentrations, growth trends, delinquency and nonaccrual status, problem loan trends, and geographic concentrations. Qualitative and environmental factors are reflected as percentage adjustments and are added to the historical loss rates derived from the classified asset migration model to determine the appropriate allowance amount for each loan pool.

Covered Loans—As of the respective acquisition dates, WFIB’s and UCB’s loan portfolios included unfunded commitments for commercial lines of credit, construction draws and other lending activity. The total commitment outstanding as of the respective acquisition dates is covered under the shared-loss agreements. However, any additional advances on these loans subsequent to acquisition date are not accounted for under ASC 310-30. As additional advances on these commitments have occurred, the Bank has considered these amounts in the allowance for loan losses calculation. As of June 30, 2012 and December 31, 2011, $7.2 million, or 3.2% and $6.6 million, or 3.1%, respectively, of the total allowance is allocated to the allowance for loan losses on covered loans. The covered loans acquired are, and will continue to be, subject to the Bank’s internal and external credit review and monitoring. Credit deterioration, if any, beyond the respective acquisition date fair value amounts of the covered loans under ASC 310-30 will be separately measured and accounted for under ASC 310-30. If required, the establishment of an allowance for covered loans accounted for under ASC 310-30 will result in a charge to earnings with a partially offsetting noninterest income item reflected in the increase to the FDIC indemnification asset or receivable. As of June 30, 2012 and December 31, 2011, there is no allowance for the covered loans accounted for under ASC 310-30 due to deterioration of credit quality.

The Company recorded $33.6 million in loan loss provisions for the six months ended June 30, 2012, as compared to $53.0 million for the six months ended June 30, 2011. It is the Company’s policy to promptly charge-off the amount of impairment on a loan which represents the difference in the outstanding loan balance and the fair value of the collateral or discounted cash flow. Recoveries are recorded when payment is received on loans that were previously charged-off through the allowance for loan losses. For the six months ended June 30, 2012, the Company recorded $22.0 million in net charge-offs in comparison to $65.8 million for the six months ended June 30, 2011. The following tables detail activity in the allowance for loan losses, for both non-covered and covered loans, by portfolio segment for the three and six months ended June 30, 2012, and the year ended December 31, 2011. Allocation of a portion of the allowance to one segment of the loan portfolio does not preclude its availability to absorb losses in other segments.

													Covered Loans
													Subject to
													Allowance for
	Residential			CRE			C&I			Consumer			Loan Losses (1)			Unallocated			Total
	(In thousands)
Three Months Ended June 30, 2012
Beginning balance	$	51,193		$	70,990		$	88,113		$	3,957		$	8,268		$	—		$	222,521
Provision for loan losses	86			3,930			11,126			1,727			(1,095		)	(274		)	15,500
Allowance for unfunded loan commitments and letters of credit	—			—			—			—			—			274			274
Charge-offs	(1,536		)	(4,871		)	(7,481		)	(928		)	—			—			(14,816		)
Recoveries	242			2,027			857			22			—			—			3,148
Net charge-offs	(1,294		)	(2,844		)	(6,624		)	(906		)	—			—			(11,668		)
Ending balance	$	49,985		$	72,076		$	92,615		$	4,778		$	7,173		$	—		$	226,627
Ending balance allocated to:
Loans individually evaluated for impairment	$	1,942		$	2,460		$	5,161		$	—		$	—		$	—		$	9,563
Loans collectively evaluated for impairment	48,043			69,616			87,454			4,778			7,173			—			217,064
Loans acquired with deteriorated credit quality(2)	—			—			—			—			—			—			—
Ending balance	$	49,985		$	72,076		$	92,615		$	4,778		$	7,173		$	—		$	226,627

													Covered Loans
													Subject to
													Allowance for
	Residential			CRE			C&I			Consumer			Loan Losses (1)		Unallocated			Total
	(In thousands)
Six months ended June 30, 2012
Beginning balance	$	52,180		$	66,457		$	87,020		$	4,219		$	6,647	$	—		$	216,523
Provision for loan losses	1,189			16,395			12,441			1,545			526		1,504			33,600
Allowance for unfunded loan commitments and letters of credit	—			—			—			—			—		(1,504		)	(1,504		)
Charge-offs	(4,567		)	(15,578		)	(10,368		)	(1,091		)	—		—			(31,604		)
Recoveries	1,183			4,802			3,522			105			—		—			9,612
Net charge-offs	(3,384		)	(10,776		)	(6,846		)	(986		)	—		—			(21,992		)
Ending balance	$	49,985		$	72,076		$	92,615		$	4,778		$	7,173	$	—		$	226,627
Ending balance allocated to:
Loans individually evaluated for impairment	$	1,942		$	2,460		$	5,161		$	—		$	—	$	—		$	9,563
Loans collectively evaluated for impairment	48,043			69,616			87,454			4,778			7,173		—			217,064
Loans acquired with deteriorated credit quality(2)	—			—			—			—			—		—			—
Ending balance	$	49,985		$	72,076		$	92,615		$	4,778		$	7,173	$	—		$	226,627

													Covered Loans
													Subject to
													Allowance for
	Residential			CRE			C&I			Consumer			Loan Losses (1)		Unallocated			Total
	(In thousands)
Year ended December 31, 2011
Beginning balance	$	49,491		$	117,752		$	59,737		$	3,428		$	4,225	$	—		$	234,633
Provision for loan losses	15,416			22,817			50,848			2,455			2,422		1,048			95,006
Allowance for unfunded loan commitments and letters of credit	—			—			—			—			—		(1,048		)	(1,048		)
Charge-offs	(13,323		)	(78,803		)	(30,606		)	(1,959		)	—		—			(124,691		)
Recoveries	596			4,691			7,041			295			—		—			12,623
Net charge-offs	(12,727		)	(74,112		)	(23,565		)	(1,664		)	—		—			(112,068		)
Ending balance	$	52,180		$	66,457		$	87,020		$	4,219		$	6,647	$	—		$	216,523
Ending balance allocated to:
Loans individually evaluated for impairment	$	2,255		$	5,951		$	4,835		$	—		$	—	$	—		$	13,041
Loans collectively evaluated for impairment	49,925			60,506			82,185			4,219			6,647		—			203,482
Loans acquired with deteriorated credit quality (2)	—			—			—			—			—		—			—
Ending balance	$	52,180		$	66,457		$	87,020		$	4,219		$	6,647	$	—		$	216,523

(1)This allowance is related to drawdowns on commitments that were in existence as of the acquisition dates of WFIB and UCB and, therefore, are covered under the shared-loss agreements with the FDIC. Allowance on these subsequent drawdowns is accounted for as part of the allowance for loan losses.

(2)The Company has elected to account for all covered loans acquired in the FDIC-assisted acquisitions under ASC 310-30.

The Company’s recorded investment in total loans receivable as of June 30, 2012 and December 31, 2011 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology is as follows:

										Covered Loans
										Subject to
										Allowance for
	Residential			CRE		C&I		Consumer		Loan Losses		Total
	(In thousands)
June 30, 2012
Loans individually evaluated for impairment	$	49,721		$	91,921	$	27,549	$	3,306	$	—	$	172,497
Loans collectively evaluated for impairment	2,881,097			3,652,775		3,391,088		697,413		494,408		11,116,781
Loans acquired with deteriorated credit quality (1)	1,172,522			2,019,552		323,470		59,207		—		3,574,751
Ending balance	$		4,103,340	$	5,764,248	$	3,742,107	$	759,926	$	494,408	$	14,864,029

									Covered Loans
									Subject to
									Allowance for
	Residential		CRE		C&I		Consumer		Loan Losses		Total
	(In thousands)
December 31, 2011
Loans individually evaluated for impairment	$	43,395	$	143,631	$	31,338	$	2,249	$	—	$	220,613
Loans collectively evaluated for impairment	2,686,408		3,688,734		3,111,135		581,536		583,804		10,651,617
Loans acquired with deteriorated credit quality (1)	1,331,615		2,322,062		413,479		67,124		—		4,134,280
Ending balance	$	4,061,418	$	6,154,427	$	3,555,952	$	650,909	$	583,804	$	15,006,510

(1)The Company has elected to account for all covered loans acquired in the FDIC-assisted acquisitions under ASC 310-30. The total principal balance is presented and excludes the purchase discount and any additional advances subsequent to acquisition date.

Allowance for Unfunded Loan Commitments, Off-Balance Sheet Credit Exposures and Recourse Provisions—The allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. As of June 30, 2012 and December 31, 2011, the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions amounted to $12.5 million and $11.0 million, respectively. Net adjustments to the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions are included in the provision for loan losses.

Loans serviced for others amounted to $1.85 billion and $2.10 billion at June 30, 2012 and December 31, 2011, respectively. These represent loans that have either been sold or securitized for which the Bank continues to provide servicing or has limited recourse. The majority of these loans are residential and CRE at June 30, 2012 and December 31, 2011. Of the total allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions, $5.6 million and $4.4 million pertain to these loans as of June 30, 2012 and December 31, 2011, respectively. These loans are maintained off-balance sheet and are not included in the loans receivable balance.