NOTE 6 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of net loans receivable at March 31, 2012 and December 31, 2011 is as follows:

	2012			2011
Construction	$	36,132		$	37,926
Commercial real estate		50,874			51,619
Commercial and industrial		9,587			10,254
Residential real estate		19,967			22,465
Manufactured housing		3,999			4,012
Total loans receivable covered under FDIC Loss Sharing Agreements (1)		120,559			126,276
Construction		13,451			15,271
Commercial real estate		383,866			352,635
Commercial and industrial		74,001			69,178
Mortgage warehouse		561,268			619,318
Manufactured housing		98,848			104,565
Residential real estate		59,178			53,476
Consumer		2,122			2,211
Total loans receivable not covered under FDIC Loss Sharing Agreements		1,192,734			1,216,654
Total loans receivable		1,313,293			1,342,930
Deferred (fees) costs, net		(320)			(389)
Allowance for loan and lease losses		(15,400	)		(15,032	)
Loans receivable, net	$	1,297,573		$	1,327,509

(1)	Loans that were acquired in the two FDIC assisted transactions and are covered under loss sharing agreements with the FDIC are referred to as "covered" loans throughout these financial statements.

Non-Covered Nonaccrual Loans and Loans Past Due

The following table summarizes non-covered nonaccrual loans and past due loans, by class, as of March 31, 2012:

	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due (1)		Non- Accrual		Current (2)		Total Loans (4)
Commercial and industrial
Acquired with credit deterioration	$	13	$	-	$	13	$	171	$	4,575	$	4,759
Remaining loans (5)		-		-		-		900		68,342		69,242
Commercial real estate
Acquired with credit deterioration		84		-		84		8,157		54,320		62,561
Remaining loans (5)		1,010		-		1,010		15,812		304,483		321,305
Construction
Acquired with credit deterioration		581		-		581		-		2,999		3,580
Remaining loans (5)		2		-		2		4,096		5,773		9,871
Residential real estate
Acquired with credit deterioration		430		-		430		1,769		15,533		17,732
First mortgages (5)		306		-		306		609		21,303		22,218
Home equity (5)		18		-		18		858		18,352		19,228
Consumer
Acquired with credit deterioration		7		-		7		5		204		216
Remaining loans (5)		9		-		9		29		1,868		1,906
Mortgage warehouse		-		-		-		-		561,268		561,268
Manufactured housing (3)
Acquired with credit deterioration		733		-		733		2,558		4,423		7,714
Remaining loans (5)		2,909		-		2,909		-		88,225		91,134

Total	$	6,102	$	-	$	6,102	$	34,964	$	1,151,668	$	1,192,734

(1)	Loan balances do not include non-accrual loans.

(2)	Loans where payments are due within 29 days of the scheduled payment date.

(3)	Purchased manufactured housing loans, purchased in 2010, are subject to cash reserves held at the Bank and are used to fund the past due payments when the loan reaches 90 days or more delinquent.

(4)	Loans exclude deferred costs and fees.

(5)	Loans that were not identified at the acquisition date as a loan with credit deterioration.

The following table summarizes non-covered nonaccrual loans and past due loans, by class, as of December 31, 2011:

	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due(1)		Non- Accrual		Current (2)		Total Loans (4)
Commercial and industrial
Acquired with credit deterioration	$	-	$	-	$	-	$	178	$	4,944	$	5,122
Remaining loans (5)		-		-		-		2,783		61,273		64,083
Commercial real estate
Acquired with credit deterioration		89		-		89		8,527		57,542		66,158
Remaining loans (5)		1,025		-		1,025		18,763		266,689		286,477
Construction
Acquired with credit deterioration		-		-		-		-		3,393		3,393
Remaining loans (5)		-		-		-		5,630		6,248		11,878
Residential real estate
Acquired with credit deterioration		1,002		-		1,002		1,423		16,156		18,581
First mortgages (5)		314		-		314		700		14,679		15,666
Home equity (5)		183		-		183		823		18,196		19,202
Consumer
Acquired with credit deterioration		7		-		7		6		233		246
Remaining loans (5)		14		-		14		34		1,917		1,965
Mortgage warehouse		-		-		-		-		619,318		619,318
Manufactured housing (3)
Acquired with credit deterioration		621		-		621		-		7,176		7,797
Remaining loans (5)		4,541		-		4,541		-		92,227		96,768

Total	$	7,796	$	-	$	7,796	$	38,867	$	1,169,991	$	1,216,654

(1)	Loan balances do not include non-accrual loans.

(2)	Loans where payments are due within 29 days of the scheduled payment date.

(3)	Purchased manufactured housing loans, purchased in 2010, are subject to cash reserves held at the Bank and are used to fund the past due payments when the loan reaches 90 days or more delinquent.

(4)	Loans exclude deferred costs and fees.

(5)	Loans that were not identified at the acquisition date as a loan with credit deterioration.

Covered Nonaccrual Loans and Loans Past Due

The following table summarizes covered nonaccrual loans and past due loans, by class, as of March 31, 2012:

	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due (1)		Nonaccrual		Current (3)		Total Loans
Commercial and industrial
Acquired with credit deterioration	$	-	$	-	$	-	$	357	$	-	$	357
Remaining loans (2)		740		-		740		-		8,490		9,230
Commercial real estate
Acquired with credit deterioration		-		-		-		-		-		-
Remaining loans (2)		602		-		602		17,381		32,891		50,874
Construction
Acquired with credit deterioration		3,246		-		3,246		18,063		-		21,309
Remaining loans (2)		-		-		-		6,089		8,734		14,823
Residential real estate
Acquired with credit deterioration		-		-		-		1,835		-		1,835
First mortgages (2)		561		-		561		-		8,458		9,019
Home equity (2)		361		-		361		1,430		7,322		9,113
Manufactured housing
Acquired with credit deterioration		-		-		-		70		-		70
Remaining loans (2)		106		-		106		74		3,749		3,929
	$	5,617	$	-	$	5,617	$	45,299	$	69,644	$	120,559

(1)	Loans balances do not include non-accrual loans.

(2)	Loans that were not identified at the acquisition date as a loan with credit deterioration.

(3)	Loans where payments are due within 29 days of the scheduled payment date.

The following table summarizes covered nonaccrual loans and past due loans, by class, as of December 31, 2011:

	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due (1)		Nonaccrual		Current (3)		Total Loans
Commercial and industrial
Acquired with credit	$		$	-	$	-	$	378	$	-	$	378
deterioration
Remaining loans (2)		2,672		-		2,672		-		7,204		9,876
Commercial real estate
Acquired with credit		-		-		-		16,204		2,039		18,243
deterioration
Remaining loans (2)		1,074		-		1,074		1,462		30,840		33,376
Construction
Acquired with credit		-		-		-		18,896		3,266		22,162
deterioration
Remaining loans (2)		92		-		92		2,584		13,088		15,764
Residential real estate
Acquired with credit		-		-		-		4,002		-		4,002
deterioration
First mortgages (2)		570		-		570		-		8,601		9,171
Home equity (2)		281		-		281		1,532		7,479		9,292
Manufactured housing
Acquired with credit		-		-		-		77		-		77
deterioration
Remaining loans (2)		6		-		6		78		3,851		3,935
	$	4,695	$	-	$	4,695	$	45,213	$	76,368	$	126,276

(1)	Loans balances do not include non-accrual loans.

(2)	Loans receivable that were not identified upon acquisition as a loan with credit deterioration.

(3)	Loans where payments are due within 29 days of the scheduled payment date.

Impaired Loans  Covered and Non-Covered

The following table presents a summary of the impaired loans at or for the three months ended March 31, 2012.

	Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	7,410	$	-	$	7,193	$	234
Commercial real estate		20,905		-		20,668		177
Construction		7,601		-		8,187		4
Consumer		138		-		69		1
Residential real estate		5,031		-		2,687		61
With an allowance recorded:
Commercial and industrial		779		417		790		1
Commercial real estate		8,673		1,429		10,434		73
Construction		6,900		2,972		7,134		50
Consumer		20		20		21		-
Residential real estate		861		59		865		12

Total	$	58,318	$	4,897	$	58,048	$	613

(1)	Also represents the recorded investment.

The following table presents a summary of the impaired loans at December 31, 2011 and activity recorded for the three months ended March 31, 2011.

	December 31, 2011				March 31, 2011
	Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	6,975	$	-	$	10	$	2
Commercial real estate		20,431		-		6,775		358
Construction		8,773		-		-		-
Residential real estate		343		-		-		-
With an allowance recorded:
Commercial and industrial		800		426		6,686		462
Commercial real estate		12,195		2,047		12,922		849
Construction		7,369		2,986		5,558		168
Consumer		22		22		-		-
Residential real estate		869		195		1,261		38

Total	$	57,777	$	5,676	$	33,212	$	1,877

(1)	Also represents the recorded investment.

Troubled Debt Restructurings

At March 31, 2012, there were $7.9 million in loans categorized as troubled debt restructurings ("TDR"). All TDRs are considered impaired loans in the calendar year of their restructuring. In subsequent years, a TDR may cease being classified as impaired if the loan was modified at a market rate at the time of modification and has performed according to the modified terms for at least six months. A loan that has been modified at a below market rate will return to performing status if it satisfies the six month performance requirement; however, it will remain classified as impaired.

The following is an analysis of loans modified in a troubled debt restructuring by type of concession for the three months ended March 31, 2012. There were no modifications that involved forgiveness of debt.

	TDRs in compliance with their modified terms and accruing interest		TDRs that are not accruing interest		Total
	(amounts in thousands)
Extended under forbearance	$	-	$	-	$	-
Multiple extensions resulting from financial difficulty		-		-		-
Interest rate reductions		155		-		155
Total	$	155	$	-	$	155

Troubled Debt Restructurings

The following table provides, by class, the number of loans and leases modified in troubled debt restructurings, and the recorded investments and unpaid principal balances during the three months ended March 31, 2012.


	TDRs in compliance with their modified terms and accruing interest					TDRs that are not accruing interest
	Number		Recorded			Number		Recorded
	of Loans		Investment			of Loans		Investment
Commercial and industrial		-		$	-		-	$	-
Commercial real estate		-			-		-		-
Construction		-			-		-		-
Manufactured housing		-			-		-		-
Residential real estate		-			-		-		-
Consumer		3			155		-		-
Total loans and leases		3		$	155		-	$	-

Troubled Debt Restructurings

TDR modifications of loans within the commercial and industrial category were primarily interest rate concessions, deferrals of principal and other modifications; modifications of commercial real estate loans were primarily deferrals of principal, extensions of term and other modifications; and modifications of residential real estate loans were primarily interest rate concessions and deferrals of principal. As of March 31, 2012 and 2011, there were no commitments to lend additional funds to debtors whose terms have been modified in troubled debt structuring.

All loans and leases modified in troubled debt restructurings are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for credit for losses. There were no specific reserves resulting from the addition of TDR modifications and there were no TDRs with subsequent defaults in the three-month period ended March 31, 2012.

Credit Quality Indicators

Commercial and industrial, commercial real estate, residential real estate and construction loans are based on an internally assigned risk rating system which are assigned at the loan origination and reviewed on a periodic or on an "as needed" basis. Consumer, mortgage warehouse and manufactured housing loans are evaluated based on the payment activity of the loan. The following presents the credit quality tables as of March 31, 2012 and December 31, 2011 for the non-covered loan portfolio.


	March 31, 2012
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	65,592	$	342,800	$	9,034	$	55,804
Special Mention		7,267		14,620		235		252
Substandard		837		24,911		3,111		3,122
Doubtful		305		1,535		1,071		-
Total	$	74,001	$	383,866	$	13,451	$	59,178

	Consumer		Mortgage Warehouse		Manufactured Housing
Performing	$	2,087	$	561,268	$	96,832
Nonperforming (1)		35		-		2,016
Total	$	2,122	$	561,268	$	98,848

(1)	Includes loans that are on non-accrual status or past due ninety days of more at March 31, 2012.


	December 31, 2011
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	61,327	$	308,258	$	9,314	$	50,517
Special Mention		57		13,402		237		-
Substandard		7,472		29,312		4,349		2,959
Doubtful		322		1,663		1,371		-
Total	$	69,178	$	352,635	$	15,271	$	53,476

	Consumer		Mortgage Warehouse		Manufactured Housing
Performing	$	2,171	$	619,318	$	104,565
Nonperforming (1)		40		-		-
Total	$	2,211	$	619,318	$	104,565

(1)	Includes loans that are on non-accrual status or past due ninety days of more at December 31, 2011.

The following presents the credit quality tables as of March 31, 2012 and December 31, 2011 for the covered loan portfolio.

	March 31, 2012
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	9,180	$	30,511	$	4,743	$	14,633
Special Mention		50		2,856		3,990		2,070
Substandard		357		17,507		27,399		3,264
Doubtful		-		-		-		-
Total	$	9,587	$	50,874	$	36,132	$	19,967

	Manufactured Housing
Performing	$	3,855
Nonperforming (1)		144
Total	$	3,999

(1)	Includes loans that are on non-accrual status or past due ninety days or more at March 31, 2012.

	December 31, 2011
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	9,823	$	30,998	$	5,539	$	16,476
Special Mention		53		3,358		7,641		455
Substandard		378		17,263		24,746		5,534
Doubtful		-		-		-		-
Total	$	10,254	$	51,619	$	37,926	$	22,465

	Manufactured Housing
Performing	$	3,857
Nonperforming (1)		155
Total	$	4,012

(1)	Includes loans that are on non-accrual status or past due ninety days or more at December 31, 2011.

Allowance for loan and lease losses

The changes in the allowance for loan and lease losses for the three months ended March 31, 2012 and the loans and allowance for loan and lease losses by loan segment based on impairment method are as follows:

Three months ended March 31, 2012	Commercial and Industrial			Commercial Real Estate			Construction			Residential Real Estate
Beginning Balance, January 1, 2012	$	1,441		$	7,029		$	4,656		$	844
Charge-offs		(34	)		(206	)		(1,212	)		(21	)
Recoveries		-			37			-			4
Provision for loan and lease losses		57			257			1,655			(52	)
Ending Balance, March 31, 2012	$	1,464		$	7,117		$	5,099		$	775

Three months ended March 31, 2012	Manufactured Housing			Consumer			Mortgage Warehouse				Unallocated			Total
Beginning Balance, January 1, 2012		$	18		$	61		$	929			$	54		$	15,032
Charge-offs			-			-			-				-			(1,473	)
Recoveries			-			-			-				-			41
Provision for loan and lease losses			15			34			(166	)			-			1,800
Ending Balance, March 31, 2012		$	33		$	95		$	763			$	54		$	15,400

Three months ended March 31, 2012	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate

Loans:
Individually evaluated for impairment	$	8,189	$	29,578	$	14,501	$	5,892
Collectively evaluated for impairment		70,962		321,363		10,358		55,626
Loans acquired with credit deterioration		5,805		85,468		28,013		21,495
Allowance for loan and lease losses:
Individually evaluated for impairment	$	417	$	1,429	$	2,972	$	59
Collectively evaluated for impairment		949		4,078		264		607
Loans acquired with credit deterioration		98		1,531		1,863		168

Three months ended March 31, 2012	Manufactured Housing		Consumer		Mortgage Warehouse		Unallocated		Total

Loans:
Individually evaluated for impairment	$	-	$	158	$	-	$		$	58,318
Collectively evaluated for impairment		93,924		5,712		561,268				1,119,213
Loans acquired with credit deterioration		15,446		224		-				156,451
Market discounts/premiums/valuation adjustments										(20,689	)
Total loans										1,313,293
Allowance for loan and lease losses:
Individually evaluated for impairment	$	-	$	20	$	-	$		$	4,897
Collectively evaluated for impairment		33		78		763		54		6,826
Loans acquired with credit deterioration		-		17		-				3,677

The non-covered manufactured housing portfolio was purchased in August 2010. A portion of the purchase price may be used to reimburse the Bank under the specified terms in the Purchase Agreement for defaults of the underlying borrower and other specified items. At March 31, 2012 funds available for reimbursement, if necessary, are $6,095. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb probable losses within the manufactured housing portfolio.

The changes in the allowance for loan and lease losses for the three months ended March 31, 2011 and the loans and allowance for loan and lease losses by loan segment based on impairment method are as follows:

Three months ended March 31, 2011	Commercial and Industrial		Commercial Real Estate			Construction			Residential Real Estate
Beginning Balance, January 1, 2011	$	1,662	$	9,152		$	2,127		$	1,116
Charge-offs		-		(477	)		(155	)		-
Recoveries		-		5			-			-
Provision for loan and lease losses		384		2,503			162			(300	)
Ending Balance, March 31, 2011	$	2,046	$	11,183		$	2,134		$	816

Three months ended March 31, 2011	Manufactured Housing		Consumer			Mortgage Warehouse		Unallocated		Total
Beginning Balance, January 1, 2011	$	-	$	11		$	465	$	596	$	15,129
Charge-offs		-		(4	)		-		-		(636	)
Recoveries		-		-			-		-		5
Provision for loan and lease losses		-		5			42		4		2,800
Ending Balance, March 31, 2011	$	-	$	12		$	507	$	600	$	17,298

Twelve months ended December 31, 2011	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Loans:
Individually evaluated for impairment	$	7,775	$	32,625	$	16,142	$	1,212
Collectively evaluated for impairment		73,877		354,561		16,025		71,477
Loans acquired with credit deterioration		885		20,962		26,428		4,731
Allowance for loan and lease losses:
Individually evaluated for impairment	$	426	$	2,047	$	2,986	$	195
Collectively evaluated for impairment		911		4,063		209		554
Loans acquired with credit deterioration		104		920		1,461		94

Twelve months ended December 31, 2011	Manufactured Housing			Consumer			Mortgage Warehouse			Unallocated			Total
Loans:
Individually evaluated for impairment		$	-		$	23		$	-		$	-		$	57,777
Collectively evaluated for impairment			113,380			6,545			619,318			-			1,153,029
Loans acquired with credit deterioration			88			-			-			-			155,249
Market discounts/premiums/valuation adjustments															(23,514
Total loans															1,342,541
Allowance for loan and lease losses:
Individually evaluated for impairment		$	-		$	22		$	-		$	-		$	5,676
Collectively evaluated for impairment			1			39			929			54			6,760
Loans acquired with credit deterioration			17			-			-			-			2,596

The changes in the accretable yield for prior loan acquisitions for the three months ended March 31, 2012 and 2011 are as follows:

	March 31, 2012			March 31, 2011
Balance, beginning of period	$	45,358		$	7,176
Additions resulting from acquisition		-			-
Accretion to interest income		(2,059	)		(527	)
Reclassification (to)/from nonaccretable difference and disposals, net		1,404			(429)

Balance, end of period	$	44,703		$	6,220

FDIC Loss Sharing Receivable

Prospective losses incurred on covered loans are eligible for partial reimbursement by the FDIC. Subsequent decreases in the amount expected to be collected result in a provision for loan and lease losses, an increase in the allowance for loan and lease losses, and a proportional adjustment to the FDIC loss sharing receivable for the estimated amount to be reimbursed. Subsequent increases in the amount expected to be collected result in the reversal of any previously-recorded provision for loan and lease losses and related allowance for loan and lease losses and adjustments to the FDIC loss sharing receivable, or accretion of certain fair value amounts into interest income in future periods if no provision for loan and lease losses had been recorded.

The following table summarizes the activity related to the FDIC loss sharing receivable for the three months ended March 31, 2012 and 2011:

	March 31, 2012		March 31, 2011

Balance, beginning of period	$	13,077	$	16,702
Acquisitions		-		-
Change in FDIC loss sharing receivable		1,190		1,504
Reimbursement from the FDIC		(118)		(1,977)
Balance, end of period	$	14,149	$	16,229