XNAS:COLB Columbia Banking System Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012.
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number 0-20288
 ________________________________________________________ 
COLUMBIA BANKING SYSTEM, INC.
(Exact name of issuer as specified in its charter)
 ________________________________________________________ 

Washington
 
91-1422237
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1301 “A” Street
Tacoma, Washington
 
98402-2156
(Address of principal executive offices)
 
(Zip Code)
(253) 305-1900
(Issuer’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of common stock outstanding at July 31, 2012 was 39,669,290.
 



TABLE OF CONTENTS
 
 
 
Page
 
PART I — FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II — OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
i



PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
(Unaudited)
 
 
 
 
 
 
June 30,
2012
 
December 31,
2011
ASSETS
 
(in thousands)
Cash and due from banks
 
$
98,940

 
$
91,364

Interest-earning deposits with banks
 
270,873

 
202,925

Total cash and cash equivalents
 
369,813

 
294,289

Securities available for sale at fair value (amortized cost of $956,636 and $987,560, respectively)
 
997,763

 
1,028,110

Federal Home Loan Bank stock at cost
 
22,215

 
22,215

Loans held for sale
 
2,088

 
2,148

Loans, excluding covered loans, net of unearned income of ($11,666) and ($16,217), respectively
 
2,436,961

 
2,348,371

Less: allowance for loan and lease losses
 
52,196

 
53,041

Loans, excluding covered loans, net
 
2,384,765

 
2,295,330

Covered loans, net of allowance for loan losses of ($31,784) and ($4,944), respectively
 
462,994

 
531,929

Total loans, net
 
2,847,759

 
2,827,259

FDIC loss-sharing asset
 
140,003

 
175,071

Interest receivable
 
15,560

 
15,287

Premises and equipment, net
 
116,400

 
107,899

Other real estate owned ($19,079 and $28,126 covered by FDIC loss-share, respectively)
 
33,004

 
51,019

Goodwill
 
115,554

 
115,554

Core deposit intangible, net
 
17,896

 
20,166

Other assets
 
111,358

 
126,928

Total assets
 
$
4,789,413

 
$
4,785,945

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
1,159,462

 
$
1,156,610

Interest-bearing
 
2,671,355

 
2,658,919

Total deposits
 
3,830,817

 
3,815,529

Federal Home Loan Bank advances
 
113,145

 
119,009

Securities sold under agreements to repurchase
 
25,000

 
25,000

Other liabilities
 
61,739

 
67,069

Total liabilities
 
4,030,701

 
4,026,607

Commitments and contingent liabilities
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
June 30,
2012
 
December 31,
2011
 
 
 
 
Common stock (no par value)
 
 
 
 
 
 
 
Authorized shares
63,033

 
63,033

 
 
 
 
Issued and outstanding
39,655

 
39,506

 
580,358

 
579,136

Retained earnings
 
152,519

 
155,069

Accumulated other comprehensive income
 
25,835

 
25,133

Total shareholders’ equity
 
758,712

 
759,338

Total liabilities and shareholders’ equity
 
$
4,789,413

 
$
4,785,945

See accompanying Notes to unaudited Consolidated Financial Statements.


1


CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
54,498

 
$
44,362

 
$
116,275

 
$
91,791

Taxable securities
 
4,951

 
6,247

 
10,196

 
10,664

Tax-exempt securities
 
2,495

 
2,516

 
5,020

 
4,983

Federal funds sold and deposits in banks
 
170

 
184

 
335

 
482

Total interest income
 
62,114

 
53,309

 
131,826

 
107,920

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
1,561

 
2,848

 
3,340

 
5,927

Federal Home Loan Bank advances
 
734

 
714

 
1,484

 
1,408

Long-term obligations
 

 
253

 

 
504

Other borrowings
 
118

 
119

 
238

 
257

Total interest expense
 
2,413

 
3,934

 
5,062

 
8,096

Net Interest Income
 
59,701

 
49,375

 
126,764

 
99,824

Provision for loan and lease losses
 
3,750

 
2,150

 
8,250

 
2,150

Provision for losses on covered loans
 
11,688

 
2,301

 
27,373

 
1,879

Net interest income after provision for loan and lease losses
 
44,263

 
44,924

 
91,141

 
95,795

Noninterest Income (Loss)
 
 
 
 
 
 
 
 
Service charges and other fees
 
7,436

 
6,467

 
14,613

 
12,755

Merchant services fees
 
2,095

 
1,808

 
4,113

 
3,441

Gain on sale of investment securities, net
 

 

 
62

 

Bank owned life insurance
 
719

 
528

 
1,430

 
1,033

Change in FDIC loss-sharing asset
 
(168
)
 
(6,419
)
 
(1,836
)
 
(21,193
)
Other
 
1,746

 
1,158

 
3,020

 
2,087

Total noninterest income (loss)
 
11,828

 
3,542

 
21,402

 
(1,877
)
Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
20,966

 
19,459

 
42,961

 
38,380

Occupancy
 
5,091

 
4,388

 
10,424

 
8,785

Merchant processing
 
930

 
905

 
1,803

 
1,788

Advertising and promotion
 
1,119

 
1,012

 
2,001

 
1,913

Data processing and communications
 
2,551

 
1,913

 
4,764

 
3,837

Legal and professional fees
 
1,829

 
1,498

 
3,438

 
2,911

Taxes, licenses and fees
 
1,115

 
907

 
2,470

 
1,772

Regulatory premiums
 
925

 
1,279

 
1,785

 
2,979

Net cost (benefit) of operation of other real estate owned
 
(377
)
 
214

 
533

 
(228
)
Amortization of intangibles
 
1,119

 
955

 
2,269

 
1,939

FDIC clawback liability (recovery)
 
(208
)
 
448

 
(234
)
 
2,148

Other
 
4,765

 
4,186

 
11,963

 
8,286

Total noninterest expense
 
39,825

 
37,164

 
84,177

 
74,510

Income before income taxes
 
16,266

 
11,302

 
28,366

 
19,408

Income tax provision
 
4,367

 
2,670

 
7,565

 
4,997

Net Income
 
$
11,899

 
$
8,632

 
$
20,801

 
$
14,411

Earnings per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.30

 
$
0.22

 
$
0.52

 
$
0.37

Diluted
 
$
0.30

 
$
0.22

 
$
0.52

 
$
0.36

Dividends paid per common share
 
$
0.22

 
$
0.05

 
$
0.59

 
$
0.08

Weighted average number of common shares outstanding
 
39,260

 
39,107

 
39,228

 
39,073

Weighted average number of diluted common shares outstanding
 
39,308

 
39,166

 
39,306

 
39,159


See accompanying Notes to unaudited Consolidated Financial Statements.


2


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
 
Three Months Ended
 
 
June 30,
 
 
2012
 
2011
 
 
(in thousands)
Net income as reported
 
$
11,899

 
$
8,632

Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($840) and ($3,641)
 
2,370

 
6,467

Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($17) and ($8)
 
3

 
14

Total comprehensive income
 
$
14,272

 
$
15,113

 
 
Six Months Ended
 
 
June 30,
 
 
2012
 
2011
 
 
(in thousands)
Net income as reported
 
$
20,801

 
$
14,411

Unrealized gain from securities:
 
 
 
 
Net unrealized holding gain from available for sale securities arising during the period, net of tax of $87 and ($4,925)
 
725

 
8,780

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $23 and $0
 
(39
)
 

Net unrealized gain from securities, net of reclassification adjustment
 
686

 
8,780

Cash flow hedging instruments:
 
 
 
 
Reclassification adjustment of net gain included in income, net of tax of $0 and $79
 

 
(143
)
Net change in cash flow hedging instruments
 

 
(143
)
Pension plan liability adjustment:
 
 
 
 
Net unrealized gain from unfunded defined benefit plan liability arising during the period, net of tax of $0 and $154
 

 
(261
)
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($24) and ($16)
 
16

 
28

Pension plan liability adjustment, net
 
16

 
(233
)
Total comprehensive income
 
$
21,503

 
$
22,815









See accompanying Notes to unaudited Consolidated Financial Statements.


3


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia Banking System, Inc.
(Unaudited)
 
  
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Shareholders’
Equity
 
 
Number of
Shares
 
Amount
 
 
 
(in thousands)
Balance at January 1, 2011
 
39,338

 
$
576,905

 
$
117,692

 
$
12,281

 
$
706,878

Net income
 

 

 
14,411

 

 
14,411

Other comprehensive income
 

 

 

 
8,404

 
8,404

Issuance of common stock - stock option and other plans
 
25

 
410

 

 

 
410

Issuance of common stock - restricted stock awards, net of canceled awards
 
114

 
763

 

 

 
763

Purchase and retirement of common stock
 
(2
)
 
(32
)
 

 

 
(32
)
Cash dividends paid on common stock
 

 

 
(3,154
)
 

 
(3,154
)
Balance at June 30, 2011
 
39,475

 
$
578,046

 
$
128,949

 
$
20,685

 
$
727,680

Balance at January 1, 2012
 
39,506

 
$
579,136

 
$
155,069

 
$
25,133

 
$
759,338

Net income
 

 

 
20,801

 

 
20,801

Other comprehensive income
 

 

 

 
702

 
702

Issuance of common stock - stock option and other plans
 
19

 
314

 

 

 
314

Issuance of common stock - restricted stock awards, net of canceled awards
 
130

 
908

 

 

 
908

Cash dividends paid on common stock
 

 

 
(23,351
)
 

 
(23,351
)
Balance at June 30, 2012
 
39,655

 
$
580,358

 
$
152,519

 
$
25,835

 
$
758,712

















See accompanying Notes to unaudited Consolidated Financial Statements.

4


CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2012
 
2011 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net Income
 
$
20,801

 
$
14,411

Adjustments to reconcile net income to net cash provided by operating activities
 

 

Provision for loan and lease losses and losses on covered loans
 
35,623

 
4,029

Stock-based compensation expense
 
908

 
763

Depreciation, amortization and accretion
 
30,478

 
28,529

Net realized gain on sale of securities
 
(62
)
 

Net realized gain on sale of other assets
 
(41
)
 
(3
)
Net realized gain on sale of other real estate owned
 
(6,277
)
 
(5,455
)
Gain on termination of cash flow hedging instruments
 

 
(222
)
Write-down on other real estate owned
 
5,812

 
4,559

Net change in:
 

 

Loans held for sale
 
60

 
99

Interest receivable
 
(273
)
 
(1,940
)
Interest payable
 
(275
)
 
(1
)
Other assets
 
(7,424
)
 
(203
)
Other liabilities
 
(4,945
)
 
(2,045
)
Net cash provided by operating activities
 
74,385

 
42,521

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(63,362
)
 
(27,829
)
Purchases of:
 

 

Securities available for sale
 
(87,346
)
 
(269,966
)
Premises and equipment
 
(11,630
)
 
(2,388
)
Proceeds from:
 

 

FDIC reimbursement on loss-sharing asset
 
34,313

 
44,892

Sales of securities available for sale
 
3,845

 

Principal repayments and maturities of securities available for sale
 
108,517

 
60,247

Disposal of premises and equipment
 
9

 
20

Sales of covered other real estate owned
 
18,381

 
11,081

Sales of other real estate and other personal property owned
 
11,899

 
7,874

Capital improvements on other real estate properties
 
(11
)
 
(468
)
Decrease in Small Business Administration secured borrowings
 

 
(642
)
Net cash acquired in business combinations
 

 
39,010

Net cash provided by (used in) investing activities
 
14,615

 
(138,169
)
Cash Flows From Financing Activities
 
 
 
 
Net increase (decrease) in deposits
 
15,288

 
(134,906
)
Proceeds from:
 

 

Federal Home Loan Bank advances
 

 
100

Federal Reserve Bank borrowings
 

 
100

Exercise of stock options
 
314

 
410

Payment for:
 

 

Repayment of Federal Home Loan Bank advances
 
(5,727
)
 
(11,401
)
Repayment of Federal Reserve Bank borrowings
 

 
(100
)
Common stock dividends
 
(23,351
)
 
(3,154
)
Purchase and retirement of common stock
 

 
(32
)
Net cash used in financing activities
 
(13,476
)
 
(148,983
)
Increase (Decrease) in cash and cash equivalents
 
75,524

 
(244,631
)
Cash and cash equivalents at beginning of period
 
294,289

 
514,130

Cash and cash equivalents at end of period
 
$
369,813

 
$
269,499

Supplemental Information:
 
 
 
 
Cash paid during the year for:
 
 
 
 
Cash paid for interest
 
$
5,337

 
$
8,097

Cash paid for income tax
 
$

 
$

Non-cash investing activities
 

 

Assets acquired in FDIC-assisted acquisitions (excluding cash and cash equivalents)
 
$

 
$
257,104

Liabilities assumed in FDIC-assisted acquisitions
 
$

 
$
296,114

Loans transferred to other real estate owned
 
$
11,789

 
$
8,240

_______________
(1) Reclassified to conform to the current period’s presentation.
See accompanying Notes to unaudited Consolidated Financial Statements.

5


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
1.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of the Company, and its wholly owned banking subsidiary Columbia Bank (the “Bank”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the six months ended June 30, 2012 are not necessarily indicative of results to be anticipated for the year ending December 31, 2012. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2011 Annual Report on Form 10-K.
Significant Accounting Policies
The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2011 Annual Report on Form 10-K. Other than as discussed below, there have not been any changes in our significant accounting policies compared to those contained in our 2011 Form 10-K disclosure for the year ended December 31, 2011.
2.
Accounting Pronouncements Recently Issued
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”) (Topic 820). ASU 2011-04 developed common requirements between GAAP and IFRS for measuring fair value and for disclosing information about fair value measurements. The Company adopted this ASU during the first quarter of 2012 with no impact on the Company's financial condition or results of operations.
3.
Securities
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
(in thousands)
June 30, 2012
 

 

 

 

U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
601,460

 
$
20,484

 
$
(666
)
 
$
621,278

State and municipal securities
 
258,774

 
20,231

 
(198
)
 
278,807

U.S. government agency and government-sponsored enterprise securities
 
93,092

 
1,211

 
(9
)
 
94,294

Other securities
 
3,310

 
105

 
(31
)
 
3,384

Total
 
$
956,636

 
$
42,031

 
$
(904
)
 
$
997,763

December 31, 2011
 

 

 

 

U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
678,631

 
$
19,323

 
$
(2,000
)
 
$
695,954

State and municipal securities
 
263,075

 
22,746

 
(58
)
 
285,763

U.S. government agency and government-sponsored enterprise securities
 
42,558

 
505

 

 
43,063

Other securities
 
3,296

 
64

 
(30
)
 
3,330

Total
 
$
987,560

 
$
42,638

 
$
(2,088
)
 
$
1,028,110


6


The scheduled contractual maturities of investment securities available for sale at June 30, 2012 are presented as follows:
 
 
June 30, 2012
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
18,270

 
$
18,553

Due after one year through five years
 
139,044

 
142,225

Due after five years through ten years
 
169,482

 
178,051

Due after ten years
 
626,530

 
655,550

Other securities with no stated maturity
 
3,310

 
3,384

Total investment securities available-for-sale
 
$
956,636

 
$
997,763

The following table summarizes, as of June 30, 2012, the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:
 
 
Carrying Amount
 
 
(in thousands)
To Washington and Oregon State to secure public deposits
 
$
266,499

To Federal Home Loan Bank to secure advances
 
80,890

To Federal Reserve Bank to secure borrowings
 
51,454

Other securities pledged
 
49,014

Total securities pledged as collateral
 
$
447,857

The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2012 and December 31, 2011:  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands)
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
85,516

 
$
(664
)
 
$
66

 
$
(2
)
 
$
85,582

 
(666
)
State and municipal securities
 
9,173

 
(198
)
 

 

 
9,173

 
(198
)
U.S. government agency and government-sponsored enterprise securities
 
24,870

 
(9
)
 

 

 
24,870

 
(9
)
Other securities
 

 

 
969

 
(31
)
 
969

 
(31
)
Total
 
$
119,559

 
$
(871
)
 
$
1,035

 
$
(33
)
 
$
120,594

 
$
(904
)
 
 
 
 
 
 
 
 
 
 

 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
238,875

 
$
(1,999
)
 
$
196

 
$
(1
)
 
$
239,071

 
$
(2,000
)
State and municipal securities
 
3,820

 
(24
)
 
950

 
(34
)
 
4,770

 
(58
)
Other securities
 

 

 
970

 
(30
)
 
970

 
(30
)
Total
 
$
242,695

 
$
(2,023
)
 
$
2,116

 
$
(65
)
 
$
244,811

 
$
(2,088
)

7


At June 30, 2012, there were 23 U.S. government agency and government-sponsored enterprise mortgage-backed securities & collateralized mortgage obligations securities in an unrealized loss position, of which five were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2012.
At June 30, 2012, there were nine state and municipal government securities in an unrealized loss position, of which none were in a continuous loss position for 12 months or more. The unrealized losses on state and municipal securities were caused by interest rate changes or widening of market spreads subsequent to the purchase of the individual securities. Management monitors published credit ratings of these securities for adverse changes. As of June 30, 2012, none of the rated obligations of state and local government entities held by the Company had an adverse credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2012.
At June 30, 2012, there were two U.S. government agency and government-sponsored enterprise security in an unrealized loss position for less than 12 months. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2012.
At June 30, 2012, there was one other security, a mortgage-backed securities fund in a continuous unrealized loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates and the additional risk premium investors are demanding for investment securities with these characteristics. The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2012 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.
Securities Deemed to be Other-Than-Temporarily Impaired
During 2011, the Company determined that one of its state and municipal securities with a par amount of $3.0 million was other-than-temporarily impaired due to it maturing during the period without repaying the principal amount. In accordance with ASC 320-10-35, the Company determined that the entire amount of the other-than-temporary impairment was credit-related as the present value of the expected future cash flows for the defaulted security was zero. The credit-related other-than-temporary impairment of $3.0 million was recorded in the consolidated statements of income for the year ended December 31, 2011. The Company continues to hold this security at June 30, 2012.
4.
Noncovered Loans
Noncovered loans include loans originated through our branch network and loan departments as well as acquired loans that are not subject to FDIC loss-sharing agreements.

8


The following is an analysis of the noncovered loan portfolio by major types of loans (net of unearned income):
 
 
June 30,
2012
 
December 31,
2011
 
 
(in thousands)
Noncovered loans:
 
 
 
 
Commercial business
 
$
1,111,440

 
$
1,031,721

Real estate:
 
 
 
 
One-to-four family residential
 
55,883

 
64,491

Commercial and multifamily residential
 
1,017,736

 
998,165

Total real estate
 
1,073,619

 
1,062,656

Real estate construction:
 
 
 
 
One-to-four family residential
 
47,417

 
50,208

Commercial and multifamily residential
 
48,765

 
36,768

Total real estate construction
 
96,182

 
86,976

Consumer
 
167,387

 
183,235

Less: Net unearned income
 
(11,667
)
 
(16,217
)
Total noncovered loans, net of unearned income
 
2,436,961

 
2,348,371

Less: Allowance for loan and lease losses
 
(52,196
)
 
(53,041
)
Total noncovered loans, net
 
$
2,384,765

 
$
2,295,330

Loans held for sale
 
$
2,088

 
$
2,148

At June 30, 2012 and December 31, 2011, the Company had no material foreign activities. Substantially all of the Company’s loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington and Oregon.
The Company and its banking subsidiary have granted loans to officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans was $12.7 million and $9.0 million at June 30, 2012 and December 31, 2011, respectively. During the first six months of 2012, advances on related party loans were $6.0 million and repayments totaled $2.3 million.
At June 30, 2012 and December 31, 2011, $429.4 million and $462.0 million of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank borrowings.
The following is an analysis of noncovered, nonaccrual loans as of June 30, 2012 and December 31, 2011:
 
 
June 30, 2012
 
December 31, 2011
 
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
 
(in thousands)
Commercial business
 
 
 
 
 
 
 
 
Secured
 
$
12,839

 
$
22,511

 
$
10,124

 
$
16,820

Unsecured
 
213

 
213

 
119

 
719

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
2,244

 
3,070

 
2,696

 
3,011

Commercial & multifamily residential
 
 
 
 
 
 
 
 
Commercial land
 
3,444

 
7,291

 
3,739

 
7,230

Income property multifamily
 
10,753

 
15,958

 
6,775

 
9,265

Owner occupied
 
9,105

 
12,507

 
8,971

 
10,932

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
Land and acquisition
 
3,552

 
7,351

 
7,799

 
16,703

Residential construction
 
1,671

 
3,801

 
2,986

 
5,316

Commercial & multifamily residential
 
 
 
 
 
 
 
 
Income property multifamily
 
3,754

 
9,057

 
7,067

 
14,912

Consumer
 
1,890

 
2,268

 
3,207

 
3,960

Total
 
$
49,465

 
$
84,027

 
$
53,483

 
$
88,868


9


 The following is an analysis of the recorded investment of the aged loan portfolio as of June 30, 2012 and December 31, 2011:
 
 
 
Current
Loans
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
Greater
than 90
Days Past
Due
 
Total
Past Due
 
Nonaccrual
Loans
 
Total Loans
 
 
(in thousands)
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,044,846

 
$
4,025

 
$
1,153

 
$

 
$
5,178

 
$
12,839

 
$
1,062,863

Unsecured
 
44,391

 
476

 
193

 

 
669

 
213

 
45,273

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
52,968

 
796

 
7

 

 
803

 
2,244

 
56,015

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
41,263

 
179

 

 

 
179

 
3,444

 
44,886

Income property multifamily
 
568,724

 
243

 
309

 

 
552

 
10,753

 
580,029

Owner occupied
 
372,946

 
2,920

 

 

 
2,920

 
9,105

 
384,971

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
17,004

 

 

 

 

 
3,552

 
20,556

Residential construction
 
24,553

 

 

 

 

 
1,671

 
26,224

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property multifamily
 
22,814

 

 

 

 

 
3,754

 
26,568

Owner occupied
 
22,122

 

 

 

 

 

 
22,122

Consumer
 
164,426

 
860

 
278

 

 
1,138

 
1,890

 
167,454

Total
 
$
2,376,057

 
$
9,499

 
$
1,940

 
$

 
$
11,439

 
$
49,465

 
$
2,436,961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
Loans
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
Greater
than 90
Days Past
Due
 
Total
Past Due
 
Nonaccrual
Loans
 
Total Loans
 
 
(in thousands)
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
966,563

 
$
1,741

 
$
2,989

 
$

 
$
4,730

 
$
10,124

 
$
981,417

Unsecured
 
46,880

 
407

 

 

 
407

 
119

 
47,406

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
60,764

 
603

 

 

 
603

 
2,696

 
64,063

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
46,161

 
781

 

 

 
781

 
3,739

 
50,681

Income property multifamily
 
524,225

 
2,872

 
121

 

 
2,993

 
6,775

 
533,993

Owner occupied
 
394,691

 
829

 
298

 

 
1,127

 
8,971

 
404,789

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
17,249

 
153

 

 

 
153

 
7,799

 
25,201

Residential construction
 
19,555

 
1,390

 

 

 
1,390

 
2,986

 
23,931

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property multifamily
 
13,810

 

 

 

 

 
7,067

 
20,877

Owner occupied
 
12,790

 

 

 

 

 

 
12,790

Consumer
 
179,753

 
141

 
122

 

 
263

 
3,207

 
183,223

Total
 
$
2,282,441

 
$
8,917

 
$
3,530

 
$

 
$
12,447

 
$
53,483

 
$
2,348,371


10


The following is an analysis of impaired loans as of June 30, 2012 and December 31, 2011: 
 
 
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
 
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
 
Impaired Loans With
Recorded Allowance
 
Impaired Loans Without
Recorded Allowance
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
 
(in thousands)
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,050,734

 
$
12,129

 
$
5,681

 
$
7,278

 
$
3,528

 
$
6,448

 
$
13,770

Unsecured
 
45,137

 
136

 
136

 
136

 
136

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
53,964

 
2,051

 
1,298

 
1,366

 
90

 
753

 
849

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
41,806

 
3,080

 

 

 

 
3,080

 
6,684

Income property multifamily
 
571,151

 
8,878

 
745

 
770

 
49

 
8,133

 
12,953

Owner occupied
 
370,798

 
14,173

 

 

 

 
14,173

 
17,938

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
16,949

 
3,607

 

 

 

 
3,607

 
6,503

Residential construction
 
23,469

 
2,755

 
18

 
1,468

 
18

 
2,737

 
3,343

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property multifamily
 
22,814

 
3,754

 
3,754

 
9,057

 
443

 

 

Owner occupied
 
22,122

 

 

 

 

 

 

Consumer
 
166,406

 
1,048

 
168

 
171

 
1

 
880

 
880

Total
 
$
2,385,350

 
$
51,611

 
$
11,800

 
$
20,246

 
$
4,265

 
$
39,811

 
$
62,920

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
 
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
 
Impaired Loans With
Recorded Allowance
 
Impaired Loans Without
Recorded Allowance
 
 
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
 
(in thousands)
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
972,531

 
$
8,886

 
$
2,926

 
$
2,927

 
$
954

 
$
5,960

 
$
12,109

Unsecured
 
47,309

 
97

 
97

 
97

 
97

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
61,584

 
2,479

 
582

 
590

 
96

 
1,897

 
2,136

Commercial & multifamily residential