Loans

The composition of the loan portfolio at June 30, 2011 and December 31, 2010 was as follows (dollars in thousands):

	June 30, 2011					December 30, 2010
	Amount		Percent			Amount		Percent			% Change
Commercial real estate:
Owner occupied	$	298,620		26.5	%	$	315,723		25.8	%		5.4	%
Non-owner occupied and other		367,385		32.5	%		396,309		32.3	%		7.3	%
Total commercial real estate loans		666,005		59.0	%		712,032		58.1	%		6.5	%
Construction:
1-4 Family		5,342		0.5	%		7,523		0.6	%		29.0	%
Other		124,320		11.0	%		150,940		12.3	%		17.6	%
Total construction loans		129,662		11.5	%		158,463		12.9	%		18.2	%
Residential real estate:
Term		44,515		3.9	%		45,205		3.7	%		1.5	%
Line of credit and other		53,858		4.8	%		57,281		4.7	%		6.0	%
Total residential real estate loans		98,373		8.7	%		102,486		8.4	%		4.0	%
Commerical and industrial		190,786		16.9	%		205,692		16.8	%		7.2	%
Consumer		43,906		3.9	%		47,687		3.8	%		7.9	%
Total loans		1,128,732		100.0	%		1,226,360		100.0	%		8.0	%

Less:
Deferred loan fees		2,444					2,647					7.7	%
Reserve for loan losses		40,790					46,668					12.6	%
Loans, net	$	1,085,498				$	1,177,045					7.8	%

Included in mortgage loans was approximately $0.7 million and $0.2 million in mortgage loans held for sale at June 30, 2011 and December 31, 2010, respectively.

A substantial portion of the Bank’s loans are collateralized by real estate in four major markets (Central, Southern and Northwest Oregon, as well as the Boise, Idaho area). As such, the Bank’s results of operations and financial condition are dependent upon the general trends in the economy and, in particular, the local residential and commercial real estate markets it serves. Economic trends can significantly affect the strength of the local real estate market. Approximately 79% of the Bank’s loan portfolio at June 30, 2011 consisted of real estate-related loans, including construction and development loans, commercial real estate mortgage loans, and commercial loans secured by commercial real estate. While broader economic conditions appear to be stabilizing, real estate prices are at markedly lower levels due to the severe recession of the past few years. Should the period of lower real estate prices persist for an extended duration or should real estate markets further decline, the Bank could be materially and adversely affected. Specifically, collateral for the Bank’s loans would provide less security and the Bank’s ability to recover on defaulted loans by selling real estate collateral would be diminished. Real estate values could be affected by, among other things, a worsening of economic conditions, an increase in foreclosures, a decline in home sale volumes, and an increase in interest rates. Furthermore, the Bank may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to the Bank given a sustained weakness or a weakening in business and economic conditions generally or specifically in the principal markets in which the Bank does business. An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of nonperforming assets, net charge-offs, and loan loss provision.

In the normal course of business, the Bank participates portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At June 30, 2011 and December 31, 2010, the portion of these loans participated to third-parties (which are not included in the accompanying condensed consolidated financial statements) totaled approximately $32.9 million and $54.1 million, respectively.