3.	Loans and Leases

Loans are comprised of the following:

(In thousands)	June 30, 2011 (Restated)		December 31, 2010
Commercial and business loans	$	165,568	$	154,624
Government program loans		3,674		4,600
Total commercial and industrial	$	169,242	$	159,224
Real estate – mortgage:
Commercial real estate		120,388		131,632
Residential mortgages		25,135		23,764
Home Improvement and Home Equity loans		2,177		2,385
Total real estate mortgage		147,700		157,781
RE construction and development		56,177		65,182
Agricultural		37,460		46,308
Installment		13,206		12,891
Lease financing		73		305
Total Loans	$	423,858	$	441,691

The Company's loans are predominantly in the San Joaquin Valley, and the greater Oakhurst/East Madera County area, as well as the Campbell area of Santa Clara County, although the Company does participate in loans with other financial institutions, primarily in the state of California.

Commercial and industrial loans represent 40.0% of total loans at June 30, 2011 and are generally made to support the ongoing operations of small-to-medium sized commercial businesses. Commercial and industrial loans have a high degree of industry diversification and provide, working capital, financing for the purchase of manufacturing plants and equipment, or funding for growth and general expansion of businesses. A substantial portion of commercial and industrial loans are secured by accounts receivable, inventory, leases or other collateral including real estate. The remainder are unsecured; however, extensions of credit are predicated upon the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower.

Real estate mortgage loans, representing 34.8% of total loans at June 30, 2011, are secured by trust deeds on primarily commercial property, but are also secured by trust deeds on single family residences. Repayment of real estate mortgage loans is generally from the cash flow of the borrower.

Commercial real estate mortgage loans comprise the largest segment of this loan category and are available on all types of income producing and commercial properties, including: office buildings, shopping centers; apartments and motels; owner occupied buildings; manufacturing facilities and more. Commercial real estate mortgage loans can also be used to refinance existing debt. Although real estate associated with the business is the primary collateral for commercial real estate mortgage loans, the underlying real estate is not the source of repayment. Commercial real estate loans are made under the premise that the loan will be repaid from the borrower's business operations, rental income associated with the real property, or personal assets.

Residential mortgage loans are provided to individuals to finance or refinance single-family residences. Residential mortgages are not a primary business line offered by the Company, and are generally of a shorter term than conventional mortgages, with maturities ranging from three to fifteen years on average.

Home Equity loans comprise a relatively small portion of total real estate mortgage loans, and are offered to borrowers for the purpose of home improvements, although the proceeds may be used for other purposes. Home equity loans are generally secured by junior trust deeds, but may be secured by 1st trust deeds.

Real estate construction and development loans, representing 13.3% of total loans at June 30, 2011, consist of loans for residential and commercial construction projects, as well as land acquisition and development, or land held for future development. Loans in this category are secured by real estate including improved and unimproved land, as well as single-family residential, multi-family residential, and commercial properties in various stages of completion. All real estate loans have established equity requirements. Repayment on construction loans is generally from long-term mortgages with other lending institutions obtained at completion of the project.

Agricultural loans represent 8.8% of total loans at June 30, 2011 and are generally secured by land, equipment, inventory and receivables. Repayment is from the cash flow of the borrower.

Lease financing loans, representing less than 0.1% of total loans at June 30, 2011, consist of loans to small businesses, which are secured by commercial equipment. Repayment of the lease obligation is from the cash flow of the borrower.

In the normal course of business, the Company is party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. At June 30, 2011 and December 31, 2010, these financial instruments include commitments to extend credit of $56.5 million and $67.8 million, respectively, and standby letters of credit of $2.5 million and $1.8 million, respectively. These instruments involve elements of credit risk in excess of the amount recognized on the balance sheet. The contract amounts of these instruments reflect the extent of the involvement the Company has in off-balance sheet financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Substantially all of these commitments are at floating interest rates based on the Prime rate. Commitments generally have fixed expiration dates. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation. Collateral held varies but includes accounts receivable, inventory, leases, property, plant and equipment, residential real estate and income-producing properties.

Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Occasionally, shared appreciation agreements are made between the Company and the borrower on certain construction loans where the Company agrees to receive interest on the loan at maturity rather than monthly and the borrower agrees to share in the profits of the project. Due to the difficulty in calculating future values, shared appreciation income is recognized when received. The Company does not participate in a significant number of shared appreciation projects. The Company received no shared appreciation income during the six months ended June 30, 2011 or 2010.

Past Due Loans

The Company monitors delinquency and potential problem loans on an ongoing basis through weekly reports to the Loan Committee and monthly reports to the Board of Directors. The following is a summary of delinquent loans at June 30, 2011:

					Loans								Accruing
	Loans		Loans		90 or More								Loans 90 or
June 30, 2011 (000's) (Restated)	30-60 Days Past Due		61-89 Days Past Due		Days Past Due		Total Past Due Loans		Current Loans		Total Loans		More Days Past Due
Commercial and Business Loans	$	1,220	$	5,421	$	5,242	$	11,883	$	153,685	$	165,568	$	881
Government Program Loans		3		5		341		349		3,325		3,674		59
Total Commercial and Industrial		1,223		5,426		5,583		12,232		157,010		169,242		940

Commercial Real Estate Term Loans		0		410		0		410		119,978		120,388		0
Single Family Residential Loans		453		0		340		793		24,342		25,135		0
Home Improvement and Home Equity Loans		163		37		18		218		1,960		2,177		0
Total Real Estate Mortgage		616		447		358		1,421		146,280		147,700		0

Total RE Construction and Development Loans		0		0		7,299		7,299		48,877		56,177		0

Total Agricultural Loans		0		0		0		0		37,460		37,460		0

Consumer Loans		200		68		0		268		12,648		12,916		0
Overdraft protection Lines		0		0		0		0		81		81		0
Overdrafts		0		0		0		0		209		209		0
Total Installment/other		200		68		0		268		12,938		13,206		0

Commercial Lease Financing		0		0		11		11		62		73		0

Total Loans	$	2,039	$	5,941	$	13,251	$	21,231	$	402,627	$	423,858	$	940

Included in the loans above, are $20.8 million in nonaccrual loans of which $13.7 million are included in past due loans and $7.4 million are included in current loans. Nonaccrual loans which have been restructured and which are performing according to the terms of the restructure agreement, including those for which payments are due at maturity, are considered current in the above table.

The following is a summary of delinquent loans at December 31, 2010:

					Loans								Accruing
	Loans		Loans		90 or More								Loans 90 or
December 31, 2010 (000's)	30-60 Days Past Due		61-89 Days Past Due		Days Past Due		Total Past Due Loans		Current Loans		Total Loans		More Days Past Due
Commercial and Business Loans	$	4,554	$	443	$	4,637	$	9,634	$	144,990	$	154,624	$	454
Government Program Loans		114		106		305		525		4,075		4,600		93
Total Commercial and Industrial		4,668		549		4,942		10,159		149,065		159,224		547

Commercial Real Estate Term Loans		0		0		1,405		1,405		130,227		131,632		0
Single Family Residential Loans		0		328		98		426		23,338		23,764		0
Home Improvement and Home Equity Loans		102		55		45		202		2,183		2,385		0
Total Real Estate Mortgage		102		383		1,548		2,033		155,748		157,781		0

Total RE Construction and Development Loans		4,004		3,395		1,630		9,029		56,153		65,182		0

Total Agricultural Loans		0		0		398		398		45,910		46,308		0

Consumer Loans		39		12		57		108		12,354		12,462		0
Overdraft protection Lines		0		0		0		0		74		74		0
Overdrafts		0		0		0		0		355		355		0
Total Installment/other		39		12		57		108		12,783		12,891		0

Commercial Lease Financing		0		0		0		0		305		305		0

Total Loans	$	8,813	$	4,339	$	8,575	$	21,727	$	419,964	$	441,691	$	547

Included in the loans above, are $34.4 million in nonaccrual loans of which $15.0 million are included in past due loans and $19.4 million are included in current loans. Nonaccrual loans which have been restructured and which are performing according to the terms of the restructure agreement, including those for which payments are due at maturity, are considered current in the above table.

Nonaccrual Loans

Commercial, construction and commercial real estate loans are placed on non-accrual status under the following circumstances:

When there is doubt regarding the full repayment of interest and principal.

When principal and/or interest on the loan has been in default for a period of 90-days or more, unless the asset is both well secured and in the process of collection that will result in repayment in the near future.

When the loan is identified as having loss elements and/or is risk rated "8" Doubtful.

Other circumstances which jeopardize the ultimate collectability of the loan including certain troubled debt restructurings, identified loan impairment, and certain loans to facilitate the sale of OREO.

Loans meeting any of the preceding criteria are placed on non-accrual status and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income.

Loans that are secured by one-to-four family residential properties (e.g., residential mortgage loans and home equity loans) on which principal and/or interest is due and unpaid for 90 days or more are placed on non-accrual and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income.

Consumer loans to individuals for personal, family and household purposes, and unsecured or secured personal property where principal or interest is due and unpaid for 90 days or more are placed on non-accrual and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income.

When a loan is placed on non-accrual status and subsequent payments of interest (and principal) are received, the interest received may be accounted for in two separate ways:

Cost recovery method: If the loan is in doubt as to full collection, the interest received in subsequent payments is diverted from interest income to a valuation reserve and treated as a reduction of principal for financial reporting purposes.

Cash basis: - This method is only used if the recorded investment or total contractual amount is expected to be fully collectible, under which circumstances the subsequent payments of interest is credited to interest income as received.

Loans on non-accrual status are usually not returned to accruing status unless and until all delinquent principal and/or interest has been brought current, there is no identified element of loss, and current and continued satisfactory performance is expected (loss of the contractual amount not the carrying amount of the loan). Repayment ability is generally demonstrated through the timely receipt of at least six monthly payments on a loan with monthly amortization.

Nonaccrual loans totaled $26.8 million and $34.4 million at June 30, 2011 and December 31, 2010, respectively. There were no remaining undisbursed commitments to extend credit on nonaccrual loans at June 30, 2011 or December 31, 2010. During the six months ended June 30, 2011 and 2010, the Company recorded $117,000 and $25,000, respectively, in interest income on nonaccrual loans.

The following is a summary of nonaccrual loan balances at June 30, 2011 and December 31, 2010.

(000's)	June 30, 2011 (Restated)		December 31, 2010
Commercial and Business Loans	$	6,521	$	13,238
Government Program Loans		369		211
Total Commercial and Industrial		6,890		13,449

Commercial Real Estate Term Loans		1,300		1,405
Single Family Residential Loans		340		98
Home Improvement and Home Equity Loans		18		89
Total Real Estate Mortgage		1,658		1,592

Total RE Construction and Development Loans		12,243		16,003

Total Agricultural Loans		0		3,107

Consumer Loans		1		68
Overdraft protection Lines		0		0
Overdrafts		0		0
Total Installment/other		1		68

Commercial Lease Financing		0		175
Total Nonaccrual Loans	$	20,792	$	34,394

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 amounts due, including principal and interest, according to the contractual terms of the loan agreement.

The Company applies its normal loan review procedures in making judgments regarding probable losses and loan impairment. The Company evaluates for impairment those loans on non-accrual status, graded doubtful, graded substandard or those that are troubled debt restructures. The primary basis for inclusion in impaired status under accepted accounting pronouncements is that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

A loan is not considered impaired if:

There is merely an insignificant delay or shortfall in the amounts of payments.

We expect to collect all amounts due, including interest accrued, at the contractual interest rate for the period of the delay.

Review for impairment does not include large groups of smaller balance homogeneous loans that are collectively evaluated to estimate the allowance for loan losses. The Company's present allowance for loan losses methodology, including migration analysis, captures required reserves for these loans in the formula allowance.

For loans determined to be impaired, the Company evaluates impairment based upon either the fair value of underlying collateral, discounted cash flows of expected payments, or observable market price.

For loans secured by collateral including real estate and equipment the fair value of the collateral less selling costs will determine the carrying value of the loan. The difference between the recorded investment in the loan and the fair value, less selling costs, determines the amount of impairment. The Company uses the measurement method based on fair value of collateral when the loan is collateral dependent and foreclosure is probable.

The discounted cash flow method of measuring the impairment of a loan is used for unsecured loans or for loans secured by collateral where the fair value cannot be easily determined. Under this method, the Company assesses both the amount and timing of cash flows expected from impaired loans. The estimated cash flows are discounted using the loan's effective interest rate. The difference between the amount of the loan on the Bank's books and the discounted cash flow amounts determines the amount of impairment to be provided. This method is used for most of the Company's troubled debt restructurings or other impaired loans where some payment stream is being collected.

The observable market price method of measuring the impairment of a loan is only used by the Company when the sale of loans or a loan is in process.

The method for recognizing interest income on impaired loans is dependent on whether the loan is on nonaccrual status or is a troubled debt restructuring. For income recognition, the existing nonaccrual and troubled debt restructuring policies are applied to impaired loans. Generally, except for certain troubled debt restructurings which are performing under the restructure agreement, the Company does not recognize interest income received on impaired loans, but reduces the carrying amount of the loan for financial reporting purposes.

Loans other than certain homogenous loan portfolios are reviewed on a quarterly basis for impairment. Impaired loans are written down to estimated realizable values by the establishment of specific reserves when required.

The following is a summary of impaired loans at June 30, 2011.

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
June 30, 2011 (000's) (Restated)	Balance		Allowance		Allowance		Investment		Allowance		Investment
Commercial and Business Loans	$	15,822	$	5,229	$	3,756	$	8,985	$	615	$	13,955
Government Program Loans		418		244		159		403		129		311
Total Commercial and Industrial		16,240		5,473		3,915		9,388		744		14,266

Commercial Real Estate Term Loans		6,778		3,055		3,546		6,601		294		6,453
Single Family Residential Loans		4,363		908		2,959		3,867		171		3,575
Home Improvement and Home Equity Loans		141		91		18		109		3		119
Total Real Estate Mortgage		11,282		4,054		6,523		10,577		468		10,147

Total RE Construction and Development Loans		21,417		5,019		9,761		14,779		885		20,616

Total Agricultural Loans		2,584		0		1,991		1,991		149		2,298

Consumer Loans		229		77		140		217		24		201
Overdraft protection Lines		0		0		0		0		0		0
Overdrafts		0		0		0		0		0		0
Total Installment/other		229		77		140		217		24		201

Commercial Leases Financing		0		0		0		0		0		91

Total Impaired Loans	$	51,752	$	14,623	$	22,330	$	36,953	$	2,270	$	47,619

The following is a summary of impaired loans at December 31, 2010.

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
December 31, 2010 (000's)	Balance		Allowance		Allowance		Investment		Allowance		Investment
Commercial and Business Loans	$	16,317	$	520	$	14,156	$	14,676	$	4,974	$	10,338
Government Program Loans		317		179		32		211		32		307
Total Commercial and Industrial		16,634		699		14,188		14,887		5,006		10,645

Commercial Real Estate Term Loans		6,448		2,761		3,664		6,425		476		7,386
Single Family Residential Loans		3,660		443		2,916		3,359		241		3,528
Home Improvement and Home Equity Loans		143		93		45		138		27		101
Total Real Estate Mortgage		10,251		3,297		6,625		9,922		744		11,015

Total RE Construction and Development Loans		26,584		5,572		17,187		22,759		4,890		23,725

Total Agricultural Loans		4,143		160		2,947		3,107		686		4,141

Consumer Loans		150		148		0		148		0		255
Overdraft protection Lines		0		0		0		0		0		0
Overdrafts		0		0		0		0		0		0
Total Installment/other		150		148		0		148		0		255

Commercial Leases Financing		175		175		0		175		0		54

Total Impaired Loans	$	57,937	$	10,051	$	40,947	$	50,998	$	11,326	$	49,835

In most cases, the Company uses the cash basis method of income recognition for impaired loans. In the case of certain troubled debt restructurings for which the loan is performing under the current contractual terms for a reasonable period of time, income is recognized under the accrual method. For the six months ended June 30, 2011 and 2010, the Company recognized $312,000 and $297,000, respectively in interest income on impaired loans.

The Company grades “problem” or “classified” loans according to certain risk factors associated with individual loans within the loan portfolio. Classified loans consist of loans which have been graded substandard, doubtful, or loss based upon inherent weaknesses in the individual loans or loan relationships. Classified loans also include impaired loans (as defined under ACS Topic 310). The following table summarizes the Company's classified loans at June 30 2011 and December 31, 2010.

(in 000's)	June 30, 2011 (Restated)		December 31, 2010
Impaired loans	$	36,953	$	50,998
Classified loans not considered impaired		14,411		2,585
Total classified loans	$	51,364	$	53,583

Troubled Debt Restructurings

Under the circumstances, when the Company grants a concession to a borrower as part of a loan restructuring, the restructuring is accounted for as a troubled debt restructuring (TDR). TDR's are reported as a component of impaired loans.

A TDR is a type of restructuring in which the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower and the Bank) to the borrower that it would not otherwise consider. Although the restructuring may take different forms, the Company's objective is to maximize recovery of its investment by granting relief to the borrower.

A TDR may include, but is not limited to, one or more of the following:

A transfer from the borrower to the Company of receivables from third parties, real estate, other assets, or an equity interest in the borrower is granted to fully or partially satisfy the loan.

A modification of terms of a debt such as one or a combination of:

The reduction (absolute or contingent) of the stated interest rate.

The extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk.

The reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the instrument or agreement.

The reduction (absolute or contingent) of accrued interest.

For a restructured loan to return to accrual status there needs to, among other factors, be at least 6 months successful payment history. In addition, the Company performs a financial analysis of the credit to determine whether the borrower has the ability to continue to perform successfully over the remaining life of the loan. This includes, but is not limited to, review of financial statements and cash flow analysis of the borrower. Only after determination that the borrower has the ability to perform under the terms of the loans, will the restructured credit be considered for accrual status.

The following quantifies TDR's by type classified separately as accrual or nonaccrual at June 30, 2011.

	Number		Total		Nonaccrual TDR's		Accruing TDR's
(in thousands) (Restated)	TDR's		June 30, 2011		June 30, 2011		June 30, 2011
Commercial and industrial		17	$	4,594	$	2,292	$	2,302
Real estate - mortgage:
Commercial real estate		7		6,172		1,300		4,873
Residential mortgages		12		3,514		0		3,514
Home equity loans		4		108		18		90
Total real estate mortgage		23		9,794		1,318		8,477
RE construction & development		11		8,382		5,848		2,533
Agricultural		0		0		0		0
Installment/other		3		162		0		162
Lease financing		0		0		0		0
Total Loans		54	$	22,932	$	9,458	$	13,474

The following quantifies TDR's by type classified separately as accrual or nonaccrual at December 31, 2010.

	Number		Total		Nonaccrual TDR's		Accruing TDR's
(in thousands)	TDR's		December 31, 2010		December 31, 2010		December 31, 2010
Commercial and industrial		13	$	2,751	$	1,359	$	1,392
Real estate - mortgage:
Commercial real estate		6		5,019		0		5,019
Residential mortgages		11		3,261		0		3,261
Home equity loans		3		93		43		50
Total real estate mortgage		20		8,373		43		8,330
RE construction & development		13		13,730		10,978		2,752
Agricultural		0		0		0		0
Installment/other		2		80		0		80
Lease financing		0		0		0		0
Total Loans		48	$	24,934	$	12,380	$	12,554

The Company makes various types of concessions when structuring TDR's including rate reductions, payment extensions, and forbearance. At June 30, 2011, the Company had 54 restructured loans totaling $22.9 million as compared to 48 restructured loans total $24.9 million at December 31, 2010. At June 30, 2011, more than $8.4 million of the total $22.9 million in TDR's was for real estate construction and development, and there was another $1.8 million and $875,000 related to real estate developers in commercial real estate and commercial and industrial, respectively at June 30, 2011. The majority of these credits are related to real estate construction projects that slowed significantly or stalled during the past several years, and the Company has sought to restructure the credits to allow the construction industry time to recover, and the developers time to finish projects at a slower pace which reflects current market conditions in the San Joaquin Valley. Concessions granted in these circumstances include lengthened maturity terms, lower lot release prices, or rate reductions that will enable the borrower to finish the construction projects and repay their loans to the Company. The downturn in the real estate construction market has been protracted, and although the Company has had some success in its restructuring efforts, it is difficult to conclude that we will be entirely successful in our efforts. Areas such as Bakersfield California have been slow to recover. During the six months ended June 30, 2011, no restructured loans were charged off or transferred to OREO. The Company may be required to make additional concessions in the future including lower lot release prices to allow borrowers to complete and sell construction units at lower prices currently reflected in the real estate market.

Credit Quality Indicators

As part of its credit monitoring program, the Company utilizes a risk rating system which quantifies the risk, the Company estimates it has assumed when entering into a loan transaction, and during the life of that loan. The system rates the strength of the borrower and the facility or transaction, and is designed to provide a program for risk management and early detection of problems.

For each new credit approval, credit extension, renewal, or modification of existing credit facilities, the Company assigns risk ratings utilizing the rating scale identified in this policy. In addition, on an on-going basis, loans and credit facilities are reviewed for internal and external influences impacting the credit facility that would warrant a change in the risk rating. Each loan credit facility is to be given a risk rating that takes into account factors that materially affect credit quality.

When assigning risk ratings, the Company evaluates two risk rating approaches, a facility rating and a borrower rating as follows.

Facility Rating:

The facility rating is determined by the analysis of positive and negative factors that may indicate that the quality of a particular loan or credit arrangement requires that it be rated differently from the risk rating assigned to the borrower. The Company assesses the risk impact of these factors:

Collateral - The rating may be affected by the type and quality of the collateral, the degree of coverage, the economic life of the collateral, liquidation value and the Company's ability to dispose of the collateral.

Guarantees - The value of third party support arrangements varies widely. Unconditional guaranties from persons with demonstrable ability to perform are more substantial than that of closely related persons to the borrower who offer only modest support.

Unusual Terms - Credit may be extended on terms that subject the Company to higher level of risk than indicated in the rating of the borrower.

Borrower Rating:

The borrower rating is a measure of loss possibility based on the historical, current and anticipated financial characteristics of the borrower in the current risk environment. In arriving at the rating, the Company considers at least the following factors:

Quality of management

Liquidity

Leverage/capitalization

Profit margins/earnings trend

Adequacy of financial records

Alternative funding sources

Geographic risk

Industry risk

Cash flow risk

Accounting practices

Asset protection

Extraordinary risks

The Company assigns risk ratings to loans other than consumer loans and other homogeneous loan pools based on the following scale. The risk ratings are used when determining borrower ratings as well as facility ratings. When the borrower rating and the facility ratings differ, the lowest rating is to apply:

Grades 1 and 2 – These grades include loans which are given to high quality borrowers with high credit quality and sound financial strength. Key financial ratios are generally above industry averages and the borrower strong earnings history or net worth. These may be secured by deposit accounts or high-grade investment securities.

Grade 3 – This grade includes loans to borrowers with solid credit quality with minimal risk. The borrower's balance sheet and financial ratios are generally in line with industry averages, and the borrower has historically demonstrated the ability to manage economic adversity. Real estate and asset-based loans assigned this risk rating must have characteristics, which place them well above the minimum underwriting requirements for those departments. Asset-based borrowers assigned this rating must exhibit extremely favorable leverage and cash flow characteristics, and consistently demonstrate a high level of unused borrowing capacity.

Grades 4 and 5 – These include “pass” grade loans to borrowers of acceptable credit quality and risk. The borrower's balance sheet and financial ratios may be below industry averages, but above the lowest industry quartile. Leverage is above and liquidity is below industry averages. Inadequacies evident in financial performance and/or management sufficiency are offset by readily available features of support, such as adequate collateral, or good guarantors having the liquid assets and/or cash flow capacity to repay the debt. The borrower may have recognized a loss over three or four years ago, recent earnings trends, while perhaps somewhat cyclical, are improving and cash flows are adequate to cover debt service and fixed obligations. Real estate and asset-borrowers fully complying with all underwriting standards and are performing according to projections would be assigned this rating. These also include grade 5 loans which are “leveraged” or on management's “watch list” While still considered pass loans, for loans given a grade 5, the borrower's financial condition, cash flow or operations evidence more than average risk and short term weaknesses that warrant a higher than average level of monitoring, supervision and attention from the Company, but do not reflect credit weakness trends that weaken or inadequately protect the Company's credit position. Loans with a grade rating are not normally acceptable as new credits unless they are adequately secured or carry substantial endorser/guarantors.

Grade 6 – This grade includes “special mention” loans which are loans that are currently protected but are potentially weak. This generally is an interim grade classification and should usually be upgraded to an Acceptable rating or downgraded to Substandard within a reasonable time period. Weaknesses in special mention loans may, if not checked or corrected, weaken the asset or inadequately protect the Company's credit position at some future date. Special Mention loans are often loans with weaknesses inherent from the loan origination, loan servicing, and perhaps some technical deficiencies. The main theme in Special Mention credits is the distinct probability that the classification will deteriorate to a more adverse class if the noted deficiencies are not addressed by the loan officer or loan management.

Grade 7 – This grade includes “substandard” loans which are inadequately supported by the current sound net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that may impair the regular liquidation of the debt. Substandard loans exhibit a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans also include impaired loans.

Grade 8 - This grade includes “doubtful” loans which have all the same characteristics that the Substandard with the added characteristic that the weaknesses make collection or liquidation in full, 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 reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include a proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

Grade 9 - This grade includes loans classified “loss” which are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather is not practical or desirable to defer writing off asset even though partial recovery may be achieved in the future.

The following tables summarize the credit risk ratings for commercial, construction, and other non-consumer related loans for June 30, 2011 and December 31, 2010. The Company did not carry any loans graded as loss at June 30, 2011 or December 31, 2010.

	Commercial
June 30, 2011	and Lease		Commercial
(000's) (Restated)	Financing		RE		Construction		Agricultural		Total
Grades 1and 2	$	541	$	0	$	0	$	0	$	541
Grade 3		1,207		6,580		917		0		8,704
Grades 4 and 5 – pass		150,404		103,650		31,373		35,547		320,974
Grade 6 – special mention		6,778		4,181		11,419		0		22,378
Grade 7 – substandard		10,386		5,824		12,468		1,913		30,590
Grade 8 – doubtful		0		0		0		0		0
Total	$	169,316	$	120,235	$	56,177	$	37,460	$	383,187

	Commercial
December 31, 2010	and Lease		Commercial
(000's)	Financing		RE		Construction		Agricultural		Total
Grades 1and 2	$	990	$	1,112	$	0	$	79	$	2,181
Grade 3		302		6,786		937		0		8,025
Grades 4 and 5 – pass		134,058		113,515		33,082		41,597		322,252
Grade 6 – special mention		7,770		4,419		10,737		1,525		24,451
Grade 7 – substandard		16,409		5,800		20,426		3,107		45,742
Grade 8 – doubtful		0		0		0		0		0
Total	$	159,529	$	131,632	$	65,182	$	46,308	$	402,651

The Company follows consistent underwriting standards outlined in its loan policy for consumer and other homogenous loans but, does not specifically assign a risk rating when these loans are originated. Consumer loans are monitored for credit risk and are considered “pass” loans until some issue or event requires that the credit be downgraded to special mention or worse. The following tables summarize the credit risk ratings for consumer related loans and other homogenous loans for June 30, 2011 and December 31, 2010.

	June 30, 2011 (Restated)								December 31, 2010
	Single family		Home						Single family		Home
(000's)	Residential		Improvement		Installment		Total		Residential		Improvement		Installment		Total
Not graded	$	19,065	$	2,047	$	11,762	$	32,874	$	18,236	$	2,225	$	11,429	$	31,890
Pass		4,336		112		1,284		5,732		3,964		22		1,313		5,299
Special Mention		0		0		0		0		195		0		0		195
Substandard		1,877		18		170		2,065		1,369		138		149		1,656
Total	$	25,278	$	2,177	$	13,216	$	40,671	$	23,764	$	2,385	$	12,891	$	39,040

Allowance for Loan Losses

The allowance for credit losses represents management's estimate of the risk inherent in the loan portfolio based on the current economic conditions, collateral values and economic prospects of the borrowers. Significant changes in these estimates might be required in the event of a downturn in the economy and/or the real estate markets in the San Joaquin Valley, the greater Oakhurst and East Madera County area, and in Santa Clara County.

An analysis of changes in the allowance for credit losses is as follows:

	Periods Ended
(In thousands)	June 30, 2011 (Restated)			December 31, 2010			June 30, 2010
Balance, beginning of year	$	16,520		$	15,016		$	15,016
Provision charged to operations		10,051			12,475			2,150
Losses charged to allowance		(13,440	)		(11,936	)		(6,000	)
Recoveries on loans previously charged off		748			965			891
Balance at end-of-period	$	13,879		$	16,520		$	12,057

The allowance for credit losses maintained at a level deemed appropriate by management to provide for known and inherent risks in existing loans and commitments to extend credit. The adequacy of the allowance for credit losses is based upon management's continuing assessment of various factors affecting the collectability of loans and commitments to extend credit; including current economic conditions, past credit experience, collateral, and concentrations of credit.

The allowance for loan losses includes an asset-specific component, as well as a general or formula-based component. The Company segments the loan and lease portfolio into eleven (11) segments, primarily by loan class and risk type, that have homogeneity and commonality of purpose and terms for analysis under the formula-based component of the allowance. Loans that are determined to be impaired under current accounting guidelines are not subject to the formula-based reserve analysis, and are evaluated individually for specific impairment under the asset-specific component of the allowance.

Specific allowances are established based on management's periodic evaluation of loss exposure inherent in classified and impaired loans. For impaired loans, specific allowances are determined based on either the collateralized value of the underlying properties, the net present value of the anticipated cash flows, or the market value of the underlying assets.

The formula allowance is calculated by applying loss factors to outstanding loans and certain unfunded loan commitments. Loss factors are based on the Company's historical loss experience and on the internal risk grade of those loans and, may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. Factors that may affect collectability of the loan portfolio include:

Levels of, and trends in delinquencies and nonaccrual loans;

Trends in volumes and term of loans;

Effects of any changes in lending policies and procedures including those for underwriting, collection, charge-off, and recovery;

Experience, ability, and depth of lending management and staff;

National and local economic trends and conditions and;

Concentrations of credit that might affect loss experience across one or more components of the portfolio, including high-balance loan concentrations and participations.

The Company utilizes a migration model to determine the formula allowance loss factors for problem-graded loans (substandard, doubtful, and loss), special mention loans, and pass graded loans. The migration analysis incorporates loan losses over the past twelve quarters (three years) and loss factors are adjusted to recognize and quantify the loss exposure from changes in market conditions and trends in the Company's loan portfolio. For purposes of this analysis, loans are grouped by internal risk classifications, which are “pass”, “special mention”, “substandard”, “doubtful”, and “loss.” Certain loans are homogenous in nature and are therefore pooled by risk grade. These homogenous loans include consumer installment and home equity loans.

The unallocated portion of the allowance is the result of both expected and unanticipated changes in various conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions.

The Company analyzes risk characteristics inherent in each loan portfolio segment as part of the quarterly review of the adequacy of the allowance for loan losses. The following summarizes some of the key risk characteristics for the eleven segments of the loan portfolio (Consumer loans include three segments):

Commercial and business loans – Commercial loans are subject to the effects of economic cycles and tend to exhibit increased risk as economic conditions deteriorate, or if the economic downturn is prolonged. The Company considers this segment to be one of higher risk given the size of individual loans and the overall portfolio.

Government program loans – This is a relatively a small part of the Company's loan portfolio, but has historically had a high percentage of loans that have migrated from pass to substandard given there vulnerability to economic cycles.

Commercial real estate loans – This segment is considered to have more risk in part because of the vulnerability of commercial businesses to economic cycles as well as the exposure to fluctuations in real estate prices because most of these loans are secured by real estate. Losses in this segment have however been historically low because most of the loans are real estate secured.

Single family residential loans – This segment is considered to have low risk factors both from the Company and peer statistics. These loans are secured by first deeds of trust. The losses experienced over the past twelve quarters are isolated to approximately seven loans and are generally the result of short sales.

Home improvement and home equity loans – Because of their junior lien position, these loans are inherently considered to have a higher risk level. Because residential real estate has been severely distressed in the recent past, the anticipated risk for this loan segment has increased.

Real estate construction loans – This segment in a normal economy is considered to have a higher risk profile due to construction and market value issues in conjunction with normal credit risks. In the current distressed residential real estate markets the risk has increased.

Agricultural loans – This segment is considered to have risks associated with weather, insects, and marketing issues. In addition, concentrations in certain crops or certain agricultural areas can increase risk.

Consumer loans (including three segments: consumer loans, overdrafts, and overdraft protection lines) – This segment is higher risk because many of the loans are unsecured.

Commercial lease financing – This segment of the portfolio is small and but is considered to be vulnerable to economic cycles given the nature of the leasing relationship where businesses are relatively small or have minimal cash flow. This lending program was terminated in 2005.

The following summarizes the activity in the allowance for credit losses by loan category for the six months ended June 30, 2011.

	Commercial			Real			RE
Six Months Ended	and			Estate			Construction						Installment			Lease
June 30, 2011 (in 000's) (Restated)	Industrial			Mortgage			Development			Agricultural			& Other			Financing			Unallocated			Total
Beginning balance	$	8,209		$	1,620		$	5,763		$	850		$	49		$	3		$	26		$	16,520
Provision for credit losses		5,791			281			3,966			(100	)		36			103			(26	)		10,051

Charge-offs		(6,897	)		(406	)		(5,480	)		(537	)		(20	)		(100	)					(13,440	)
Recoveries		72			0			607			66			3			0						748
Net charge-offs		(6,825	)		(406	)		(4,873	)		(471	)		(17	)		(100	)		0			(12,692	)

Ending balance	$	7,175		$	1,494		$	4,856		$	279		$	68		$	6		$	0		$	13,879
Period-end amount allocated to:
Loans individually evaluated for impairment	$	652		$	467		$	978		$	149		$	23		$	0		$	0		$	2,270
Loans collectively evaluated for impairment		6,523			,1,027			3,878			130			45			6			0			11,609
Ending balance	$	7,175		$	1,494		$	4,856		$	279		$	68		$	6		$	0		$	13,879

The following summarizes the activity in the allowance for credit losses by loan category for the three months ended June 30, 2011.

	Commercial			Real			RE
Three Months Ended	and			Estate			Construction						Installment			Lease
June 30, 2011 (in 000's) (Restated)	Industrial			Mortgage			Development			Agricultural			& Other			Financing			Unallocated			Total
Beginning balance		8,337		$	1,574		$	6,059		$	381		$	80		$	24		$	290		$	16,745
Provision for credit losses		5,621			300			3,668			(147	)		5			4			(290	)		9,161

Charge-offs		(6,826	)		(379	)		(5,478	)		(1	)		(18	)		(22	)		0			(12,724	)
Recoveries		43			0			607			46			1			0			0			697
Net charge-offs		(6,783	)		(379	)		(4,871	)		45			(17	)		(22	)		0			(12,027	)

Ending balance	$	7,175		$	1,494		$	4,856		$	279		$	68		$	6		$	0		$	13,879

The following summarizes the activity in the allowance for credit losses by loan category for the six months ended June 30, 2010.

	Commercial			Real			RE
Six Months Ended	and			Estate			Construction					Installment			Lease
June 30, 2010 (in 000's)	Industrial			Mortgage			Development			Agricultural		& Other			Financing		Unallocated		Total
Beginning balance	$	7,125		$	1,426		$	5,561		$	334	$	535		$	35	$	0	$	15,016
Provision for credit losses		(1,610	)		614			1,901			9		364			3		869		2,150

Charge-offs		(1,812	)		(357	)		(3,139	)		0		(692	)		0				(6,000	)
Recoveries		865			0			10			11		5			0				891
Net charge-offs		(947	)		(357	)		(3,129	)		11		(687	)		0		0		(5,109	)

Ending balance	$	4,568		$	1,683		$	4,333		$	354	$	212		$	38	$	869	$	12,057
Period-end amount allocated to:
Loans individually evaluated for impairment		1,334			867			2,634			135		150			0		0		5,120
Loans collectively evaluated for impairment		3,234			816			1,699			219		62			38		869		6,937
Ending balance	$	4,568		$	1,683		$	4,333		$	354	$	212		$	38	$	869	$	12,057

The following summarizes the activity in the allowance for credit losses by loan category for the three months ended June 30, 2010.

	Commercial			Real			RE
Three Months Ended	and			Estate			Construction						Installment			Lease
June 30, 2010 (in 000's)	Industrial			Mortgage			Development			Agricultural			& Other			Financing		Unallocated		Total
Beginning balance	$	6,328		$	1,654		$	7,055		$	344		$	559		$	25	$	239	$	16,204
Provision for credit losses		(985	)		287			279			(1	)		296			13		630		519

Charge-offs		(1,637	)		(258	)		(3,011	)		0			(645	)		0		0		(5,551	)
Recoveries		862			0			10			11			2			0		0		885
Net charge-offs		(775	)		(258	)		(3,001	)		11			(643	)		0		0		(4,666	)

Ending balance	$	4,568		$	1,683		$	4,333		$	354		$	212		$	38	$	869	$	12,057

The following summarizes information with respect to the loan balances at June 30, 2011 and December 31, 2010.

	June 30, 2011 (Restated)						December 31, 2010
	Loans		Loans				Loans		Loans
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
(000's)	for Impairment		for Impairment		Loans		for Impairment		for Impairment		Loans
Commercial and Business Loans	$	8,985	$	156,583	$	168,149	$	14,676	$	139,948	$	154,624
Government Program Loans		403		3,271		3,686		211		4,389		4,600
Total Commercial and Industrial		9,388		159,854		171,835		14,887		144,337		159,224

Commercial Real Estate Loans		6,601		113,787		120,388		6,425		125,207		131,632
Residential Mortgage Loans		3,867		21,268		25,288		3,359		20,405		23,764
Home Improvement and Home Equity Loans		109		2,068		2,177		138		2,247		2,385
Total Real Estate Mortgage		10,577		137,123		147,853		9,922		147,859		157,781

Total RE Construction and Development Loans		14,779		41,397		59,476		22,759		42,423		65,182

Total Agricultural Loans		1,991		35,469		37,460		3,107		43,201		46,308

Total Installment Loans		218		12,989		13,216		148		12,743		12,891

Commercial Leases Financing		0		73		73		175		130		305

Total Loans	$	36,953	$	386,905	$	423,858	$	50,998	$	390,693	$	441,691