10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-29480

HERITAGE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Washington	91-1857900
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
201 Fifth Avenue SW, Olympia, WA	98501
(Address of principal executive offices)	(Zip Code)

(360) 943-1500

(Registrant’s telephone number, including area code)

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:

As of July 30, 2015 there were 29,954,942 shares of the registrant's common stock, no par value per share, outstanding.

HERITAGE FINANCIAL CORPORATION

FORM 10-Q

INDEX

June 30, 2015

		Page
FORWARD LOOKING STATEMENTS
Part I.	FINANCIAL INFORMATION	4
Item 1.	FINANCIAL STATEMENTS	4
	Condensed Consolidated Statements of Financial Condition as of June 30, 2015 and December 31, 2014	4
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2015 and 2014	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	61
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	81
Item 4.	CONTROLS AND PROCEDURES	81
Part II.	OTHER INFORMATION	81
Item 1.	LEGAL PROCEEDINGS	81
Item 1A.	RISK FACTORS	81
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	82
Item 3.	DEFAULTS UPON SENIOR SECURITIES	82
Item 4.	MINE SAFETY DISCLOSURES	83
Item 5.	OTHER INFORMATION	83
Item 6.	EXHIBITS	83
	SIGNATURES	85
	CERTIFICATIONS

2

FORWARD LOOKING STATEMENTS:

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to: our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired, including those from the Cowlitz Bank, Pierce Commercial Bank, Northwest Commercial Bank, Valley Community Bancshares and Washington Banking Company transactions described in this Form 10-Q, or may in the future acquire, into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all, and any goodwill charges related thereto and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, which might be greater than expected; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be effected by deterioration in the housing and commercial real estate markets, which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses no longer being adequate to cover actual losses, and require us to increase our allowance for loan losses; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; risks related to acquiring assets in or entering markets in which we have not previously operated and may not be familiar; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System and of our bank subsidiary by the Federal Deposit Insurance Corporation ("FDIC"), the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, or change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including as a result of Basel III; our ability to control operating costs and expenses; the impact of the Wall Street Reform and Consumer Protection Act and the implementing regulations; further increases in premiums for deposit insurance; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our Condensed Consolidated Statements of Financial Condition; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; failure or security breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our expansion strategy of pursuing acquisitions and de novo branching; increased competitive pressures among financial service companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K for the year ended December 31, 2014.

The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for future periods to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company’s operating results and stock price performance.

As used throughout this report, the terms “we”, “our”, “us”, or the “Company” refer to Heritage Financial Corporation and its consolidated subsidiaries, unless the context otherwise requires.

3

PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

June 30, 2015 and December 31, 2014

(Dollars in thousands)

(Unaudited)

	June 30, 2015			December 31, 2014
ASSETS
Cash on hand and in banks	$	62,540		$	74,028
Interest earning deposits	22,772			47,608
Cash and cash equivalents	85,312			121,636
Other interest earning deposits	5,110			10,126
Investment securities available for sale, at fair value	699,122			742,846
Investment securities held to maturity (fair value of $34,494 and $36,874, respectively)	33,587			35,814
Loans held for sale	6,939			5,582
Noncovered loans receivable, net	2,239,621			2,124,877
Allowance for loan losses on noncovered loans	(22,779		)	(22,153		)
Noncovered loans receivable, net of allowance for loan losses	2,216,842			2,102,724
Covered loans receivable, net	107,681			126,200
Allowance for loan losses on covered loans	(5,499		)	(5,576		)
Covered loans receivable, net of allowance for loan losses	102,182			120,624
Total loans receivable, net	2,319,024			2,223,348
FDIC indemnification asset	388			1,116
Other real estate owned ($2,758 and $1,177 covered by FDIC shared-loss agreements, respectively)	3,017			3,355
Premises and equipment, net	63,968			64,938
Federal Home Loan Bank stock, at cost	4,148			12,188
Bank owned life insurance	60,579			35,176
Accrued interest receivable	9,883			9,836
Prepaid expenses and other assets	60,383			61,871
Other intangible assets, net	9,835			10,889
Goodwill	119,029			119,029
Total assets	$	3,480,324		$	3,457,750
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	$	2,946,487		$	2,906,331
Junior subordinated debentures	19,278			19,082
Securities sold under agreement to repurchase	20,589			32,181
Accrued expenses and other liabilities	34,842			45,650
Total liabilities	3,021,196			3,003,244
Stockholders’ equity:
Preferred stock, no par value, 2,500,000 shares authorized; no shares issued and outstanding at June 30, 2015 and December 31, 2014	—			—
Common stock, no par value, 50,000,000 shares authorized; 29,954,936 and 30,259,838 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively	358,365			364,741
Retained earnings	98,565			86,387
Accumulated other comprehensive income, net	2,198			3,378
Total stockholders’ equity	459,128			454,506
Total liabilities and stockholders’ equity	$	3,480,324		$	3,457,750

See accompanying Notes to Condensed Consolidated Financial Statements.

4

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three and Six Months Ended June 30, 2015 and 2014

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014
INTEREST INCOME:
Interest and fees on loans	$	30,554		$	27,446	$	61,035		$	43,897
Taxable interest on investment securities	2,328			1,812		5,012			2,451
Nontaxable interest on investment securities	1,048			638		2,081			1,074
Interest and dividends on other interest earning assets	60			127		111			214
Total interest income	33,990			30,023		68,239			47,636
INTEREST EXPENSE:
Deposits	1,309			1,297		2,626			2,151
Junior subordinated debentures	193			115		432			115
Other borrowings	18			15		37			33
Total interest expense	1,520			1,427		3,095			2,299
Net interest income	32,470			28,596		65,144			45,337
Provision for loan losses on noncovered loans	1,189			370		2,474			349
Provision for loan losses on covered loans	—			321		(77		)	800
Total provision for loan losses	1,189			691		2,397			1,149
Net interest income after provision for loan losses	31,281			27,905		62,747			44,188
NONINTEREST INCOME:
Service charges and other fees	3,687			2,777		6,982			4,175
Merchant Visa income, net	194			316		392			561
Change in FDIC indemnification asset	(304		)	109		(497		)	72
Gain on sale of investment securities, net	425			87		969			267
Gain on sale of loans, net	1,282			233		2,417			233
Other income	1,597			1,258		4,963			1,779
Total noninterest income	6,881			4,780		15,226			7,087
NONINTEREST EXPENSE:
Compensation and employee benefits	13,842			12,779		28,067			20,790
Occupancy and equipment	3,850			2,816		7,541			5,433
Data processing	1,925			4,003		3,552			4,999
Marketing	1,063			496		1,696			1,001
Professional services	904			3,230		1,708			4,060
State and local taxes	569			554		1,189			803
Impairment loss on investment securities, net	—			37		—			45
Federal deposit insurance premium	523			460		1,038			712
Other real estate owned, net	200			214		859			266
Amortization of intangible assets	527			489		1,054			645
Other expense	2,676			1,915		5,413			3,018
Total noninterest expense	26,079			26,993		52,117			41,772
Income before income taxes	12,083			5,692		25,856			9,503
Income tax expense	3,358			1,544		7,352			2,812
Net income	$	8,725		$	4,148	$	18,504		$	6,691
Basic earnings per common share	$	0.29		$	0.16	$	0.61		$	0.32
Diluted earnings per common share	$	0.29		$	0.16	$	0.61		$	0.32
Dividends declared per common share	$	0.11		$	0.08	$	0.21		$	0.16

See accompanying Notes to Condensed Consolidated Financial Statements.

5

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Six Months Ended June 30, 2015 and 2014

(Dollars in thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended   June 30,
	2015			2014			2015			2014
Net income	$	8,725		$	4,148		$	18,504		$	6,691
Change in fair value of securities available for sale, net of tax of $(2,106), $1,089, $(402) and $1,410, respectively	(3,891		)	2,022			(739		)	2,615
Reclassification adjustment of net gain from sale of investment securities included in income, net of tax of $(149), $(30), $(339) and $(93), respectively	(276		)	(57		)	(630		)	(174		)
Accretion of other-than-temporary impairment on investment securities, net of tax of $1, $8, $4 and $16, respectively	3			15			11			30
Reclassification of other-than-temporary impairment on securities from sale of investment securities, net of tax $99, $0, $99, $0	178			—			178			—
Other comprehensive (loss) income	(3,986		)	1,980			(1,180		)	2,471
Comprehensive income	$	4,739		$	6,128		$	17,324		$	9,162

See accompanying Notes to Condensed Consolidated Financial Statements.

6

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Six Months Ended June 30, 2015 and 2014

(In thousands, except per share amounts)

(Unaudited)

	Number of common shares		Common stock			Retained earnings			Accumulated other comprehensive (loss) income, net			Total stock- holders’ equity
Balance at December 31, 2013	16,211		$	138,659		$	78,265		$	(1,162	)	$	215,762
Restricted and unrestricted stock awards issued, net of forfeitures	6		—			—			—			—
Stock option compensation expense	—		20			—			—			20
Exercise of stock options (including excess tax benefits from nonqualified stock options)	38		427			—			—			427
Restricted stock compensation expense	—		539			—			—			539
Excess tax benefits from restricted stock	—		33			—			—			33
Common stock repurchased	(17	)	(271		)	—			—			(271		)
Net income	—		—			6,691			—			6,691
Other comprehensive income, net of tax	—		—			—			2,471			2,471
Common stock issued in business combination	13,975		226,751			—			—			226,751
Cash dividends declared on common stock ($0.16 per share)	—		—			(2,594		)	—			(2,594		)
Balance at June 30, 2014	30,213		$	366,158		$	82,362		$	1,309		$	449,829
Balance at December 31, 2014	30,260		$	364,741		$	86,387		$	3,378		$	454,506
Restricted and unrestricted stock awards issued, net of forfeitures	116		—			—			—			—
Exercise of stock options (including excess tax benefits from nonqualified stock options)	43		541			—			—			541
Restricted stock compensation expense	—		716			—			—			716
Excess tax benefits from restricted stock	—		90			—			—			90
Common stock repurchased	(464	)	(7,723		)	—			—			(7,723		)
Net income	—		—			18,504			—			18,504
Other comprehensive loss, net of tax	—		—			—			(1,180		)	(1,180		)
Cash dividends declared on common stock ($0.21 per share)	—		—			(6,326		)	—			(6,326		)
Balance at June 30, 2015	29,955		$	358,365		$	98,565		$	2,198		$	459,128

See accompanying Notes to Condensed Consolidated Financial Statements.

7

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2015 and 2014

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net income	$	18,504		$	6,691
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,670			4,829
Changes in net deferred loan fees, net of amortization	(1,001		)	(393		)
Provision for loan losses	2,397			1,149
Net change in accrued interest receivable, FDIC indemnification asset, prepaid expenses and other assets, accrued expenses and other liabilities	(7,672		)	(3,176		)
Restricted and unrestricted stock compensation expense	716			539
Stock option compensation expense	—			20
Excess tax benefits from stock options and restricted and unrestricted stock	(90		)	(33		)
Amortization of intangible assets	1,054			645
Gain on sale of investment securities, net	(969		)	(267		)
Impairment loss on investment of securities, net	—			45
Origination of loans held for sale	(66,257		)	(12,592		)
Gain on sale of loans, net	(2,417		)	(233		)
Proceeds from sale of loans held for sale	67,317			9,329
Earnings on bank owned life insurance	(403		)	(95		)
Valuation adjustment on other real estate owned	415			—
Loss (gain) on sale of other real estate owned, net	97			(65		)
Loss on sale or write-off of furniture, equipment and leasehold improvements	—			421
Net cash provided by operating activities	18,361			6,814
Cash flows from investing activities:
Loans originated, net of principal payments	(98,885		)	4,969
Maturities of other interest earning deposits	4,986			1,494
Maturities of investment securities available for sale	56,700			17,916
Maturities of investment securities held to maturity	1,235			521
Purchase of investment securities available for sale	(81,755		)	(206,075		)
Purchase of investment securities held to maturity	—			(3,313		)
Purchase of premises and equipment	(979		)	(1,978		)
Proceeds from sales of other real estate owned	1,639			3,857
Proceeds from sales of investment securities available for sale	64,432			157,987
Proceeds from redemption of FHLB stock	8,040			258
Purchase of bank owned life insurance	(25,000		)	—
Investment in new market tax credit partnership	—			(25,000		)
Investment in low-income housing tax credit partnership	(244		)	—
Net cash received from acquisitions	—			31,591
Net cash (used in) provided by investing activities	(69,831		)	(17,773		)

8

	Six Months Ended June 30,
	2015			2014
Cash flows from financing activities:
Net increase in deposits	40,156			33,459
Common stock cash dividends paid	(6,326		)	(2,594		)
Net decrease in securities sold under agreement to repurchase	(11,592		)	(3,970		)
Proceeds from exercise of stock options	541			427
Excess tax benefits from stock options and restricted and unrestricted stock	90			33
Repurchase of common stock	(7,723		)	(271		)
Net cash (used in) provided by financing activities	15,146			27,084
Net (decrease) increase in cash and cash equivalents	(36,324		)	16,125
Cash and cash equivalents at beginning of period	121,636			130,400
Cash and cash equivalents at end of period	$	85,312		$	146,525
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,923		$	1,848
Cash paid for income taxes	9,805			7,000
Supplemental non-cash disclosures of cash flow information:
Transfers of loans receivable to other real estate owned	$	1,813		$	218
Common stock issued for business combinations	—			226,751
Assets acquired (liabilities assumed) in acquisitions:
Investment securities available for sale	—			458,312
Loans held for sale	—			3,923
Noncovered loans receivable	—			893,824
Covered loans receivable	—			109,693
Other real estate owned	—			7,121
Premises and equipment	—			31,776
Federal Home Loan Bank stock	—			7,064
FDIC indemnification asset	—			7,047
Accrued interest receivable	—			4,943
Bank owned life insurance	—			32,519
Prepaid expenses and other assets	—			14,942
Other intangible assets	—			11,194
Deposits	—			(1,433,894		)
Junior subordinated debentures	—			(18,937		)
Accrued expenses and other liabilities	—			(23,551		)

See accompanying Notes to Condensed Consolidated Financial Statements.

9

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2015 and 2014

(Unaudited)

(1) Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements

(a) Description of Business

Heritage Financial Corporation ("Heritage" or the “Company”) is a bank holding company that was incorporated in the State of Washington in August 1997. The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, Heritage Bank (the “Bank”). The Bank is a Washington-chartered commercial bank and its deposits are insured by the FDIC under the Deposit Insurance Fund. The Bank is headquartered in Olympia, Washington and conducts business from its 67 branch offices located throughout Washington State and the greater Portland, Oregon area. The Bank’s business consists primarily of commercial lending and deposit relationships with small businesses and their owners in its market areas and attracting deposits from the general public. The Bank also makes real estate construction and land development loans and consumer loans and originates first mortgage loans on residential properties primarily located in its market area.

The Company has expanded its footprint through mergers and acquisitions. The largest of these transactions was the strategic merger with Washington Banking Company (“Washington Banking”) and its wholly owned subsidiary bank, Whidbey Island Bank ("Whidbey"). Effective May 1, 2014, Washington Banking merged with and into Heritage and Whidbey merged with and into Heritage Bank and this transaction is referred to herein as the "Washington Banking Merger". In connection with the Washington Banking Merger, Heritage also acquired as a subsidiary the Washington Banking Master Trust, a Delaware statutory business trust. Pursuant to the merger agreement, Heritage assumed the performance and observance of the covenants to be performed by Washington Banking under an indenture relating to $25.0 million in trust preferred securities issued in 2007 and the due and punctual payment of the principal of and premium and interest on such trust preferred securities. For additional information, see Note 9, Junior Subordinated Debentures.

(b) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. It is recommended that these unaudited Condensed Consolidated Financial Statements and accompanying Notes be read with the audited Consolidated Financial Statements and the accompanying Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Annual Form 10-K”). In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. In preparing the unaudited Condensed Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures. Estimates related to the allowance for loan losses, other than temporary impairments in the fair value of investment securities, expected cash flows of purchased credit impaired loans and related indemnification asset, fair value measurements, stock-based compensation, impairment of goodwill and other intangible assets and income taxes are particularly subject to change. Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the facts and circumstances at the time. Actual results, however, could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period’s presentation. Reclassifications had no effect on prior periods' net income or stockholders’ equity.

(c) Significant Accounting Policies

The significant accounting policies used in preparation of the Company's Condensed Consolidated Financial Statements are disclosed in the 2014 Annual Form 10-K. There have not been any material changes in the Company's significant accounting policies from those contained in the 2014 Annual Form 10-K.

10

(d) Recently Issued Accounting Pronouncements

Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU" or "Update") 2014-09, Revenue from Contracts with Customers, was issued in May 2014. Under this Update, FASB created a new Topic 606 which is in response to a joint initiative of FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and international financial reporting standards that would:

• Remove inconsistencies and weaknesses in revenue requirements.

• Provide a more robust framework for addressing revenue issues.

• Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.

• Provide more useful information to users of financial statements through improved disclosure requirements.

• Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

The Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact that this Update will have on its Condensed Consolidated Financial Statements.

FASB ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued in June 2014. This Update aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements, such as secured borrowings. The guidance eliminates sale accounting and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The Update requires new and expanded disclosures that are effective for interim or annual reporting periods beginning after December 15, 2014, with certain requirements applicable for periods beginning after March 31, 2015. The adoption of this Update did not have a material impact on the Company's Condensed Consolidated Financial Statements.

(2) Investment Securities

The Company’s investment policy is designed primarily to provide and maintain liquidity, generate a favorable return on assets without incurring undue interest rate and credit risk, and complement the Bank’s lending activities. Securities are classified as either available for sale or held to maturity when acquired.

(a) Securities by Type and Maturity

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of investment securities available for sale at the dates indicated were as follows:

	Securities Available for Sale
	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	26,339	$	113	$	(6	)	$	26,446
Municipal securities	172,837		2,246		(873		)	174,210
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	488,356		3,199		(1,285		)	490,270
Corporate obligations	6,243		—		(12		)	6,231
Mutual funds and other equities	1,956		9		—			1,965
Total	$	695,731	$	5,567	$	(2,176	)	$	699,122

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	Securities Available for Sale
	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	21,414	$	44	$	(31	)	$	21,427
Municipal securities	170,082		3,139		(184		)	173,037
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government agencies	539,859		4,015		(1,475		)	542,399
Corporate obligations	4,034		—		(24		)	4,010
Mutual funds and other equities	1,956		17		—			1,973
Total	$	737,345	$	7,215	$	(1,714	)	$	742,846

The amortized cost, gross unrecognized gains, gross unrecognized losses and fair values of investment securities held to maturity at the dates indicated were as follows:

	Securities Held to Maturity
	June 30, 2015
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	1,582	$	158	$	—		$	1,740
Municipal securities	21,927		553		(24		)	22,456
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	10,078		313		(93		)	10,298
Private residential collateralized mortgage obligations	—		—		—			—
Total	$	33,587	$	1,024	$	(117	)	$	34,494

	Securities Held to Maturity
	December 31, 2014
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	1,591	$	167	$	—		$	1,758
Municipal securities	22,486		643		(11		)	23,118
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	10,866		364		(74		)	11,156
Private residential collateralized mortgage obligations	871		75		(104		)	842
Total	$	35,814	$	1,249	$	(189	)	$	36,874

There were no securities classified as trading at June 30, 2015 or December 31, 2014.

12

The amortized cost and fair value of securities at June 30, 2015, by contractual maturity, are set forth below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	3,543	$	3,555	$	3,005	$	3,019
Due after one year through three years	32,677		32,854		3,749		3,779
Due after three years through five years	34,919		35,246		6,911		7,211
Due after five years through ten years	148,604		149,692		16,745		17,331
Due after ten years	474,032		475,810		3,177		3,154
Investment securities with no stated maturities	1,956		1,965		—		—
Total	$	695,731	$	699,122	$	33,587	$	34,494

(b) Unrealized Losses and Other-Than-Temporary Impairments

Available for sale investment securities with unrealized losses as of June 30, 2015 and December 31, 2014 were as follows:

	Securities Available for Sale
	June 30, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	4,584	$	(6	)	$	—	$	—		$	4,584	$	(6	)
Municipal securities	$	54,568	$	(855	)	$	1,460	$	(18	)	$	56,028	$	(873	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	104,716		(569		)	49,465		(716		)	154,181		(1,285		)
Corporate obligations	6,231		(12		)	—		—			6,231		(12		)
Total	$	170,099	$	(1,442	)	$	50,925	$	(734	)	$	221,024	$	(2,176	)

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	Securities Available for Sale
	December 31, 2014
	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	3,567	$	(31	)	$	—	$	—	$	3,567	$	(31	)
Municipal securities	25,176		(184		)	—		—		25,176		(184		)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	182,970		(1,475		)	—		—		182,970		(1,475		)
Corporate obligations	2,119		(24		)	—		—		2,119		(24		)
Total	$	213,832	$	(1,714	)	$	—	$	—	$	213,832	$	(1,714	)

Held to maturity investment securities with unrecognized losses as of June 30, 2015 and December 31, 2014 were as follows:

	Securities Held to Maturity
	June 30, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses
	(In thousands)
Municipal securities	$	1,094	$	(24	)	$	—	$	—		$	1,094	$	(24	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	—		—			2,009		(93		)	2,009		(93		)
Total	$	1,094	$	(24	)	$	2,009	$	(93	)	$	3,103	$	(117	)

	Securities Held to Maturity
	December 31, 2014
	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
	(In thousands)
Municipal securities	$	2,196	$	(11	)	$	—	$	—	$	2,196	$	(11	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	2,553		(74		)	—		—		2,553		(74		)
Private residential collateralized mortgage obligations	558		(104		)	—		—		558		(104		)
Total	$	5,307	$	(189	)	$	—	$	—	$	5,307	$	(189	)

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The Company has evaluated these securities and has determined that, other than certain private residential collateralized mortgage obligations discussed below, the decline in their value is temporary. The unrealized losses are primarily due to increases in market interest rates and larger spreads in the market for mortgage-related products. The fair value of these securities is expected to recover as the securities approach their maturity date and/or as the pricing spreads narrow on mortgage-related securities. The Company has the ability and intent to hold the investments until recovery of the market value which may be the maturity date of the securities.

During the three months ended June 30, 2015, the Company sold its entire portfolio of private residential collateralized mortgage obligations with a carrying value of $829,000, all of which were classified as held-to-maturity. Since acquisition these securities had been downgraded below the Company's acceptable investment grades. As of result of these downgrades and the effects of Basel III on the risk-weighting of sub-investment grade securities, the Company's intent to hold these securities changed and management elected to divest of its interest in the downgraded securities. The Company recorded a realized loss of $125,000 on this sale. The Company's intent and ability to hold the remaining held-to-maturity securities was not impacted by this sale.

Prior to the sale of the securities noted above, to analyze the unrealized losses, the Company estimated expected future cash flows of the private residential collateralized mortgage obligations by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordinated interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which considers current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The average prepayment rate and average discount rate used in the valuation of the present value as of June 30, 2014 were 6.0% and 9.4%, respectively.

For the six months ended June 30, 2015, there were no private residential collateralized mortgage obligations determined to be other-than-temporarily impaired and the Company recorded no unrealized losses for the six months ended June 30, 2015 in earnings or other comprehensive income. In comparison, for the six months ended June 30, 2014, there were four private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. All unrealized losses for the three and six months ended June 30, 2014 were deemed to be credit related, and the Company recorded the impairment in earnings.

The following table summarizes activity for the six months ended June 30, 2014 related to the amount of impairments on held to maturity securities:

	Life-to-Date Gross Other-Than-Temporary Impairments		Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income		Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings
	(In thousands)
December 31, 2013	$	2,603	$	1,152	$	1,451
Subsequent impairments	45		—		45
June 30, 2014	$	2,648	$	1,152	$	1,496

(c) Pledged Securities

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The following table summarizes the amortized cost and fair value of available for sale and held to maturity securities that are pledged as collateral for the following obligations at June 30, 2015 and December 31, 2014:

	June 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Washington and Oregon state to secure public deposits	$	195,548	$	197,810	$	150,507	$	153,785
Federal Reserve Bank of San Francisco and FHLB to secure borrowing arrangements	512		513		4,430		4,460
Repurchase agreements	31,612		31,801		43,676		44,457
Other securities pledged	15,073		15,162		14,828		14,922
Total	$	242,745	$	245,286	$	213,441	$	217,624

At June 30, 2015 and December 31, 2014, the total carrying value of pledged securities was $245.0 million and $216.7 million, respectively.

(3) Noncovered Loans Receivable

The Company originates loans in the ordinary course of business and has also acquired loans through FDIC-assisted and open bank transactions. Loans that are not covered by FDIC shared-loss agreements are referred to as "noncovered loans." Disclosures related to the Company’s recorded investment in noncovered loans receivable generally exclude accrued interest receivable and net deferred loan origination fees and costs because they are insignificant.

Loans acquired in a business combination may be further classified as “purchased” loans. Loans purchased with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are accounted for under FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans are identified as “purchased credit impaired” ("PCI") loans. Loans purchased that are not accounted for under FASB ASC 310-30 are accounted for under FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and are referred to as "non-PCI" loans.

(a) Loan Origination/Risk Management

The Company categorizes loans in one of the four segments of the total loan portfolio: commercial business, one-to-four family residential, real estate construction and land development and consumer. Within these segments are classes of loans to which management monitors and assesses credit risk in the loan portfolios. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. The Company also conducts internal loan reviews and validates the credit risk assessment on a periodic basis and presents the results of these reviews to management. The loan review process complements and reinforces the risk identification and assessment decisions made by loan officers and credit personnel, as well as the Company’s policies and procedures.

A discussion of the risk characteristics of each loan portfolio segment is as follows:

Commercial Business:

There are three significant classes of loans in the commercial portfolio segment: commercial and industrial loans, owner-occupied commercial real estate and non-owner occupied commercial real estate. The owner and non-owner occupied commercial real estate are both considered commercial real estate loans. As the commercial and industrial loans carry different risk characteristics than the commercial real estate loans, they are discussed separately below.

Commercial and industrial. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may include a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

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Commercial real estate. The Company originates commercial real estate loans within its primary market areas. These loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate involves more risk than other classes of loans in that the lending typically involves higher loan principal amounts, and payments on loans secured by real estate properties are dependent on successful operation and management of the properties. Repayment of these loans may be more adversely affected by conditions in the real estate market or the economy. Owner-occupied commercial real estate loans are generally of lower credit risk than non-owner occupied commercial real estate loans as the borrowers' businesses are likely dependent on the properties.

One-to-Four Family Residential:

The majority of the Company’s one-to-four family residential loans are secured by single-family residences located in its primary market areas. The Company’s underwriting standards require that single-family portfolio loans generally are owner-occupied and do not exceed 80% of the lower of appraised value at origination or cost of the underlying collateral. Terms of maturity typically range from 15 to 30 years. Historically, the Company sold most single-family loans in the secondary market and retained a smaller portion in its loan portfolio. From the second quarter of 2013 until May 1, 2014, the Company only originated single-family loans for its loan portfolio. As a result of the Washington Banking Merger, since May 1, 2014 the Company is originating and selling a majority of its single-family mortgages.

Real Estate Construction and Land Development:

The Company originates construction loans for one-to-four family residential and for five or more family residential and commercial properties. The one-to-four family residential construction loans generally include construction of custom homes whereby the home buyer is the borrower. The Company also provides financing to builders for the construction of pre-sold homes and, in selected cases, to builders for the construction of speculative residential property. Substantially all construction loans are short-term in nature and priced with variable rates of interest. Construction lending can involve a higher level of risk than other types of lending because funds are advanced partially based upon the value of the project, which is uncertain prior to the project’s completion. Because of the uncertainties inherent in estimating construction costs as well as the market value of a completed project and the effects of governmental regulation of real property, the Company’s estimates with regard to the total funds required to complete a project and the related loan-to-value ratio may vary from actual results. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness. If the Company’s estimate of the value of a project at completion proves to be overstated, it may have inadequate security for repayment of the loan and may incur a loss if the borrower does not repay the loan. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being dependent upon successful completion of the construction project, interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing.

Consumer:

The Company originates consumer loans and lines of credit that are both secured and unsecured. The underwriting process for these loans ensures a qualifying primary and secondary source of repayment. Underwriting standards for home equity loans are significantly influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. The majority of consumer loans are for relatively small amounts disbursed among many individual borrowers which reduces the credit risk for this type of loan. To further reduce the risk, trend reports are reviewed by management on a regular basis.

As a result of the Washington Banking Merger, the Company is originating indirect consumer loans. These loans are for new and used automobile and recreational vehicles that are originated indirectly by selected dealers located in the Company's market areas. The Company has limited its purchase of indirect loans primarily to dealerships that are established and well known in their market areas and to applicants that are not classified as sub-prime.

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Noncovered loans receivable at June 30, 2015 and December 31, 2014 consisted of the following portfolio segments and classes:

	June 30, 2015			December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	551,989		$	551,343
Owner-occupied commercial real estate	565,721			535,742
Non-owner occupied commercial real estate	676,872			616,757
Total commercial business	1,794,582			1,703,842
One-to-four family residential	67,083			63,540
Real estate construction and land development:
One-to-four family residential	41,693			46,749
Five or more family residential and commercial properties	66,024			61,360
Total real estate construction and land development	107,717			108,109
Consumer	270,175			250,323
Gross noncovered loans receivable	2,239,557			2,125,814
Net deferred loan fees	64			(937		)
Noncovered loans receivable, net	2,239,621			2,124,877
Allowance for loan losses	(22,779		)	(22,153		)
Noncovered loans receivable, net of allowance for loan losses	$	2,216,842		$	2,102,724

(b) Concentrations of Credit

Most of the Company’s lending activity occurs within Washington State, and to a lesser extent Oregon. The Company’s primary market areas are concentrated along the I-5 corridor from Whatcom County to Clark County in Washington State and Multnomah County in Oregon, as well as other contiguous markets. The Washington Banking Merger allowed the expansion of the Company's market area north of Seattle, Washington to the Canadian border. The majority of the Company’s loan portfolio consists of (in order of balances at June 30, 2015) non-owner occupied commercial real estate, owner-occupied commercial real estate and commercial and industrial. As of June 30, 2015 and December 31, 2014, there were no concentrations of loans related to any single industry in excess of 10% of the Company’s total loans.

(c) Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of the loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions of the United States of America, and specifically the states of Washington and Oregon. The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 0 to 10. A description of the general characteristics of the risk grades is as follows:

• Grades 0 to 5: These grades are considered “pass grade” and include loans with negligible to above average but acceptable risk. These borrowers generally have strong to acceptable capital levels and consistent earnings and debt service capacity. Loans with the higher grades within the “pass” category may include borrowers who are experiencing unusual operating difficulties, but have acceptable payment performance to date. Increased monitoring of financials and/or collateral may be appropriate. Loans with this grade show no immediate loss exposure.

• Grade 6: This grade includes "Watch" loans and is considered a “pass grade”. The grade is intended to be utilized on a temporary basis for pass grade borrowers where a potentially significant risk-modifying action is anticipated in the near term.

• Grade 7: This grade includes “Other Assets Especially Mentioned” (“OAEM”) loans in accordance with regulatory guidelines, and is intended to highlight loans with elevated risks. Loans with this grade show signs of deteriorating profits and capital, and the borrower might not be strong enough to sustain a major setback. The borrower is typically higher than normally leveraged, and outside support might

18

be modest and likely illiquid. The loan is at risk of further decline unless active measures are taken to correct the situation.

• Grade 8: This grade includes “Substandard” loans in accordance with regulatory guidelines, which the Company has determined have a high credit risk. These loans also have well-defined weaknesses which make payment default or principal exposure likely, but not yet certain. The borrower may have shown serious negative trends in financial ratios and performance. Such loans may be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. Loans with this grade can be placed on accrual or nonaccrual status based on the Company’s accrual policy.

• Grade 9: This grade includes “Doubtful” loans in accordance with regulatory guidelines, and the Company has determined these loans to have excessive credit risk. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have a specific valuation allowance or have been partially charged-off for the amount considered uncollectible.

• Grade 10: This grade includes “Loss” loans in accordance with regulatory guidelines, and the Company has determined these loans have the highest risk of loss. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

Numerical loan grades for all commercial business loans and real estate construction and land development loans are established at the origination of the loan. Prior to November 2014, one-to-four family residential loans and consumer loans (“non-commercial loans”) were not numerically graded at origination date as these loans were determined to be “pass graded” loans. A numeric grade was assigned to these non-commercial loans if subsequent to origination, the credit department evaluated the credit and determined it necessary to classify the loan. Subsequent to November 2014, non-commercial loans were designated a loan grade “4” at origination date to reflect a "pass grade". The Bank follows the FDIC’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Loan grades are reviewed on a quarterly basis, or more frequently if necessary, by the credit department. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency, direct communications with the borrower, or other borrower information that becomes known to management. Credit improvements are evidenced by known facts regarding the borrower or the collateral property.

The loan grades relate to the likelihood of losses in that the higher the grade, the greater the loss potential. Loans with a pass grade may have some estimated inherent losses, but to a lesser extent than the other loan grades. The OAEM loan grade is transitory in that the Company is waiting on additional information to determine the likelihood and extent of the potential loss. The likelihood of loss for OAEM graded loans, however, is greater than Watch graded loans because there has been measurable credit deterioration. Loans with a Substandard grade are generally loans for which the Company has individually analyzed for potential impairment. For Doubtful and Loss graded loans, the Company is almost certain of the losses, and the unpaid principal balances are generally charged-off to the realizable value.

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The following tables present the balance of the noncovered loans receivable by credit quality indicator as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	522,215	$	10,389	$	19,073	$	312	$	551,989
Owner-occupied commercial real estate	545,857		8,136		11,728		—		565,721
Non-owner occupied commercial real estate	641,385		19,603		15,884		—		676,872
Total commercial business	1,709,457		38,128		46,685		312		1,794,582
One-to-four family residential	64,953		—		2,130		—		67,083
Real estate construction and land development:
One-to-four family residential	32,316		1,465		7,912		—		41,693
Five or more family residential and commercial properties	62,048		—		3,976		—		66,024
Total real estate construction and land development	94,364		1,465		11,888		—		107,717
Consumer	263,731		—		6,444		—		270,175
Gross noncovered loans	$	2,132,505	$	39,593	$	67,147	$	312	$	2,239,557

	December 31, 2014
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	509,483	$	14,487	$	27,049	$	324	$	551,343
Owner-occupied commercial real estate	496,234		22,946		16,562		—		535,742
Non-owner occupied commercial real estate	584,262		17,643		14,852		—		616,757
Total commercial business	1,589,979		55,076		58,463		324		1,703,842
One-to-four family residential	61,185		315		2,040		—		63,540
Real estate construction and land development:
One-to-four family residential	34,356		3,977		8,416		—		46,749
Five or more family residential and commercial properties	57,025		—		4,335		—		61,360
Total real estate construction and land development	91,381		3,977		12,751		—		108,109
Consumer	242,836		—		7,487		—		250,323
Gross noncovered loans	$	1,985,381	$	59,368	$	80,741	$	324	$	2,125,814

Noncovered potential problem loans are loans classified as OAEM or worse that are currently accruing interest and are not considered impaired, but which management is monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms. Noncovered potential problem loans also include PCI loans as these loans continue to accrete loan discounts established at acquisition based on the guidance of ASC 310-30. Noncovered potential problem loans as of June 30, 2015 and December 31, 2014 were $86.2 million and $117.3 million, respectively. The balance of noncovered potential problem loans guaranteed by a governmental agency, which guarantee reduces the Company's credit exposure, was $501,000 and $2.0 million as of June 30, 2015 and December 31, 2014, respectively.

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(d) Nonaccrual Loans

Nonaccrual noncovered loans, segregated by segments and classes of loans, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	2,533	$	3,463
Owner-occupied commercial real estate	1,957		1,163
Non-owner occupied commercial real estate	—		93
Total commercial business	4,490		4,719
One-to-four family residential	—		—
Real estate construction and land development:
One-to-four family residential	2,489		2,652
Total real estate construction and land development	2,489		2,652
Consumer	19		139
Gross nonaccrual noncovered loans	$	6,998	$	7,510

The Company had $1.7 million and $1.6 million of nonaccrual noncovered loans guaranteed by governmental agencies at June 30, 2015 and December 31, 2014, respectively.

PCI noncovered loans are not included in the nonaccrual loan table above because these loans are accounted for under ASC 310-30, which provides that accretable yield is calculated based on a loan's expected cash flow even if the loan is not performing under its conventional terms.

(e) Past due loans

The Company performs an aging analysis of past due loans using the categories of 30-89 days past due and 90 or more days past due. This policy is consistent with regulatory reporting requirements.

21

The balances of past due noncovered loans, segregated by segments and classes of loans, as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	1,194	$	1,690	$	2,884	$	549,105	$	551,989	$	—
Owner-occupied commercial real estate	1,944		1,087		3,031		562,690		565,721		—
Non-owner occupied commercial real estate	378		182		560		676,312		676,872		—
Total commercial business	3,516		2,959		6,475		1,788,107		1,794,582		—
One-to-four family residential	41		—		41		67,042		67,083		—
Real estate construction and land development:
One-to-four family residential	668		1,964		2,632		39,061		41,693		—
Five or more family residential and commercial properties	—		—		—		66,024		66,024		—
Total real estate construction and land development	668		1,964		2,632		105,085		107,717		—
Consumer	1,358		—		1,358		268,817		270,175		—
Gross noncovered loans	$	5,583	$	4,923	$	10,506	$	2,229,051	$	2,239,557	$	—

(1) Excludes PCI loans.

	December 31, 2014
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	2,503	$	1,962	$	4,465	$	546,878	$	551,343	$	—
Owner-occupied commercial real estate	1,038		100		1,138		534,604		535,742		—
Non-owner occupied commercial real estate	113		75		188		616,569		616,757		—
Total commercial business	3,654		2,137		5,791		1,698,051		1,703,842		—
One-to-four family residential	200		—		200		63,340		63,540		—
Real estate construction and land development:
One-to-four family residential	62		2,135		2,197		44,552		46,749		—
Five or more family residential and commercial properties	—		376		376		60,984		61,360		—
Total real estate construction and land development	62		2,511		2,573		105,536		108,109		—
Consumer	2,413		125		2,538		247,785		250,323		—
Gross noncovered loans	$	6,329	$	4,773	$	11,102	$	2,114,712	$	2,125,814	$	—

(1) Excludes PCI loans.

22

(f) Impaired loans

Impaired noncovered loans includes nonaccrual noncovered loans and performing troubled debt restructured noncovered loans ("TDRs"). The table below excludes $624,000, as of June 30, 2015, of certain performing TDR noncovered loans classified as PCI as these loans are recorded at the recorded investment balance and may not have further impairment. The balance of impaired noncovered loans as of June 30, 2015 and December 31, 2014 are set forth in the following tables.

	June 30, 2015
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	865	$	5,860	$	6,725	$	7,111	$	746
Owner-occupied commercial real estate	—		3,214		3,214		3,232		755
Non-owner occupied commercial real estate	3,752		5,786		9,538		9,547		943
Total commercial business	4,617		14,860		19,477		19,890		2,444
One-to-four family residential	—		241		241		241		74
Real estate construction and land development:
One-to-four family residential	2,424		984		3,408		3,995		28
Five or more family residential and commercial properties	—		2,009		2,009		2,009		200
Total real estate construction and land development	2,424		2,993		5,417		6,004		228
Consumer	—		122		122		124		24
Total	$	7,041	$	18,216	$	25,257	$	26,259	$	2,770

	December 31, 2014
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	1,134	$	7,906	$	9,040	$	9,349	$	1,325
Owner-occupied commercial real estate	360		2,421		2,781		2,781		684
Non-owner occupied commercial real estate	2,459		4,846		7,305		7,279		465
Total commercial business	3,953		15,173		19,126		19,409		2,474
One-to-four family residential	—		245		245		245		75
Real estate construction and land development:
One-to-four family residential	2,307		2,217		4,524		4,964		396
Five or more family residential and commercial properties	—		2,056		2,056		2,056		234
Total real estate construction and land development	2,307		4,273		6,580		7,020		630
Consumer	33		172		205		208		56
Total	$	6,293	$	19,863	$	26,156	$	26,882	$	3,235

23

The Company had governmental guarantees of $2.1 million and $2.4 million related to the impaired noncovered loan balances at June 30, 2015 and December 31, 2014, respectively.

The average recorded investment of impaired noncovered loans for the three and six months ended June 30, 2015 and 2014 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Commercial business:
Commercial and industrial	$	7,524	$	11,899	$	9,464	$	11,596
Owner-occupied commercial real estate	2,779		3,489		3,137		3,325
Non-owner occupied commercial real estate	8,320		7,854		8,113		7,710
Total commercial business	18,623		23,242		20,714		22,631
One-to-four family residential	242		581		375		585
Real estate construction and land development:
One-to-four family residential	3,496		6,028		4,578		5,580
Five or more family residential and commercial properties	2,020		2,114		2,056		2,211
Total real estate construction and land development	5,516		8,142		6,634		7,791
Consumer	124		967		476		904
Total	$	24,505	$	32,932	$	28,199	$	31,911

For the three and six months ended June 30, 2015 and 2014, no interest income was recognized subsequent to a loan’s classification as nonaccrual. For the three months ended June 30, 2015 and 2014, the Bank recorded $224,000 and $260,000, respectively, of interest income related to performing TDR noncovered loans. For the six months ended June 30, 2015 and 2014, the Bank recorded $420,000 and $533,000, respectively, of interest income related to performing TDR noncovered loans.

(g) Troubled Debt Restructured Loans

A troubled debt restructured loan is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs are considered impaired and are separately measured for impairment under FASB ASC 310-10-35, whether on accrual ("performing") or nonaccrual ("nonperforming") status.

The majority of the Bank’s TDR noncovered loans are a result of granting extensions of maturity on troubled credits which have already been adversely classified. The Bank grants such extensions to reassess the borrower’s financial status and to develop a plan for repayment. Certain modifications with extensions also include interest rate reductions, which is the second most prevalent concession. Certain TDRs were additionally re-amortized over a longer period of time. The Bank additionally advanced funds to a troubled speculative home builder to complete established projects. These modifications would all be considered a concession for a borrower that could not obtain similar financing terms from another source other than from the Bank.

The financial effects of each modification will vary based on the specific restructure. For the majority of the Bank’s TDRs, the noncovered loans were interest-only with a balloon payment at maturity. If the interest rate is not adjusted and the modified terms are consistent with other similar credits being offered, the Bank may not experience any loss associated with the restructure. If, however, the restructure involves forbearance agreements or interest rate modifications, the Bank may not collect all the principal and interest based on the original contractual terms. The Bank estimates the necessary allowance for loan losses on noncovered TDRs using the same guidance as used for other noncovered impaired loans.

24

The recorded investment balance and related allowance for loan losses of performing and nonaccrual TDR noncovered loans as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Performing TDRs		Nonaccrual TDRs		Performing TDRs		Nonaccrual TDRs
	(In thousands)
TDR noncovered loans	$	19,783	$	4,288	$	18,764	$	5,010
Allowance for loan losses on TDR noncovered loans	2,280		282		1,908		1,033

The unfunded commitment to borrowers related to noncovered TDRs was $376,000 and $1.8 million at June 30, 2015 and December 31, 2014, respectively.

Noncovered loans that were modified as TDRs during the three and six months ended June 30, 2015 and 2014 are set forth in the following tables:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	12	$	1,691	6	$	1,942
Owner-occupied commercial real estate	3	873		—	—
Non-owner occupied commercial real estate	3	6,450		2	1,023
Total commercial business	18	9,014		8	2,965
One-to-four family residential	0	—		0	—
Real estate construction and land development:
One-to-four family residential	2	1,038		1	88
Total real estate construction and land development	2	1,038		1	88
Consumer	—	—		—	—
Total TDR noncovered loans	20	$	10,052	9	$	3,053

25

	Six Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	19	$	2,610	11	$	3,072
Owner-occupied commercial real estate	4	873		1	347
Non-owner occupied commercial real estate	3	6,450		2	1,023
Total commercial business	26	9,933		14	4,442
Real estate construction and land development:
One-to-four family residential	4	2,543		1	277
Total real estate construction and land development	4	2,543		1	277
Consumer	1	38		3	219
Total TDR noncovered loans	31	$	12,514	18	$	4,938

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2015 and 2014.

(2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification), except when the modification was the initial advance on a one-to-four family residential real estate construction and land development loan under a master guidance line. There were no advances on these types of loans during the three and six months ended June 30, 2015. During both the three and six months ended June 30, 2014, the Company's initial advance at the time of modification on these construction loans totaled $45,000 and the total commitment amount was $190,000.

Of the 20 noncovered loans modified during the three months ended June 30, 2015, 9 loans with a total outstanding principal balance of $4.0 million had no prior modifications. Of the 18 noncovered loans modified during the three months ended June 30, 2014, 4 loans with a total outstanding principal balance of $761,000 had no prior modifications. The remaining noncovered loans included in the tables above for the six months ended June 30, 2015 and 2014 were previously reported as noncovered TDRs. The Bank typically grants shorter extension periods to continually monitor the troubled credits despite the fact that the extended date might not be the date the Bank expects the cash flow. The Company does not consider these modifications a subsequent default of a noncovered TDR as new loan terms, specifically maturity dates, were granted. The potential losses related to these loans would have been considered in the period the loan was first reported as a noncovered TDR and adjusted, as necessary, in the current periods based on more recent information. The related specific valuation allowance at June 30, 2015 for noncovered loans that were modified as TDRs during the three months ended June 30, 2015 and during the six months ended June 30, 2015 was $1.2 million and $1.3 million, respectively.

The noncovered loans modified during the previous twelve months ended June 30, 2015 and 2014 that subsequently defaulted during the three and six months ended June 30, 2015 and 2014 are included in the following tables:

26

	Three Months Ended June 30,
	2015			2014
	Number of Contracts	Outstanding Principal  Balance		Number of Contracts	Outstanding Principal  Balance
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	57	3	$	790
Non-owner occupied commercial real estate	0	—		1	2
Total commercial business	1	57		4	792
Real estate construction and land development:
One-to-four family residential	1	865		—	—
Total real estate construction and land development	1	865		—	—
Total	2	$	922	4	$	792

	Six Months Ended June 30,
	2015			2014
	Number of Contracts	Outstanding Principal  Balance		Number of Contracts	Outstanding Principal  Balance
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	57	3	$	790
Non-owner occupied commercial real estate	0	—		1	2
Total commercial business	1	57		4	792
Real estate construction and land development:
One-to-four family residential	1	865		—	—
Total real estate construction and land development	1	865		—	—
Total	2	$	922	4	$	792

The one-to-four family residential real estate construction loan totaling $865,000 included in the above table defaulted during the three months ended June 30, 2015 because it was past its modified maturity date, and the borrower had not repaid the credit. The Bank does not intend to extend the maturity date. All other loans included in the table above for both periods defaulted as the loans were greater than 90 days past due. The Bank had a specific valuation allowance at June 30, 2015 related to the credits which defaulted during the three months ended June 30, 2015 of $5,000.

(h) Purchased Credit Impaired Loans

The Company acquired PCI noncovered loans in the Washington Banking Merger and in previously completed acquisitions which are accounted for under FASB ASC 310-30. These previous acquisitions include the FDIC-assisted acquisitions of Cowlitz Bank ("Cowlitz") and Pierce Commercial Bank ("Pierce") on July 30, 2010 and November 8, 2010, respectively. In addition, the Company completed the acquisitions of Northwest Commercial Bank ("NCB") on January 9, 2013 and Valley Community Bancshares, Inc. ("Valley") on July 15, 2013.

27

The following table reflects the outstanding principal balance and recorded investment at June 30, 2015 and December 31, 2014 of the PCI noncovered loans:

	June 30, 2015				December 31, 2014
	Outstanding Principal		Recorded Investment		Outstanding Principal		Recorded Investment
	(In thousands)
Commercial business:
Commercial and industrial	$	15,338	$	11,775	$	22,144	$	18,040
Owner-occupied commercial real estate	12,435		11,271		18,165		16,208
Non-owner occupied commercial real estate	14,701		12,628		12,684		11,185
Total commercial business	42,474		35,674		52,993		45,433
One-to-four family residential	2,230		2,220		2,269		2,235
Real estate construction and land development:
One-to-four family residential	7,461		3,310		8,456		4,223
Five or more family residential and commercial properties	2,263		2,486		2,721		2,963
Total real estate construction and land development	9,724		5,796		11,177		7,186
Consumer	5,158		6,337		5,983		7,055
Gross PCI noncovered loans	$	59,586	$	50,027	$	72,422	$	61,909

On the acquisition dates, the amount by which the undiscounted expected cash flows of the PCI noncovered loans exceeded the estimate fair value of the loan is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the PCI noncovered loans.

The following table summarizes the accretable yield on the PCI noncovered loans resulting from the Pierce, NCB, and Valley acquisitions and the Washington Banking Merger for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	14,015		$	7,089		$	12,572		$	7,714
Accretion	(1,030		)	(761		)	(2,042		)	(1,589		)
Disposal and other	(1,221		)	(703		)	(1,505		)	(1,336		)
Change in accretable yield	—			10,773			2,739			11,609
Balance at the end of the period	$	11,764		$	16,398		$	11,764		$	16,398

(4) Covered Loans Receivable

The Company acquired loans through FDIC-assisted transactions which are covered by FDIC shared-loss agreements. These loans are referred to as "covered loans." Covered loans were acquired in the Cowlitz acquisition in July 2010 and in the Washington Banking Merger in May 2014. Included in the covered loans acquired from Washington Banking were loans Washington Banking had acquired from City Bank in April 2010 and North County Bank in September 2010. As part of the Washington Banking Merger, the shared-loss agreements with these acquisitions were transferred to Heritage Bank.

Loans purchased with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are accounted for under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality and are identified as PCI loans. Loans purchased that are not accounted for under FASB ASC 310-30 are accounted for under FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and are referred to as "non-PCI" loans.

Disclosures related to the Company’s recorded investment in covered loans receivable generally exclude accrued interest receivable because it is insignificant.

28

(a) Risk Management

The Company categorizes covered loans in the same four segments as the noncovered portfolio: commercial business, real estate construction and land development, one-to-four family residential and consumer.     

The recorded investment of covered loans receivable at June 30, 2015 and December 31, 2014 consisted of the following portfolio segments and classes:

	June 30, 2015			December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	16,836		$	19,110
Owner-occupied commercial real estate	43,521			59,244
Non-owner occupied commercial real estate	29,764			26,879
Total commercial business	90,121			105,233
One-to-four family residential	5,080			5,990
Real estate construction and land development:
One-to-four family residential	1,962			2,446
Five or more family residential and commercial properties	2,319			3,560
Total real estate construction and land development	4,281			6,006
Consumer	8,199			8,971
Gross covered loans receivable	107,681			126,200
Allowance for loan losses	(5,499		)	(5,576		)
Covered loans receivable, net	$	102,182		$	120,624

On April 16, 2015, the 5-year shared-loss period ended for certain non-single family loans, as categorized by the FDIC, in the City Bank portfolio. The Company's recorded investment balance of these loans totaled $25.4 million at June 30, 2015. Since the end of the shared-loss period, the Company has continued to report these loans as covered loans in the Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2015 as these loans are covered under the shared-loss agreement for an additional 3-year shared-recovery period.

At June 30, 2015 and December 31, 2014, the recorded investment balance of loans which are no longer covered under the FDIC shared-loss agreements due to Company modifications, but are included in the covered loan table above as they are included in the loan pool established at the time of acquisition, was $1.5 million and $872,000, respectively.

(b) Credit Quality Indicators

The following tables present the recorded invested balance of the covered loans receivable by credit quality indicator as of June 30, 2015 and December 31, 2014.

29

	June 30, 2015
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	10,185	$	104	$	4,727	$	1,820	$	16,836
Owner-occupied commercial real estate	31,867		3,266		8,135		253		43,521
Non-owner occupied commercial real estate	12,958		32		14,628		2,146		29,764
Total commercial business	55,010		3,402		27,490		4,219		90,121
One-to-four family residential	4,739		—		341				5,080
Real estate construction and land development:
One-to-four family residential	1,791		—		171		—		1,962
Five or more family residential and commercial properties	1,503		—		816		—		2,319
Total real estate construction and land development	3,294		—		987		—		4,281
Consumer	6,099		—		2,100		—		8,199
Gross covered loans receivable	$	69,142	$	3,402	$	30,918	$	4,219	$	107,681

	December 31, 2014
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	11,297	$	131	$	5,442	$	2,240	$	19,110
Owner-occupied commercial real estate	40,357		4,957		13,583		347		59,244
Non-owner occupied commercial real estate	9,656		40		17,183		—		26,879
Total commercial business	61,310		5,128		36,208		2,587		105,233
One-to-four family residential	5,414		425		151		—		5,990
Real estate construction and land development:
One-to-four family residential	2,178		—		268		—		2,446
Five or more family residential and commercial properties	1,758		—		1,802		—		3,560
Total real estate construction and land development	3,936		—		2,070		—		6,006
Consumer	7,030		—		1,941		—		8,971
Gross covered loans receivable	$	77,690	$	5,553	$	40,370	$	2,587	$	126,200

30

(c) Nonaccrual Loans

The recorded investment balance of nonaccrual covered loans, segregated by segments and classes of loans, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	1,820	$	2,321
Owner-occupied commercial real estate	1,087		1,132
Non-owner-occupied commercial real estate	401		424
Total commercial business	3,308		3,877
One-to-four family residential	171		179
Consumer	32		6
Gross nonaccrual covered loans	$	3,511	$	4,062

PCI covered loans are not included in the nonaccrual table above because the loans are accounted for under ASC 310-30, whereby accretable yield is calculated based on a loan's expected cash flow even if the loan is not performing under its conventional terms.

(d) Past Due Loans

The balances of past due covered loans, segregated by segments and classes of loans, as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	162	$	2,173	$	2,335	$	14,501	$	16,836	$	—
Owner-occupied commercial real estate	—		684		684		42,837		43,521		—
Non-owner occupied commercial real estate	—		—		—		29,764		29,764		—
Total commercial business	162		2,857		3,019		87,102		90,121		—
One-to-four family residential	—		—		—		5,080		5,080		—
Real estate construction and land development:
One-to-four family residential	—		—		—		1,962		1,962		—
Five or more family residential and commercial properties	311		41		352		1,967		2,319		—
Total real estate construction and land development	311		41		352		3,929		4,281		—
Consumer	71		749		820		7,379		8,199		—
Gross covered loans receivable	$	544	$	3,647	$	4,191	$	103,490	$	107,681	$	—

(1) Excludes covered PCI loans.

31

	December 31, 2014
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	2,262	$	1,163	$	3,425	$	15,685	$	19,110	$	—
Owner-occupied commercial real estate	645		2,680		3,325		55,919		59,244		—
Non-owner occupied commercial real estate	1,713		456		2,169		24,710		26,879		—
Total commercial business	4,620		4,299		8,919		96,314		105,233		—
One-to-four family residential	112		—		112		5,878		5,990		—
Real estate construction and land development:
One-to-four family residential	178		90		268		2,178		2,446		—
Five or more family residential and commercial properties	—		220		220		3,340		3,560		—
Total real estate construction and land development	178		310		488		5,518		6,006		—
Consumer	263		727		990		7,981		8,971		—
Gross covered loans receivable	$	5,173	$	5,336	$	10,509	$	115,691	$	126,200	$	—

(1) Excludes covered PCI loans.

32

(e) Impaired Loans

A covered loan, not initially classified as PCI, generally becomes impaired when classified as nonaccrual or when its modification results in a TDR. The table below excludes certain TDR loans totaling $10.0 million and $10.3 million as of June 30, 2015 and December 31, 2014, respectively, which are classified as PCI. These PCI loans are recorded at the recorded investment balance and may not have further impairment. Impaired covered loans as of June 30, 2015 and December 31, 2014 are set forth in the following tables.

	June 30, 2015
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	1,820	$	—	$	1,820	$	3,257	$	—
Owner-occupied commercial real estate	—		1,395		1,395		1,441		289
Non-owner occupied commercial real estate	—		401		401		435		49
Total commercial business	1,820		1,796		3,616		5,133		338
Real estate construction and land development:
One-to-four family residential	—		172		172		180		45
Total real estate construction and land development	—		172		172		180		45
Consumer	26		6		32		34		2
Total	$	1,846	$	1,974	$	3,820	$	5,347	$	385

	December 31, 2014
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	2,240	$	94	$	2,334	$	3,696	$	9
Owner-occupied commercial real estate	—		1,132		1,132		1,156		295
Non-owner occupied commercial real estate	—		424		424		440		66
Total commercial business	2,240		1,650		3,890		5,292		370
Real estate construction and land development:
One-to-four family residential	—		179		179		182		51
Total real estate construction and land development	—		179		179		182		51
Consumer	—		6		6		8		2
Total	$	2,240	$	1,835	$	4,075	$	5,482	$	423

33

The average recorded investment of impaired covered loans for the three and six months ended June 30, 2015 and 2014 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Commercial business:
Commercial and industrial	$	2,000	$	3,648	$	2,739	$	3,686
Owner-occupied commercial real estate	1,407		353		844		235
Non-owner occupied commercial real estate	407		—		333		—
Total commercial business	3,814		4,001		3,916		3,921
One-to-four family residential	—		—		—		150
Real estate construction and land development:
One-to-four family residential	173		—		105		—
Total real estate construction and land development	173		—		105		—
Consumer	19		7		12		7
Total	$	4,006	$	4,008	$	4,033	$	4,078

For the three and six months ended June 30, 2015 and 2014, no interest income was recognized subsequent to a covered loan’s classification as nonaccrual. For the three months ended June 30, 2015 and 2014, the Bank recorded $26,000 and $47,000, respectively, of interest income related to performing TDR covered loans. For the six months ended June 30, 2015 and 2014, the Bank recorded $29,000 and $95,000, respectively, of interest income related to performing TDR covered loans.

(f) Troubled Debt Restructured Loans

The recorded investment balance and related allowance for loan losses of performing and nonaccrual covered TDRs as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Performing TDRs		Nonaccrual TDRs		Performing TDRs		Nonaccrual TDRs
	(In thousands)
TDR covered loans	$	10,303	$	1,826	$	10,289	$	2,246
Allowance for loan losses on TDR covered loans	29		2		1		2

There were no unfunded commitments related to credits classified as covered TDRs at June 30, 2015 and December 31, 2014.

34

Covered loans that were modified as TDRs during the three and six months ended June 30, 2015 and 2014 are set forth in the following table:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	552	—	$	—
Non-owner occupied commercial real estate	1	7,245		—	—
Total commercial business	2	7,797		—	—
Real estate construction and land development:
Five or more family residential and commercial properties	1	418		—	—
Total real estate construction and land development	1	418		—	—
Total TDR covered loans	3	$	8,215	—	$	—

	Six Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	2	$	678	1	$	3,626
Owner-occupied commercial real estate	1	308		—	—
Non-owner occupied commercial real estate	1	7,245		—	—
Total commercial business	4	8,231		1	3,626
Real estate construction and land development:
Five or more family residential and commercial properties	1	418		—	—
Total real estate construction and land development	1	418		—	—
Consumer	1	104		—	—
Total TDR covered loans	6	$	8,753	1	$	3,626

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2015 and 2014.

(2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification).

All covered loan modified as a TDRs during the three and six months ended June 30, 2015 and 2014 included in the table above were extensions of credits to borrowers with financial difficulties. At June 30, 2015, the loans modified during the three and six months ended June 30, 2015 had a specific valuation allowance of $0 and $28,000, respectively.

There was one commercial and industrial loan of $1.8 million at June 30, 2015 that was modified during the previous twelve months and subsequently defaulted during both the three and six months ended June 30, 2015 as the borrower did not make specific curtailment payments. The defaulted loan had been written down to net realizable value at December 31, 2014 and no specific allowance for loan losses was recorded as of June 30, 2015. There were no covered loans modified during the previous twelve months ended June 30, 2014 that subsequently defaulted during the three and six months ended June 30, 2014.

35

(g) Purchased Credit Impaired Loans

The Company acquired covered loans which the Bank accounts for under FASB ASC 310-30 as they were identified as PCI loans at the time of acquisition.

The following table reflects the outstanding principal balance and recorded investment at June 30, 2015 and December 31, 2014 of the PCI covered loans:

	June 30, 2015				December 31, 2014
	Outstanding Principal		Recorded Investment		Outstanding Principal		Recorded Investment
	(In thousands)
Commercial business:
Commercial and industrial	$	10,324	$	8,139	$	9,635	$	7,134
Owner-occupied commercial real estate	15,431		13,755		23,071		20,666
Non-owner occupied commercial real estate	18,940		19,575		20,607		20,257
Total commercial business	44,695		41,469		53,313		48,057
One-to-four family residential	3,278		2,958		3,837		3,478
Real estate construction and land development:
One-to-four family residential	—		1,209		103		1,308
Five or more family residential and commercial properties	901		816		2,140		1,802
Total real estate construction and land development	901		2,025		2,243		3,110
Consumer	2,719		2,529		2,945		2,717
Gross PCI covered loans	$	51,593	$	48,981	$	62,338	$	57,362

The Bank has the option to modify PCI covered loans; however, modifying the loan may terminate the FDIC shared-loss coverage on those loans. At June 30, 2015 and December 31, 2014, the recorded investment balance of PCI covered loans which are no longer covered under the FDIC shared-loss agreements was $458,000 and $476,000, respectively. The Bank continues to report these loans in the covered portfolio as they are in a pool and they continue to be accounted for under FASB ASC 310-30. The FDIC indemnification asset has been adjusted to reflect the change in the loan status.

(h) Accretable Yield

The following table summarizes the accretable yield on the PCI covered loans resulting from the Cowlitz acquisition and Washington Banking Merger for the three and six months ended June 30, 2015 and 2014.

		Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period		$	8,310		$	9,063		$	8,520		$	9,535
Accretion		(798		)	(615		)	(1,696		)	(1,300		)
Disposal and other		(545		)	(392		)	(899		)	(435		)
Change in accretable yield		—			3,712			1,042			3,968
Balance at the end of the period		$	6,967		$	11,768		$	6,967		$	11,768

36

(5) Allowance for Loan Losses

The allowance for loan losses is maintained at a level deemed appropriate by management to provide for probable incurred credit losses in the loan portfolio.

A summary of the changes in the noncovered loans’ allowance for loan losses during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	22,317		$	22,820		$	22,153		$	22,657
Charge-offs	(1,110		)	(1,152		)	(2,545		)	(1,215		)
Recoveries of loans previously charged-off	383			331			697			578
Provision for loan losses	1,189			370			2,474			349
Balance at the end of the period	$	22,779		$	22,369		$	22,779		$	22,369

A summary of the changes in the covered loans’ allowance for loan losses during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	5,499	$	6,567		$	5,576		$	6,167
Charge-offs	—		(775		)	—			(854		)
Provision for loan losses	—		321			(77		)	800
Balance at the end of the period	$	5,499	$	6,114		$	5,499		$	6,114

The covered loans acquired in the Cowlitz acquisition and Washington Banking Merger (including Washington Banking's prior acquisitions of City Bank and North County Bank and related covered loans) are subject to the Company’s internal credit review. If and when credit deterioration occurs subsequent to the acquisition dates, a provision for loan losses will be charged to earnings for the full amount of the covered loan balance without regard to the FDIC shared-loss agreements. The portion of the estimated loss reimbursable from the FDIC is recorded in noninterest income and increases the FDIC indemnification asset.

37

The following tables detail activity in the allowance for loan losses disaggregated by segment and class as of and for the three and six months ended June 30, 2015:

	Balance at Beginning of Period		Charge-offs			Recoveries		Provision for Loan Losses			Balance at End of Period
	(In thousands)
Three Months Ended June 30, 2015
Commercial business:
Commercial and industrial	$	9,858	$	(662	)	$	187	$	508		$	9,891
Owner-occupied commercial real estate	4,173		—			—		414			4,587
Non-owner occupied commercial real estate	6,029		—			—		117			6,146
Total commercial business	20,060		(662		)	187		1,039			20,624
One-to-four family residential	1,242		—			—		29			1,271
Real estate construction and land development:
One-to-four family residential	1,565		—			100		(203		)	1,462
Five or more family residential and commercial properties	1,005		—			—		57			1,062
Total real estate construction and land development	2,570		—			100		(146		)	2,524
Consumer	3,175		(448		)	96		344			3,167
Unallocated	769		—			—		(77		)	692
Total	$	27,816	$	(1,110	)	$	383	$	1,189		$	28,278
Six Months Ended June 30, 2015
Commercial business:
Commercial and industrial	$	10,553	$	(1,322	)	$	388	$	272		$	9,891
Owner-occupied commercial real estate	4,095		—			—		492			4,587
Non-owner occupied commercial real estate	5,538		(188		)	—		796			6,146
Total commercial business	20,186		(1,510		)	388		1,560			20,624
One-to-four family residential	1,200		—			1		70			1,271
Real estate construction and land development:
One-to-four family residential	1,786		(106		)	100		(318		)	1,462
Five or more family residential and commercial properties	972		—			—		90			1,062
Total real estate construction and land development	2,758		(106		)	100		(228		)	2,524
Consumer	2,769		(929		)	208		1,119			3,167
Unallocated	816		—			—		(124		)	692
Total	$	27,729	$	(2,545	)	$	697	$	2,397		$	28,278

The following table details the activity in the allowance for loan losses disaggregated on the basis of the Company's impairment method as of June 30, 2015.

38

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of June 30, 2015
	(In thousands)
Commercial business:
Commercial and industrial	$	746	$	6,359	$	—	$	117	$	2,213	$	456	$	9,891
Owner-occupied commercial real estate	755		2,045		289		26		330		1,142		4,587
Non-owner occupied commercial real estate	943		2,729		49		14		363		2,048		6,146
Total commercial business	2,444		11,133		338		157		2,906		3,646		20,624
One-to-four family residential	74		607		—		11		207		372		1,271
Real estate construction and land development:
One-to-four family residential	28		386		45		—		264		739		1,462
Five or more family residential and commercial properties	200		774		—		—		88		—		1,062
Total real estate construction and land development	228		1,160		45		—		352		739		2,524
Consumer	24		2,286		2		4		666		185		3,167
Unallocated	—		692		—		—		—		—		692
Total	$	2,770	$	15,878	$	385	$	172	$	4,131	$	4,942	$	28,278

The following table details the recorded investment balance of the loan receivables disaggregated on the basis of the Company’s impairment method as of June 30, 2015:

39

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of June 30, 2015
	(In thousands)
Commercial business:
Commercial and industrial	$	6,725	$	533,489	$	1,820	$	6,877	$	11,775	$	8,139	$	568,825
Owner-occupied commercial real estate	3,214		551,236		1,395		28,371		11,271		13,755		609,242
Non-owner occupied commercial real estate	9,538		654,706		401		9,788		12,628		19,575		706,636
Total commercial business	19,477		1,739,431		3,616		45,036		35,674		41,469		1,884,703
One-to-four family residential	241		64,622		—		2,122		2,220		2,958		72,163
Real estate construction and land development:
One-to-four family residential	3,408		34,975		172		581		3,310		1,209		43,655
Five or more family residential and commercial properties	2,009		61,529		—		1,503		2,486		816		68,343
Total real estate construction and land development	5,417		96,504		172		2,084		5,796		2,025		111,998
Consumer	122		263,716		32		5,638		6,337		2,529		278,374
Total	$	25,257	$	2,164,273	$	3,820	$	54,880	$	50,027	$	48,981	$	2,347,238

40

The following tables detail activity in the allowance for loan losses disaggregated by segment and class as of and for the three and six months ended June 30, 2014 and as of December 31, 2014.

	Balance at Beginning of Period		Charge-offs			Recoveries		Provision for Loan Losses			Balance at End of Period
	(In thousands)
Three Months Ended June 30, 2014
Commercial business:
Commercial and industrial	$	12,277	$	(1,403	)	$	269	$	161		$	11,304
Owner-occupied commercial real estate	4,463		—			—		(263		)	4,200
Non-owner occupied commercial real estate	5,226		—			—		459			5,685
Total commercial business	21,966		(1,403		)	269		357			21,189
One-to-four family residential	1,121		—			—		34			1,155
Real estate construction and land development:
One-to-four family residential	1,979		(345		)	43		(144		)	1,533
Five or more family residential and commercial properties	1,983		—			—		(353		)	1,630
Total real estate construction and land development	3,962		(345		)	43		(497		)	3,163
Consumer	1,690		(179		)	20		644			2,175
Unallocated	648		—			—		153			801
Total	$	29,387	$	(1,927	)	$	332	$	691		$	28,483
Six Months Ended June 30, 2014
Commercial business:
Commercial and industrial	$	13,478	$	(1,482	)	$	501	$	(1,193	)	$	11,304
Owner-occupied commercial real estate	4,049		—			—		151			4,200
Non-owner occupied commercial real estate	5,326		—			—		359			5,685
Total commercial business	22,853		(1,482		)	501		(683		)	21,189
One-to-four family residential	1,100		—			—		55			1,155
Real estate construction and land development:
One-to-four family residential	1,720		(345		)	43		115			1,533
Five or more family residential and commercial properties	953		—			—		677			1,630
Total real estate construction and land development	2,673		(345		)	43		792			3,163
Consumer	1,597		(242		)	35		785			2,175
Unallocated	601		—			—		200			801
Total	$	28,824	$	(2,069	)	$	579	$	1,149		$	28,483

The following table details the activity in the allowance for loan losses disaggregated on the basis of the Company's impairment method as of December 31, 2014.

41

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	1,325	$	6,449	$	9	$	108	$	2,191	$	471	$	10,553
Owner-occupied commercial real estate	684		1,629		295		14		330		1,143		4,095
Non-owner occupied commercial real estate	465		2,541		66		6		353		2,107		5,538
Total commercial business	2,474		10,619		370		128		2,874		3,721		20,186
One-to-four family residential	75		530		—		8		207		380		1,200
Real estate construction and land development:
One-to-four family residential	396		322		51		—		264		753		1,786
Five or more family residential and commercial properties	234		650		—		—		88		—		972
Total real estate construction and land development	630		972		51		—		352		753		2,758
Consumer	56		1,931		2		12		617		151		2,769
Unallocated	—		816		—		—		—		—		816
Total	$	3,235	$	14,868	$	423	$	148	$	4,050	$	5,005	$	27,729

The following table details the recorded investment balance of the loan receivables disaggregated on the basis of the Company’s impairment method for the year ended December 31, 2014:

42

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	9,040	$	524,263	$	2,334	$	9,642	$	18,040	$	7,134	$	570,453
Owner-occupied commercial real estate	2,781		516,753		1,132		37,446		16,208		20,666		594,986
Non-owner occupied commercial real estate	7,305		598,267		424		6,198		11,185		20,257		643,636
Total commercial business	19,126		1,639,283		3,890		53,286		45,433		48,057		1,809,075
One-to-four family residential	245		61,060		—		2,512		2,235		3,478		69,530
Real estate construction and land development:
One-to-four family residential	4,524		38,002		179		959		4,223		1,308		49,195
Five or more family residential and commercial properties	2,056		56,341		—		1,758		2,963		1,802		64,920
Total real estate construction and land development	6,580		94,343		179		2,717		7,186		3,110		114,115
Consumer	205		243,063		6		6,248		7,055		2,717		259,294
Total	$	26,156	$	2,037,749	$	4,075	$	64,763	$	61,909	$	57,362	$	2,252,014

(6) FDIC Indemnification Asset

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	692		$	3,969		$	1,116		$	4,382
Additions as a result of the Washington Banking Merger	—			7,407			—			7,407
Cash payments received or receivable from the FDIC	—			(2,365		)	(231		)	(2,741		)
FDIC share of additional estimated (gains) losses	(283		)	469			(352		)	805
Net amortization	(21		)	(360		)	(145		)	(733		)
Balance at the end of the period	$	388		$	9,120		$	388		$	9,120

43

(7) Other Real Estate Owned

Changes in other real estate owned during the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	4,094		$	4,284		$	3,355		$	4,559
Additions	85			—			1,813			218
Additions from acquisitions	—			7,121			—			7,121
Proceeds from dispositions	(1,050		)	(3,337		)	(1,639		)	(3,857		)
(Loss) gain on sales, net	(27		)	38			(97		)	65
Valuation adjustment	(85		)	—			(415		)	—
Balance at the end of the period	$	3,017		$	8,106		$	3,017		$	8,106

At June 30, 2015 and December 31, 2014, the balance of other real estate owned that was covered by shared-loss agreements was $2.8 million and $1.2 million, respectively.

(8) Goodwill and Other Intangible Assets

(a) Goodwill

The Company’s goodwill represents the excess of the purchase price over the fair value of net assets acquired in the Washington Banking Merger on May 1, 2014, and the acquisitions of Valley on July 15, 2013, Western Washington Bancorp in 2006 and North Pacific Bank in 1998. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit).

There were no additions to goodwill during the three and six months ended June 30, 2015. The Company recorded $89.7 million in goodwill for each of the three and six months ended June 30, 2014. For additional information, see Note 14, Business Combination.

At June 30, 2015, the Company’s step-one analysis concluded that the reporting unit’s fair value was greater than its carrying value and therefore no goodwill impairment charges were required for the three and six months ended June 30, 2015. The Company did not record any goodwill impairment charges for the three and six months ended June 30, 2015or for the three and six months ended June 30, 2014. Even though there was no goodwill impairment at June 30, 2015, adverse events may impact the recoverability of goodwill and could result in a future impairment charge which could have a material impact on the Company’s operating results.

b) Other Intangible Assets

The other intangible assets represent the core deposit intangible ("CDI") acquired in business combinations. The useful life of the CDI related to the Washington Banking Merger, the acquisitions of Valley, NCB, Pierce, Cowlitz, and Western Washington Bancorp were estimated to be ten, ten, five, four, nine and eight years, respectively.

The following table presents the change in the other intangible assets for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Balance at the beginning of the period	$	10,362	$	1,459	$	10,889	$	1,615
Additions as a result of acquisitions	—		11,194		—		11,194
Less: Amortization	527		489		1,054		645
Balance at the end of the period	$	9,835	$	12,164	$	9,835	$	12,164

(9) Junior Subordinated Debentures

As part of the Washington Banking Merger, the Company assumed trust preferred securities and junior subordinated debentures with a total fair value of $18.9 million at May 1, 2014.

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Washington Banking Master Trust ("Trust"), a Delaware statutory business trust, was a wholly-owned subsidiary of Washington Banking created for the exclusive purposes of issuing and selling capital securities and utilizing sale proceeds to acquire junior subordinated debt issued by Washington Banking. During 2007, the Trust issued $25.0 million of trust preferred securities with a 30-year maturity, callable after the fifth year by Washington Banking. The trust preferred securities have a quarterly adjustable rate based upon the three-month London Interbank Offered Rate (“LIBOR”) plus 1.56%. On the Washington Banking Merger date of May 1, 2014, the Company acquired the Trust, which retained the Washington Banking Master Trust name, and assumed the performance and observance of the covenants under the indenture related to the trust preferred securities.

The adjustable rate of the trust preferred securities at June 30, 2015 was 1.84%. The weighted average rate of the junior subordinated debentures was 4.02% and 3.62% for the three months ended June 30, 2015 and 2014, respectively, and 4.54% and 3.62% for the six months ended June 30, 2015 and 2014, respectively. The weighted average rate includes the accretion of the discount established at the merger date which is amortized over the life of the trust preferred securities.

The junior subordinated debentures are the sole assets of the Trust, and payments under the junior subordinated debentures are the sole revenues of the Trust. At June 30, 2015, the balance of the junior subordinated debentures was $19.3 million. All of the common securities of the Trust are owned by the Company. Heritage has fully and unconditionally guaranteed the capital securities along with all obligations of the Trust under the trust agreements.

(10) Repurchase Agreements

The Company utilizes repurchase agreements with one day maturities as a supplement to funding sources. Repurchase agreements are secured by pledged investment securities available for sale. Under the repurchase agreements the Company is required to maintain an aggregate market value of securities pledged greater than the stated margin balance. The Company is required to pledge additional securities to cover any declines below the stated margin balance. Additional information on total value of securities pledged for repurchase agreements is found in footnote 2: Investment Securities.

The following table presents the Company's repurchase agreement obligations by class of collateral pledged:

	June 30, 2015
	(in thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	—
Municipal securities	—
Mortgage backed securities and collateralized mortgage obligations- residential:
U.S. Government-sponsored agencies	20,589
Corporate obligations	—
Total borrowings	$	20,589

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(11) Stockholders’ Equity

(a) Earnings Per Common Share

The following table illustrates the reconciliation of weighted average shares used for earnings per common share computations for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Net income:
Net income	$	8,725		$	4,148		$	18,504		$	6,691
Less: Dividends and undistributed earnings allocated to participating securities	(76		)	(20		)	(162		)	(32		)
Net income allocated to common shareholders	$	8,649		$	4,128		$	18,342		$	6,659
Basic:
Weighted average common shares outstanding	30,046,211			25,592,389			30,150,063			20,929,467
Less: Restricted stock awards	(281,774		)	(166,577		)	(271,843		)	(182,051		)
Total basic weighted average common shares outstanding	29,764,437			25,425,812			29,878,220			20,747,416
Diluted:
Basic weighted average common shares outstanding	29,764,437			25,425,812			29,878,220			20,747,416
Incremental shares from stock options	21,007			50,091			22,359			58,313
Total diluted weighted average common shares outstanding	29,785,444			25,475,903			29,900,579			20,805,729

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three months ended June 30, 2015 and 2014, anti-dilutive shares outstanding related to options to acquire common stock totaled 5,009 and 23,204, respectively, as the assumed proceeds from exercise price, tax benefits and future compensation was in excess of the market value. For the six months ended June 30, 2015 and 2014, anti-dilutive shares outstanding related to options to acquire common stock totaled 6,017 and 32,940, respectively for the same reasons indicated for the three-month periods.

(b) Dividends

The timing and amount of cash dividends paid on the Company's common stock depends on the Company’s earnings, capital requirements, financial condition and other relevant factors. Dividends on common stock from the Company depend substantially upon receipt of dividends from the Bank, which is the Company’s predominant source of income.

On July 22, 2015, the Company declared a cash dividend of $0.11 per common share payable on August 20, 2015 to shareholders of record on August 6, 2015.

The following table summarizes the dividend activity for the six months ended June 30, 2015 and calendar year 2014.

Declared	Cash Dividend per Share	Record Date	Paid Date
January 29, 2014	$0.08	February 10, 2014	February 24, 2014
March 27, 2014	$0.08	April 8, 2014	April 23, 2014
July 24, 2014	$0.09	August 7, 2014	August 21, 2014
October 23, 2014	$0.09	November 6, 2014	November 20, 2014
November 11, 2014	$0.16	December 2, 2014	December 12, 2014
January 28, 2015	$0.10	February 10, 2015	February 24, 2015
April 22, 2015	$0.11	May 7, 2015	May 21, 2015

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The FDIC and the Washington State Department of Financial Institutions, Division of Banks have the authority under their supervisory powers to prohibit the payment of dividends by the Bank to the Company. Additionally, current guidance from the Board of Governors of the Federal Reserve System ("Federal Reserve Board") provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters. Current regulations allow the Company and the Bank to pay dividends on their common stock if the Company’s or the Bank’s regulatory capital would not be reduced below the statutory capital requirements set by the Federal Reserve Board and the FDIC.

(c) Stock Repurchase Program

The Company has had various stock repurchase programs since March 1999. On October 23, 2014, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common shares, or approximately 1,513,000 shares, under the eleventh stock repurchase plan. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital. On August 30, 2012, the Board of Directors approved the Company’s tenth stock repurchase plan, authorizing the repurchase of up to 5% of the Company’s outstanding shares of common stock, or approximately 757,000 shares. The Company repurchased 704,975 shares under the tenth stock repurchase plan, leaving 52,025 shares unpurchased.

The following table provides total repurchased shares and average share prices under the applicable plans for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		Plan Total (1)
Tenth Plan
Repurchased shares	—		—		—		—		704,975
Stock repurchase average share price	$	—	$	—	$	—	$	—	$	15.85
Eleventh Plan
Repurchased shares	304,600		—		441,966		—		441,966
Stock repurchase average share price	$	16.88	$	—	$	16.64	$	—	$	16.64

(1) Represents shares repurchased and average share price paid during the duration of the plan.

During the three months ended June 30, 2015 and 2014, the Company repurchased 11,687 and 8,186 shares at an average price of $17.37 and $12.91, respectively, to pay withholding taxes on the vesting of restricted stock that vested during the respective periods. During the six months ended June 30, 2015 and 2014, the Company repurchased 21,610 and 17,484 shares at an average price of $16.66 and $15.49, respectively, to pay withholding taxes on the vesting of restricted stock that vested during the respective periods.

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(12) Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) (“AOCI”) by component, during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30, 2015
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	6,365		$	(181	)	$	6,184
Other comprehensive income before reclassification	(3,891		)	3			(3,888		)
Amounts reclassified from AOCI for gain on sale of investment securities included in net income	(276		)	178			(98		)
Net current period other comprehensive income	(4,167		)	181			(3,986		)
Balance of AOCI at the end of period	$	2,198		$	—		$	2,198

⁽¹⁾  All amounts are net of tax.

	Six Months Ended June 30, 2015
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	3,567		$	(189	)	$	3,378
Other comprehensive income before reclassification	(739		)	11			(728		)
Amounts reclassified from AOCI for gain on sale of investment securities included in net income	(630		)	178			(452		)
Net current period other comprehensive income	(1,369		)	189			(1,180		)
Balance of AOCI at the end of period	$	2,198		$	—		$	2,198

⁽¹⁾ All amounts are net of tax.

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	Three Months Ended June 30, 2014
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	(447	)	$	(224	)	$	(671	)
Other comprehensive income before reclassification	2,022			15			2,037
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	(57		)	—			(57		)
Net current period other comprehensive income	1,965			15			1,980
Balance of AOCI at the end of period	$	1,518		$	(209	)	$	1,309

⁽¹⁾  All amounts are net of tax.

	Six Months Ended June 30, 2014
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of the period	$	(923	)	$	(239	)	$	(1,162	)
Other comprehensive income before reclassification	2,615			30			2,645
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	(174		)	—			(174		)
Net current period other comprehensive income	2,441			30			2,471
Balance of AOCI at the end of the period	$	1,518		$	(209	)	$	1,309

⁽¹⁾  All amounts are net of tax.

(13) Stock-Based Compensation

Stock options generally vest ratably over three years and expire five years after they become exercisable or vest ratably over four years and expire ten years from date of grant. Restricted stock awards issued generally have a five-year cliff vesting or four year ratable vesting schedule. The Company issues new shares of common stock to satisfy share option exercises and restricted stock awards.

On July 24, 2014, the Company's shareholders approved the Heritage Financial Corporation 2014 Omnibus Equity Plan (the "Plan") under which 1,500,000 shares of the Company's common stock may be issued in the form of nonqualified stock option awards, restricted stock awards and restricted stock unit awards.

As of June 30, 2015, 1,265,569 shares remain available for future issuances under the Company's stock-based compensation plans.

(a) Stock Option Awards

For the three and six months ended June 30, 2015, the Company did not recognize compensation expense or the related tax benefit for the outstanding stock options as all compensation expense had been previously recognized. For thethree and six months ended June 30, 2014, the Company recognized compensation expense related to stock options of$4,000 and $20,000, respectively, with no related tax benefit for either period. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2015 was $177,000 and $525,000, respectively. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2014 was $201,000 and $427,000, respectively.

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The following tables summarize the stock option activity for the six months ended June 30, 2015 and 2014:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2013	194,482		$	15.82
Granted (1)	90,248		10.72
Exercised	(38,844	)	10.98
Forfeited or expired	(35,744	)	23.66
Outstanding at June 30, 2014	210,142		$	13.19	3.30	$	677
Outstanding at December 31, 2014	156,407		$	13.59
Granted	—		—
Exercised	(42,893	)	12.24
Forfeited or expired	(11,249	)	16.91
Outstanding at June 30, 2015	102,265		$	13.79	3.08	$	422
Vested and expected to vest at June 30, 2015	102,265		$	13.79	3.08	$	422
Exercisable at June 30, 2015	102,265		$	13.79	3.08	$	422

(1) Options granted during the six months ended June 30, 2014 represent only the stock options issued in conjunction with the Washington Banking Merger. See "Note 14. Business Combination" for additional information. The weighted average exercise price reflects the exchange ratio applied to the original Washington Banking exercise price pursuant to the Merger Agreement.

(b) Restricted and Unrestricted Stock Awards

For the three and six months ended June 30, 2015, the Company recognized compensation expense related to restricted and unrestricted stock awards of $368,000 and $716,000, respectively, and a related tax benefit of $129,000 and $251,000, respectively. For the three and six months ended June 30, 2014, the Company recognized compensation expense related to restricted and unrestricted stock awards of $263,000 and $539,000, respectively, and a related tax benefit of $92,000 and $189,000, respectively. As of June 30, 2015, the total unrecognized compensation expense related to non-vested restricted and unrestricted stock awards was $3.6 million and the related weighted average period over which it is expected to be recognized is approximately 2.7 years. The vesting date fair value of restricted stock awards that vested during the six months ended June 30, 2015 and 2014 was $1.5 million and $1.1 million, respectively.

The following tables summarize the restricted and unrestricted stock award activity for the six months ended June 30, 2015 and 2014:

	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2013	202,939		$	14.29
Granted	10,168		16.72
Vested	(63,639	)	14.39
Forfeited	(3,993	)	14.28
Nonvested at June 30, 2014	145,475		$	14.42
Nonvested at December 31, 2014	238,669		$	15.20
Granted	117,868		16.66
Vested	(90,217	)	15.13
Forfeited	(2,087	)	15.58
Nonvested at June 30, 2015	264,233		$	15.87

(14) Fair Value Measurements

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Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow the Company to sell its ownership interest back to the fund at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds.

Level 2: Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or valuations using methodologies with observable inputs.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques using unobservable inputs, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

(a) Recurring and Nonrecurring Basis

The Company used the following methods and significant assumptions to estimate fair value of certain assets on a recurring and nonrecurring basis:

Investment Securities Available for Sale and Held to Maturity:

The fair values of all investment securities are based upon the assumptions market participants would use in pricing the security. If available, investment securities are determined by quoted market prices which is generally the case for mutual funds and other equities (Level 1). For investment securities where quoted market prices are not available, fair values are calculated based on market prices on similar securities (Level 2). Level 2 includes U.S. Treasury, U.S. Government and agency debt securities, municipal securities, corporate securities and mortgage-backed securities and collateralized mortgage obligations-residential. For investment securities where quoted prices or market prices of similar securities are not available, fair values are calculated by using observable and unobservable inputs such as discounted cash flows or other market indicators (Level 3). Security valuations are obtained from third party pricing services for comparable assets or liabilities.

Impaired Loans:

At the time a loan is considered impaired, its impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market prices, or fair market value of the collateral if the loan is collateral-dependent. Impaired loans for which impairment is measured using the discounted cash flow approach are not considered to be measured at fair value because the loan’s effective interest rate is not a fair value input, and for the purposes of fair value disclosures, the fair value of these loans are measured commensurate with non-impaired loans. Generally, the Company utilizes the fair market value of the collateral, which is commonly based on recent real estate appraisals, to measure impairment. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3). Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned:

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers for commercial properties or certified residential appraisers for residential properties whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews

51

the assumptions and approaches utilized in the appraisal as well as the resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the actual selling price of collateral that has been liquidated to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.

The following tables summarize the balances of assets measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	26,446	$	—	$	26,446	$	—
Municipal securities	174,210		—		174,210		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies	490,270		—		490,270		—
Corporate obligations	6,231		—		6,231		—
Mutual funds and other equities	1,965		1,965		—		—
Total	$	699,122	$	1,965	$	697,157	$	—

	December 31, 2014
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	21,427	$	—	$	21,427	$	—
Municipal securities	173,037		—		173,037		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies	542,399		—		542,399		—
Corporate obligations	4,010		—		4,010		—
Mutual funds and other equities	1,973		1,973		—		—
Total	$	742,846	$	1,973	$	740,873	$	—

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2015 and 2014.

The Company may be required to measure certain financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

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The tables below represent assets measured at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014 and the net losses (gains) recorded in earnings during three and six months ended June 30, 2015 and 2014.

	Basis(1)		Fair Value at June 30, 2015
			Total		Level 1		Level 2		Level 3		Net Losses Recorded in Earnings  During the Three Months Ended June 30, 2015			Net Losses (Gains) Recorded in Earnings  During the Six Months Ended June 30, 2015
	(In thousands)
Impaired noncovered loans:
Commercial business:
Commercial and industrial	$	83	$	81	$	—	$	—	$	81	$	1		$	1
Total commercial business	83		81		—		—		81		1			1
Real estate construction and land development:
One-to-four family residential	865		863		—		—		863		(2		)	103
Total real estate construction and land development	865		863		—		—		863		(2		)	103
Total	948		944		—		—		944		(1		)	104
Other real estate owned:	1,004		603		—		—		603		84			414
Total assets measured	$	1,952	$	1,547	$	—	$	—	$	1,547	$	83		$	518

⁽¹⁾ Basis represents the unpaid principal balance of impaired noncovered loans and carrying value at ownership date of other real estate owned.

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	Basis(1)		Fair Value at December 31, 2014
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings  During the Three Months Ended June 30, 2014			Net Losses (Gains) Recorded in Earnings  During the Six Months Ended June 30, 2014
	(In thousands)
Impaired noncovered loans:
Commercial business:
Commercial and industrial	$	161	$	138	$	—	$	—	$	138	$	(79	)	$	81
Owner-occupied commercial real estate	—		—		—		—		—		(158		)	(220		)
Non-owner occupied commercial real estate	—		—		—		—		—		223			195
Total commercial business	161		138		—		—		138		(14		)	56
Real estate construction and land development:
One-to-four family residential	2,094		1,725		—		—		1,725		(32		)	(42		)
Five or more family residential and commercial properties	—		—		—		—		—		107			107
Total real estate construction and land development	2,094		1,725		—		—		1,725		75			65
Consumer	49		45		—		—		45		(1		)	23
Total	2,304		1,908		—		—		1,908		60			144
Covered impaired loans:
Commercial business:
Commercial and industrial	—		—		—		—		—		—			(234		)
Owner-occupied commercial real estate	—		—		—		—		—		(155		)	233
Total commercial business	—		—		—		—		—		(155		)	(1		)
Total	—		—		—		—		—		(155		)	(1		)
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations – residential:
Private residential collateralized mortgage obligations	36		11		—		11		—		25			25
Total assets measured	$	2,340	$	1,919	$	—	$	11	$	1,908	$	(70	)	$	168

⁽¹⁾  Basis represents the unpaid principal balance of impaired noncovered and impaired covered loans and amortized cost of investment securities held to maturity.

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014.

	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range of Inputs; Weighted Average
	(Dollars in thousands)
Impaired noncovered loans	$	944	Market approach	Adjustment for differences between the comparable sales	(8.50%) - 10.4%; 0.95%
Other real estate owned	$	603	Market approach	Adjustment for differences between the comparable sales	(48.6%) - 3.0%; (7.03%)

	December 31, 2014
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range of Inputs; Weighted Average
	(Dollars in thousands)
Impaired noncovered loans	$	1,908	Market approach	Adjustment for differences between the comparable sales	(47.5%) - 96.2%; 7.0%

(b) Fair Value of Financial Instruments

Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company.

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The tables below present the carrying value amount of the Company’s financial instruments and their corresponding estimated fair values at the dates indicated.

	June 30, 2015
	Carrying Value		Fair Value		Fair Value Measurements Using:
					Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	85,312	$	85,312	$	85,312	$	—	$	—
Other interest earning deposits	5,110		5,121		—		5,121		—
Investment securities available for sale	699,122		699,122		1,965		697,157		—
Investment securities held to maturity	33,587		34,494		—		34,494		—
Federal Home Loan Bank stock	4,148		N/A		N/A		N/A		N/A
Loans held for sale	6,939		7,089		—		7,089		—
Loans receivable, net of allowance for loan losses	2,319,024		2,359,950		—		—		2,359,950
Accrued interest receivable	9,883		9,883		2		3,061		6,820
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	$	2,485,276	$	2,485,276	$	2,485,276	$	—	$	—
Certificate of deposit accounts	461,211		461,049		—		461,049		—
Total deposits	$	2,946,487	$	2,946,325	$	2,485,276	$	461,049	$	—
Securities sold under agreement to repurchase	$	20,589	$	20,589	$	20,589	$	—	$	—
Junior subordinated debentures	19,278		19,278		—		—		19,278
Accrued interest payable	239		239		54		165		20

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	December 31, 2014
	Carrying Value		Fair Value		Fair Value Measurements Using:
					Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	121,636	$	121,636	$	121,636	$	—	$	—
Other interest earning deposits	10,126		10,145		—		10,145		—
Investment securities available for sale	742,846		742,846		1,973		740,873		—
Investment securities held to maturity	35,814		36,874		—		36,874		—
Federal Home Loan Bank stock	12,188		N/A		N/A		N/A		N/A
Loans held for sale	5,582		5,710		—		5,710		—
Loans receivable, net of allowance for loan losses	2,223,348		2,279,081		—		—		2,279,081
Accrued interest receivable	9,836		9,836		3		3,009		6,824
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	$	2,380,934	$	2,380,934	$	2,380,934	$	—	$	—
Certificate of deposit accounts	525,397		525,768		—		525,768		—
Total deposits	$	2,906,331	$	2,906,702	$	2,380,934	$	525,768	$	—
Securities sold under agreement to repurchase	$	32,181	$	32,181	$	32,181	$	—	$	—
Junior subordinated debentures	19,082		19,082		—		—		19,082
Accrued interest payable	411		411		62		328		21

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and Cash Equivalents:

The fair value of financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value equal to carrying value (Level 1).

Other Interest Earning Deposits:

These deposits with other banks have maturities greater than three months. The fair value is calculated based upon market prices for similar deposits (Level 2).

Federal Home Loan Bank Stock:

Federal Home Loan Bank ("FHLB") stock is not publicly traded, as such, it is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. At June 30, 2015 the stock was that of FHLB of Des Moines and at December 31, 2014 the stock was that of FHLB of Seattle. The FHLB of Seattle merger with and into the FHLB of Des Moines was effective in second quarter 2015.

Loans Held for Sale:

The fair value of loans held for sale is estimated based upon binding contracts or quotes from third party investors. (Level 2).

Loans Receivable:

Except for impaired loans discussed previously, fair value is based on discounted cash flows using current market rates applied to the estimated life (Level 3). While these methodologies are permitted under U.S. GAAP, they are not based on the exit price concept of the fair value required under ASC 820-10, Fair Value Measurements and Disclosures, and generally produce a higher value.

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Accrued Interest Receivable/Payable:

The fair value of accrued interest receivable/payable balances are determined using inputs and fair value measurements commensurate with the asset or liability from which the accrued interest is generated. The carrying amounts of accrued interest approximate fair value (Level 1, Level 2 and Level 3).

Deposits:

For deposits with no contractual maturity, the fair value is assumed to equal the carrying value (Level 1). The fair value of fixed maturity deposits is based on discounted cash flows using the difference between the deposit rate and the rates offered by the Company for deposits of similar remaining maturities (Level 2).

Securities Sold Under Agreement to Repurchase:

Securities sold under agreement to repurchase are short-term in nature and they reprice on a daily basis. Fair value financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value equal to carrying value (Level 1).

Junior Subordinated Debentures:

The fair value is estimated using discounted cash flow analysis based on current rates for similar types of debt, which many be unobservable, and considering recent trading activity of similar instruments in markets which can be inactive. At June 30, 2015, the fair value approximated the carrying value based on these valuation techniques (Level 3).

Off-Balance Sheet Financial Instruments:

The majority of our commitments to extend credit, standby letters of credit and commitments to sell mortgage loans carry current market interest rates if converted to loans. As such, no premium or discount was ascribed to these commitments (Level 1). They are excluded from the preceding tables.

(15) Business Combination

There were no acquisitions or mergers completed during the three and six months ended June 30, 2015. During the three and six months ended June 30, 2014, the Company completed the Washington Banking Merger.

Washington Banking Merger

On October 23, 2013, the Company, along with the Bank, and Washington Banking and its wholly owned subsidiary bank, Whidbey, jointly announced the signing of a merger agreement for the Washington Banking Merger. The Washington Banking Merger was effective on May 1, 2014. Pursuant to the terms of the Washington Banking Merger, Washington Banking branches adopted the Heritage Bank name in all markets, with the exception of six branches in the Whidbey Island markets which have continued to operate using the Whidbey Island Bank name. The primary reasons for the merger were to expand the Company's geographic footprint consistent with its ongoing growth strategy and to achieve operational scale and realize efficiencies of a larger combined organization.

Under the terms of the merger agreement, Washington Banking shareholders received 0.89000 shares of Heritage common stock and $2.75 in cash for each share of Washington Banking common stock. The terms of the merger agreement also stipulated immediate vesting of the Washington Banking options and restricted stock awards units. At April 30, 2014, the number of Washington Banking common shares outstanding was 15,587,154. The closing price of Heritage common stock was $16.16 as of April 30, 2014. The total consideration transferred by the Company in conjunction with the Washington Banking Merger was $269.6 million and the total number of Heritage shares of common stock issued were 14,000,178. The Company also incurred $489,000 in capitalized stock issuance costs.

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The total consideration transferred in the Washington Banking Merger consisted of the following:

	Washington Banking
	(In thousands)
Consideration transferred
Cash paid (1)	$	42,895
Fair value of common shares issued (2)	224,151
Fair value of restricted stock unit awards (3)	2,092
Fair value of common stock options	481
Total consideration transferred	$	269,619

(1) Includes $3,000 of cash paid due to fractional shares and $27,000 of cash paid from dissenters.

(2) Total of 13,870,716 shares issued. Excludes 1,686 shares dissented and paid in cash and 165 fractional shares paid in cash.

(3) Total number of converted shares was 129,462. Fair value includes 26,783 shares which were forfeited by the Washington Banking stockholder to pay applicable taxes, totaling fair value of $433,000.

The Washington Banking Merger resulted in $89.7 million of goodwill. This goodwill is not deductible for tax purposes. The transaction qualified as a tax-free reorganization for U.S. federal income tax purposes and Washington Banking shareholders did not recognize any taxable gain or loss in connection with the share exchange and the stock consideration received.

During the three and six months ended June 30, 2014, the Company incurred Washington Banking merger-related costs (including system conversion costs) of approximately $5.3 million and $5.6 million, respectively.

The Washington Banking Merger constitutes business acquisitions as defined by FASB ASC 805, Business Combinations. FASB ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed.  Heritage was considered the acquirer in the Washington Banking Merger. Accordingly, the preliminary estimates of fair values of the acquired bank's assets, including the identifiable intangible assets, and the assumed liabilities in the merger were measured and recorded as of the effective date of the merger.

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The fair value estimates of the assets acquired and liabilities assumed in the merger were as follows:

	Washington Banking
	(In thousands)
Assets
Cash and cash equivalents	$	74,947
Investment securities available for sale	458,312
Loans held for sale	3,923
Noncovered loans receivable	895,978
Covered loans receivable	107,050
FDIC indemnification asset	7,174
Other real estate owned ($5,122 covered by FDIC shared-loss agreements)	7,121
Premises and equipment	31,776
Federal Home Loan Bank stock	7,064
Bank owned life insurance	32,519
Accrued Interest Receivable	4,943
Other intangible assets	11,194
Prepaid expenses and other assets	14,852
Total assets acquired	1,656,853
Liabilities
Deposits	1,433,894
Junior subordinated debentures	18,937
Accrued expenses and other liabilities	24,067
Total liabilities assumed	1,476,898
Net assets acquired	$	179,955

A summary of the net assets purchased, the fair value adjustments and resulting goodwill recognized from the Washington Banking Merger are presented in the following table. Goodwill on mergers represents the excess of the consideration transferred over the estimated fair value of the net assets acquired and liabilities assumed.

	Washington Banking
	(In thousands)
Cost basis of net assets on merger date	$	181,782
Less: Consideration transferred	(269,619		)
Fair value adjustments:
Loans held for sale	86
Noncovered loans receivable	(12,811		)
Covered loans receivable	6,384
FDIC indemnification asset	357
Other real estate owned	387
Premises and equipment	(1,540		)
Other intangible assets	10,216
Prepaid expenses and other assets	(6,416		)
Deposits	(1,737		)
Junior subordinated debentures	6,837
Accrued expenses and other liabilities	(3,590		)
Goodwill recognized	$	(89,664	)

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The Company also considered the pro forma requirements of FASB ASC 805 and deemed it necessary for the Washington Banking Merger. The following table presents certain pro forma information, for illustrative purposes only, for the three and six months ended June 30, 2014 as if the Washington Banking Merger had occurred on January 1, 2014. The estimated pro forma information combines the historical results of Washington Banking with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the Washington Banking Merger occurred on January 1, 2014. In particular, no adjustments have been made to eliminate the impact of the Washington Banking loans previously accounted for under ASC 310-30 that may have been necessary if these loans had been recorded at fair value at January 1, 2014. The pro forma information also does not consider any changes to the provision for loan losses resulting from recorded loans at fair value. Additionally, Heritage expects to achieve further operating savings and other business synergies, including interest income growth, as a result of the Washington Banking Merger which are not reflected in the pro forma amounts in the following table. As a result, actual amounts will differ from the pro forma information presented.

	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014
	(Dollars In Thousands, except per share amounts)
Net interest income	$	34,699	$	70,997
Net income	$	5,161	$	16,453
Basic earnings per common share	$	0.17	$	0.55
Diluted earnings per common share	$	0.17	$	0.55

(16) Subsequent Event

On August 4, 2015, the Bank and the FDIC entered into an agreement terminating the shared-loss agreements for all three of the FDIC-assisted acquisitions (Cowlitz Bank, City Bank and North County Bank). The Bank paid consideration of $7.1 million to the FDIC for the termination of the agreements. The termination resulted in a pre-tax gain of approximately $1.7 million and the elimination of the FDIC indemnification asset and the FDIC clawback liability (included in “accrued expenses and other liabilities” in the condensed consolidated statements of financial condition) which was recorded as of the August 4, 2015 termination date. The FDIC indemnification asset and FDIC clawback liability amounts were $388,000 and $9.3 million, respectively, as of June 30, 2015. All rights and obligations of the parties under the FDIC shared-loss agreements, including the clawback provisions, will be eliminated under this termination agreement. The termination of the shared-loss agreements should have no impact on the yields for the loans that were previously covered under these agreements. All future charge-offs, recoveries, gains, losses and expenses related to covered assets will now be recognized entirely by the Bank since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and expenses.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding the financial condition and results of the Company as of and for the three months ended June 30, 2015. The information contained in this section should be read with the unaudited Condensed Consolidated Financial Statements and the accompanying Notes included herein, and the December 31, 2014 audited Consolidated Financial Statements and the accompanying Notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Overview

Heritage Financial Corporation is a bank holding company, which primarily engages in the business activities of its wholly owned subsidiary, Heritage Bank. We provide financial services to our local communities with an ongoing strategic focus on expanding our commercial lending relationships and market area and a continual focus on asset quality. At June 30, 2015, we had total assets of $3.48 billion and total stockholders’ equity of $459.1 million. The Company’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information set forth in this report relates primarily to the Bank’s operations.

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Our business consists primarily of commercial lending and deposit relationships with small businesses and their owners in our market areas and attracting deposits from the general public. We also originate real estate construction and land development loans, consumer loans and one-to-four family residential loans collateralized by residential properties located in western and central Washington State and the greater Portland, Oregon area.

Our core profitability depends primarily on our net interest income. Net interest income is the difference between interest income, which is the income that we earn on interest earning assets, comprised primarily of loans and investments, and interest expense, which is the amount we pay on our interest bearing liabilities, including primarily deposits. Management strives to match the repricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve. Like most financial institutions, our net interest income is affected significantly by general and local economic conditions, particularly changes in market interest rates, and by governmental policies and actions of regulatory agencies. Net interest income is additionally affected by changes on the volume and mix of interest earning assets, interest earned on these assets, the volume and mix of interest bearing liabilities and interest paid on interest bearing liabilities.

Our net income is affected by many factors, including the provision for loan losses. The provision for loan losses is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The allowance for loan losses reflects the amount that the Company believes is appropriate to provide for known and inherent credit losses in its loan portfolio.

Net income is also affected by noninterest income and noninterest expense. Noninterest income primarily consists of service charges and other fees, gain on sale of loans (net), merchant Visa income (net), change in FDIC indemnification asset and other income. Noninterest expense consists primarily of compensation and employee benefits, occupancy and equipment, data processing, professional services and other expenses. Compensation and employee benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, taxes, depreciation charges, maintenance and costs of utilities.

Results of operations may also be affected significantly by general and local economic and competitive conditions, governmental policies and actions of regulatory authorities. Other income and other expenses are also impacted by growth of operations and growth in the number of loan and deposit accounts through acquisitions and core banking business growth. Growth in operations affects other expenses primarily as a result of additional employees, branch facilities and marketing expense. Growth in the number of loan and deposit accounts affects other income, including service charges as well as other expenses such as data processing services, supplies, postage, telecommunications and other miscellaneous expenses.

Recent Developments

We completed the Washington Banking Merger on May 1, 2014. Legacy Washington Banking results since May 1, 2014 are included in the results of operations herein; therefore, the results included in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2015 include three and six months, respectively, of operations of legacy Washington Banking. The results included in this Quarterly Report on Form 10-Q for both the three and six months ended June 30, 2014 contains only two months of the operating results of legacy Washington Banking.

As of June 30, 2015 the Company had 66 branching locations. We intend to continue executing our lending practices across our newly expanded market area. We will focus on commercial and consumer lending, including increased small business lending. As a result of the Washington Banking Merger, we have a greater, more diversified noninterest income stream through increased mortgage banking operations and Small Business Administration ("SBA") lending operations.

Earnings Summary

Net income was $0.29 per diluted common share for the three months ended June 30, 2015 compared to $0.16 per diluted common share for the three months ended June 30, 2014 and $0.61 per diluted common share for the six months ended June 30, 2015 compared to $0.32 for thesix months ended June 30, 2014. Net income for the three months ended June 30, 2015 was $8.7 million compared to net income of $4.1 million for the same period in 2014. Net income was $18.5 million for the six months ended June 30, 2015 compared to $6.7 million for the six months ended June 30, 2014. The $4.6 million, or 110.3% increase in net income for the three months ended June 30, 2015 and the $11.8 million, or 176.6% increase in net income for the six months ended June 30, 2015 compared

62

to the same periods in 2014 were primarily the result of the Washington Banking Merger as well as an increase in the gain on sale of loans.

The efficiency ratio consists of noninterest expense divided by the sum of net interest income before provision for loan losses plus noninterest income. The Company’s efficiency ratio decreased to 66.3% for the three months ended June 30, 2015 from 80.9% for the three months ended June 30, 2014 and decreased to 64.8% for the six months ended June 30, 2015 from 79.7% for the six months ended June 30, 2014. The decreases are due primarily to the increases in net interest income, partially offset by the decrease in noninterest expense, primarily as a result of the Washington Banking Merger. The decrease in the efficiency ratio is also attributed to the efficiencies gained in the Washington Banking Merger as well as the merger-related costs incurred during 2014. The improvement in the efficiency ratio for the three and six months ended June 30, 2015 and 2014 was partially mitigated by a continued decline in the net interest margin.

Net Interest Income

One of the Company's key sources of earnings is net interest income. There are several factors that affect net interest income including, but not limited to, the volume, pricing, mix and maturity of interest-earning assets and interest-bearing liabilities; the volume of noninterest-bearing deposits and other liabilities and shareholders' equity; the volume of noninterest-earning assets; market interest rate fluctuations; and asset quality.

Net interest income increased $3.9 million, or 13.5%, to $32.5 million for the three months ended June 30, 2015, compared to $28.6 million for the same period in 2014. Net interest income increased $19.8 million, or 43.7%, to $65.1 million for six months ended June 30, 2015, compared to $45.3 million for the same period in 2014. The following tables provides relevant net interest income information for the dates indicated. The average loan balances presented in the table are net of allowances for loan losses. Nonaccrual loans have been included in the tables as loans carrying a zero yield. Yields on tax-exempt securities and loans have not been stated on a tax-equivalent basis.

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	Three Months Ended June 30,
	2015						2014
	Average Balance		Interest Earned/ Paid		Average Yield/ Rate (1)		Average Balance		Interest Earned/ Paid		Average Yield/ Rate (1)
	(Dollars in thousands)
Interest Earning Assets:
Loans, net	$	2,290,608	$	30,554	5.35	%	$	1,878,496	$	27,446	5.86	%
Taxable securities	555,549		2,328		1.68		343,571		1,812		2.11
Nontaxable securities	198,837		1,048		2.11		131,230		638		1.95
Other interest earning assets	60,297		60		0.40		170,087		127		0.30
Total interest earning assets	3,105,291		33,990		4.39	%	2,523,384		30,023		4.77	%
Noninterest earning assets	375,398						290,048
Total assets	$	3,480,689					$	2,813,432
Interest Bearing Liabilities:
Certificates of deposit	$	471,922	$	611	0.52	%	$	520,269	$	777	0.60	%
Savings accounts	383,353		99		0.10		241,461		52		0.09
Interest bearing demand and money market accounts	1,368,955		599		0.18		1,059,953		468		0.18
Total interest bearing deposits	2,224,230		1,309		0.24		1,821,683		1,297		0.29
FHLB advances and other borrowings	6,531		5		0.34		439		—		0.29
Securities sold under agreement to repurchase	20,323		13		0.26		24,409		15		0.26
Junior subordinated debentures	19,237		193		4.02		12,694		115		3.62
Total interest bearing liabilities	2,270,321		1,520		0.27	%	1,859,225		1,427		0.31	%
Demand and other noninterest bearing deposits	710,992						553,284
Other noninterest bearing liabilities	36,873						30,259
Stockholders’ equity	462,503						370,664
Total liabilities and stockholders’ equity	$	3,480,689					$	2,813,432
Net interest income			$	32,470					$	28,596
Net interest spread					4.12	%					4.46	%
Net interest margin					4.19	%					4.55	%
Average interest earning assets to average interest bearing liabilities					136.78	%					135.72	%

⁽¹⁾ Annualized

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	Six Months Ended June 30,
	2015						2014
	Average Balance		Interest Earned/ Paid		Average Yield/ Rate (1)		Average Balance		Interest Earned/ Paid		Average Yield/ Rate (1)
	(Dollars in thousands)
Interest Earning Assets:
Loans, net	$	2,265,276	$	61,035	5.43	%	$	1,543,815	$	43,897	5.73	%
Taxable securities	564,232		5,012		1.79		236,313		2,451		2.09
Nontaxable securities	197,961		2,081		2.12		102,324		1,074		2.12
Other interest earning assets	63,182		111		0.35		140,123		214		0.31
Total interest earning assets	3,090,651		68,239		4.45	%	2,022,575		47,636		4.75	%
Noninterest earning assets	369,790						213,794
Total assets	$	3,460,441					$	2,236,369
Interest Bearing Liabilities:
Certificates of deposit	$	490,428	1,258		0.52	%	$	411,248	$	1,330	0.65	%
Savings accounts	374,156		198		0.11		209,284		92		0.09
Interest bearing demand and money market accounts	1,345,972		1,170		0.18		817,057		729		0.18
Total interest bearing deposits	2,210,556		2,626		0.24		1,437,589		2,151		0.30
FHLB advances and other borrowings	3,418		6		0.33		221		324		0.30
Securities sold under agreement to repurchase	24,251		31		0.26		26,020		33		0.26
Junior subordinated debentures	19,192		432		4.54		6,382		115		3.62
Total interest bearing liabilities	2,257,417		3,095		0.28	%	1,470,212		2,299		0.32	%
Demand and other noninterest bearing deposits	703,686						449,134
Other noninterest bearing liabilities	37,676						22,408
Stockholders’ equity	461,662						294,615
Total liabilities and stockholders’ equity	$	3,460,441					$	2,236,369
Net interest income			$	65,144					$	45,337
Net interest spread					4.17	%					4.43	%
Net interest margin					4.25	%					4.52	%
Average interest earning assets to average interest bearing liabilities					136.91	%					137.57	%

⁽¹⁾ Annualized

The increases in net interest income for the three and six months ended June 30, 2015 compared to the same periods in 2014 were primarily the result of an increase in the interest on loans and securities as a result of the Washington Banking Merger. The average loans receivable for the three months ended June 30, 2015 increased $412.1 million, or 21.9%, to $2.29 billion compared to $1.88 billion for the three months ended June 30, 2014 and increased $721.5 million, or 46.7%, to $2.27 billion for the six months ended June 30, 2015 compared to $1.54 billion for the same period in 2014. A decrease in the contractual loan note rates and a decrease in the effects of incremental accretion income caused the yield to decrease to 5.35% for the three months ended June 30, 2015 as compared to 5.86% for the same period in 2014. The effect on loan yields from incremental accretion income decreased to 0.47% for the three months ended June 30, 2015 from 0.58% for the three months ended June 30, 2014. For the six months ended June 30, 2015, the loan yields decreased to 5.43% from 5.73% in same period of 2014 due to decreases in contractual note rates.

The increase in taxable securities and nontaxable securities' average balances to $754.4 million and $762.2 million for the three and six months ended June 30, 2015, respectively, compared to $474.8 million and $338.6 million, for the three and six months ended June 30, 2014, respectively, is attributable to the Washington Banking Merger as well as investment purchases, which also caused an increase in interest income earned on the securities. The increase in interest income from securities was partially offset by decreases in yield on taxable securities to 1.68% and 1.79% for the three and six months ended June 30, 2015, respectively, from 2.11% and 2.09% for the same periods in 2014, respectively.

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The average balance of interest bearing deposits increased $402.5 million, or 22.1%, to $2.22 billion for the three months ended June 30, 2015 from $1.82 billion for the three months ended June 30, 2014, a decrease in the average rates to 0.24% from 0.29% resulted in an increase of only $12,000, or 0.9%, in interest expense on deposits for the three months ended June 30, 2015 compared to the same period in 2014. In connection with the Washington Banking Merger, the Company acquired the junior subordinated debentures of Washington Banking. The average rate of these debentures for the three months ended June 30, 2015 was 4.02%, an increase of 40 basis points from 3.62% for the same period, including the effects of accretion of the discount established as of the date of the merger.

Net interest income as a percentage of average interest earning assets (net interest margin) for the three months ended June 30, 2015, decreased 36 basis points to 4.19% from 4.55% for the same period in 2014. The net interest margin for the six months ended June 30, 2015, decreased 27 basis points to 4.25% from 4.52% for the same period in 2014. The net interest spread for the three and six months ended June 30, 2015 decreased to 4.12% and 4.17%, respectively, from 4.46% and 4.43%, respectively, for the same periods in 2014.

The following table presents the net interest margins and effects of the incremental accretion on purchased loans for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2015		2014		2015		2014
Net interest margin, excluding incremental accretion on purchased loans (1)	3.84	%	4.12	%	3.86	%	4.15	%
Impact on net interest margin from incremental accretion on purchased loans (1)	0.35		0.43		0.39		0.37
Net interest margin	4.19	%	4.55	%	4.25	%	4.52	%

⁽¹⁾  The incremental accretion income represents the amount of income recorded on the purchased loans above the contractual stated interest rate in the individual loan notes. This income results from the discount established at the time these loan portfolios were acquired and modified as a result of quarterly cash flow re-estimation.

The impact on net interest margin from incremental accretion on purchased loans decreased eight basis points to 0.35% for the three months ended June 30, 2015 from 0.43% for the same period in 2014 and increased 2 basis points to 0.39% for the six months ended June 30, 2015 from 0.37% for the same period in 2014. The dollar amount of incremental accretion income was $2.7 million for the three months ended June 30, 2015 and 2014. The dollar amount of incremental accretion income was $6.0 million for the six months ended June 30, 2015 compared to $3.7 million for the same period in 2014 primarily as a result of the Washington Banking Merger.

Total interest income increased $4.0 million, or 13.2%, to $34.0 million for the three months ended June 30, 2015, from $30.0 million for the three months ended June 30, 2014. Total interest income increased $20.6 million, or 43.3% to $68.2 million for the six months ended June 30, 2015 from $47.6 million for the same period in 2014. The increase in interest income was primarily due to the increase in interest and fees on loans as a result of the Washington Banking Merger as well as organic loan growth. This increase was partially offset by a decrease in the loan yields as a result of lower contractual note rates as a result of the continuing low interest rate environment.

The balance of average interest earning assets (including nonaccrual loans) increased $581.9 million, or 23.1%, to $3.11 billion for the three months ended June 30, 2015, from $2.52 billion for the three months ended June 30, 2014 and increased $1.07 million, or 52.8%, to $3.09 billion for the six months ended June 30, 2015 from $2.02 billion for the same period in 2014. The increase in average interest earning assets is primarily due to the Washington Banking Merger. The Company acquired $1.00 billion of fair value in loans, excluding loans held for sale, and $458.3 million of fair value in investment securities in the Washington Banking Merger.

The yield on total interest earning assets decreased 38 basis points to 4.39% for the three months ended June 30, 2015 from 4.77% for the three months ended June 30, 2014 and decreased 30 basis points to 4.45% for the six months ended June 30, 2015 from 4.75% for the same period in 2014. The decreases in the yield on interest earning assets reflects the decrease in loan and securities yields primarily as a result of lower contractual rates from the low interest rate environment.

Total interest expense increased by $93,000, or 6.5%, to $1.5 million for the three months ended June 30, 2015 from $1.4 million for the three months ended June 30, 2014. Total interest expense increased $796,000, or 34.6%, to $3.1 million for the six months ended June 30, 2015 from $2.3 million for the same period in 2014. The increase in interest expense was attributable to the combination of higher average interest bearing deposits balances and the addition of the junior subordinated debenture as a result of the Washington Banking Merger, partially offset by lower average rates paid on interest bearing certificates of deposit.

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The average cost of interest bearing liabilities decreased four basis points to 0.27% for the three months ended June 30, 2015 from 0.31% for the three months ended June 30, 2014 and decreased four basis points to 0.28% for the six months ended June 30, 2015 from 0.32% for the same period in the prior year. Total average interest bearing liabilities increased by $411.1 million, or 22.1%, to $2.27 billion for the three months ended June 30, 2015 from $1.86 billion for the three months ended June 30, 2014. Total average interest bearing liabilities increased $787.2 million, or 53.5%, to $2.26 billion for the six months ended June 30, 2015 from $1.47 billion for the same period in 2014. The increase in average interest bearing liabilities was due primarily to the Washington Banking Merger which had approximately $1.43 billion in fair value of assumed deposits (including noninterest bearing deposits) and $18.9 million in fair value of assumed junior subordinated debentures.

Deposit interest expense increased $12,000, or 0.9%, to $1.3 million for the three months ended June 30, 2015 compared to $1.30 million for the same quarter in 2014 and increased $475,000, or 22.1%, to $2.63 million for the six months ended June 30, 2015 from $2.2 million for the same period in 2014. The increase in deposit interest expense is primarily a result of the increase in the average deposit balance as a result of the Washington Banking Merger, offset partially by a decrease in the deposit average rate to 0.24% for the three and six months ended June 30, 2015 from 0.29% and 0.30%, respectively, for the same periods in 2014.

Due to the current low interest rate environment, together with the projected principal reduction in higher yielding purchased loans, the Company expects the net interest margin will continue to have downward pressure in future periods.

Provision for Loan Losses

The provision for loan losses is dependent on the Company’s ability to manage asset quality and control the level of net charge-offs through prudent underwriting standards. In addition, a decline in general economic conditions could increase future provisions for loan losses and have a material effect on the Company’s net income.

The provision for loan losses for noncovered loans increased $819,000, or 221.4% to $1.2 million for the three months ended June 30, 2015 from $370,000 for the three months ended June 30, 2014 and increased $2.1 million to $2.5 million, or 608.9% for the six months ended June 30, 2015 from $349,000 for the same period in 2014. The amount of the provision was calculated in accordance with the Company's methodology for determining the allowance for loan losses as discussed below. The increase in provision for loan losses from prior year periods was primarily the result of loan growth from the prior year periods.

Based on the change in mix and volume of the noncovered loan portfolio at June 30, 2015 compared to March 31, 2015 and December 31, 2014, as well as the decrease in certain historical loss factors and improvements in certain environmental factors, the Company determined that the provision for loan losses on noncovered loans for the three and six months ended June 30, 2015 was appropriate. The ratio of net charge-offs (recoveries) to average noncovered loans outstanding was 0.13% and 0.17% for the three and six months ended June 30, 2015, respectively, compared to 0.19% and 0.18% for the three and six months ended June 30, 2014, respectively.

The Bank has established a comprehensive methodology for determining the allowance for loan losses on noncovered loans, excluding PCI noncovered loans. On a quarterly basis, the Bank performs an analysis taking into consideration pertinent factors underlying the credit quality of the loan portfolio. These factors include changes in the amount and composition of the loan portfolio, historical loss experience for various loan classes, changes in economic conditions, delinquency rates, a detailed analysis of individual loans on nonaccrual status, and other factors to determine the level of the allowance for loan losses.

For the PCI noncovered loans, the acquisition date fair value incorporated our estimate of future expected cash flows until the ultimate resolution of these credits. To the extent actual or projected cash flows are less than previously estimated, additional provisions for loan losses on the PCI noncovered loan portfolio will be recognized immediately into earnings. To the extent actual or projected cash flows are more than previously estimated, the increase in cash flows is recognized immediately as a recapture of provision for loan losses up to the previously recognized provision for that pool of loans, if any, and then prospectively recognized in interest income as a yield adjustment.

The allowance for loan losses on noncovered loans, including PCI noncovered loans, increased by $626,000, or 2.8%, to $22.8 million at June 30, 2015 from $22.2 million at December 31, 2014. As of June 30, 2015, the Bank identified $25.3 million of impaired noncovered loans, which included $19.8 million of performing troubled debt restructured noncovered loans. Of those impaired noncovered loans, $7.0 million have no allowances for credit losses as their estimated collateral value or discounted estimated cash flow is equal to or exceeds their carrying costs. The remaining $18.2 million have related allowances for credit losses totaling $2.8 million.

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Based on the established comprehensive methodology, management deemed the allowance for loan losses on noncovered loans of $22.8 million at June 30, 2015 (1.02% of total noncovered loans and 325.51% of nonperforming noncovered loans) appropriate to provide for probable incurred losses based on an evaluation of known and inherent risks in the loan portfolio at that date. This compares to an allowance for loan losses on noncovered loans at December 31, 2014 of $22.2 million (1.04% of total noncovered loans and 294.98% of nonperforming noncovered loans). At the applicable acquisition or merger dates, no allowance for loan losses was established on purchased noncovered loans as the loans were accounted for at their fair value and a discount was established for the loans. At June 30, 2015 and December 31, 2014, the remaining fair value discount for the purchased noncovered loans was $20.5 million and $24.0 million, respectively.

The following table outlines the allowance for loan losses on noncovered loans and related noncovered loan balances at June 30, 2015 and December 31, 2014:

	June 30, 2015			December 31, 2014
	(Dollars in thousands)
General Valuation Allowance:
Allowance for loan losses on noncovered loans	$	20,009		$	18,918
Gross noncovered loans, excluding impaired noncovered loans	2,214,300			2,099,658
Percentage	0.90		%	0.90		%
Specific Valuation Allowance:
Allowance for loan losses on noncovered loans	$	2,770		$	3,235
Gross impaired noncovered loans	25,257			26,156
Percentage	10.97		%	12.37		%
Total Allowance for Loan Losses:
Allowance for loan losses on noncovered loans	$	22,779		$	22,153
Gross noncovered loans	2,239,557			2,125,814
Percentage	1.02		%	1.04		%

The provision for loan losses on covered loans are calculated in the same manner as the noncovered loans described above. The related provision for loan losses on the covered loans is recorded at the gross amount regardless of the portion of the estimated losses covered by the FDIC shared-loss agreements. The offset to this potential loss is included in the change in the FDIC indemnification asset. There was no provision for loan losses on covered loans for the three months ended June 30, 2015, compared to $321,000 for the three months ended June 30, 2014. For the six months ended June 30, 2015, the provision for loan losses on covered loans was $(77,000) compared to $800,000 for the same period in 2014. The FDIC indemnification asset was decreased through a reduction of noninterest income totaling $304,000 and $497,000 for the three and six months ended June 30, 2015, respectively, as a result of the change in estimated losses.

While the Bank believes it has established its existing allowances for loan losses in accordance with GAAP, there can be no assurance that bank regulators, in reviewing the Bank’s loan portfolio, will not request the Bank to increase significantly its allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is appropriate or that increased provisions will not be necessary should the credit quality of the loans deteriorate. Any material increase in the allowance for loan losses would adversely affect the Company’s financial condition and results of operations.

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Noninterest Income

Total noninterest income increased $2.1 million, or 44.0%, to $6.9 million for the three months ended June 30, 2015 compared to $4.8 million for the same period in 2014. Total noninterest income increased $8.1 million, or 114.8%, to $15.2 million for the six months ended June 30, 2015 compared to $7.1 million for the same period in 2014. The following table presents the change in the key components of noninterest income for the periods noted.

	Three Months Ended June 30,
	2015			2014		Change			Percentage Change
	(Dollars in thousands)
Service charges and other fees	$	3,687		$	2,777	$	910		32.8	%
Merchant Visa income, net	194			316		(122		)	(38.6	)
Change in FDIC indemnification asset	(304		)	109		(413		)	(378.9	)
Gain on sale of investment securities, net	425			87		338			388.5
Gain on sale of loans, net	1,282			233		1,049			450.2
Other income	1,597			1,258		339			26.9
Total noninterest income	$	6,881		$	4,780	$	2,101		44.0	%

	Six Months Ended June 30,
	2015			2014		Change			Percentage Change
	(Dollars in thousands)
Service charges and other fees	$	6,982		$	4,175	$	2,807		67.2	%
Merchant Visa income, net	392			561		(169		)	(30.1	)
Change in FDIC indemnification asset	(497		)	72		(569		)	(790.3	)
Gain on sale of investment securities, net	969			267		702			262.9
Gain on sale of loans, net	2,417			233		2,184			937.3
Other income	4,963			1,779		3,184			179.0
Total noninterest income	$	15,226		$	7,087	$	8,139		114.8	%

Service charges and other fees increased $910,000, or 32.8%, for the three months ended June 30, 2015 compared to the same period in 2014 and increased $2.8 million, or 67.2%, for the six months ended June 30, 2015 compared to the same period in 2014. The increases were primarily as a result of the Washington Banking Merger. The increase in service charges are primarily the result of customer balance increases in deposit accounts. For the three and six months ended June 30, 2015, average total deposits were $2.94 billion and $2.91 billion, respectively, compared to $2.37 billion and $1.89 billion for the three and six months ended June 30, 2014, respectively. On the effective date of the Washington Banking Merger, the Bank assumed fair value of $1.43 billion of deposits.

Gain on sale of investment securities, net was $425,000 and $969,000 for the three and six months ended June 30, 2015, respectively, compared to $87,000 and $267,000 for the same periods in 2014, respectively. The increase in gains is due to additional restructuring of the investment portfolio in anticipation of rising interest rates.

Gain on sale of loans, net was $1.3 million and $2.4 million for the three and six months ended June 30, 2015, respectively, and includes net gains on sale of one-to-four family residential loans as well as net gains on the sale of the government guaranteed portion of certain SBA loans. The increase was due to impact of the Washington Banking Merger. The Company had discontinued its mortgage banking operations in the second quarter of 2013 and did not sell the government guaranteed portion of SBA loans prior to the Washington Banking Merger. Mortgage banking operations were resumed with the consummation of the Washington Banking Merger on May 1, 2014 as were the sales of government guaranteed portions of certain SBA loans.

Other income increased $339,000, or 26.9%, to $1.6 million for the three months ended June 30, 2015 from $1.3 million for the three months ended June 30, 2014 and increased $3.2 million, or 179.0%, to $5.0 million for the

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six months ended June 30, 2015 from $1.8 million for the same period in 2014. The increases were significantly affected by the Company's sale of its merchant Visa portfolio in January 2015, which generated a gain of $1.7 million in January 2015. The effects of this sale will result in lower merchant Visa income. As indicated in the table above, the merchant Visa income, net decreased $122,000, or 38.6%, to $194,000 for the three months ended June 30, 2015 from $316,000 for the three months ended June 30, 2014 primarily due to the sale. The increase in other income was also partially a result of loan loss recoveries primarily of Washington Banking loans which were charged-off prior to consummation of the Washington Banking Merger. These off-balance sheet loan deficiencies had a zero fair value estimate at the May 1, 2014 effective date of the Washington Banking Merger. Other income also included $135,000 and $355,000 of income from bank owned life insurance policies for the three and six months ended June 30, 2015, respectively. The Company did not have bank owned life insurance prior to the Washington Banking Merger.

The change in FDIC indemnification asset caption includes amortization of the FDIC indemnification asset and changes to the FDIC indemnification asset as a result of changes in projected remaining cash flows of the purchased covered loans. The Bank recorded $21,000 and $360,000 of amortization of the FDIC indemnification asset during the three months ended June 30, 2015 and 2014, respectively and recorded $145,000 and $733,000 of amortization during the six months ended June 30, 2015 and 2014, respectively.

Noninterest Expense

Noninterest expense decreased $914,000, or 3.4%, to $26.1 million during the three months ended June 30, 2015 compared to $27.0 million for the three months ended June 30, 2014 and increased $10.3 million, or 24.8%, to $52.1 million for the six months ended June 30, 2015 compared to $41.8 million for the same period in 2014. The following tables present the change in the key components of noninterest expense for the periods noted.

	Three Months Ended   June 30,
	2015		2014		Change			Percentage Change
	(Dollars in thousands)
Compensation and employee benefits	$	13,842	$	12,779	$	1,063		8.3	%
Occupancy and equipment	3,850		2,816		1,034			36.7
Data processing	1,925		4,003		(2,078		)	(51.9	)
Marketing	1,063		496		567			114.3
Professional services	904		3,230		(2,326		)	(72.0	)
State and local taxes	569		554		15			2.7
Impairment loss on investment securities, net	—		37		(37		)	(100.0	)
Federal deposit insurance premium	523		460		63			13.7
Other real estate owned, net	200		214		(14		)	(6.5	)
Amortization of intangible assets	527		489		38			7.8
Other expense	2,676		1,915		761			39.7
Total noninterest expense	$	26,079	$	26,993	$	(914	)	(3.4	)%

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	Six Months Ended   June 30,
	2015		2014		Change			Percentage Change
	(Dollars in thousands)
Compensation and employee benefits	$	28,067	$	20,790	$	7,277		35.0	%
Occupancy and equipment	7,541		5,433		2,108			38.8
Data processing	3,552		4,999		(1,447		)	(28.9	)
Marketing	1,696		1,001		695			69.4
Professional services	1,708		4,060		(2,352		)	(57.9	)
State and local taxes	1,189		803		386			48.1
Impairment loss on investment securities, net	—		45		(45		)	(100.0	)
Federal deposit insurance premium	1,038		712		326			45.8
Other real estate owned, net	859		266		593			222.9
Amortization of intangible assets	1,054		645		409			63.4
Other expense	5,413		3,018		2,395			79.4
Total noninterest expense	$	52,117	$	41,772	$	10,345		24.8	%

The increase in total noninterest expense for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 was due primarily to increased expenses related to the Washington Banking Merger.

Compensation and employee benefits increased $1.1 million, or 8.3%, to $13.8 million during the three months ended June 30, 2015 compared to $12.8 million during the three months ended June 30, 2014 and increased $7.3 million, or 35.0%, to $28.1 million for the six months ended June 30, 2015 compared to $20.8 million for the six months ended June 30, 2014. The increases in the three and six months ended June 30, 2015 compared to the same period in 2014 is primarily the result of the increase in the number of full-time equivalent employees attributable to the Washington Banking Merger.

Occupancy and equipment increased $1.0 million, or 36.7%, to $3.9 million for the three months ended June 30, 2015 compared to $2.8 million for the same period in 2014 and increased $2.1 million, or 38.8%, to $7.5 million for the six months ended June 30, 2015 compared to $5.4 million for the same period in 2014. The increase was primarily the result of lease expenses associated with the acquired Whidbey branches.

Data processing decreased $2.1 million, or 51.9%, to $1.9 million for the three months ended June 30, 2015 from $4.0 million for the same period in 2014 and decreased $1.4 million, or 28.9%, to $3.6 million for the six months ended June 30, 2015 compared to $5.0 million for the same period in 2014. The decreases were due to merger-related data processing expenses in the amount of $2.6 million which were recognized during the quarter ended June 30, 2014. This was partially offset by additional data processing costs associated with the core system processing, which increased from the prior period because of the Washington Banking Merger and a resulting increase in the number of accounts and users in the Bank.

Professional services decreased $2.3 million, or 72.0%, to $904,000 for the three months ended June 30, 2015 from $3.2 million for the three months ended June 30, 2014 and decreased $2.4 million, or 57.9%, to $1.7 million for the six months ended June 30, 2015 compared to $4.1 million for the same period in 2014. The decrease in professional services was related to expenses incurred during the three and six months ended June 30, 2014 for attorney, accountant and financial advisor fees in conjunction primarily with the Washington Banking Merger.

Other real estate owned, net expense decreased $14,000, or 6.5%, to $200,000 during the three months ended June 30, 2015 compared to $214,000 during the three months ended June 30, 2014 and increased $593,000, or 222.9%, to $859,000 for the six months ended June 30, 2015 compared to $266,000 for the same period in 2014. The increase in the expense during the six months ended June 30, 2015 compared to the same prior year period was primarily due to valuation adjustments of $330,000 and losses on sales of other real estate owned in the amount of $70,000 which were incurred during the three months ended June 30, 2015.

Other expense increased $761,000, or 39.7%, to $2.7 million for the three months ended June 30, 2015 from $1.9 million for the same period in 2014 and increased $2.4 million, or 79.4%, to $5.4 million for the six months ended June 30, 2015 compared to $3.0 million for the same period in 2014. The increases for the three and six months ended June 30, 2015 compared to the same periods in 2014 are primarily the result of the increases in employee-related

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expenses such as courier services, travel expenses, telephone and Visa card expenses given the increase in employees and market area as a result of the Washington Banking Merger.

Income Tax Expense

Income tax expense increased by $1.8 million, or 117.5%, to $3.4 million for the three months ended June 30, 2015 from $1.5 million for the three months ended June 30, 2014 and increased $4.5 million, or 161.5%, to $7.4 million for the six months ended June 30, 2015 compared to $2.8 million for the same period in 2014. The Company’s effective tax rate was 27.8% and 28.4% for the three and six months ended June 30, 2015, respectively, compared to 27.1% and 29.6% for the same periods in 2014, respectively. The increase in the income tax expense was primarily due to the increase in pre-tax income. The decrease in the Company’s effective tax rate for the six months ended June 30, 2015 compared to the same period in 2014 is due primarily to the purchase of an additional $25 million in bank owned life insurance policies in May 2015, the income of which is exempt from income taxes.

Financial Condition Overview

Total assets increased slightly to $3.48 billion as of June 30, 2015 as compared to $3.46 billion as of December 31, 2014. The total loans receivable, net increased $95.7 million, or 4.3%, to $2.32 billion at June 30, 2015 compared to $2.22 billion at December 31, 2014. To fund the increase in loans, cash and cash equivalents and investment securities available for sale were decreased. Cash and cash equivalents decreased $36.3 million, or 29.9%, to $85.3 million at June 30, 2015 from $121.6 million at December 31, 2014. Investment securities available for sale decreased $43.7 million, or 5.9%, to $699.1 million at June 30, 2015 from $742.8 million at December 31, 2014.

FHLB stock decreased $8.0 million, or 66.0%, to $4.1 million at June 30, 2015 from $12.2 million at December 31, 2014 due to the repurchase of stock by the FHLB of Seattle as a result of the FHLB of Seattle merger with FHLB of Des Moines which was effective during the second quarter of 2015. Based on the FHLB of Des Moines structure, the amount of stock to be held by participating banks is substantially less than that of the former FHLB of Seattle.

Bank owned life insurance increased $25.4 million, or 72.2%, to $60.6 million as of June 30, 2015 from $35.2 million at December 31, 20144. The increase was due primarily to the purchase of an additional $25 million in bank owned life insurance policies during the quarter ended June 30, 2015.

Deposits increased by $40.2 million, or 1.4%, to $2.95 billion as of June 30, 2015 compared to $2.91 billion as of December 31, 2014. Total non-maturity deposits increased to 84.3% of total deposits at June 30, 2015 from 81.9% at December 31, 2014 and certificates of deposits decreased to 15.7% of total deposits at June 30, 2015 from 18.1% at December 31, 2014.

Securities sold under agreement to repurchase decreased $11.6 million, or 36.0%, to $20.6 million as of June 30, 2015 from $32.2 million as of December 31, 2014 primarily due to changes in customer deposit balances.

Accrued expenses and other liabilities decreased $10.8 million, or 23.7%, to $34.8 million at June 30, 2015 from $45.7 million at December 31, 2014 primarily as a result of federal income tax payments and incentive compensation payments made during the first quarter of 2015.

Total stockholders’ equity increased by $4.6 million, or 1.0%, to $459.1 million as of June 30, 2015 from $454.5 million at December 31, 2014. The increase during the six months ended June 30, 2015 was due primarily to net income of $18.5 million, partially offset by cash dividends declared of $6.3 million and common stock repurchases totaling $7.7 million. The Company’s equity position continues to remain strong at 13.2% of total assets as of June 30, 2015 compared to 13.1% as of December 31, 2014.

The table below provides a comparison of the changes in the Company's financial condition from December 31, 2014 to June 30, 2015.

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	June 30, 2015		December 31, 2014		Change between June 30, 2015 and December 31, 2014
Assets
Cash and cash equivalents	$	85,312	$	121,636	$	(36,324	)
Other interest earning deposits	5,110		10,126		(5,016		)
Investment securities	732,709		778,660		(45,951		)
Loans held for sale	6,939		5,582		1,357
Noncovered loans receivable, net of allowance for loan losses	2,216,842		2,102,724		114,118
Covered loans receivable, net of allowance for loan losses	102,182		120,624		(18,442		)
FDIC indemnification asset	388		1,116		(728		)
Other real estate owned	3,017		3,355		(338		)
Premises and equipment, net	63,968		64,938		(970		)
Federal Home Loan Bank stock, at cost	4,148		12,188		(8,040		)
Bank owned life insurance	60,579		35,176		25,403
Accrued interest receivable	9,883		9,836		47
Prepaid expenses and other assets	60,383		61,871		(1,488		)
Other intangible assets, net	9,835		10,889		(1,054		)
Goodwill	119,029		119,029		—
Total assets	$	3,480,324	$	3,457,750	$	22,574
Liabilities
Deposits	$	2,946,487	$	2,906,331	$	40,156
Junior subordinated debentures	19,278		19,082		196
Securities sold under agreement to repurchase	20,589		32,181		(11,592		)
Accrued expenses and other liabilities	34,842		45,650		(10,808		)
Total liabilities	3,021,196		3,003,244		17,952
Stockholders' equity
Common stock	358,365		364,741		(6,376		)
Retained earnings	98,565		86,387		12,178
Accumulated other comprehensive income, net	2,198		3,378		(1,180		)
Total stockholders' equity	459,128		454,506		4,622
Total liabilities and stockholders' equity	$	3,480,324	$	3,457,750	$	22,574

Lending Activities

As indicated in the table below, total loans receivable, net of net deferred loan fees increased $96.2 million, or 4.3%, to $2.35 billion at June 30, 2015 from $2.25 billion at December 31, 2014. Noncovered loans receivable, net of deferred loan fees increased $114.7 million, or 5.4%, to $2.24 billion at June 30, 2015 from $2.12 billion at December 31, 2014. Covered loans receivable decreased by $18.5 million, or 14.7%, to $107.7 million at June 30, 2015 from $126.2 million at December 31, 2014. The increases in the noncovered loan receivable balances for the six months ended June 30, 2015 was primarily in commercial real estate loans.

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	June 30, 2015		% of Total Noncovered		December 31, 2014			% of Total Noncovered
	(Dollars in thousands)
Noncovered loans receivable
Commercial business:
Commercial and industrial	$	551,989	24.6	%	$	551,343		26.0	%
Owner-occupied commercial real estate	565,721		25.3		535,742			25.2
Non-owner occupied commercial real estate	676,872		30.2		616,757			29.0
Total commercial business	1,794,582		80.1		1,703,842			80.2
One-to-four family residential	67,083		3.0		63,540			3.0
Real estate construction and land development:
One-to-four family residential	41,693		1.9		46,749			2.2
Five or more family residential and commercial properties	66,024		2.9		61,360			2.9
Total real estate construction and land development	107,717		4.8		108,109			5.1
Consumer	270,175		12.1		250,323			11.8
Gross noncovered loans	2,239,557		100.0		2,125,814			100.1
Net deferred loan fees	64		—		(937		)	(0.1	)
Noncovered loans receivable, net	2,239,621		100.0	%	2,124,877			100.0	%
Covered loans receivable	107,681				126,200
Total loans receivable, net of net deferred loan fees	$	2,347,302			$	2,251,077

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Nonperforming Noncovered Assets

The following table describes our nonperforming noncovered assets at the dates indicated:

	June 30, 2015			December 31, 2014
	(Dollars in thousands)
Nonaccrual noncovered loans:
Commercial business	$	4,490		$	4,719
Real estate construction and land development	2,489			2,652
Consumer	19			139
Total nonaccrual noncovered loans (1)(2)	6,998			7,510
Other real estate owned, noncovered	259			2,178
Total nonperforming noncovered assets	$	7,257		$	9,688
Performing TDR noncovered loans:
Commercial business	$	16,511		$	14,408
One-to-four family residential	241			245
Real estate construction and land development	2,928			3,927
Consumer	103			184
Total performing TDR noncovered loans (3)	$	19,783		$	18,764
Accruing noncovered loans past due 90 days or more (4)	$	—		$	—
Noncovered potential problem loans (5)	86,152			117,250
Allowance for loan losses on noncovered loans	22,779			22,153
Allowance for loan losses on noncovered loans to total noncovered loans, net	1.02		%	1.04		%
Allowance for loan losses on noncovered loans to nonperforming noncovered loans	325.51		%	294.98		%
Nonperforming noncovered loans to total noncovered loans	0.31		%	0.35		%
Nonperforming noncovered assets to total noncovered assets	0.21		%	0.29		%

⁽¹⁾  At June 30, 2015 and December 31, 2014, $4.3 million and $4.1 million of nonperforming noncovered loans, respectively, were considered troubled debt restructurings.

⁽²⁾  At June 30, 2015 and December 31, 2014, $1.7 million and $1.6 million of nonperforming noncovered loans, respectively, were guaranteed by government agencies.

⁽³⁾  At June 30, 2015 and December 31, 2014, $456,000 and $751,000 of performing TDR noncovered loans, respectively, were guaranteed by government agencies.

⁽⁴⁾  There were no accruing noncovered loans past due 90 days or more that were guaranteed by government agencies at June 30, 2015 or December 31, 2014.

⁽⁵⁾  At June 30, 2015 and December 31, 2014, $501,000 and $2.0 million of noncovered potential problem loans, respectively, were guaranteed by government agencies.

Nonperforming noncovered assets decreased $2.4 million to $7.3 million, or 0.21% of total noncovered assets, at June 30, 2015 from $9.7 million, or 0.29% of total noncovered assets at December 31, 2014 due primarily to a decrease of $1.9 million in noncovered other real estate owned. For the six months ended June 30, 2015, the decrease in nonperforming noncovered loans was due to $982,000 in net principal reductions and $596,000 in charge-offs, offset partially by $1.2 million of additions in nonperforming noncovered loans. The noncovered other real estate owned balance decreased to $259,000 at June 30, 2015 from $2.2 million at December 31, 2014 as a result of the sale of nine noncovered properties with net proceeds of $1.5 million and losses of $96,000 along with a $400,000 valuation adjustment to record seven properties at their estimated proceeds value based on recent purchase and sales agreements.

Performing TDR noncovered loans were $19.8 million and $18.8 million as of June 30, 2015 and December 31, 2014, respectively. The $1.0 million, or 5.4%, increase in the performing TDR noncovered loans for the six months ended June 30, 2015 was primarily the result of the restructuring of $4.5 million of loans during the period partially offset by net principal payments of $2.8 million and $957,000 of loans transferred to nonaccrual status. At June 30, 2015 and December 31, 2014, the Company had recorded $2.3 million and $1.9 million, respectively, in allowance for loan losses on the performing TDR noncovered loans.

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Noncovered potential problem loans as of June 30, 2015 and December 31, 2014 were $86.2 million and $117.3 million, respectively. Potential problem loans are those loans that are currently accruing interest and are not considered impaired, but which we are monitoring because the financial information of the borrower causes us concerns as to their ability to comply with their loan repayment terms. Loans that are past due 90 days or more and still accruing interest are both well secured and in the process of collection. The $31.1 million, or 26.5%, decrease in the noncovered potential problem loans was primarily the result of $27.6 million in loan grade improvements and loan principal payments (net) of $14.5 million, partially offset by the addition of $10.7 million of loans graded as potential problem loans during the six months ended June 30, 2015.

Analysis of Allowance for Loan Losses

Management maintains an allowance for loan losses (“ALL”) to provide for estimated probable incurred credit losses inherent in the loan portfolio. The adequacy of the ALL is monitored through our ongoing quarterly loan quality assessments.

We assess the estimated probable incurred credit losses inherent in our loan portfolio by considering a number of elements including:

•Historical loss experience in a number of homogeneous classes of the loan portfolio;

•The impact of environmental factors, including:

•Levels of and trends in delinquencies and impaired loans;

•Levels and trends in charge-offs and recoveries;

• Effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices;

•Experience, ability, and depth of lending management and other relevant staff;

•National and local economic trends and conditions;

•External factors such as competition, legal, and regulatory requirements; and

•Effects of changes in credit concentrations.

We calculate an appropriate ALL for the non-classified and classified performing loans in our loan portfolio, except PCI loans, by applying historical loss factors for homogeneous classes of the portfolio, adjusted for changes to the above-noted environmental factors. We may record specific provisions for impaired loans, including loans on nonaccrual status and TDRs, after a careful analysis of each loan’s credit and collateral factors. Our analysis of an appropriate ALL combines the provisions made for our non-classified loans, classified loans, and the specific provisions made for each impaired loan.

For the PCI loans, the acquisition date fair value incorporated our estimate of future expected cash flows until the ultimate resolution of these credits. To the extent actual or projected cash flows are less than previously estimated, additional provisions for loan losses on the PCI loan portfolio will be recognized immediately into earnings. To the extent actual or projected cash flows are more than previously estimated, the increase in cash flows is recognized immediately as a recapture of provision for loan losses up to the previously recognized provision for that pool of loans, if any, and then prospectively recognized in interest income as a yield adjustment.

While we believe we use the best information available to determine the allowance for loan losses under both methods, results of operations could be significantly affected if circumstances differ substantially from the assumptions used in determining the allowance. A further decline in local and national economic conditions, or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations. In addition, the determination of the amount of the allowance for loan losses is subject to review by bank regulators, as part of their routine examination process, which may result in the establishment of additional allowance allocations based upon their judgment of information available to them at the time of their examination.

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The following table provides information regarding changes in our allowance for loan losses on noncovered loans as of and for the three and six months ended June 30, 2015:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Noncovered loans receivable, net at the end of the period	$	2,239,621		$	2,069,532		$	2,239,621		$	2,069,532
Average noncovered loans receivable during the period	$	2,183,539		$	1,774,269		$	2,153,688		$	1,455,134
Allowance for loan losses on noncovered loans at the beginning of the period	$	22,317		$	22,820		$	22,153		$	22,657
Provision for loan losses on noncovered loans	1,189			370			2,474			349
Charge-offs:
Commercial business	(662		)	(628		)	(1,510		)	(628		)
Real estate construction and land development	—			(345		)	(106		)	(345		)
Consumer	(448		)	(179		)	(929		)	(242		)
Total charge-offs	(1,110		)	(1,152		)	(2,545		)	(1,215		)
Recoveries:
Commercial business	187			269			388			501
One-to-four family residential	—			—			1
Real estate construction and land development	100			43			100			43
Consumer	96			19			208			34
Total recoveries	383			331			697			578
Net (charge-offs) recoveries	(727		)	(821		)	(1,848		)	(637		)
Allowance for loan losses on noncovered loans at end of period	$	22,779		$	22,369		$	22,779		$	22,369
Allowance for loan losses on noncovered loans to total noncovered loans receivable, net	1.02		%	1.08		%	1.02		%	1.08		%
Ratio of net charge-offs (recoveries) during period to average noncovered loans receivable (annualized)	0.13		%	0.19		%	0.17		%	0.18		%

The allowance for loan losses on noncovered loans increased $626,000, or 2.8%, to $22.8 million at June 30, 2015 from $22.2 million as of December 31, 2014. The allowance for loan losses on noncovered loans receivable to total noncovered loans receivable, net ratio decreased slightly to 1.02% at June 30, 2015 from 1.04% at December 31, 2014.

The nonperforming noncovered loans decreased $512,000 to $7.0 million at June 30, 2015 from $7.51 million at December 31, 2014. Nonperforming noncovered loans to total noncovered loans was 0.31% at June 30, 2015 compared to 0.35%December 31, 2014, and the allowance for loan losses on noncovered loans to nonperforming noncovered loans was 325.51% at June 30, 2015 and 294.98% at December 31, 2014.

Based on management’s assessment of loan quality and current economic conditions, the Company believes that its allowance for loan losses was appropriate to absorb the probable incurred losses and inherent risks of loss in the loan portfolio at June 30, 2015.

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Deposits and Other Borrowings

As indicated in the table below, total deposits increased $40.2 million, or 1.38%, to $2.95 billion at June 30, 2015 from $2.91 billion at December 31, 2014.

	June 30, 2015		% of Total		December 31, 2014		% of Total
	(Dollars in thousands)
Non-interest bearing demand deposits	$	728,260	24.7	%	$	709,673	24.4	%
NOW accounts	840,251		28.5		793,362		27.3
Money market accounts	513,117		17.4		520,065		17.9
Savings accounts	403,648		13.7		357,834		12.3
Total non-maturity deposits	2,485,276		84.3		2,380,934		81.9
Certificates of deposit	461,211		15.7		525,397		18.1
Total deposits	$	2,946,487	100.0	%	$	2,906,331	100.0	%

The increase in the deposits was the result of customer activities. Non-maturity deposits (total deposits less certificates of deposit) have increased $104.3 million, or 4.4%, to $2.49 billion at June 30, 2015 from $2.38 billion at December 31, 2014 and certificate of deposit accounts have decreased $64.2 million, or 12.2%, to $461.2 million at June 30, 2015 from $525.4 million at December 31, 2014. Based on the change in the mix and volume of deposits, the percentage of certificates of deposit to total deposits decreased to 15.7% at June 30, 2015 from 18.1% at December 31, 2014.

Borrowings may be used on a short-term basis to compensate for reductions in other sources of funds (such as deposit inflows at less than projected levels). Borrowings may also be used on a longer-term basis to support expanded lending activities and match the maturity of repricing intervals of assets. The Bank is utilizing securities sold under agreement to repurchase as a supplement to its funding sources. Our repurchase agreements are secured by available for sale investment securities. At June 30, 2015, the Bank had securities sold under agreement to repurchase totaling $20.6 million, a decrease of $11.6 million, or 36.0%, from $32.2 million at December 31, 2014. The decrease is the result of customer activity during the period.

As part of the Washington Banking Merger, the Company acquired junior subordinated debentures with fair value of $18.9 million. The debentures have a par value of $25.0 million, and pay quarterly interest based on three-month LIBOR plus 1.56%. The debentures mature in 2037. The balance of the junior subordinated debentures at June 30, 2015 was $19.3 million.

We are required to maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund loan originations and deposit withdrawals, satisfy other financial commitments, and fund operations. We generally maintain sufficient cash and short-term investments to meet short-term liquidity needs. At June 30, 2015, cash and cash equivalents totaled $85.3 million, or 2.5% of total assets. In addition, $3.2 million of the $5.1 million of other interest earning deposits are scheduled to mature within one year of June 30, 2015. The fair value of investment securities available for sale totaled $699.1 million at June 30, 2015 of which $210.6 million were pledged to secure public deposits or borrowing arrangements. The fair value of investment securities available for sale that were not pledged to secure public deposits or borrowing arrangements totaled $488.5 million, or 14.0%, of total assets at June 30, 2015. The fair value of investment securities available for sale with maturities of one year or less amounted to $3.6 million, or 0.15% of total assets.

At June 30, 2015, the Bank maintained credit facilities with the FHLB for $345.7 million and credit facilities with the Federal Reserve Bank of San Francisco for $76.2 million, of which there were no borrowings outstanding at June 30, 2015. The Bank also maintains lines of credit with four correspondent banks to purchase federal funds totaling $70.0 million as of June 30, 2015. There were no federal funds purchased as of June 30, 2015.

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Liquidity and Cash Flows

Our primary sources of funds are customer deposits, loan principal and interest payments and interest earned on and proceeds from sales and maturities of investment securities. These funds, together with retained earnings, equity and other borrowed funds (as necessary), are used to make loans, acquire investment securities and other assets, and fund continuing operations. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and prepayments are greatly influenced by the level of interest rates, economic conditions, and competition. In addition to customer deposits, management may utilize the use of brokered deposits on an as-needed basis.

Heritage Bank: The principal objective of the Bank’s liquidity management program is to maintain the ability to meet day-to-day cash flow requirements of its customers who either wish to withdraw funds or to draw upon credit facilities to meet their cash needs. The Bank monitors the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. In addition to liquidity from core deposits and the repayment and maturities of loans, the Bank can utilize established credit facilities and lines with correspondent banks or sale of investment securities.

Heritage Financial Corporation: The Company is a separate legal entity from the Bank and must provide for its own liquidity. Substantially all of the Company’s revenues are obtained from dividends declared and paid by the Bank. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to the Company. However, management believes that such restrictions will not have an adverse impact on the ability of the Company to meets its ongoing cash obligations.

Consolidated Cash Flows: As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $18.4 million for the six months ended June 30, 2015, and primarily consisted of proceeds from sale of loans held for sale of $67.3 million, net income of $18.5 million and depreciation and amortization of $6.7 million, partially offset by originations for loans held for sale of $66.3 million and net change in other assets and liabilities of $7.7 million. During the six months ended June 30, 2015, net cash used in investing activities was $69.8 million, which consisted primarily of purchases of investment securities available for sale of $81.8 million net loan originations of $98.9 million and the purchase of $25.0 million of bank owned life insurance, offset partially by maturities of investment securities available for sale of $56.7 million and proceeds from sales of investment securities available for sale of $64.4 million. Net cash used in financing activities was $15.1 million for the six months ended June 30, 2015, and primarily consisted of a net increase in deposits of $40.2 million, offset partially by a $11.6 million decrease in the securities sold under agreement to repurchase, $6.3 million payment of cash dividends on common stock and $7.7 million of repurchases of common stock.

Capital and Capital Requirements

Stockholders’ equity at June 30, 2015 was $459.1 million compared with $454.5 million at December 31, 2014. During the six months ended June 30, 2015, the Company realized net income of $18.5 million, declared and paid cash dividends of $6.3 million, recorded $1.2 million in other comprehensive loss, recorded stock-based compensation expense totaling $806,000, recorded $541,000 related to the exercise of stock options, net of tax effect, and repurchased common stock for $7.7 million.

The Company is a bank holding company under the supervision of the Federal Reserve Bank of San Francisco. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve Board. Heritage Bank is a federally insured institution and thereby is subject to the capital requirements established by the FDIC. The Federal Reserve Board capital requirements generally parallel the FDIC requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s Condensed Consolidated Financial Statements and operations. Management believes the Company and the Bank meet all capital adequacy requirements to which they are subject.

Pursuant to minimum capital requirements of the FDIC effective on January 1, 2015, all FDIC-insured financial institutions, including Heritage Bank, are required to maintain a minimum common equity Tier 1 risk-based capital to risk-weighted assets ratio of 4.5%, a minimum Tier 1 leverage ratio to average assets of 4.0% and minimum risk-based capital ratios of Tier 1 capital to risk-weighted assets and total capital to risk-weighted assets of 6.0% and 8.0%, respectively.

As of June 30, 2015 and December 31, 2014, the most recent regulatory notifications categorized Heritage Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s categories.

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	Minimum Requirements				Well-Capitalized Requirements		Actual
	$		%		$	%	$		%
	(Dollars in thousands)
As of June 30, 2015:
The Company consolidated
Common equity Tier 1 capital to risk-weighted assets	$	122,192	4.5	%	N/A	N/A	$	335,394	12.4	%
Tier 1 leverage capital to average assets	134,006		4.0		N/A	N/A	354,672		10.6
Tier 1 capital to risk-weighted assets	162,923		6.0		N/A	N/A	354,672		13.1
Total capital to risk-weighted assets	217,231		8.0		N/A	N/A	383,136		14.1
Heritage Bank
Common equity Tier 1 capital to risk-weighted assets	122,135		4.5		176,417	6.5	348,109		12.8
Tier 1 leverage capital to average assets	133,938		4.0		167,423	5.0	348,109		10.4
Tier 1 capital to risk-weighted assets	162,846		6.0		217,128	8.0	348,109		12.8
Total capital to risk-weighted assets	217,128		8.0		271,410	10.0	376,557		13.9
As of December 31, 2014:
The Company consolidated
Tier 1 leverage capital to average assets	$	132,881	4.0	%	N/A	N/A	$	340,292	10.2	%
Tier 1 capital to risk-weighted assets	97,620		4.0		N/A	N/A	340,292		13.9
Total capital to risk-weighted assets	195,240		8.0		N/A	N/A	368,198		15.1
Heritage Bank
Tier 1 leverage capital to average assets	132,853		4.0		166,066	5.0	332,147		10.0
Tier 1 capital to risk-weighted assets	97,585		4.0		146,378	6.0	332,147		13.6
Total capital to risk-weighted assets	195,171		8.0		243,964	10.0	360,053		14.8

In July 2013, the Federal banking regulators approved a final rule to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant provisions of the Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act”). The final rule strengthens the definition of regulatory capital, increases risk-based capital requirements, makes selected changes to the calculation of risk-weighted assets, and adjusts the prompt corrective action thresholds. Although new capital requirements were effective on January 1, 2015, certain provisions of the new rule will be phased in over the period of 2015 through 2019, including, among others, a new capital conservation buffer requirement, which requires banking organizations to maintain a common equity capital ratio more than 2.5% above the minimum common equity Tier 1 capital, Tier 1 capital and total risk-based capital ratios in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments. The capital conservation buffer requirement will be phased in beginning on January 1, 2016 at 0.625% and will be fully phased in at 2.50% by January 1, 2019.

Quarterly, the Company reviews the potential payment of cash dividends to its common shareholders. The timing and amount of cash dividends paid on our common stock depends on the Company’s earnings, capital requirements, financial condition and other relevant factors. Dividends on common stock from the Company depend substantially upon receipt of dividends from the Bank, which is the Company’s predominant source of income. On July 22, 2015, the Company’s Board of Directors declared a dividend of $0.11 per common share payable on August 20, 2015 to shareholders of record on August 6, 2015.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our results of operations are highly dependent upon our ability to manage interest rate risk. We consider interest rate risk to be a significant market risk that could have a material effect on our financial condition and results of operations. Interest rate risk is measured and assessed on a quarterly basis. In our opinion, there has not been a material change in our interest rate risk exposure since the information disclosed in our annual report on Form 10-K for the year-ended at December 31, 2014.

We do not maintain a trading account for any class of financial instrument nor do we engage in hedging activities or purchase high-risk derivative instruments. Moreover, we have no material foreign currency exchange rate risk or commodity price risk.

ITEM 4.     CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedure (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and the Company’s Disclosure Committee as of the end of the period covered by this quarterly report. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 2015 are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the six months ended June 30, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company does not expect that its internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

Heritage and Heritage Bank are not a party to any material pending legal proceedings other than ordinary routine litigation incidental to the business of the Bank.

ITEM 1A.     RISK FACTORS

There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company has had various stock repurchase programs since March 1999. On October 23, 2014, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common shares, or approximately 1,513,000 shares, under the eleventh stock repurchase plan. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital. On August 30, 2012, the Board of Directors approved the Company’s tenth stock repurchase plan, authorizing the repurchase of up to 5% of the Company’s outstanding shares of common stock, or approximately 757,000 shares. As the eleventh plan superseded the tenth stock repurchase program, the Company did not repurchase the total number of shares available under the tenth plan.

The following table provides total repurchased shares and average share prices under the applicable plans for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		Plan Total (1)
Tenth Plan
Repurchased shares	—		—				—		704,975
Stock repurchase average share price	$	—	$	—			$	—	$	15.85
Eleventh Plan
Repurchased shares	304,600		—		441,966		—		441,966
Stock repurchase average share price	$	16.88	$	—	$	16.64	$	—	$	16.64

(1) Represents shares repurchased and average share price paid during the duration of the plan.

During the three months ended June 30, 2015 and 2014, the Company also repurchased 11,687 and 8,186 shares at an average price of $17.37 and $12.91, respectively, to pay withholding taxes on the vesting of restricted stock that vested during the three months ended June 30, 2015 and 2014, respectively. During the six months ended June 30, 2015 and 2014, the Company also repurchased 21,610 and 17,484 shares at an average price of $16.66 and $15.49, respectively, to pay withholding taxes on the vesting of restricted stock that vested during the six months ended June 30, 2015 and 2014, respectively.

The following table sets forth information about the Company’s purchases of its outstanding common stock during the quarter ended June 30, 2015.

Period	Total Number  of Shares  Purchased(1)	Average Price Paid Per  Share(1)		Total Number of  Shares Purchased as  Part of Publicly Announced Plans or Programs	Maximum Number  of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2015— April 30, 2015	14,114	$	17.12	7,464,789	1,361,634
May 1, 2015— May 31, 2015	290,600	16.87		7,755,389	1,071,034
June 1, 2015—June 30, 2015	11,573	17.69		7,755,389	1,073,034
Total	316,287	$	16.91	7,755,389	1,073,034

(1) Common shares repurchased by the Company between April 1, 2015 and June 30, 2015 included the cancellation of 11,687 shares of restricted stock to pay withholding taxes at an average price per share of $17.37.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None

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ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.        OTHER INFORMATION

On August 4, 2015, Heritage Bank (the "Bank"), the wholly owned subsidiary of Heritage Financial Corporation, and the Federal Deposit Insurance Corporation (the "FDIC") entered into an agreement terminating the shared-loss agreements for all three of the FDIC-assisted acquisitions (Cowlitz Bank, City Bank and North County Bank). The Bank paid consideration of $7.1 million to the FDIC for the termination of the agreements. The termination resulted in a pre-tax gain of approximately $1.7 million and the elimination of the FDIC indemnification asset and the FDIC clawback liability (included in “accrued expenses and other liabilities” in the condensed consolidated statements of financial condition) which was recorded as of the August 4, 2015 termination date. The FDIC indemnification asset and FDIC clawback liability amounts were $388,000 and $9.3 million, respectively, as of June 30, 2015. All rights and obligations of the parties under the FDIC shared-loss agreements, including the clawback provisions, will be eliminated under this termination agreement. The termination of the shared-loss agreements should have no impact on the yields for the loans that were previously covered under these agreements. All future charge-offs, recoveries, gains, losses and expenses related to covered assets will now be recognized entirely by the Bank since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and expenses.

ITEM 6.     EXHIBITS

Exhibit No.	Description of Exhibit
2.1	Purchase and Assumption Agreement for Cowlitz Acquisition (1)
2.2	Purchase and Assumption Agreement for Pierce Acquisition (2)
2.3	Definitive Agreement for Valley Acquisition (3)
2.4	Agreement and Plan of Merger with Washington Banking Company (4)
3.1	Articles of Incorporation (5)
3.2	Amended and Restated Bylaws of the Company (6)
10.1	1998 Stock Option and Restricted Stock Award Plan (7)
10.2	1997 Stock Option and Restricted Stock Award Plan (8)
10.3	2002 Incentive Stock Option Plan, Director Nonqualified Stock Option Plan, and Restricted Stock Option Plan (9)
10.4	2006 Incentive Stock Option Plan, Director Nonqualified Stock Option Plan, and Restricted Stock Option Plan (10)
10.5	Annual Incentive Compensation Plan (11)
10.6	2010 Omnibus Equity Plan (12)
10.7	2014 Omnibus Equity Plan (13)
10.8	Form of Nonqualified Stock Option Award Agreement under the Heritage Financial Corporation 2014 Omnibus Equity Plan (14)
10.9	Form of Restricted Stock Award Agreement under the Heritage Financial Corporation 2014 Omnibus Equity Plan (14)
10.10	Form of Restricted Stock Unit Award Agreement under the Heritage Financial Corporation 2014 Omnibus Equity Plan (14)
10.11	Deferred Compensation Plan and Participation Agreements by and between Heritage and each of Brian L. Vance, Jeffrey J. Deuel and Donald J. Hinson (15)

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10.12	Employment Agreements by and between Heritage and each of Brian L. Vance, Jeffrey J. Deuel and Donald J. Hinson (15)
10.13	Employment Agreement and Deferred Compensation Participation Agreement by and between Heritage and David A. Spurling (16)
10.14	Employment Agreement by and between Heritage and Bryan McDonald (17)
10.15	Employment Agreements by and between Heritage and Edward Eng (17)
10.16	Deferred Compensation Plan and Participation Agreement by and between Heritage and Bryan D. McDonald (18)
10.17	Form of Split Dollar Agreements, dated August 3, 2015, by and between Heritage and Brian L. Vance, Jeffrey J. Deuel, Donald J. Hinson, Bryan D. McDonald and David A. Spurling
11	Statement regarding computation of earnings per share (19)
14.0	Code of Ethics and Conduct Policy (20)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from Heritage Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in Extensible Business Reporting Language (“XBRL”): (i) Unaudited Condensed Consolidated Statements of Financial Condition, (ii) Unaudited Condensed Consolidated Statements of Income; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iv) Unaudited Condensed Consolidated Statements of Stockholders' Equity; (v) Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) Unaudited Notes to Condensed Consolidated Financial Statements (21)

(1) Incorporated by reference to the Current Report on Form 8-K dated July 30, 2010.

(2) Incorporated by reference to the Current Report on Form 8-K dated November 5, 2010.

(3) Incorporated by reference to the Current Report on Form 8-K dated March 11, 2013.

(4) Incorporated by reference to the Current Report on Form 8-K dated October 23, 2013.

(5) Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 333-35573) declared effective on November 12, 1997; as amended, said Amendment being incorporated by reference to the Amendment to the Articles of Incorporation of Heritage Financial Corporation filed with the Current Report on Form 8-K dated November 25, 2008.

(6) Incorporated by reference to the Current Report on Form 8-K dated April 30, 2014.

(7) Incorporated by reference to the Registration Statement on Form S-8 (Reg. No. 333-71415).

(8) Incorporated by reference to the Registration Statement on Form S-8 (Reg. No. 333-57513).

(9) Incorporated by reference to the Registration Statements on Form S-8 (Reg. No. 333-88980; 333-88982; 333-88976).

(10) Incorporated by reference to the Registration Statements on Form S-8 (Reg. No. 333-134473; 333-134474; 333-134475).

(11) Incorporated by reference to the Annual Report on Form 10-K dated March 2, 2010.

(12) Incorporated by reference to the Registration Statement on Form S-8 (Reg. No. 33-167146).

(13) Incorporated by reference to Heritage Financial Corporation's definitive proxy statement dated June 11, 2014.

(14) Incorporated by reference to the Current Report on Form 10-Q dated August 6, 2014.

(15) Incorporated by reference to the Current Report on Form 8-K dated September 7, 2012.

(16) Incorporated by reference to the Current Report on Form 8-K dated January 6, 2014.

(17) Incorporated by reference to the Registration Statement on Form S-4 (Reg. No. 333-192985).

(18) Incorporated by reference to the Annual Report on Form 10-K dated March 10, 2015.

(19) Reference is made to Note 10—Stockholders' Equity in the Notes to Condensed Consolidated Financial Statements under Part 1. Item 1. herein.

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(20) Registrant elects to satisfy Regulation S-K §229.406(c) by posting its Code of Ethics on its website at www.HF-WA.com in the section titled Investor Information: Corporate Governance.

(21) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise not subject to liability under those sections.

.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HERITAGE FINANCIAL CORPORATION
Date:
August 6, 2015	/S/    BRIAN L. VANCE
	Brian L. Vance
	President and Chief Executive Officer
	(Duly Authorized Officer)
Date:
August 6, 2015	/S/    DONALD J. HINSON
	Donald J. Hinson
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
10.17	Form of Split Dollar Agreements, dated August 3, 2015, by and between Heritage and Brian L. Vance, Jeffrey J. Deuel, Donald J. Hinson, Bryan D. McDonald and David A. Spurling
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial information from Heritage Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Financial Condition, (ii) the Unaudited Condensed Consolidated Statements of Income, (iii) the Unaudited Condensed Consolidated Statements Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Stockholders’ Equity, (v) the Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) the Unaudited Notes to Condensed Consolidated Financial Statements.

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EX-10.17

EXHIBIT 10.17

HERITAGE BANK

ENDORSEMENT METHOD

SPLIT DOLLAR AGREEMENT

(By and Between HERITAGE BANK and _______________)

Insurer/Policy:
Employer/Bank:	HERITAGE BANK
Insured:
Relationship of Insured to Bank:	Executive
Effective Date:	______, 2015

The respective rights and duties of HERITAGE BANK (hereinafter the “Bank”), a state-chartered commercial bank with its principal offices located in the city of Olympia, Washington, and _______________ (hereinafter the “Insured”) in the above-referenced Policy(ies) shall be pursuant to the terms set forth below:

A.Insured is currently an employee and officer of the Bank and the Bank desires to retain the  services of the Insured for a considerable period.

B.The Bank desires to provide Insured with certain death benefits under a life insurance policy that the Bank has purchased on the life of Insured.

NOW, THEREFORE, the parties hereto, for and in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, do hereby agree as follows:

1. DEFINITIONS.

Refer to the Policy(ies) contract for the definition of any terms in this Heritage Bank Endorsement Method Split Dollar Agreement (hereinafter, this “Agreement”) that are not defined herein. If the definition of a term in the Policy(ies) is inconsistent with the definition of a term in this Agreement, then the definition of the term as set forth in this Agreement shall supersede and replace the definition of the terms as set forth in the Policy(ies).

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A. Accelerated Benefit. The term “Accelerated Benefit” shall mean amounts requested and received pursuant to any Policy(ies) rider permitting the policyowner or Insured access to portions of the eligible death benefit in the event the Insured is diagnosed with a chronic or terminal illness as required by the individual Policy(ies).

B. Beneficiary. The term “Beneficiary” shall mean that person or those persons, trusts, estates or other entities, designated in accordance with the terms of Paragraph 3 below that are entitled to receive benefits under this Agreement upon the death of Insured.

C. Beneficiary Designation Form. The “Beneficiary Designation Form” means the form established from time to time by the Bank and the Administrator, which an Insured completes, signs and returns in order to designate one or more Beneficiaries.

D. Board. The term “Board” shall mean the Board of Directors of the Bank.

E. Claimant. The term “Claimant” shall have the meaning assigned to an individual who makes a claim pursuant to the provisions of Paragraph 11 below.

F. Code. The “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

G. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

H. Final Base Salary. The term “Final Base Salary" shall mean the Insured’s annual rate of salary on the date of death, including salary Insured could have received in cash in lieu of (i) contributions made on Insured's behalf to a qualified plan maintained by the Bank or to any cafeteria plan under Section 125 of the Code maintained by the Bank and (ii) deferrals of compensation made at the Insured's election pursuant to a plan or arrangement of the Bank or an affiliate, but excluding any bonuses, incentive pay or special awards.

I. Insurer. The term “Insurer” shall mean each life insurance carrier that has issued a Policy that has been made part of and is subject to this Agreement.

J. NEO. The term “NEO” shall mean each named executive officer set forth in Heritage Financial Corporation’s annual proxy statement for the applicable year.

K. Net Amount-at-Risk. The term “Net Amount-at-Risk” (hereinafter “NAR”) shall be defined as the total proceeds of the Policy(ies) less the cash value of the Policy(ies).

L. Plan. The term “Plan” refers to this arrangement, as evidenced by this Agreement, whereby Insured (or Insured’s Beneficiary) is entitled to receive a benefit.

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M. Policy(ies). The term “Policy(ies)” shall mean that life insurance policy or those policies referenced above and have been made part of, and are subject to, this Agreement.

N. Separation From Service. The term “Separation from Service” (or “Separates From Service”) shall be read and interpreted so as to be consistent with Code Section 409A and any future notices or guidance related thereto. Furthermore, in the event Insured serves as both an Executive and Director, then whether a Separation From Service has occurred shall be determined in accordance with the Code Section 409A specifications regarding “dual status” participants.

2. POLICY(IES) TITLE AND OWNERSHIP.

Title and ownership of the Policy(ies) shall reside in the Bank for its use and for the use of the Insured all in accordance with this Agreement. The Bank, in its sole discretion, may surrender or terminate the Policy(ies) at any time and for any reason and may borrow from or withdraw cash value from the Policy(ies) at any time in its sole discretion. Where the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject Policy(ies), then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement.

3. BENEFICIARY DESIGNATION RIGHTS.

The Insured (or assignee) shall have the right and power to designate one or more “Beneficiary” or “Beneficiaries” to receive the Insured’s share of the proceeds payable upon the death of the Insured, and to elect and change a payment option for such Beneficiary, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement.

A divorce will automatically revoke the portion of a Beneficiary Designation Form designating the former spouse as a Beneficiary. The former spouse will be a Beneficiary under this Agreement only if a new Beneficiary Designation Form naming the former spouse as Beneficiary is filed after the date the dissolution decree is entered.

In the event the Insured fails to designate a Beneficiary, any benefits hereunder shall be payable to the estate of the Insured.

4. PREMIUM PAYMENT METHOD.

Subject to the Bank’s absolute right to surrender or terminate the Policy(ies) at any time and for any reason, the Bank shall pay the premium required for each Policy as it becomes due.

5. TAXABLE BENEFIT/REPORTING REQUIREMENTS.

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Annually the Insured will receive a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service. The Bank will report to the Insured the amount of imputed income each year on Form W-2 or its equivalent so that the Insured can properly include such amounts in taxable income. Other than with respect to any NEO’s, at the end of each calendar year, the Bank shall pay to the Insured an amount equal to an estimate ofall federal and state income taxes incurred by Insured as a result of the taxable benefit under this Paragraph (the "Gross-up"). If, as a result of any Gross-up payments made to Insured, Insured incurs additional tax liability, then the Bank shall provide an additional Gross-up payment to Insured to offset any additional tax liability ("Double Gross-up").

6. DIVISION OF DEATH PROCEEDS.

Subject to Paragraphs 7 and 8 herein, the division of the death proceeds of the Policy(ies) is as follows:

A. In the event Insured has not yet Separated From Service at the time of death, then, upon the death of Insured, Insured’s Beneficiary(ies) shall be entitled to receive an amount equal to the lesser of one hundred percent (100%) NAR or one (1) times the Final Base Salary.

B. Should the Insured Separate From Service for any reason other than death (the circumstances of which are governed by Paragraph 6A, then neither the Insured nor the Insured’s Beneficiary(ies) shall be entitled to receive any amount of the Policy(ies) proceeds pursuant to this Agreement.

C. The Bank may select which Policy(ies) shall be used to pay benefits due under this Agreement.

D. The Bank shall be entitled to the proceeds of any Policy(ies) payable after payment to the Insured’s Beneficiary(ies) under Paragraph 6A.

E. The Bank and the Insured (or assignees) shall share in any interest due on the death proceeds on a pro rata basis as the proceeds due each respectively bears to the total proceeds, excluding any such interest.

F. Any refund of unearned premium as provided in any Policy(ies) shall be paid to the Bank.

7. ACCELERATED BENEFIT IN THE EVENT OF TERMINAL OR CHRONIC ILLNESS (AS APPLICABLE) AND DIVISION OF CASH SURRENDER VALUE OF THE POLICY(IES).

Provided Insured’s right to receive benefits under this Agreement has not terminated pursuant to the provisions of Paragraph 8 herein, and provided the Policy(ies) provides for such option through an accelerated benefit or living benefit rider (i.e., generally requiring that the Insured is either terminally or chronically ill), Insured shall have the right to request, in writing, the

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full amount to which he is entitled under this Agreement, and subject to any further limitation on dollar amounts imposed by the Policy(ies). Any Accelerated Benefit paid to the Insured hereunder shall be deducted from any amounts to which Insured or his Beneficiary(ies) is (or may be) entitled pursuant to the provisions of Paragraph 6 above. Neither The Bank nor Corrigan & Company (PFIS) make any representations or warranties about the tax consequences of such a request for accelerated or living benefits.

In addition, and subject to the forgoing, at all times prior to the Insured’s death, the Bank shall be entitled to an amount equal to the Policy(ies)’s cash value, as that term is defined in the Policy(ies) contract, less any Policy loans, accelerated benefits and unpaid interest or cash withdrawals previously incurred by the Bank and any applicable surrender charges. Such cash value shall be determined as of the date of surrender or death as the case may be.

8. TERMINATION OF AGREEMENT.

This Agreement shall terminate upon (i) Insured’s Separation From Service, (ii) upon the mutual written agreement of the Bank and the Insured, (iii) upon distribution of the death benefit proceeds in accordance with Paragraph 6 above, or (iv) in the event that the Bank sells or surrenders the Policy(ies) subject to this Agreement. In addition, this Agreement shall also terminate in the event Insured requests and receives an Accelerated Benefit under Paragraph 7, in an amount equal to the amount he is (or may be) entitled to receive pursuant to the provisions of Paragraph 6 above.

9. INSURED’S OR ASSIGNEE’S ASSIGNMENT RIGHTS.

The Insured may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right, title or interest in the subject Policy(ies) nor any rights, options, privileges or duties created under this Agreement.

10. AGREEMENT BINDING UPON THE PARTIES.

This Agreement shall bind the Insured and the Bank, their heirs, successors, personal representatives and assigns.

11. ADMINISTRATIVE AND CLAIMS PROVISIONS.

The following provisions are part of this Agreement and are intended to satisfy ERISA claims requirements:

A. Named Fiduciary and Plan Administrator.

The Named Fiduciary and Plan Administrator (hereinafter “Administrator) of this Agreement shall be the Board. The Administrator may designate a replacement Administrator at any time, or may delegate to others certain responsibilities, including the employment of advisors and the delegation of any ministerial duties to qualified individuals.

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B. Powers and Duties of Administrator.

(i) Construe and interpret the provisions of this Agreement;

(ii) Adopt, amend or revoke rules and regulations for the administration of this Agreement, provided they are not inconsistent with the provisions of this Agreement;

(iii) Provide appropriate parties with such returns, reports, descriptions and statements as may be required by law, within the times prescribed by law and to make them available to the Insured (or the Insured’s Beneficiary) when required by law;

(iv) Take such other action as may be reasonably required to administer this Agreement in accordance with its terms or as may be required by law;

(v) Withhold applicable taxes and file with the Internal Revenue Service appropriate information returns with respect to any payments and/or benefits provided hereunder;

(vi) Appoint and retain such persons as may be necessary to carry out its duties as administrator.

C. Dispute Over Benefits.

In the event a dispute arises over the benefits under this Plan and benefits are not paid to the Insured (or to the Insured’s Beneficiary(ies), if applicable) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Administrator named above in accordance with the following procedures:

(i) Written Claim. Claimant may file a written request for such benefit to the Administrator.

(ii) Claim Decision. Upon receipt of such claim, the Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional ninety (90) days for reasonable cause by notifying Claimant in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

6

If the claim is denied in whole or in part, the Administrator shall notify Claimant in writing of such denial. The Administrator shall write the notification in a manner calculated to be understood by Claimant. The notification shall set forth:

(a) The specific reasons for the denial;

(b) The specific reference to pertinent provisions of the Agreement on which the denial is based;

(c) A description of any additional information or material necessary for Claimant to perfect the claim and an explanation of why such material or information is necessary;

(d) Appropriate information as to the steps to be taken if Claimant wishes to submit the claim for review and the time limits applicable to such procedures; and

(e) A statement of Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

(iii) Request for Review. Within sixty (60) days after receiving notice from the Administrator that a claim has been denied (in part or all of the claim), then Claimant (or their duly authorized representative) may file with the Administrator, a written request for a review of the denial of the claim.

Claimant (or his duly authorized representative) shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Administrator shall also provide Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to Claimant’s claim for benefits.

(iv) Decision on Review. The Administrator shall respond in writing to Claimant within sixty (60) days after receiving the request for review. If the Administrator determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The notice of extension must set forth the special circumstances requiring an extension of time and the date by which the Administrator expects to render its decision.

In considering the review, the Administrator shall take into account all materials and information Claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

The Administrator shall notify Claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by Claimant. The notification shall set forth:

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(a) The specific reasons for the denial;

(b) A reference to the specific provisions of the Agreement on which the denial is based;

(c) A statement that Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to Claimant’s claim for benefits; and

(d) A statement of Claimant’s right to bring a civil action under ERISA Section 502(a).

(v) Special Timing and Rules for Disability Claims. In the event a claim above is a claim for disability benefits, then the applicable time periods for notifying Claimant regarding benefit determinations shall be reduced as required by 29 CFR 2560.503-1. Thus, the Administrator shall provide notice to Claimant, within a reasonable period of time, but not later than forty five (45) days after receipt of the claim. This period may be extended by up to thirty (30) days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the plan and notifies Claimant, prior to the expiration of the initial forty five (45) day period, of the circumstances requiring the extension of time and the date by which the plan expects to render a decision. If, prior to the end of the first thirty (30) day extension period, the Administrator determines that, due to matters beyond the control of the plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional thirty (30) days, provided that the Administrator notifies Claimant, prior to the expiration of the first thirty (30) day extension period, of the circumstances requiring the extension and the date as of which the plan expects to render a decision. In the case of any extension under this paragraph, the notice of extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and Claimant shall be afforded at least forty five (45) days within which to provide the specified information. In addition to complying with such timing rules, a claim under this paragraph shall comply with all procedural requirements under ERISA.

12. GENDER.

Whenever in this Agreement words are used in the masculine, feminine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

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13. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT.

The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as herein developed upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the Policy(ies) provisions shall fully discharge the Insurer from any and all liability.

14. SEVERABILITY AND INTERPRETATION.

If a provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms. Further, in the event that any provision is held to be overbroad as written such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended.

15. APPLICABLE LAW.

The laws of the State of Washington shall govern the validity and interpretation of this Agreement.

16. EFFECT OF THE LIFE INSURANCE POLICY’S CONTESTABILITY CLAUSES.

The parties herein understand and agree that the payment of the benefits provided herein are subject to the Policy’s (Policies’) suicide and contestability clauses and other such clauses, and if such clauses preclude the Insurer from paying the full death proceeds, then, in such event, no death benefits of whatever nature shall be payable to Insured’s (or Insured’s assignee’s) Beneficiary(ies) under this Agreement.

17. OTHER AGREEMENTS.

The benefits provided for herein for Insured are supplemental life insurance benefits and shall not be deemed to modify, affect or limit any salary or salary increases, bonuses, profit sharing or any other type of compensation of Insured in any manner whatsoever.  No provision contained in this Agreement shall in any way affect, restrict or limit any existing employment agreement between the Bank and Insured, nor shall any provision or condition contained in this Agreement create specific rights of Insured or limit the right of the Bank to discharge Insured with or without cause.  Except as otherwise provided therein, nothing contained in this Agreement shall affect the right of Insured to participate in or be covered by or under any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation, retirement or fringe benefit plan constituting any part of the Bank’s compensation structure whether now or hereinafter existing.

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18. WITHHOLDING.

Notwithstanding any of the provisions hereof, the Bank may withhold from any payment to be made hereunder such amount as it may be required to withhold under any applicable federal, state or other law, and transmit such withheld amounts to the applicable taxing authority.

19. COUNTERPARTS.

This Agreement may be executed simultaneously in any number of counterparts.  Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.  This Agreement may be executed and delivered by facsimile transmission of an executed counterpart.

20. ASSIGNMENT OF RIGHTS.

None of the payments provided for by this Agreement shall be subject to seizure for payment of any debts or judgments against the Insured or any Beneficiary; nor shall the Insured or any Beneficiary have any right to transfer, modify, anticipate or encumber any rights or benefits hereunder; provided, however, that the undistributed portion of any benefit payable hereunder shall at all times be subject to set-off for debts owed by Insured to the Bank.

21. NOTICE.

Any notice to be delivered to the Bank under this Agreement shall be sufficient if in writing and delivered by hand, or by first class, certified or registered mail at the address below:

Human Resources Director

Heritage Bank

Olympia Main Office

201 5^th Avenue SW
Olympia, WA 98501

Any notice to be delivered to the Insured under this Agreement shall be sufficient if in writing and delivered by hand, or by first class, certified or registered mail at the last known address of the Insured.

22. AMENDMENT.

No amendments or additions to this Agreement shall be binding unless in writing and signed by all  parties.  No waiver of any provision contained in this Agreement shall be effective unless it is in writing and signed by the party against whom such waiver is asserted.  Notwithstanding the foregoing, the Bank may amend, modify or terminate this Agreement (and may do so retroactively) without the consent and or approval of the Insured or any Beneficiary of the Insured if such amendment, modification or termination is necessary to ensure compliance with Code Section 409A or in order to avoid the application

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of any penalties that may be imposed upon the Insured and any Beneficiary of the Insured pursuant to the provisions of Code Section 409A.

This Agreement shall be effective as of the date first set forth above.

HERITAGE BANK

By:     By:

Insured

Title:     Date:

Date:

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BENEFICIARY DESIGNATION FORM

FOR THE HERITAGE BANK

ENDORSEMENT METHOD

SPLIT DOLLAR AGREEMENT

(Agreement Effective Date _______, 2015)

**NOTE: In order to guarantee that the intended Beneficiary(ies) receive amounts owing hereunder, a new Beneficiary Designation Form should be submitted whenever there is a significant life event, such as a birth, marriage, separation, divorce, or death of intended Beneficiary.

PARTICIPANT/INSURED: ________________

I. PRIMARY DESIGNATION

(You may refer to the beneficiary designation information prior to completion of this form.)

A.Person(s) as a Primary Designation:

(Please indicate the percentage for each Beneficiary.)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

B.    Estate as a Primary Designation:

My Primary Beneficiary is The Estate of ___________________________________________ as set forth in the last will and testament dated the _____ day of _____________, _____ and any codicils thereto.

A-1

C.    Trust as a Primary Designation:

Name of the Trust: ____________________________________________________________

Execution Date of the Trust: _____ / _____ / _________

Name of the Trustee: __________________________________________________________

Beneficiary(ies) of the Trust (please indicate the percentage for each Beneficiary):

___________________________________________________________________________

___________________________________________________________________________

Is this an Irrevocable Life Insurance Trust? ________ Yes     ________ No

(If yes and this designation is for a Split Dollar agreement, an Assignment of Rights form should be completed.)

II.    SECONDARY (CONTINGENT) DESIGNATION

A.    Person(s) as a Secondary (Contingent) Designation:

(Please indicate the percentage for each Beneficiary.)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

Name___________________________________ Relationship___________________ / _______%

Address:_________________________________________________________________________

(Street)                    (City)        (State)        (Zip)

B.Estate as a Secondary (Contingent) Designation:

My Secondary Beneficiary is The Estate of __________________________________________ as set forth in my last will and testament dated the _____ day of ___________, _____ and any codicils thereto.

C.    Trust as a Secondary (Contingent) Designation:

Name of the Trust: ____________________________________________________________

Execution Date of the Trust: _____ / _____ / _________

A-2

Name of the Trustee: __________________________________________________________

Beneficiary(ies) of the Trust (please indicate the percentage for each Beneficiary):

___________________________________________________________________________

___________________________________________________________________________

All sums payable under the Endorsement Method Split Dollar Agreement by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

Insured                                Date

NOTE*** IF YOU RESIDE IN A COMMUNITY PROPERTY STATE (ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON OR WISCONSIN), AND YOU ARE DESIGNATING A BENEFICIARY OTHER THAN YOUR SPOUSE, THEN IT IS RECOMMENDED THAT YOUR SPOUSE ALSO SIGN THE BENEFICIARY DESIGNATION FORM.

I am aware that my spouse, the above named Insured has designated someone other than me to be the Beneficiary and waive any rights I may have to the proceeds of such insurance under applicable community property laws. I understand that this consent and waiver supersedes any prior spousal consent or waiver under this plan.

Spouse Signature:______________________________    Date:_________________

Witness (other than insured) : ___________________________

A-3

EX-31.1

EXHIBIT 31.1

Certification of Principal Executive Officer

I, Brian L. Vance, certify that:

1. I have reviewed the quarterly report on Form 10-Q of Heritage Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 6, 2015

/s/ Brian L. Vance

Brian L. Vance

President and Chief Executive Officer

Principal Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer

I, Donald J. Hinson, certify that:

1. I have reviewed the quarterly report on Form 10-Q of Heritage Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 6, 2015

/s/ Donald J. Hinson

Donald J. Hinson

Executive Vice President and Chief Financial Officer

Principal Financial and Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Heritage Financial Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Brian L. Vance, President and Chief Executive Officer and Donald J. Hinson, Executive Vice President and Chief Financial Officer of the Company, certify in our capacity as officers of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such Report.

August 6, 2015	/s/ Brian L. Vance
	Brian L. Vance
	President and Chief Executive Officer Principal Executive Officer
August 6, 2015	/s/ Donald J. Hinson
	Donald J. Hinson
	Executive Vice President and Chief Financial Officer Principal Financial and Accounting Officer

XML

Business Combination (Tables)

6 Months Ended

Jun. 30, 2015

Business Combinations [Abstract]

Schedule of business combination

The fair value estimates of the assets acquired and liabilities assumed in the merger were as follows:

	Washington Banking
	(In thousands)
Assets
Cash and cash equivalents	$	74,947
Investment securities available for sale	458,312
Loans held for sale	3,923
Noncovered loans receivable	895,978
Covered loans receivable	107,050
FDIC indemnification asset	7,174
Other real estate owned ($5,122 covered by FDIC shared-loss agreements)	7,121
Premises and equipment	31,776
Federal Home Loan Bank stock	7,064
Bank owned life insurance	32,519
Accrued Interest Receivable	4,943
Other intangible assets	11,194
Prepaid expenses and other assets	14,852
Total assets acquired	1,656,853
Liabilities
Deposits	1,433,894
Junior subordinated debentures	18,937
Accrued expenses and other liabilities	24,067
Total liabilities assumed	1,476,898
Net assets acquired	$	179,955

A summary of the net assets purchased, the fair value adjustments and resulting goodwill recognized from the Washington Banking Merger are presented in the following table. Goodwill on mergers represents the excess of the consideration transferred over the estimated fair value of the net assets acquired and liabilities assumed.

	Washington Banking
	(In thousands)
Cost basis of net assets on merger date	$	181,782
Less: Consideration transferred	(269,619		)
Fair value adjustments:
Loans held for sale	86
Noncovered loans receivable	(12,811		)
Covered loans receivable	6,384
FDIC indemnification asset	357
Other real estate owned	387
Premises and equipment	(1,540		)
Other intangible assets	10,216
Prepaid expenses and other assets	(6,416		)
Deposits	(1,737		)
Junior subordinated debentures	6,837
Accrued expenses and other liabilities	(3,590		)
Goodwill recognized	$	(89,664	)

The total consideration transferred in the Washington Banking Merger consisted of the following:

	Washington Banking
	(In thousands)
Consideration transferred
Cash paid (1)	$	42,895
Fair value of common shares issued (2)	224,151
Fair value of restricted stock unit awards (3)	2,092
Fair value of common stock options	481
Total consideration transferred	$	269,619

(1) Includes $3,000 of cash paid due to fractional shares and $27,000 of cash paid from dissenters.

(2) Total of 13,870,716 shares issued. Excludes 1,686 shares dissented and paid in cash and 165 fractional shares paid in cash.

(3) Total number of converted shares was 129,462. Fair value includes 26,783 shares which were forfeited by the Washington Banking stockholder to pay applicable taxes, totaling fair value of $433,000.

Unaudited pro forma information

The following table presents certain pro forma information, for illustrative purposes only, for the three and six months ended June 30, 2014 as if the Washington Banking Merger had occurred on January 1, 2014. The estimated pro forma information combines the historical results of Washington Banking with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the Washington Banking Merger occurred on January 1, 2014. In particular, no adjustments have been made to eliminate the impact of the Washington Banking loans previously accounted for under ASC 310-30 that may have been necessary if these loans had been recorded at fair value at January 1, 2014. The pro forma information also does not consider any changes to the provision for loan losses resulting from recorded loans at fair value. Additionally, Heritage expects to achieve further operating savings and other business synergies, including interest income growth, as a result of the Washington Banking Merger which are not reflected in the pro forma amounts in the following table. As a result, actual amounts will differ from the pro forma information presented.

	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014
	(Dollars In Thousands, except per share amounts)
Net interest income	$	34,699	$	70,997
Net income	$	5,161	$	16,453
Basic earnings per common share	$	0.17	$	0.55
Diluted earnings per common share	$	0.17	$	0.55

XML

Noncovered Loans Receivable - Modified TDRs (Details) - Noncovered Loans - Troubled Debt Restructured Loans	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) loan contract	Jun. 30, 2014 USD ($) loan contract	Jun. 30, 2015 USD ($) contract	Jun. 30, 2014 USD ($) contract
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	20	9	31	18
Outstanding Principal Balance	$ 10,052,000	$ 3,053,000	$ 12,514,000	$ 4,938,000
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Number of Contracts | contract	2	4	2	4
Outstanding Principal Balance	$ 922,000	$ 792,000	$ 922,000	$ 792,000
Number of contracts with no modifications | loan	9	4
Total outstanding principal balance with no prior modifications	$ 4,000,000	$ 761,000
One-to-four Family Residential
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	0	0
Outstanding Principal Balance	$ 0	$ 0
Commercial Business
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	18	8	26	14
Outstanding Principal Balance	$ 9,014,000	$ 2,965,000	$ 9,933,000	$ 4,442,000
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Number of Contracts | contract	1	4	1	4
Outstanding Principal Balance	$ 57,000	$ 792,000	$ 57,000	$ 792,000
Commercial Business | Commercial and Industrial
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	12	6	19	11
Outstanding Principal Balance	$ 1,691,000	$ 1,942,000	$ 2,610,000	$ 3,072,000
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Number of Contracts | contract	1	3	1	3
Outstanding Principal Balance	$ 57,000	$ 790,000	$ 57,000	$ 790,000
Commercial Business | Non-owner Occupied Commercial Real Estate
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	3	2	3	2
Outstanding Principal Balance	$ 6,450,000	$ 1,023,000	$ 6,450,000	$ 1,023,000
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Number of Contracts | contract	0	1	0	1
Outstanding Principal Balance	$ 0	$ 2,000	$ 0	$ 2,000
Commercial Business | Owner-occupied Commercial Real Estate
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	3	0	4	1
Outstanding Principal Balance	$ 873,000	$ 0	$ 873,000	$ 347,000
Real Estate Construction and Land Development
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	2	1	4	1
Outstanding Principal Balance	$ 1,038,000	$ 88,000	$ 2,543,000	$ 277,000
Real Estate Construction and Land Development | One-to-four Family Residential
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	2	1	4	1
Outstanding Principal Balance	$ 1,038,000	$ 88,000	$ 2,543,000	$ 277,000
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Number of Contracts | contract	1	0	1	0
Outstanding Principal Balance	$ 865,000	$ 0	$ 865,000	$ 0
Initial advance at the time of modification	$ 0	$ 45,000	$ 0	$ 190,000
Consumer
Noncovered Loans Modified as TDRs [Abstract]
Number of Contracts | contract	0	0	1	3
Outstanding Principal Balance	$ 0	$ 0	$ 38,000	$ 219,000
Finance Receivable Modified Subsequent Default
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Related specific valuation allowance for TDRs	5,000		5,000
Modified During the Quarter
Noncovered Loans Modified, Subsequently Defaulted [Abstract]
Impaired Financing Receivable, Allowance	$ 1,200,000		$ 1,300,000

XML

Noncovered Loans Receivable - Concentrations of Credit (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014 Loan
Receivables [Abstract]
Concentration of loans greater than 10%	0	0
Percentage of concentrations of loans in any industry (in excess of 10%) (percent)	10.00%	10.00%

XML

Goodwill and Other Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Finite-Lived Intangible Assets [Line Items]
Goodwill additions	$ 0	$ 89,700,000.0	$ 0	$ 89,700,000.0
Goodwill impairment charges	$ 0	$ 0	$ 0	$ 0
Core Deposits | Washington Banking
Finite-Lived Intangible Assets [Line Items]
Useful life			10 years
Core Deposits | Valley
Finite-Lived Intangible Assets [Line Items]
Useful life			10 years
Core Deposits | NCB
Finite-Lived Intangible Assets [Line Items]
Useful life			5 years
Core Deposits | Pierce
Finite-Lived Intangible Assets [Line Items]
Useful life			4 years
Core Deposits | Cowlitz
Finite-Lived Intangible Assets [Line Items]
Useful life			9 years
Core Deposits | Western Washington Bancorp
Finite-Lived Intangible Assets [Line Items]
Useful life			8 years

XML

Noncovered Loans Receivable - Noncovered Purchased Credit Impaired Loans (Details) - Noncovered PCI Loans - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	$ 50,027
One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,220
Commercial Business
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	35,674
Commercial Business | Commercial and Industrial
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	11,775
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	11,271
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	12,628
Real Estate Construction and Land Development
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	5,796
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	3,310
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,486
Consumer
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	6,337
Receivables Acquired with Deteriorated Credit Quality
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	50,027	$ 61,909
Receivables Acquired with Deteriorated Credit Quality | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	59,586	72,422
Receivables Acquired with Deteriorated Credit Quality | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,220	2,235
Receivables Acquired with Deteriorated Credit Quality | One-to-four Family Residential | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,230	2,269
Receivables Acquired with Deteriorated Credit Quality | Commercial Business
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	35,674	45,433
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	42,474	52,993
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Commercial and Industrial
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	11,775	18,040
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Commercial and Industrial | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	15,338	22,144
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	11,271	16,208
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Owner-occupied Commercial Real Estate | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	12,435	18,165
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	12,628	11,185
Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Non-owner Occupied Commercial Real Estate | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	14,701	12,684
Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	5,796	7,186
Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	9,724	11,177
Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	3,310	4,223
Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | One-to-four Family Residential | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	7,461	8,456
Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,486	2,963
Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,263	2,721
Receivables Acquired with Deteriorated Credit Quality | Consumer
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	6,337	7,055
Receivables Acquired with Deteriorated Credit Quality | Consumer | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	$ 5,158	$ 5,983

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(Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Increase Decrease In Stockholders Equity Roll Forward
Balance of AOCI at the beginning of period	$ 6,184	$ (671)	$ 3,378	$ (1,162)
Other comprehensive (loss) income before reclassification	(3,888)	2,037	(728)	2,645
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	(98)	(57)	(452)	(174)
Other comprehensive (loss) income	(3,986)	1,980	(1,180)	2,471
Balance of AOCI at the end of the period	2,198	1,309	2,198	1,309
Changes in Fair Value of Available for Sale Securities
Increase Decrease In Stockholders Equity Roll Forward
Balance of AOCI at the beginning of period	6,365	(447)	3,567	(923)
Other comprehensive (loss) income before reclassification	(3,891)	2,022	(739)	2,615
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	(276)	(57)	(630)	(174)
Other comprehensive (loss) income	(4,167)	1,965	(1,369)	2,441
Balance of AOCI at the end of the period	2,198	1,518	2,198	1,518
Accretion of Other-than-temporary Impairment on Held-to-maturity Securities
Increase Decrease In Stockholders Equity Roll Forward
Balance of AOCI at the beginning of period	(181)	(224)	(189)	(239)
Other comprehensive (loss) income before reclassification	3	15	11	30
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	178	0	178	0
Other comprehensive (loss) income	181	15	189	30
Balance of AOCI at the end of the period	$ 0	$ (209)	$ 0	$ (209)

XML

Investment Securities (Details Textual)	6 Months Ended
	Jun. 30, 2015 USD ($) securities	Jun. 30, 2014 loan	Dec. 31, 2014 USD ($)
Investments, Debt and Equity Securities [Abstract]
Securities classified as trading	$ 0		$ 0
Average prepayment rate (percent)	6.00%
Discount interest rate (percent)	9.40%
OTTI, unrealized losses	$ 0
Pledge securities, carrying value	$ 245,000,000		$ 216,700,000
Private residential collateralized mortgage obligations
Investment Holdings [Line Items]
Mortgage backed securities evaluation non temporary decline number (securities)	0	4

XML

Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Change in other intangible assets

The following table presents the change in the other intangible assets for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Balance at the beginning of the period	$	10,362	$	1,459	$	10,889	$	1,615
Additions as a result of acquisitions	—		11,194		—		11,194
Less: Amortization	527		489		1,054		645
Balance at the end of the period	$	9,835	$	12,164	$	9,835	$	12,164

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Stock-Based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Shares
Outstanding at beginning of period (in shares)	156,407	194,482
Granted (in shares)	0	90,248
Exercised (in shares)	(42,893)	(38,844)
Forfeited or expired (in shares)	(11,249)	(35,744)
Outstanding at end of period (in shares)	102,265	210,142
Vested and expected to vest at end of period (in shares)	102,265
Exercisable at end of period (in shares)	102,265
Weighted-Average Exercise Price
Outstanding at beginning of period (in usd per share)	$ 13.59	$ 15.82
Granted (in usd per share)	0.00	10.72
Exercised (in usd per share)	12.24	10.98
Forfeited or expired (in usd per share)	16.91	23.66
Outstanding at end of period (in usd per share)	13.79	$ 13.19
Vested and expected to vest at end of period (in usd per share)	13.79
Exercisable at end of period (in usd per share)	$ 13.79
Weighted-Average Remaining Contractual Term, Outstanding	3 years 29 days	3 years 3 months 18 days
Weighted-Average Remaining Contractual Term, Vested and expected to vest	3 years 29 days
Weighted-Average Remaining Contractual Term, Exercisable	3 years 29 days
Aggregate Intrinsic Value, Outstanding	$ 422	$ 677
Aggregate Intrinsic Value, Vested and expected to vest	422
Aggregate Intrinsic Value, Exercisable	$ 422

XML

Repurchase Agreements (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
repurchase agreement [Line Items]
Repurchase agreement obligations	$ 20,589	$ 32,181
US Treasury Securities [Member]
repurchase agreement [Line Items]
Repurchase agreement obligations	0
Municipal securities
repurchase agreement [Line Items]
Repurchase agreement obligations	0
U.S. Government-sponsored agencies
repurchase agreement [Line Items]
Repurchase agreement obligations	20,589
Corporate Debt Securities [Member]
repurchase agreement [Line Items]
Repurchase agreement obligations	$ 0

XML

Business Combination - Preliminary Fair Value Estimate (Details) - Washington Banking $ in Thousands	May. 01, 2014 USD ($)
Assets
Cash and cash equivalents	$ 74,947
Investment securities available for sale	458,312
Loans held for sale	3,923
FDIC indemnification asset	7,174
Other real estate owned ($5,122 covered by FDIC shared-loss agreements)	7,121
Premises and equipment	31,776
Federal Home Loan Bank stock	7,064
Bank owned life insurance	32,519
Accrued Interest Receivable	4,943
Other intangible assets	11,194
Prepaid expenses and other assets	14,852
Total assets acquired	1,656,853
Liabilities
Deposits	1,433,894
Junior subordinated debentures	18,937
Accrued expenses and other liabilities	24,067
Total liabilities assumed	1,476,898
Net assets acquired	179,955
Noncovered Loans
Assets
Loans receivable	895,978
Covered Loans
Assets
Loans receivable	$ 107,050

XML

Covered Loans Receivable - Risk Management (Details) - Covered Loans $ in Thousands	3 Months Ended
	Jun. 30, 2015 USD ($) Segment	Apr. 16, 2015 USD ($)	Dec. 31, 2014 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	$ 107,681		$ 126,200
Allowance for loan losses	(5,499)		(5,576)
Covered loans receivable, net	$ 102,182		120,624
Number of loan segments | Segment	4
Recorded investment of purchased covered loans no longer covered under FDIC loss sharing agreements	$ 1,500	$ 25,400	872,000
One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	5,080		5,990
Commercial Business
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	90,121		105,233
Commercial Business | Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	16,836		19,110
Commercial Business | Owner-occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	43,521		59,244
Commercial Business | Non-owner Occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	29,764		26,879
Real Estate Construction and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	4,281		6,006
Real Estate Construction and Land Development | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	1,962		2,446
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	2,319		3,560
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Covered loans receivable, net	$ 8,199		$ 8,971

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Stockholders' Equity - Shares Repurchased (Details) - $ / shares	3 Months Ended		6 Months Ended		34 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015
Tenth Plan
Equity, Class of Treasury Stock [Line Items]
Repurchased shares	0	0	0	0	704,975
Stock repurchase average share price (in usd per share)	$ 0.00	$ 0.00	$ 0.00	$ 0.00	$ 15.85
Eleventh Plan
Equity, Class of Treasury Stock [Line Items]
Repurchased shares	304,600	0	441,966	0	441,966
Stock repurchase average share price (in usd per share)	$ 16.88	$ 0.00	$ 16.64	$ 0.00	$ 16.64

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Fair Value Measurements (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Fair Value Disclosures [Abstract]
Fair value assets transfers between level 1 and level 2 transfer amount	$ 0	$ 0	$ 0	$ 0

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Stock-Based Compensation (Details Textual) - USD ($)		3 Months Ended		6 Months Ended
	Jul. 24, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares remain available for future issuances under stock-based compensation plans		1,265,569		1,265,569
Proceeds from exercise of stock options				$ 541,000	$ 427,000
Restricted stock awards issued, net of forfeitures				1,500,000	1,100,000
the Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance	1,500,000
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation			$ 4,000		20,000
Tax benefit			0		0
Intrinsic value of options exercised				177,000	201,000
Proceeds from exercise of stock options				$ 525,000	427,000
Employee Stock Option | Option 1
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested ratably				3 years
Expired ratably				5 years
Employee Stock Option | Option 2
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested ratably				4 years
Expired ratably				10 years
Restricted Stock Awards | Award 1
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested ratably				5 years
Restricted Stock Awards | Award 2
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested ratably				4 years
Restricted and Unrestricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation		$ 368,000	263,000	$ 716,000	539,000
Tax benefit		129,000	$ 92,000	251,000	$ 189,000
Unrecognized compensation expense related to non-vested stock option		$ 3,600,000		$ 3,600,000
Weighted average period				2 years 8 months 12 days

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Business Combination - Textuals (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended	6 Months Ended
	May. 01, 2014	Jun. 30, 2014	Jun. 30, 2014	Jun. 30, 2015	Dec. 31, 2014	Apr. 30, 2014
Business Acquisition [Line Items]
Goodwill				$ 119,029	$ 119,029
Washington Banking
Business Acquisition [Line Items]
Number of shares of common stock issued	0.89000
Share price paid in cash (in usd per share)	$ 2.75
Common stock, shares outstanding						15,587,154
Closing price per share (in usd per share)						$ 16.16
Total consideration paid	$ 269,619
Number of shares issued in conjunction with the merger	14,000,178
Capitalized stock issuance costs	$ 489
Goodwill	$ 89,664
Merger-related costs		$ 5,300	$ 5,600

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Stockholders' Equity (Details Textual) - $ / shares			3 Months Ended		6 Months Ended
	Oct. 23, 2014	Aug. 30, 2012	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Stockholders Equity (Textual) [Abstract]
Anti-dilutive securities excluded from computation (in shares)			5,009	23,204	6,017	32,940
Shares repurchased at an average price			11,687	8,186	21,610	17,484
Withholding taxes average price per share (in usd per share)			$ 17.37	$ 12.91	$ 16.66	$ 15.49
Eleventh Plan
Stockholders Equity (Textual) [Abstract]
Outstanding share percent	5.00%
Outstanding common shares in the plan	1,513,000
Tenth Plan
Stockholders Equity (Textual) [Abstract]
Outstanding share percent		5.00%
Outstanding common shares in the plan		757,000

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Goodwill and Other Intangible Assets Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Finite-lived Intangible Assets [Roll Forward]
Balance at the beginning of the period	$ 10,362	$ 1,459	$ 10,889	$ 1,615
Additions as a result of acquisitions	0	11,194	0	11,194
Less: Amortization	527	489	1,054	645
Balance at the end of the period	$ 9,835	$ 12,164	$ 9,835	$ 12,164

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Subsequent Event

6 Months Ended

Jun. 30, 2015

Subsequent Events [Abstract]

Subsequent Event

Subsequent Event

On August 4, 2015, the Bank and the FDIC entered into an agreement terminating the shared-loss agreements for all three of the FDIC-assisted acquisitions (Cowlitz Bank, City Bank and North County Bank). The Bank paid consideration of $7.1 million to the FDIC for the termination of the agreements. The termination resulted in a pre-tax gain of approximately $1.7 million and the elimination of the FDIC indemnification asset and the FDIC clawback liability (included in “accrued expenses and other liabilities” in the condensed consolidated statements of financial condition) which was recorded as of the August 4, 2015 termination date. The FDIC indemnification asset and FDIC clawback liability amounts were $388,000 and $9.3 million, respectively, as of June 30, 2015. All rights and obligations of the parties under the FDIC shared-loss agreements, including the clawback provisions, will be eliminated under this termination agreement. The termination of the shared-loss agreements should have no impact on the yields for the loans that were previously covered under these agreements. All future charge-offs, recoveries, gains, losses and expenses related to covered assets will now be recognized entirely by the Bank since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and expenses.

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Noncovered Loans Receivable - Nonaccrual Loans (Details) - Noncovered Nonaccrual Loans - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	$ 6,998	$ 7,510
Nonaccrual originated loans guaranteed by governmental agencies	1,700	1,600
One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	0	0
Commercial Business
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	4,490	4,719
Commercial Business | Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	2,533	3,463
Commercial Business | Owner-occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	1,957	1,163
Commercial Business | Non-owner Occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	0	93
Real Estate Construction and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	2,489	2,652
Real Estate Construction and Land Development | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	2,489	2,652
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered nonaccrual loans	$ 19	$ 139

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Investment Securities - Contractual Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Securities Available for Sale, Amortized Cost
Due in one year or less	$ 3,543
Due after one year through three years	32,677
Due after three years through five years	34,919
Due after five years through ten years	148,604
Due after ten years	474,032
Investment securities with no stated maturities	1,956
Amortized Cost	695,731	$ 737,345
Securities Available for Sale, Fair Value
Due in one year or less	3,555
Due after one year through three years	32,854
Due after three years through five years	35,246
Due after five years through ten years	149,692
Due after ten years	475,810
Investment securities with no stated maturities	1,965
Fair Value	699,122	742,846
Securities Held to Maturity, Amortized Cost
Due in one year or less	3,005
Due after one year through three years	3,749
Due after three years through five years	6,911
Due after five years through ten years	16,745
Due after ten years	3,177
Investment securities with no stated maturities	0
Amortized Cost	33,587	35,814
Securities Held to Maturity, Fair Value
Due in one year or less	3,019
Due after one year through three years	3,779
Due after three years through five years	7,211
Due after five years through ten years	17,331
Due after ten years	3,154
Investment securities with no stated maturities	0
Fair Value	$ 34,494	$ 36,874

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Stockholders' Equity - Dividends (Details) - $ / shares									3 Months Ended		6 Months Ended
	Jul. 22, 2015	Apr. 22, 2015	Jan. 28, 2015	Nov. 11, 2014	Oct. 23, 2014	Jul. 24, 2014	Mar. 27, 2014	Jan. 29, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Subsequent Event [Line Items]
Declared		Apr. 22, 2015	Jan. 28, 2015	Nov. 11, 2014	Oct. 23, 2014	Jul. 24, 2014	Mar. 27, 2014	Jan. 29, 2014
Cash Dividend per Share (in usd per share)			$ 0.10	$ 0.16	$ 0.09	$ 0.09	$ 0.08	$ 0.08	$ 0.11	$ 0.08	$ 0.21	$ 0.16
Record Date		May 07, 2015	Feb. 10, 2015	Dec. 02, 2014	Nov. 06, 2014	Aug. 07, 2014	Apr. 08, 2014	Feb. 10, 2014
Paid Date		May 21, 2015	Feb. 24, 2015	Dec. 12, 2014	Nov. 20, 2014	Aug. 21, 2014	Apr. 23, 2014	Feb. 24, 2014
Subsequent Event
Subsequent Event [Line Items]
Cash Dividend per Share (in usd per share)	$ 0.0011

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2015

Share-based Compensation [Abstract]

Schedule of stock option activity

The following tables summarize the stock option activity for the six months ended June 30, 2015 and 2014:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2013	194,482		$	15.82
Granted (1)	90,248		10.72
Exercised	(38,844	)	10.98
Forfeited or expired	(35,744	)	23.66
Outstanding at June 30, 2014	210,142		$	13.19	3.30	$	677
Outstanding at December 31, 2014	156,407		$	13.59
Granted	—		—
Exercised	(42,893	)	12.24
Forfeited or expired	(11,249	)	16.91
Outstanding at June 30, 2015	102,265		$	13.79	3.08	$	422
Vested and expected to vest at June 30, 2015	102,265		$	13.79	3.08	$	422
Exercisable at June 30, 2015	102,265		$	13.79	3.08	$	422

Schedule of restricted stock award activity

The following tables summarize the restricted and unrestricted stock award activity for the six months ended June 30, 2015 and 2014:

	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2013	202,939		$	14.29
Granted	10,168		16.72
Vested	(63,639	)	14.39
Forfeited	(3,993	)	14.28
Nonvested at June 30, 2014	145,475		$	14.42
Nonvested at December 31, 2014	238,669		$	15.20
Granted	117,868		16.66
Vested	(90,217	)	15.13
Forfeited	(2,087	)	15.58
Nonvested at June 30, 2015	264,233		$	15.87

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Noncovered Loans Receivable - Impaired Loans (Details) - Noncovered Impaired Loans - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Excluded TDR noncovered loans classified as PCI	$ 624,000		$ 624,000
Recorded Investment With No Specific Valuation Allowance	7,041,000		7,041,000		$ 6,293,000
Recorded Investment With Specific Valuation Allowance	18,216,000		18,216,000		19,863,000
Total Recorded Investment	25,257,000		25,257,000		26,156,000
Unpaid Contractual Principal Balance	26,259,000		26,259,000		26,882,000
Related Specific Valuation Allowance	2,770,000		2,770,000		3,235,000
Government guarantee of originated impaired loans	2,100,000		2,100,000		2,400,000
Average Recorded Investment on Impaired Loans	24,505,000	$ 32,932,000	28,199,000	$ 31,911,000
Nonaccrual
Financing Receivable, Impaired [Line Items]
Interest income recognized on impaired loans	0	0	0	0
Restructured Performing
Financing Receivable, Impaired [Line Items]
Interest income recognized on impaired loans	224,000	260,000	420,000	533,000
One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		0
Recorded Investment With Specific Valuation Allowance	241,000		241,000		245,000
Total Recorded Investment	241,000		241,000		245,000
Unpaid Contractual Principal Balance	241,000		241,000		245,000
Related Specific Valuation Allowance	74,000		74,000		75,000
Average Recorded Investment on Impaired Loans	242,000	581,000	375,000	585,000
Commercial Business
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	4,617,000		4,617,000		3,953,000
Recorded Investment With Specific Valuation Allowance	14,860,000		14,860,000		15,173,000
Total Recorded Investment	19,477,000		19,477,000		19,126,000
Unpaid Contractual Principal Balance	19,890,000		19,890,000		19,409,000
Related Specific Valuation Allowance	2,444,000		2,444,000		2,474,000
Average Recorded Investment on Impaired Loans	18,623,000	23,242,000	20,714,000	22,631,000
Commercial Business | Commercial and Industrial
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	865,000		865,000		1,134,000
Recorded Investment With Specific Valuation Allowance	5,860,000		5,860,000		7,906,000
Total Recorded Investment	6,725,000		6,725,000		9,040,000
Unpaid Contractual Principal Balance	7,111,000		7,111,000		9,349,000
Related Specific Valuation Allowance	746,000		746,000		1,325,000
Average Recorded Investment on Impaired Loans	7,524,000	11,899,000	9,464,000	11,596,000
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		360,000
Recorded Investment With Specific Valuation Allowance	3,214,000		3,214,000		2,421,000
Total Recorded Investment	3,214,000		3,214,000		2,781,000
Unpaid Contractual Principal Balance	3,232,000		3,232,000		2,781,000
Related Specific Valuation Allowance	755,000		755,000		684,000
Average Recorded Investment on Impaired Loans	2,779,000	3,489,000	3,137,000	3,325,000
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	3,752,000		3,752,000		2,459,000
Recorded Investment With Specific Valuation Allowance	5,786,000		5,786,000		4,846,000
Total Recorded Investment	9,538,000		9,538,000		7,305,000
Unpaid Contractual Principal Balance	9,547,000		9,547,000		7,279,000
Related Specific Valuation Allowance	943,000		943,000		465,000
Average Recorded Investment on Impaired Loans	8,320,000	7,854,000	8,113,000	7,710,000
Real Estate Construction and Land Development
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	2,424,000		2,424,000		2,307,000
Recorded Investment With Specific Valuation Allowance	2,993,000		2,993,000		4,273,000
Total Recorded Investment	5,417,000		5,417,000		6,580,000
Unpaid Contractual Principal Balance	6,004,000		6,004,000		7,020,000
Related Specific Valuation Allowance	228,000		228,000		630,000
Average Recorded Investment on Impaired Loans	5,516,000	8,142,000	6,634,000	7,791,000
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	2,424,000		2,424,000		2,307,000
Recorded Investment With Specific Valuation Allowance	984,000		984,000		2,217,000
Total Recorded Investment	3,408,000		3,408,000		4,524,000
Unpaid Contractual Principal Balance	3,995,000		3,995,000		4,964,000
Related Specific Valuation Allowance	28,000		28,000		396,000
Average Recorded Investment on Impaired Loans	3,496,000	6,028,000	4,578,000	5,580,000
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		0
Recorded Investment With Specific Valuation Allowance	2,009,000		2,009,000		2,056,000
Total Recorded Investment	2,009,000		2,009,000		2,056,000
Unpaid Contractual Principal Balance	2,009,000		2,009,000		2,056,000
Related Specific Valuation Allowance	200,000		200,000		234,000
Average Recorded Investment on Impaired Loans	2,020,000	2,114,000	2,056,000	2,211,000
Consumer
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		33,000
Recorded Investment With Specific Valuation Allowance	122,000		122,000		172,000
Total Recorded Investment	122,000		122,000		205,000
Unpaid Contractual Principal Balance	124,000		124,000		208,000
Related Specific Valuation Allowance	24,000		24,000		$ 56,000
Average Recorded Investment on Impaired Loans	$ 124,000	$ 967,000	$ 476,000	$ 904,000

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Allowance for Loan Losses - Recorded Investment Disaggregated on Basis of Impairment (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	$ 2,347,238	$ 2,252,014
One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	72,163	69,530
Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	25,257	26,156
Collectively evaluated for impairment	2,164,273	2,037,749
Total gross loans receivable	2,239,557	2,125,814
Noncovered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	241	245
Collectively evaluated for impairment	64,622	61,060
Total gross loans receivable	67,083	63,540
Covered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	3,820	4,075
Collectively evaluated for impairment	54,880	64,763
Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	48,981	57,362
Covered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	2,122	2,512
Covered Loans | One-to-four Family Residential | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,958	3,478
PCI Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	50,027
PCI Noncovered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	50,027	61,909
PCI Noncovered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,220
PCI Noncovered Loans | One-to-four Family Residential | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,220	2,235
PCI Covered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	48,981
PCI Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		57,362
PCI Covered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,958
PCI Covered Loans | One-to-four Family Residential | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		3,478
Commercial Business
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	1,884,703	1,809,075
Commercial Business | Commercial and Industrial
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	568,825	570,453
Commercial Business | Owner-occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	609,242	594,986
Commercial Business | Non-owner Occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	706,636	643,636
Commercial Business | Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	19,477	19,126
Collectively evaluated for impairment	1,739,431	1,639,283
Total gross loans receivable	1,794,582	1,703,842
Commercial Business | Noncovered Loans | Commercial and Industrial
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	6,725	9,040
Collectively evaluated for impairment	533,489	524,263
Total gross loans receivable	551,989	551,343
Commercial Business | Noncovered Loans | Owner-occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	3,214	2,781
Collectively evaluated for impairment	551,236	516,753
Total gross loans receivable	565,721	535,742
Commercial Business | Noncovered Loans | Non-owner Occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	9,538	7,305
Collectively evaluated for impairment	654,706	598,267
Total gross loans receivable	676,872	616,757
Commercial Business | Covered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	3,616	3,890
Collectively evaluated for impairment	45,036	53,286
Commercial Business | Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	41,469	48,057
Commercial Business | Covered Loans | Commercial and Industrial
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	1,820	2,334
Collectively evaluated for impairment	6,877	9,642
Commercial Business | Covered Loans | Commercial and Industrial | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	8,139	7,134
Commercial Business | Covered Loans | Owner-occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	1,395	1,132
Collectively evaluated for impairment	28,371	37,446
Commercial Business | Covered Loans | Owner-occupied Commercial Real Estate | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	13,755	20,666
Commercial Business | Covered Loans | Non-owner Occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	401	424
Collectively evaluated for impairment	9,788	6,198
Commercial Business | Covered Loans | Non-owner Occupied Commercial Real Estate | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	19,575	20,257
Commercial Business | PCI Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	35,674
Commercial Business | PCI Noncovered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	35,674	45,433
Commercial Business | PCI Noncovered Loans | Commercial and Industrial
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	11,775
Commercial Business | PCI Noncovered Loans | Commercial and Industrial | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	11,775	18,040
Commercial Business | PCI Noncovered Loans | Owner-occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	11,271
Commercial Business | PCI Noncovered Loans | Owner-occupied Commercial Real Estate | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	11,271	16,208
Commercial Business | PCI Noncovered Loans | Non-owner Occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	12,628
Commercial Business | PCI Noncovered Loans | Non-owner Occupied Commercial Real Estate | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	12,628	11,185
Commercial Business | PCI Covered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	41,469
Commercial Business | PCI Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		48,057
Commercial Business | PCI Covered Loans | Commercial and Industrial
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	8,139
Commercial Business | PCI Covered Loans | Commercial and Industrial | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		7,134
Commercial Business | PCI Covered Loans | Owner-occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	13,755
Commercial Business | PCI Covered Loans | Owner-occupied Commercial Real Estate | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		20,666
Commercial Business | PCI Covered Loans | Non-owner Occupied Commercial Real Estate
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	19,575
Commercial Business | PCI Covered Loans | Non-owner Occupied Commercial Real Estate | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		20,257
Real Estate Construction and Land Development
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	111,998	114,115
Real Estate Construction and Land Development | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	43,655	49,195
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	68,343	64,920
Real Estate Construction and Land Development | Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	5,417	6,580
Collectively evaluated for impairment	96,504	94,343
Total gross loans receivable	107,717	108,109
Real Estate Construction and Land Development | Noncovered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	3,408	4,524
Collectively evaluated for impairment	34,975	38,002
Total gross loans receivable	41,693	46,749
Real Estate Construction and Land Development | Noncovered Loans | Five or More Family Residential and Commercial Properties
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	2,009	2,056
Collectively evaluated for impairment	61,529	56,341
Total gross loans receivable	66,024	61,360
Real Estate Construction and Land Development | Covered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	172	179
Collectively evaluated for impairment	2,084	2,717
Real Estate Construction and Land Development | Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,025	3,110
Real Estate Construction and Land Development | Covered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	172	179
Collectively evaluated for impairment	581	959
Real Estate Construction and Land Development | Covered Loans | One-to-four Family Residential | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	1,209	1,308
Real Estate Construction and Land Development | Covered Loans | Five or More Family Residential and Commercial Properties
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	1,503	1,758
Real Estate Construction and Land Development | Covered Loans | Five or More Family Residential and Commercial Properties | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	816	1,802
Real Estate Construction and Land Development | PCI Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	5,796
Real Estate Construction and Land Development | PCI Noncovered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	5,796	7,186
Real Estate Construction and Land Development | PCI Noncovered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	3,310
Real Estate Construction and Land Development | PCI Noncovered Loans | One-to-four Family Residential | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	3,310	4,223
Real Estate Construction and Land Development | PCI Noncovered Loans | Five or More Family Residential and Commercial Properties
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,486
Real Estate Construction and Land Development | PCI Noncovered Loans | Five or More Family Residential and Commercial Properties | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,486	2,963
Real Estate Construction and Land Development | PCI Covered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,025
Real Estate Construction and Land Development | PCI Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		3,110
Real Estate Construction and Land Development | PCI Covered Loans | One-to-four Family Residential
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	1,209
Real Estate Construction and Land Development | PCI Covered Loans | One-to-four Family Residential | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		1,308
Real Estate Construction and Land Development | PCI Covered Loans | Five or More Family Residential and Commercial Properties
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	816
Real Estate Construction and Land Development | PCI Covered Loans | Five or More Family Residential and Commercial Properties | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		1,802
Consumer
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable	278,374	259,294
Consumer | Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	122	205
Collectively evaluated for impairment	263,716	243,063
Total gross loans receivable	270,175	250,323
Consumer | Covered Loans
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	32	6
Collectively evaluated for impairment	5,638	6,248
Consumer | Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,529	2,717
Consumer | PCI Noncovered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	6,337
Consumer | PCI Noncovered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	6,337	7,055
Consumer | PCI Covered Loans
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	$ 2,529
Consumer | PCI Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment		$ 2,717

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Covered Loans Receivable - Impaired Loans (Details) - Covered Impaired Loans - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Excluded TDR covered loans classified as PCI	$ 10,000,000		$ 10,000,000		$ 10,300,000
Recorded Investment With No Specific Valuation Allowance	1,846,000		1,846,000		2,240,000
Recorded Investment With Specific Valuation Allowance	1,974,000		1,974,000		1,835,000
Total Recorded Investment	3,820,000		3,820,000		4,075,000
Unpaid Contractual Principal Balance	5,347,000		5,347,000		5,482,000
Related Specific Valuation Allowance	385,000		385,000		423,000
Average Recorded Investment on Impaired Loans	4,006,000	$ 4,008,000	4,033,000	$ 4,078,000
One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Average Recorded Investment on Impaired Loans	0	0	0	150,000
Commercial Business
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	1,820,000		1,820,000		2,240,000
Recorded Investment With Specific Valuation Allowance	1,796,000		1,796,000		1,650,000
Total Recorded Investment	3,616,000		3,616,000		3,890,000
Unpaid Contractual Principal Balance	5,133,000		5,133,000		5,292,000
Related Specific Valuation Allowance	338,000		338,000		370,000
Average Recorded Investment on Impaired Loans	3,814,000	4,001,000	3,916,000	3,921,000
Commercial Business | Commercial and Industrial
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	1,820,000		1,820,000		2,240,000
Recorded Investment With Specific Valuation Allowance	0		0		94,000
Total Recorded Investment	1,820,000		1,820,000		2,334,000
Unpaid Contractual Principal Balance	3,257,000		3,257,000		3,696,000
Related Specific Valuation Allowance	0		0		9,000
Average Recorded Investment on Impaired Loans	2,000,000	3,648,000	2,739,000	3,686,000
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		0
Recorded Investment With Specific Valuation Allowance	1,395,000		1,395,000		1,132,000
Total Recorded Investment	1,395,000		1,395,000		1,132,000
Unpaid Contractual Principal Balance	1,441,000		1,441,000		1,156,000
Related Specific Valuation Allowance	289,000		289,000		295,000
Average Recorded Investment on Impaired Loans	1,407,000	353,000	844,000	235,000
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		0
Recorded Investment With Specific Valuation Allowance	401,000		401,000		424,000
Total Recorded Investment	401,000		401,000		424,000
Unpaid Contractual Principal Balance	435,000		435,000		440,000
Related Specific Valuation Allowance	49,000		49,000		66,000
Average Recorded Investment on Impaired Loans	407,000	0	333,000	0
Real Estate Construction and Land Development
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		0
Recorded Investment With Specific Valuation Allowance	172,000		172,000		179,000
Total Recorded Investment	172,000		172,000		179,000
Unpaid Contractual Principal Balance	180,000		180,000		182,000
Related Specific Valuation Allowance	45,000		45,000		51,000
Average Recorded Investment on Impaired Loans	173,000	0	105,000	0
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	0		0		0
Recorded Investment With Specific Valuation Allowance	172,000		172,000		179,000
Total Recorded Investment	172,000		172,000		179,000
Unpaid Contractual Principal Balance	180,000		180,000		182,000
Related Specific Valuation Allowance	45,000		45,000		51,000
Average Recorded Investment on Impaired Loans	173,000	0	105,000	0
Consumer
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Specific Valuation Allowance	26,000		26,000		0
Recorded Investment With Specific Valuation Allowance	6,000		6,000		6,000
Total Recorded Investment	32,000		32,000		6,000
Unpaid Contractual Principal Balance	34,000		34,000		8,000
Related Specific Valuation Allowance	2,000		2,000		$ 2,000
Average Recorded Investment on Impaired Loans	19,000	7,000	12,000	7,000
Nonaccrual
Financing Receivable, Impaired [Line Items]
Interest income recognized on impaired loans	0		0
Troubled Debt Restructured Loans
Financing Receivable, Impaired [Line Items]
Interest income recognized on impaired loans	$ 26,000	$ 29,000	$ 47,000	$ 95,000

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Noncovered Loans Receivable - Loan Origination/Risk Management (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) Segment	Mar. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Jun. 30, 2014 USD ($)	Mar. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	$ 2,347,238		$ 2,252,014
Allowance for loan losses	(28,278)	$ (27,816)	(27,729)	$ (28,483)	$ (29,387)	$ (28,824)
One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	72,163		69,530
Allowance for loan losses	(1,271)	(1,242)	(1,200)	(1,155)	(1,121)	(1,100)
Commercial Business
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	1,884,703		1,809,075
Allowance for loan losses	(20,624)	(20,060)	(20,186)	(21,189)	(21,966)	(22,853)
Commercial Business | Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	568,825		570,453
Allowance for loan losses	(9,891)	(9,858)	(10,553)	(11,304)	(12,277)	(13,478)
Commercial Business | Owner-occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	609,242		594,986
Allowance for loan losses	(4,587)	(4,173)	(4,095)	(4,200)	(4,463)	(4,049)
Commercial Business | Non-owner Occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	706,636		643,636
Allowance for loan losses	(6,146)	(6,029)	(5,538)	(5,685)	(5,226)	(5,326)
Real Estate Construction and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	111,998		114,115
Allowance for loan losses	(2,524)	(2,570)	(2,758)	(3,163)	(3,962)	(2,673)
Real Estate Construction and Land Development | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	43,655		49,195
Allowance for loan losses	(1,462)	(1,565)	(1,786)	(1,533)	(1,979)	(1,720)
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	68,343		64,920
Allowance for loan losses	(1,062)	(1,005)	(972)	(1,630)	(1,983)	(953)
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	278,374		259,294
Allowance for loan losses	$ (3,167)	$ (3,175)	(2,769)	$ (2,175)	$ (1,690)	$ (1,597)
Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of loan segments | Segment	4
Maximum percentage consumer loans (percent)	80.00%
Gross noncovered loans receivable	$ 2,239,557		2,125,814
Net deferred loan fees	64		(937)
Noncovered loans receivable, net	2,239,621		2,124,877
Allowance for loan losses	(22,779)		(22,153)
Noncovered loans receivable, net of allowance for loan losses	$ 2,216,842		2,102,724
Noncovered Loans | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Maximum percent of appraised value or underlying collateral mortgage (not to exceed 80%) residential loans (percent)	80.00%
Gross noncovered loans receivable	$ 67,083		63,540
Noncovered Loans | Commercial Business
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	1,794,582		1,703,842
Noncovered Loans | Commercial Business | Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	551,989		551,343
Noncovered Loans | Commercial Business | Owner-occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	565,721		535,742
Noncovered Loans | Commercial Business | Non-owner Occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	676,872		616,757
Noncovered Loans | Real Estate Construction and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	107,717		108,109
Noncovered Loans | Real Estate Construction and Land Development | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	41,693		46,749
Noncovered Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	66,024		61,360
Noncovered Loans | Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross noncovered loans receivable	$ 270,175		$ 250,323
Noncovered Loans | Minimum | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan term	15 years
Noncovered Loans | Maximum | One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan term	30 years

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net income	$ 18,504	$ 6,691
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,670	4,829
Changes in net deferred loan fees, net of amortization	(1,001)	(393)
Provision for loan losses	2,397	1,149
Net change in accrued interest receivable, FDIC indemnification asset, prepaid expenses and other assets, accrued expenses and other liabilities	(7,672)	(3,176)
Restricted and unrestricted stock compensation expense	716	539
Stock option compensation expense	0	20
Excess tax benefits from stock options and restricted and unrestricted stock	(90)	(33)
Amortization of intangible assets	1,054	645
Gain on sale of investment securities, net	(969)	(267)
Impairment loss on investment of securities, net	0	45
Origination of loans held for sale	(66,257)	(12,592)
Gain on sale of loans, net	(2,417)	(233)
Proceeds from sale of loans held for sale	67,317	9,329
Earnings on bank owned life insurance	(403)	(95)
Valuation adjustment on other real estate owned	415	0
Loss (gain) on sale of other real estate owned, net	97	(65)
Loss on sale or write-off of furniture, equipment and leasehold improvements	0	421
Net cash provided by operating activities	18,361	6,814
Cash flows from investing activities:
Loans originated, net of principal payments	(98,885)	4,969
Maturities of other interest earning deposits	4,986	1,494
Maturities of investment securities available for sale	56,700	17,916
Maturities of investment securities held to maturity	1,235	521
Purchase of investment securities available for sale	(81,755)	(206,075)
Purchase of investment securities held to maturity	0	(3,313)
Purchase of premises and equipment	(979)	(1,978)
Proceeds from sales of other real estate owned	1,639	3,857
Proceeds from sales of investment securities available for sale	64,432	157,987
Proceeds from redemption of FHLB stock	8,040	258
Purchase of bank owned life insurance	(25,000)	0
Investment in new market tax credit partnership	0	(25,000)
Investment in low-income housing tax credit partnership	(244)	0
Net cash received from acquisitions	0	31,591
Net cash (used in) provided by investing activities	(69,831)	(17,773)
Cash flows from financing activities:
Net increase in deposits	40,156	33,459
Common stock cash dividends paid	(6,326)	(2,594)
Net decrease in securities sold under agreement to repurchase	(11,592)	(3,970)
Proceeds from exercise of stock options	541	427
Excess tax benefits from stock options and restricted and unrestricted stock	90	33
Repurchase of common stock	(7,723)	(271)
Net cash (used in) provided by financing activities	15,146	27,084
Net (decrease) increase in cash and cash equivalents	(36,324)	16,125
Cash and cash equivalents at beginning of period	121,636	130,400
Cash and cash equivalents at end of period	85,312	146,525
Supplemental disclosures of cash flow information:
Cash paid for interest	2,923	1,848
Cash paid for income taxes	9,805	7,000
Supplemental non-cash disclosures of cash flow information:
Transfers of loans receivable to other real estate owned	1,813	218
Common stock issued for business combinations	0	226,751
Assets acquired (liabilities assumed) in acquisitions:
Investment securities available for sale	0	458,312
Loans held for sale	0	3,923
Noncovered loans receivable	0	893,824
Covered loans receivable	0	109,693
Other real estate owned	0	7,121
Premises and equipment	0	31,776
Federal Home Loan Bank stock	0	7,064
FDIC indemnification asset	0	7,047
Accrued interest receivable	0	4,943
Bank owned life insurance	0	32,519
Prepaid expenses and other assets	0	14,942
Other intangible assets	0	11,194
Deposits	0	(1,433,894)
Junior subordinated debentures	0	(18,937)
Accrued expenses and other liabilities	$ 0	$ (23,551)

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Covered Loans Receivable - Troubled Debt Restructured Loans (Details) - Covered Loans	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) loan Contract contract	Jun. 30, 2014 USD ($) Contract contract	Jun. 30, 2015 USD ($) Contract contract	Jun. 30, 2014 USD ($) Contract contract	Dec. 31, 2014 USD ($)
Financing Receivable, Modifications [Line Items]
Performing TDRs, Covered TDRs	$ 10,303,000		$ 10,303,000		$ 10,289,000
Nonaccrual TDRs, Covered TDRs	1,826,000		1,826,000		2,246,000
Performing TDRs, Allowance for loan losses on covered TDRs	29,000		29,000		1,000
Nonaccrual TDRs, Allowance for loan losses on covered TDRs	2,000		2,000		2,000
Loans modifications, specific valuation allowance	$ 0		28,000
Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Number of Contracts | loan	1
Troubled Debt Restructured Loans
Financing Receivable, Modifications [Line Items]
Unfunded commitments related to credits classified as covered TDRs	$ 0		$ 0		$ 0
Number of Contracts | Contract	3	0	6	1
Outstanding Principal Balance	$ 8,215,000	$ 0	$ 8,753,000	$ 3,626,000
Number of loans modified that subsequently defaulted | contract				0
Troubled Debt Restructured Loans | Consumer
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract			1	0
Outstanding Principal Balance			$ 104,000	$ 0
Troubled Debt Restructured Loans | Commercial Business
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	2	0	4	1
Outstanding Principal Balance	$ 7,797,000	$ 0	$ 8,231,000	$ 3,626,000
Troubled Debt Restructured Loans | Commercial Business | Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	0	2	1
Outstanding Principal Balance	$ 552,000	$ 0	$ 678,000	$ 3,626,000
Number of loans modified that subsequently defaulted | contract			1
Outstanding principal balance			$ 1,800,000
Troubled Debt Restructured Loans | Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract			1	0
Outstanding Principal Balance			$ 308,000	$ 0
Troubled Debt Restructured Loans | Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	0	1	0
Outstanding Principal Balance	$ 7,245,000	$ 0	$ 7,245,000	$ 0
Troubled Debt Restructured Loans | Finance Receivable Modified Subsequent Default
Financing Receivable, Modifications [Line Items]
Related specific valuation allowance for TDRs	$ 0		$ 0
Troubled Debt Restructured Loans | Real Estate Construction and Land Development [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	0	1	0
Outstanding Principal Balance	$ 418,000	$ 0	$ 418,000	$ 0
Troubled Debt Restructured Loans | Real Estate Construction and Land Development [Member] | Five or More Family Residential and Commercial Properties
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	0	1	0
Outstanding Principal Balance	$ 418,000	$ 0	$ 418,000	$ 0

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Investment Securities - Unrealized Losses (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	$ 170,099	$ 213,832
12 Months or Longer	50,925	0
Total	221,024	213,832
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses
Less than 12 Months	(1,442)	(1,714)
12 Months or Longer	(734)	0
Total	(2,176)	(1,714)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	1,094	5,307
12 Months or Longer	2,009	0
Total	3,103	5,307
Held-to-maturity Securities, Continuous Unrealized Loss Position, Unrecognized Losses
Less than 12 Months	(24)	(189)
12 Months or Longer	(93)	0
Total	(117)	(189)
U.S. Treasury and U.S. Government-sponsored agencies
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	4,584	3,567
12 Months or Longer	0	0
Total	4,584	3,567
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses
Less than 12 Months	(6)	(31)
12 Months or Longer	0	0
Total	(6)	(31)
Municipal securities
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	54,568	25,176
12 Months or Longer	1,460	0
Total	56,028	25,176
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses
Less than 12 Months	(855)	(184)
12 Months or Longer	(18)	0
Total	(873)	(184)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	1,094	2,196
12 Months or Longer	0	0
Total	1,094	2,196
Held-to-maturity Securities, Continuous Unrealized Loss Position, Unrecognized Losses
Less than 12 Months	(24)	(11)
12 Months or Longer	0	0
Total	(24)	(11)
U.S. Government-sponsored agencies
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	104,716	182,970
12 Months or Longer	49,465	0
Total	154,181	182,970
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses
Less than 12 Months	(569)	(1,475)
12 Months or Longer	(716)	0
Total	(1,285)	(1,475)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	0	2,553
12 Months or Longer	2,009	0
Total	2,009	2,553
Held-to-maturity Securities, Continuous Unrealized Loss Position, Unrecognized Losses
Less than 12 Months	0	(74)
12 Months or Longer	(93)	0
Total	(93)	(74)
Corporate obligations
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months	6,231	2,119
12 Months or Longer	0	0
Total	6,231	2,119
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses
Less than 12 Months	(12)	(24)
12 Months or Longer	0	0
Total	$ (12)	(24)
Private residential collateralized mortgage obligations
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value
Less than 12 Months		558
12 Months or Longer		0
Total		558
Held-to-maturity Securities, Continuous Unrealized Loss Position, Unrecognized Losses
Less than 12 Months		(104)
12 Months or Longer		0
Total		$ (104)

XML

Covered Loans Receivable (Tables)

6 Months Ended

Jun. 30, 2015

Covered Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of loans receivable

The recorded investment of covered loans receivable at June 30, 2015 and December 31, 2014 consisted of the following portfolio segments and classes:

	June 30, 2015			December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	16,836		$	19,110
Owner-occupied commercial real estate	43,521			59,244
Non-owner occupied commercial real estate	29,764			26,879
Total commercial business	90,121			105,233
One-to-four family residential	5,080			5,990
Real estate construction and land development:
One-to-four family residential	1,962			2,446
Five or more family residential and commercial properties	2,319			3,560
Total real estate construction and land development	4,281			6,006
Consumer	8,199			8,971
Gross covered loans receivable	107,681			126,200
Allowance for loan losses	(5,499		)	(5,576		)
Covered loans receivable, net	$	102,182		$	120,624

Loans receivable by credit quality indicator

The following tables present the recorded invested balance of the covered loans receivable by credit quality indicator as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	10,185	$	104	$	4,727	$	1,820	$	16,836
Owner-occupied commercial real estate	31,867		3,266		8,135		253		43,521
Non-owner occupied commercial real estate	12,958		32		14,628		2,146		29,764
Total commercial business	55,010		3,402		27,490		4,219		90,121
One-to-four family residential	4,739		—		341				5,080
Real estate construction and land development:
One-to-four family residential	1,791		—		171		—		1,962
Five or more family residential and commercial properties	1,503		—		816		—		2,319
Total real estate construction and land development	3,294		—		987		—		4,281
Consumer	6,099		—		2,100		—		8,199
Gross covered loans receivable	$	69,142	$	3,402	$	30,918	$	4,219	$	107,681

	December 31, 2014
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	11,297	$	131	$	5,442	$	2,240	$	19,110
Owner-occupied commercial real estate	40,357		4,957		13,583		347		59,244
Non-owner occupied commercial real estate	9,656		40		17,183		—		26,879
Total commercial business	61,310		5,128		36,208		2,587		105,233
One-to-four family residential	5,414		425		151		—		5,990
Real estate construction and land development:
One-to-four family residential	2,178		—		268		—		2,446
Five or more family residential and commercial properties	1,758		—		1,802		—		3,560
Total real estate construction and land development	3,936		—		2,070		—		6,006
Consumer	7,030		—		1,941		—		8,971
Gross covered loans receivable	$	77,690	$	5,553	$	40,370	$	2,587	$	126,200

Past due financing receivables

The balances of past due covered loans, segregated by segments and classes of loans, as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	162	$	2,173	$	2,335	$	14,501	$	16,836	$	—
Owner-occupied commercial real estate	—		684		684		42,837		43,521		—
Non-owner occupied commercial real estate	—		—		—		29,764		29,764		—
Total commercial business	162		2,857		3,019		87,102		90,121		—
One-to-four family residential	—		—		—		5,080		5,080		—
Real estate construction and land development:
One-to-four family residential	—		—		—		1,962		1,962		—
Five or more family residential and commercial properties	311		41		352		1,967		2,319		—
Total real estate construction and land development	311		41		352		3,929		4,281		—
Consumer	71		749		820		7,379		8,199		—
Gross covered loans receivable	$	544	$	3,647	$	4,191	$	103,490	$	107,681	$	—

(1) Excludes covered PCI loans.

	December 31, 2014
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	2,262	$	1,163	$	3,425	$	15,685	$	19,110	$	—
Owner-occupied commercial real estate	645		2,680		3,325		55,919		59,244		—
Non-owner occupied commercial real estate	1,713		456		2,169		24,710		26,879		—
Total commercial business	4,620		4,299		8,919		96,314		105,233		—
One-to-four family residential	112		—		112		5,878		5,990		—
Real estate construction and land development:
One-to-four family residential	178		90		268		2,178		2,446		—
Five or more family residential and commercial properties	—		220		220		3,340		3,560		—
Total real estate construction and land development	178		310		488		5,518		6,006		—
Consumer	263		727		990		7,981		8,971		—
Gross covered loans receivable	$	5,173	$	5,336	$	10,509	$	115,691	$	126,200	$	—

(1) Excludes covered PCI loans.

Recorded investment balance and related allowance for loan losses of accruing and non-accruing TDRs

The recorded investment balance and related allowance for loan losses of performing and nonaccrual covered TDRs as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Performing TDRs		Nonaccrual TDRs		Performing TDRs		Nonaccrual TDRs
	(In thousands)
TDR covered loans	$	10,303	$	1,826	$	10,289	$	2,246
Allowance for loan losses on TDR covered loans	29		2		1		2

Troubled debt restructurings on financing receivables

Covered loans that were modified as TDRs during the three and six months ended June 30, 2015 and 2014 are set forth in the following table:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	552	—	$	—
Non-owner occupied commercial real estate	1	7,245		—	—
Total commercial business	2	7,797		—	—
Real estate construction and land development:
Five or more family residential and commercial properties	1	418		—	—
Total real estate construction and land development	1	418		—	—
Total TDR covered loans	3	$	8,215	—	$	—

	Six Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	2	$	678	1	$	3,626
Owner-occupied commercial real estate	1	308		—	—
Non-owner occupied commercial real estate	1	7,245		—	—
Total commercial business	4	8,231		1	3,626
Real estate construction and land development:
Five or more family residential and commercial properties	1	418		—	—
Total real estate construction and land development	1	418		—	—
Consumer	1	104		—	—
Total TDR covered loans	6	$	8,753	1	$	3,626

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2015 and 2014.

(2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification).

Purchased impaired loans

The following table reflects the outstanding principal balance and recorded investment at June 30, 2015 and December 31, 2014 of the PCI covered loans:

	June 30, 2015				December 31, 2014
	Outstanding Principal		Recorded Investment		Outstanding Principal		Recorded Investment
	(In thousands)
Commercial business:
Commercial and industrial	$	10,324	$	8,139	$	9,635	$	7,134
Owner-occupied commercial real estate	15,431		13,755		23,071		20,666
Non-owner occupied commercial real estate	18,940		19,575		20,607		20,257
Total commercial business	44,695		41,469		53,313		48,057
One-to-four family residential	3,278		2,958		3,837		3,478
Real estate construction and land development:
One-to-four family residential	—		1,209		103		1,308
Five or more family residential and commercial properties	901		816		2,140		1,802
Total real estate construction and land development	901		2,025		2,243		3,110
Consumer	2,719		2,529		2,945		2,717
Gross PCI covered loans	$	51,593	$	48,981	$	62,338	$	57,362

Schedule of impaired purchased loans accretable yield

The following table summarizes the accretable yield on the PCI covered loans resulting from the Cowlitz acquisition and Washington Banking Merger for the three and six months ended June 30, 2015 and 2014.

		Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period		$	8,310		$	9,063		$	8,520		$	9,535
Accretion		(798		)	(615		)	(1,696		)	(1,300		)
Disposal and other		(545		)	(392		)	(899		)	(435		)
Change in accretable yield		—			3,712			1,042			3,968
Balance at the end of the period		$	6,967		$	11,768		$	6,967		$	11,768

Covered Nonaccrual Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of average recorded investment impaired loans including restructuring loans

The recorded investment balance of nonaccrual covered loans, segregated by segments and classes of loans, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	1,820	$	2,321
Owner-occupied commercial real estate	1,087		1,132
Non-owner-occupied commercial real estate	401		424
Total commercial business	3,308		3,877
One-to-four family residential	171		179
Consumer	32		6
Gross nonaccrual covered loans	$	3,511	$	4,062

Covered Impaired Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of average recorded investment impaired loans including restructuring loans

The average recorded investment of impaired covered loans for the three and six months ended June 30, 2015 and 2014 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Commercial business:
Commercial and industrial	$	2,000	$	3,648	$	2,739	$	3,686
Owner-occupied commercial real estate	1,407		353		844		235
Non-owner occupied commercial real estate	407		—		333		—
Total commercial business	3,814		4,001		3,916		3,921
One-to-four family residential	—		—		—		150
Real estate construction and land development:
One-to-four family residential	173		—		105		—
Total real estate construction and land development	173		—		105		—
Consumer	19		7		12		7
Total	$	4,006	$	4,008	$	4,033	$	4,078

Schedule of impaired loans, including restructured

A covered loan, not initially classified as PCI, generally becomes impaired when classified as nonaccrual or when its modification results in a TDR. The table below excludes certain TDR loans totaling $10.0 million and $10.3 million as of June 30, 2015 and December 31, 2014, respectively, which are classified as PCI. These PCI loans are recorded at the recorded investment balance and may not have further impairment. Impaired covered loans as of June 30, 2015 and December 31, 2014 are set forth in the following tables.

	June 30, 2015
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	1,820	$	—	$	1,820	$	3,257	$	—
Owner-occupied commercial real estate	—		1,395		1,395		1,441		289
Non-owner occupied commercial real estate	—		401		401		435		49
Total commercial business	1,820		1,796		3,616		5,133		338
Real estate construction and land development:
One-to-four family residential	—		172		172		180		45
Total real estate construction and land development	—		172		172		180		45
Consumer	26		6		32		34		2
Total	$	1,846	$	1,974	$	3,820	$	5,347	$	385

	December 31, 2014
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	2,240	$	94	$	2,334	$	3,696	$	9
Owner-occupied commercial real estate	—		1,132		1,132		1,156		295
Non-owner occupied commercial real estate	—		424		424		440		66
Total commercial business	2,240		1,650		3,890		5,292		370
Real estate construction and land development:
One-to-four family residential	—		179		179		182		51
Total real estate construction and land development	—		179		179		182		51
Consumer	—		6		6		8		2
Total	$	2,240	$	1,835	$	4,075	$	5,482	$	423

XML

Noncovered Loans Receivable (Tables)

6 Months Ended

Jun. 30, 2015

Noncovered Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of loans receivable

Noncovered loans receivable at June 30, 2015 and December 31, 2014 consisted of the following portfolio segments and classes:

	June 30, 2015			December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	551,989		$	551,343
Owner-occupied commercial real estate	565,721			535,742
Non-owner occupied commercial real estate	676,872			616,757
Total commercial business	1,794,582			1,703,842
One-to-four family residential	67,083			63,540
Real estate construction and land development:
One-to-four family residential	41,693			46,749
Five or more family residential and commercial properties	66,024			61,360
Total real estate construction and land development	107,717			108,109
Consumer	270,175			250,323
Gross noncovered loans receivable	2,239,557			2,125,814
Net deferred loan fees	64			(937		)
Noncovered loans receivable, net	2,239,621			2,124,877
Allowance for loan losses	(22,779		)	(22,153		)
Noncovered loans receivable, net of allowance for loan losses	$	2,216,842		$	2,102,724

Loans receivable by credit quality indicator

The following tables present the balance of the noncovered loans receivable by credit quality indicator as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	522,215	$	10,389	$	19,073	$	312	$	551,989
Owner-occupied commercial real estate	545,857		8,136		11,728		—		565,721
Non-owner occupied commercial real estate	641,385		19,603		15,884		—		676,872
Total commercial business	1,709,457		38,128		46,685		312		1,794,582
One-to-four family residential	64,953		—		2,130		—		67,083
Real estate construction and land development:
One-to-four family residential	32,316		1,465		7,912		—		41,693
Five or more family residential and commercial properties	62,048		—		3,976		—		66,024
Total real estate construction and land development	94,364		1,465		11,888		—		107,717
Consumer	263,731		—		6,444		—		270,175
Gross noncovered loans	$	2,132,505	$	39,593	$	67,147	$	312	$	2,239,557

	December 31, 2014
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	509,483	$	14,487	$	27,049	$	324	$	551,343
Owner-occupied commercial real estate	496,234		22,946		16,562		—		535,742
Non-owner occupied commercial real estate	584,262		17,643		14,852		—		616,757
Total commercial business	1,589,979		55,076		58,463		324		1,703,842
One-to-four family residential	61,185		315		2,040		—		63,540
Real estate construction and land development:
One-to-four family residential	34,356		3,977		8,416		—		46,749
Five or more family residential and commercial properties	57,025		—		4,335		—		61,360
Total real estate construction and land development	91,381		3,977		12,751		—		108,109
Consumer	242,836		—		7,487		—		250,323
Gross noncovered loans	$	1,985,381	$	59,368	$	80,741	$	324	$	2,125,814

Past due financing receivables

The balances of past due noncovered loans, segregated by segments and classes of loans, as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	1,194	$	1,690	$	2,884	$	549,105	$	551,989	$	—
Owner-occupied commercial real estate	1,944		1,087		3,031		562,690		565,721		—
Non-owner occupied commercial real estate	378		182		560		676,312		676,872		—
Total commercial business	3,516		2,959		6,475		1,788,107		1,794,582		—
One-to-four family residential	41		—		41		67,042		67,083		—
Real estate construction and land development:
One-to-four family residential	668		1,964		2,632		39,061		41,693		—
Five or more family residential and commercial properties	—		—		—		66,024		66,024		—
Total real estate construction and land development	668		1,964		2,632		105,085		107,717		—
Consumer	1,358		—		1,358		268,817		270,175		—
Gross noncovered loans	$	5,583	$	4,923	$	10,506	$	2,229,051	$	2,239,557	$	—

(1) Excludes PCI loans.

	December 31, 2014
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	2,503	$	1,962	$	4,465	$	546,878	$	551,343	$	—
Owner-occupied commercial real estate	1,038		100		1,138		534,604		535,742		—
Non-owner occupied commercial real estate	113		75		188		616,569		616,757		—
Total commercial business	3,654		2,137		5,791		1,698,051		1,703,842		—
One-to-four family residential	200		—		200		63,340		63,540		—
Real estate construction and land development:
One-to-four family residential	62		2,135		2,197		44,552		46,749		—
Five or more family residential and commercial properties	—		376		376		60,984		61,360		—
Total real estate construction and land development	62		2,511		2,573		105,536		108,109		—
Consumer	2,413		125		2,538		247,785		250,323		—
Gross noncovered loans	$	6,329	$	4,773	$	11,102	$	2,114,712	$	2,125,814	$	—

(1) Excludes PCI loans.

Recorded investment balance and related allowance for loan losses of accruing and non-accruing TDRs

The recorded investment balance and related allowance for loan losses of performing and nonaccrual TDR noncovered loans as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Performing TDRs		Nonaccrual TDRs		Performing TDRs		Nonaccrual TDRs
	(In thousands)
TDR noncovered loans	$	19,783	$	4,288	$	18,764	$	5,010
Allowance for loan losses on TDR noncovered loans	2,280		282		1,908		1,033

Troubled debt restructurings on financing receivables

Noncovered loans that were modified as TDRs during the three and six months ended June 30, 2015 and 2014 are set forth in the following tables:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	12	$	1,691	6	$	1,942
Owner-occupied commercial real estate	3	873		—	—
Non-owner occupied commercial real estate	3	6,450		2	1,023
Total commercial business	18	9,014		8	2,965
One-to-four family residential	0	—		0	—
Real estate construction and land development:
One-to-four family residential	2	1,038		1	88
Total real estate construction and land development	2	1,038		1	88
Consumer	—	—		—	—
Total TDR noncovered loans	20	$	10,052	9	$	3,053

	Six Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	19	$	2,610	11	$	3,072
Owner-occupied commercial real estate	4	873		1	347
Non-owner occupied commercial real estate	3	6,450		2	1,023
Total commercial business	26	9,933		14	4,442
Real estate construction and land development:
One-to-four family residential	4	2,543		1	277
Total real estate construction and land development	4	2,543		1	277
Consumer	1	38		3	219
Total TDR noncovered loans	31	$	12,514	18	$	4,938

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2015 and 2014.

(2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification), except when the modification was the initial advance on a one-to-four family residential real estate construction and land development loan under a master guidance line. There were no

Troubled debt restructuring loans, subsequently defaulted

The noncovered loans modified during the previous twelve months ended June 30, 2015 and 2014 that subsequently defaulted during the three and six months ended June 30, 2015 and 2014 are included in the following tables:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts	Outstanding Principal  Balance		Number of Contracts	Outstanding Principal  Balance
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	57	3	$	790
Non-owner occupied commercial real estate	0	—		1	2
Total commercial business	1	57		4	792
Real estate construction and land development:
One-to-four family residential	1	865		—	—
Total real estate construction and land development	1	865		—	—
Total	2	$	922	4	$	792

Noncovered Nonaccrual Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of nonaccrual loans

Nonaccrual noncovered loans, segregated by segments and classes of loans, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	2,533	$	3,463
Owner-occupied commercial real estate	1,957		1,163
Non-owner occupied commercial real estate	—		93
Total commercial business	4,490		4,719
One-to-four family residential	—		—
Real estate construction and land development:
One-to-four family residential	2,489		2,652
Total real estate construction and land development	2,489		2,652
Consumer	19		139
Gross nonaccrual noncovered loans	$	6,998	$	7,510

Noncovered Impaired Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of impaired loans, including restructured

Impaired noncovered loans includes nonaccrual noncovered loans and performing troubled debt restructured noncovered loans ("TDRs"). The table below excludes $624,000, as of June 30, 2015, of certain performing TDR noncovered loans classified as PCI as these loans are recorded at the recorded investment balance and may not have further impairment. The balance of impaired noncovered loans as of June 30, 2015 and December 31, 2014 are set forth in the following tables.

	June 30, 2015
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	865	$	5,860	$	6,725	$	7,111	$	746
Owner-occupied commercial real estate	—		3,214		3,214		3,232		755
Non-owner occupied commercial real estate	3,752		5,786		9,538		9,547		943
Total commercial business	4,617		14,860		19,477		19,890		2,444
One-to-four family residential	—		241		241		241		74
Real estate construction and land development:
One-to-four family residential	2,424		984		3,408		3,995		28
Five or more family residential and commercial properties	—		2,009		2,009		2,009		200
Total real estate construction and land development	2,424		2,993		5,417		6,004		228
Consumer	—		122		122		124		24
Total	$	7,041	$	18,216	$	25,257	$	26,259	$	2,770

	December 31, 2014
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	1,134	$	7,906	$	9,040	$	9,349	$	1,325
Owner-occupied commercial real estate	360		2,421		2,781		2,781		684
Non-owner occupied commercial real estate	2,459		4,846		7,305		7,279		465
Total commercial business	3,953		15,173		19,126		19,409		2,474
One-to-four family residential	—		245		245		245		75
Real estate construction and land development:
One-to-four family residential	2,307		2,217		4,524		4,964		396
Five or more family residential and commercial properties	—		2,056		2,056		2,056		234
Total real estate construction and land development	2,307		4,273		6,580		7,020		630
Consumer	33		172		205		208		56
Total	$	6,293	$	19,863	$	26,156	$	26,882	$	3,235

Schedule of average recorded investment impaired loans including restructuring loans

The average recorded investment of impaired noncovered loans for the three and six months ended June 30, 2015 and 2014 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Commercial business:
Commercial and industrial	$	7,524	$	11,899	$	9,464	$	11,596
Owner-occupied commercial real estate	2,779		3,489		3,137		3,325
Non-owner occupied commercial real estate	8,320		7,854		8,113		7,710
Total commercial business	18,623		23,242		20,714		22,631
One-to-four family residential	242		581		375		585
Real estate construction and land development:
One-to-four family residential	3,496		6,028		4,578		5,580
Five or more family residential and commercial properties	2,020		2,114		2,056		2,211
Total real estate construction and land development	5,516		8,142		6,634		7,791
Consumer	124		967		476		904
Total	$	24,505	$	32,932	$	28,199	$	31,911

PCI Noncovered Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Purchased impaired loans

The following table reflects the outstanding principal balance and recorded investment at June 30, 2015 and December 31, 2014 of the PCI noncovered loans:

	June 30, 2015				December 31, 2014
	Outstanding Principal		Recorded Investment		Outstanding Principal		Recorded Investment
	(In thousands)
Commercial business:
Commercial and industrial	$	15,338	$	11,775	$	22,144	$	18,040
Owner-occupied commercial real estate	12,435		11,271		18,165		16,208
Non-owner occupied commercial real estate	14,701		12,628		12,684		11,185
Total commercial business	42,474		35,674		52,993		45,433
One-to-four family residential	2,230		2,220		2,269		2,235
Real estate construction and land development:
One-to-four family residential	7,461		3,310		8,456		4,223
Five or more family residential and commercial properties	2,263		2,486		2,721		2,963
Total real estate construction and land development	9,724		5,796		11,177		7,186
Consumer	5,158		6,337		5,983		7,055
Gross PCI noncovered loans	$	59,586	$	50,027	$	72,422	$	61,909

Schedule of impaired purchased loans accretable yield

The following table summarizes the accretable yield on the PCI noncovered loans resulting from the Pierce, NCB, and Valley acquisitions and the Washington Banking Merger for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	14,015		$	7,089		$	12,572		$	7,714
Accretion	(1,030		)	(761		)	(2,042		)	(1,589		)
Disposal and other	(1,221		)	(703		)	(1,505		)	(1,336		)
Change in accretable yield	—			10,773			2,739			11,609
Balance at the end of the period	$	11,764		$	16,398		$	11,764		$	16,398

XML

Noncovered Loans Receivable - Change in Accretable Yield (Details) - PCI Noncovered Loans - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Balance at the beginning of the period	$ 14,015	$ 7,089	$ 12,572	$ 7,714
Accretion	(1,030)	(761)	(2,042)	(1,589)
Disposals and other	(1,221)	(703)	(1,505)	(1,336)
Change in accretable yield	0	10,773	2,739	11,609
Balance at the end of the period	$ 11,764	$ 16,398	$ 11,764	$ 16,398

XML

Investment Securities - Impairment Activity on Held to Maturity Securities(Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Investment Holdings [Line Items]
private residential collateralized mortgage obligation carrying value	$ 829,000		$ 829,000
Held-to-maturity Securities, Sold Security, Realized Gain (Loss)	125,000
Schedule of other-than-temporary impairment losses investment securities
Life-to-Date Gross Other-Than-Temporary Impairments, Beginning Balance				$ 2,603,000
Life-to-Date Gross Other-Than-Temporary Impairments, Ending Balance	2,648,000		2,648,000	2,603,000
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income, Beginning Balance				1,152,000
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income, Ending Balance	1,152,000		1,152,000
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings, Beginning Balance				1,451,000
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings, Subsequent impairments	0	$ 37,000	0	45,000
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings, Ending Balance	$ 1,496,000		$ 1,496,000
Subsequent impairments
Schedule of other-than-temporary impairment losses investment securities
Life-to-Date Gross Other-Than-Temporary Impairments, Subsequent impairments				45,000
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income, Subsequent impairments				0
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings, Subsequent impairments				$ 45,000

XML

Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2015

Allowance for Loan Losses [Line Items]

Schedule of changes in allowance for loan losses

The following tables detail activity in the allowance for loan losses disaggregated by segment and class as of and for the three and six months ended June 30, 2015:

	Balance at Beginning of Period		Charge-offs			Recoveries		Provision for Loan Losses			Balance at End of Period
	(In thousands)
Three Months Ended June 30, 2015
Commercial business:
Commercial and industrial	$	9,858	$	(662	)	$	187	$	508		$	9,891
Owner-occupied commercial real estate	4,173		—			—		414			4,587
Non-owner occupied commercial real estate	6,029		—			—		117			6,146
Total commercial business	20,060		(662		)	187		1,039			20,624
One-to-four family residential	1,242		—			—		29			1,271
Real estate construction and land development:
One-to-four family residential	1,565		—			100		(203		)	1,462
Five or more family residential and commercial properties	1,005		—			—		57			1,062
Total real estate construction and land development	2,570		—			100		(146		)	2,524
Consumer	3,175		(448		)	96		344			3,167
Unallocated	769		—			—		(77		)	692
Total	$	27,816	$	(1,110	)	$	383	$	1,189		$	28,278
Six Months Ended June 30, 2015
Commercial business:
Commercial and industrial	$	10,553	$	(1,322	)	$	388	$	272		$	9,891
Owner-occupied commercial real estate	4,095		—			—		492			4,587
Non-owner occupied commercial real estate	5,538		(188		)	—		796			6,146
Total commercial business	20,186		(1,510		)	388		1,560			20,624
One-to-four family residential	1,200		—			1		70			1,271
Real estate construction and land development:
One-to-four family residential	1,786		(106		)	100		(318		)	1,462
Five or more family residential and commercial properties	972		—			—		90			1,062
Total real estate construction and land development	2,758		(106		)	100		(228		)	2,524
Consumer	2,769		(929		)	208		1,119			3,167
Unallocated	816		—			—		(124		)	692
Total	$	27,729	$	(2,545	)	$	697	$	2,397		$	28,278

The following table details the activity in the allowance for loan losses disaggregated on the basis of the Company's impairment method as of June 30, 2015.

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of June 30, 2015
	(In thousands)
Commercial business:
Commercial and industrial	$	746	$	6,359	$	—	$	117	$	2,213	$	456	$	9,891
Owner-occupied commercial real estate	755		2,045		289		26		330		1,142		4,587
Non-owner occupied commercial real estate	943		2,729		49		14		363		2,048		6,146
Total commercial business	2,444		11,133		338		157		2,906		3,646		20,624
One-to-four family residential	74		607		—		11		207		372		1,271
Real estate construction and land development:
One-to-four family residential	28		386		45		—		264		739		1,462
Five or more family residential and commercial properties	200		774		—		—		88		—		1,062
Total real estate construction and land development	228		1,160		45		—		352		739		2,524
Consumer	24		2,286		2		4		666		185		3,167
Unallocated	—		692		—		—		—		—		692
Total	$	2,770	$	15,878	$	385	$	172	$	4,131	$	4,942	$	28,278

The following table details the recorded investment balance of the loan receivables disaggregated on the basis of the Company’s impairment method as of June 30, 2015:

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of June 30, 2015
	(In thousands)
Commercial business:
Commercial and industrial	$	6,725	$	533,489	$	1,820	$	6,877	$	11,775	$	8,139	$	568,825
Owner-occupied commercial real estate	3,214		551,236		1,395		28,371		11,271		13,755		609,242
Non-owner occupied commercial real estate	9,538		654,706		401		9,788		12,628		19,575		706,636
Total commercial business	19,477		1,739,431		3,616		45,036		35,674		41,469		1,884,703
One-to-four family residential	241		64,622		—		2,122		2,220		2,958		72,163
Real estate construction and land development:
One-to-four family residential	3,408		34,975		172		581		3,310		1,209		43,655
Five or more family residential and commercial properties	2,009		61,529		—		1,503		2,486		816		68,343
Total real estate construction and land development	5,417		96,504		172		2,084		5,796		2,025		111,998
Consumer	122		263,716		32		5,638		6,337		2,529		278,374
Total	$	25,257	$	2,164,273	$	3,820	$	54,880	$	50,027	$	48,981	$	2,347,238

The following tables detail activity in the allowance for loan losses disaggregated by segment and class as of and for the three and six months ended June 30, 2014 and as of December 31, 2014.

	Balance at Beginning of Period		Charge-offs			Recoveries		Provision for Loan Losses			Balance at End of Period
	(In thousands)
Three Months Ended June 30, 2014
Commercial business:
Commercial and industrial	$	12,277	$	(1,403	)	$	269	$	161		$	11,304
Owner-occupied commercial real estate	4,463		—			—		(263		)	4,200
Non-owner occupied commercial real estate	5,226		—			—		459			5,685
Total commercial business	21,966		(1,403		)	269		357			21,189
One-to-four family residential	1,121		—			—		34			1,155
Real estate construction and land development:
One-to-four family residential	1,979		(345		)	43		(144		)	1,533
Five or more family residential and commercial properties	1,983		—			—		(353		)	1,630
Total real estate construction and land development	3,962		(345		)	43		(497		)	3,163
Consumer	1,690		(179		)	20		644			2,175
Unallocated	648		—			—		153			801
Total	$	29,387	$	(1,927	)	$	332	$	691		$	28,483
Six Months Ended June 30, 2014
Commercial business:
Commercial and industrial	$	13,478	$	(1,482	)	$	501	$	(1,193	)	$	11,304
Owner-occupied commercial real estate	4,049		—			—		151			4,200
Non-owner occupied commercial real estate	5,326		—			—		359			5,685
Total commercial business	22,853		(1,482		)	501		(683		)	21,189
One-to-four family residential	1,100		—			—		55			1,155
Real estate construction and land development:
One-to-four family residential	1,720		(345		)	43		115			1,533
Five or more family residential and commercial properties	953		—			—		677			1,630
Total real estate construction and land development	2,673		(345		)	43		792			3,163
Consumer	1,597		(242		)	35		785			2,175
Unallocated	601		—			—		200			801
Total	$	28,824	$	(2,069	)	$	579	$	1,149		$	28,483

The following table details the activity in the allowance for loan losses disaggregated on the basis of the Company's impairment method as of December 31, 2014.

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	1,325	$	6,449	$	9	$	108	$	2,191	$	471	$	10,553
Owner-occupied commercial real estate	684		1,629		295		14		330		1,143		4,095
Non-owner occupied commercial real estate	465		2,541		66		6		353		2,107		5,538
Total commercial business	2,474		10,619		370		128		2,874		3,721		20,186
One-to-four family residential	75		530		—		8		207		380		1,200
Real estate construction and land development:
One-to-four family residential	396		322		51		—		264		753		1,786
Five or more family residential and commercial properties	234		650		—		—		88		—		972
Total real estate construction and land development	630		972		51		—		352		753		2,758
Consumer	56		1,931		2		12		617		151		2,769
Unallocated	—		816		—		—		—		—		816
Total	$	3,235	$	14,868	$	423	$	148	$	4,050	$	5,005	$	27,729

Schedule of loan receivables on the basis of impairment method

The following table details the recorded investment balance of the loan receivables disaggregated on the basis of the Company’s impairment method for the year ended December 31, 2014:

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	9,040	$	524,263	$	2,334	$	9,642	$	18,040	$	7,134	$	570,453
Owner-occupied commercial real estate	2,781		516,753		1,132		37,446		16,208		20,666		594,986
Non-owner occupied commercial real estate	7,305		598,267		424		6,198		11,185		20,257		643,636
Total commercial business	19,126		1,639,283		3,890		53,286		45,433		48,057		1,809,075
One-to-four family residential	245		61,060		—		2,512		2,235		3,478		69,530
Real estate construction and land development:
One-to-four family residential	4,524		38,002		179		959		4,223		1,308		49,195
Five or more family residential and commercial properties	2,056		56,341		—		1,758		2,963		1,802		64,920
Total real estate construction and land development	6,580		94,343		179		2,717		7,186		3,110		114,115
Consumer	205		243,063		6		6,248		7,055		2,717		259,294
Total	$	26,156	$	2,037,749	$	4,075	$	64,763	$	61,909	$	57,362	$	2,252,014

Originated Loans

Allowance for Loan Losses [Line Items]

Schedule of changes in allowance for loan losses

A summary of the changes in the noncovered loans’ allowance for loan losses during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	22,317		$	22,820		$	22,153		$	22,657
Charge-offs	(1,110		)	(1,152		)	(2,545		)	(1,215		)
Recoveries of loans previously charged-off	383			331			697			578
Provision for loan losses	1,189			370			2,474			349
Balance at the end of the period	$	22,779		$	22,369		$	22,779		$	22,369

Purchased Loans

Allowance for Loan Losses [Line Items]

Schedule of changes in allowance for loan losses

A summary of the changes in the covered loans’ allowance for loan losses during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	5,499	$	6,567		$	5,576		$	6,167
Charge-offs	—		(775		)	—			(854		)
Provision for loan losses	—		321			(77		)	800
Balance at the end of the period	$	5,499	$	6,114		$	5,499		$	6,114

XML

FDIC Indemnification Asset (Tables)

6 Months Ended

Jun. 30, 2015

FDIC Indemnification Asset [Roll Forward]

Schedule of FDIC indemnification asset

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	692		$	3,969		$	1,116		$	4,382
Additions as a result of the Washington Banking Merger	—			7,407			—			7,407
Cash payments received or receivable from the FDIC	—			(2,365		)	(231		)	(2,741		)
FDIC share of additional estimated (gains) losses	(283		)	469			(352		)	805
Net amortization	(21		)	(360		)	(145		)	(733		)
Balance at the end of the period	$	388		$	9,120		$	388		$	9,120

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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (Parenthetical) - $ / shares							3 Months Ended		6 Months Ended
	Jan. 28, 2015	Nov. 11, 2014	Oct. 23, 2014	Jul. 24, 2014	Mar. 27, 2014	Jan. 29, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Statement of Stockholders' Equity [Abstract]
Cash dividends declared on common stock (in usd per share)	$ 0.10	$ 0.16	$ 0.09	$ 0.09	$ 0.08	$ 0.08	$ 0.11	$ 0.08	$ 0.21	$ 0.16

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Other Real Estate Owned (Tables)

6 Months Ended

Jun. 30, 2015

Real Estate [Abstract]

Changes in other real estate owned

Changes in other real estate owned during the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	4,094		$	4,284		$	3,355		$	4,559
Additions	85			—			1,813			218
Additions from acquisitions	—			7,121			—			7,121
Proceeds from dispositions	(1,050		)	(3,337		)	(1,639		)	(3,857		)
(Loss) gain on sales, net	(27		)	38			(97		)	65
Valuation adjustment	(85		)	—			(415		)	—
Balance at the end of the period	$	3,017		$	8,106		$	3,017		$	8,106

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Fair Value Measurements - Fair Value Measurement on Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total	$ 34,494		$ 34,494		$ 36,874
Level 1
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total	0		0		0
Level 2
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total	34,494		34,494		36,874
Level 3
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total	0		0		0
Nonrecurring
Fair value measurements of assets on a nonrecurring basis
Total, Basis	1,952		1,952		2,340
Total assets measured	1,547		1,547		1,919
Total, Net Losses (Gains) Recorded in Earnings	83	$ (70)	518	$ 168
Nonrecurring | Level 1
Fair value measurements of assets on a nonrecurring basis
Total assets measured	0		0		0
Nonrecurring | Level 2
Fair value measurements of assets on a nonrecurring basis
Total assets measured	0		0		11
Nonrecurring | Level 3
Fair value measurements of assets on a nonrecurring basis
Total assets measured	1,547		1,547		1,908
Nonrecurring | Private Residential Collateralized Mortgage Obligations
Fair value measurements of assets on a nonrecurring basis
Total, Basis					36
Investment securities held to maturity, Total					11
Total, Net Losses (Gains) Recorded in Earnings		25		25
Nonrecurring | Private Residential Collateralized Mortgage Obligations | Level 1
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total					0
Nonrecurring | Private Residential Collateralized Mortgage Obligations | Level 2
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total					11
Nonrecurring | Private Residential Collateralized Mortgage Obligations | Level 3
Fair value measurements of assets on a nonrecurring basis
Investment securities held to maturity, Total					0
Nonrecurring | Other Real Estate Owned
Fair value measurements of assets on a nonrecurring basis
Total, Basis	1,004		1,004
Other real estate owned, Total	603		603
Total, Net Losses (Gains) Recorded in Earnings	84		414
Nonrecurring | Other Real Estate Owned | Level 1
Fair value measurements of assets on a nonrecurring basis
Other real estate owned, Total	0		0
Nonrecurring | Other Real Estate Owned | Level 2
Fair value measurements of assets on a nonrecurring basis
Other real estate owned, Total	0		0
Nonrecurring | Other Real Estate Owned | Level 3
Fair value measurements of assets on a nonrecurring basis
Other real estate owned, Total	603		603
Nonrecurring | Noncovered Impaired Loans
Fair value measurements of assets on a nonrecurring basis
Total, Basis	948		948		2,304
Impaired originated loans, Total	944		944		1,908
Total, Net Losses (Gains) Recorded in Earnings	(1)	60	104	144
Nonrecurring | Noncovered Impaired Loans | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	944		944		1,908
Nonrecurring | Noncovered Impaired Loans | Commercial Business
Fair value measurements of assets on a nonrecurring basis
Total, Basis	83		83		161
Impaired originated loans, Total	81		81		138
Total, Net Losses (Gains) Recorded in Earnings	1	(14)	1	56
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	81		81		138
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Commercial and Industrial
Fair value measurements of assets on a nonrecurring basis
Total, Basis	83		83		161
Impaired originated loans, Total	81		81		138
Total, Net Losses (Gains) Recorded in Earnings	1	(79)	1	81
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Commercial and Industrial | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Commercial and Industrial | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Commercial and Industrial | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	81		81		138
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Owner-occupied Commercial Real Estate
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Impaired originated loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		(158)		(220)
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Owner-occupied Commercial Real Estate | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Owner-occupied Commercial Real Estate | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Owner-occupied Commercial Real Estate | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Impaired originated loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		223		195
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development
Fair value measurements of assets on a nonrecurring basis
Total, Basis	865		865		2,094
Impaired originated loans, Total	863		863		1,725
Total, Net Losses (Gains) Recorded in Earnings	(2)	75	103	65
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	863		863		1,725
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | One-to-four Family Residential
Fair value measurements of assets on a nonrecurring basis
Total, Basis	865		865		2,094
Impaired originated loans, Total	863		863		1,725
Total, Net Losses (Gains) Recorded in Earnings	(2)	(32)	103	(42)
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | One-to-four Family Residential | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | One-to-four Family Residential | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	0		0		0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | One-to-four Family Residential | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total	$ 863		$ 863		1,725
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Impaired originated loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		107		107
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Consumer
Fair value measurements of assets on a nonrecurring basis
Total, Basis					49
Impaired originated loans, Total					45
Total, Net Losses (Gains) Recorded in Earnings		(1)		23
Nonrecurring | Noncovered Impaired Loans | Consumer | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Consumer | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Noncovered Impaired Loans | Consumer | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					45
Nonrecurring | Covered Impaired Loans
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Covered impaired loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		(155)		(1)
Nonrecurring | Covered Impaired Loans | Level 1
Fair value measurements of assets on a nonrecurring basis
Covered impaired loans, Total					0
Nonrecurring | Covered Impaired Loans | Level 2
Fair value measurements of assets on a nonrecurring basis
Covered impaired loans, Total					0
Nonrecurring | Covered Impaired Loans | Level 3
Fair value measurements of assets on a nonrecurring basis
Covered impaired loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Impaired originated loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		(155)		(1)
Nonrecurring | Covered Impaired Loans | Commercial Business | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Commercial and Industrial
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Impaired originated loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		0		(234)
Nonrecurring | Covered Impaired Loans | Commercial Business | Commercial and Industrial | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Commercial and Industrial | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Commercial and Industrial | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate
Fair value measurements of assets on a nonrecurring basis
Total, Basis					0
Impaired originated loans, Total					0
Total, Net Losses (Gains) Recorded in Earnings		$ (155)		$ 233
Nonrecurring | Covered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | Level 1
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | Level 2
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					0
Nonrecurring | Covered Impaired Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | Level 3
Fair value measurements of assets on a nonrecurring basis
Impaired originated loans, Total					$ 0

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Description of Business, Basis of Presentation and Significant Accounting Policies and Recent Issued Accounting Policies (Details)	Jun. 30, 2015 Branch
Heritage Bank
Business Description and Basis of Presentation [Line Items]
Number of branches operating	67

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Noncovered Loans Receivable - TDR Loans, Recorded Investment and Allowance (Details) - Noncovered Loans - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Modifications [Line Items]
Performing TDRs, Noncovered TDRs	$ 19,783	$ 18,764
Nonaccrual TDRs, Noncovered TDRs	4,288	5,010
Performing TDRs, Allowance for loan losses on noncovered TDRs	2,280	1,908
Nonaccrual TDRs, Allowance for loan losses on noncovered TDRs	282	1,033
Unfunded commitments related to credits classified as noncovered TDRs	$ 376	$ 1,800

XML

Junior Subordinated Debentures (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2007	Dec. 31, 2014	May. 01, 2014
Debt Instrument [Line Items]
Issued amount					$ 25,000,000.0
Debt term					30 years
Adjustable rate of trust preferred securities	1.84%		1.84%
Junior subordinated debentures	$ 19,278,000		$ 19,278,000			$ 19,082,000
Junior Subordinated Debentures
Debt Instrument [Line Items]
Weighted average rate	4.02%	3.62%	4.54%	3.62%
LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate					1.56%
Washington Banking
Debt Instrument [Line Items]
Assumed trust preferred securities and junior subordinated debentures, fair value							$ 18,900,000

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Condensed Consolidated Statements of Financial Condition (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
ASSETS
Cash on hand and in banks	$ 62,540	$ 74,028
Interest earning deposits	22,772	47,608
Cash and cash equivalents	85,312	121,636
Other interest earning deposits	5,110	10,126
Investment securities available for sale, at fair value	699,122	742,846
Investment securities held to maturity (fair value of $34,494 and $36,874, respectively)	33,587	35,814
Loans held for sale	6,939	5,582
Allowance for loan losses on noncovered loans	(28,278)	(27,729)
Total loans receivable, net	2,319,024	2,223,348
FDIC indemnification asset	388	1,116
Other real estate owned ($2,758 and $1,177 covered by FDIC shared-loss agreements, respectively)	3,017	3,355
Premises and equipment, net	63,968	64,938
Federal Home Loan Bank stock, at cost	4,148	12,188
Bank owned life insurance	60,579	35,176
Accrued interest receivable	9,883	9,836
Prepaid expenses and other assets	60,383	61,871
Other intangible assets, net	9,835	10,889
Goodwill	119,029	119,029
Total assets	3,480,324	3,457,750
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	2,946,487	2,906,331
Junior subordinated debentures	19,278	19,082
Securities sold under agreement to repurchase	20,589	32,181
Accrued expenses and other liabilities	34,842	45,650
Total liabilities	3,021,196	3,003,244
Stockholders’ equity:
Preferred stock, no par value, 2,500,000 shares authorized; no shares issued and outstanding at June 30, 2015 and December 31, 2014	0	0
Common stock, no par value, 50,000,000 shares authorized; 29,954,936 and 30,259,838 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively	358,365	364,741
Retained earnings	98,565	86,387
Accumulated other comprehensive income, net	2,198	3,378
Total stockholders’ equity	459,128	454,506
Total liabilities and stockholders’ equity	3,480,324	3,457,750
Noncovered Loans
ASSETS
Noncovered loans receivable, net	2,239,621	2,124,877
Allowance for loan losses on noncovered loans	(22,779)	(22,153)
Noncovered loans receivable, net of allowance for loan losses	2,216,842	2,102,724
Covered Loans
ASSETS
Covered loans receivable, net	107,681	126,200
Allowance for loan losses on covered loans	(5,499)	(5,576)
Covered loans receivable, net of allowance for loan losses	$ 102,182	$ 120,624

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Investment Securities - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	$ 242,745	$ 213,441
Fair Value	245,286	217,624
Washington and Oregon state to secure public deposits
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	195,548	150,507
Fair Value	197,810	153,785
Federal Reserve Bank of San Francisco and FHLB to secure borrowing arrangements
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	512	4,430
Fair Value	513	4,460
Repurchase agreements
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	31,612	43,676
Fair Value	31,801	44,457
Other securities pledged
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	15,073	14,828
Fair Value	$ 15,162	$ 14,922

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
Change in fair value of securities available for sale, tax	$ (2,106)	$ 1,089	$ (402)	$ 1,410
Reclassification adjustment of net gain from sale of investment securities included in income, tax	(149)	(30)	(339)	(93)
Accretion of other-than-temporary impairment on securities held to maturity, tax	1	8	4	16
Other-than-temporary impairment from sale of investment securities, tax	$ 99	$ 0	$ 99	$ 0

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Covered Loans Receivable - Nonaccrual Loans (Details) - Covered Nonaccrual Loans - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	$ 3,511	$ 4,062
One-to-four Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	171	179
Commercial Business
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	3,308	3,877
Commercial Business | Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	1,820	2,321
Commercial Business | Owner-occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	1,087	1,132
Commercial Business | Non-owner Occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	401	424
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross covered nonaccrual loans	$ 32	$ 6

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2015

Stockholders' Equity Note [Abstract]

Schedule of earnings per share reconciliation

The following table illustrates the reconciliation of weighted average shares used for earnings per common share computations for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Net income:
Net income	$	8,725		$	4,148		$	18,504		$	6,691
Less: Dividends and undistributed earnings allocated to participating securities	(76		)	(20		)	(162		)	(32		)
Net income allocated to common shareholders	$	8,649		$	4,128		$	18,342		$	6,659
Basic:
Weighted average common shares outstanding	30,046,211			25,592,389			30,150,063			20,929,467
Less: Restricted stock awards	(281,774		)	(166,577		)	(271,843		)	(182,051		)
Total basic weighted average common shares outstanding	29,764,437			25,425,812			29,878,220			20,747,416
Diluted:
Basic weighted average common shares outstanding	29,764,437			25,425,812			29,878,220			20,747,416
Incremental shares from stock options	21,007			50,091			22,359			58,313
Total diluted weighted average common shares outstanding	29,785,444			25,475,903			29,900,579			20,805,729

Schedule of dividends activity

The following table summarizes the dividend activity for the six months ended June 30, 2015 and calendar year 2014.

Declared	Cash Dividend per Share	Record Date	Paid Date
January 29, 2014	$0.08	February 10, 2014	February 24, 2014
March 27, 2014	$0.08	April 8, 2014	April 23, 2014
July 24, 2014	$0.09	August 7, 2014	August 21, 2014
October 23, 2014	$0.09	November 6, 2014	November 20, 2014
November 11, 2014	$0.16	December 2, 2014	December 12, 2014
January 28, 2015	$0.10	February 10, 2015	February 24, 2015
April 22, 2015	$0.11	May 7, 2015	May 21, 2015

Schedule of repurchased shares

The following table provides total repurchased shares and average share prices under the applicable plans for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		Plan Total (1)
Tenth Plan
Repurchased shares	—		—		—		—		704,975
Stock repurchase average share price	$	—	$	—	$	—	$	—	$	15.85
Eleventh Plan
Repurchased shares	304,600		—		441,966		—		441,966
Stock repurchase average share price	$	16.88	$	—	$	16.64	$	—	$	16.64

(1) Represents shares repurchased and average share price paid during the duration of the plan.

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Allowance for Loan Losses - Summary of Changes in Loan Allowance (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Schedule of changes in allowance for loan losses
Balance at the beginning of period	$ 27,816	$ 29,387	$ 27,729	$ 28,824
Charge-offs	(1,110)	(1,927)	(2,545)	(2,069)
Recoveries of loans previously charged -off	383	332	697	579
Provision for loan losses	1,189	691	2,397	1,149
Balance at the end of period	28,278	28,483	28,278	28,483
Noncovered Loans
Schedule of changes in allowance for loan losses
Balance at the beginning of period	22,317	22,820	22,153	22,657
Charge-offs	(1,110)	(1,152)	(2,545)	(1,215)
Recoveries of loans previously charged -off	383	331	697	578
Provision for loan losses		370	2,474	349
Balance at the end of period	22,779	22,369	22,779	22,369
Covered Loans
Schedule of changes in allowance for loan losses
Balance at the beginning of period	5,499	6,567	5,576	6,167
Charge-offs	0	(775)	0	(854)
Provision for loan losses		321	(77)	800
Balance at the end of period	$ 5,499	$ 6,114	$ 5,499	$ 6,114

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2015

Share-based Compensation [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Stock options generally vest ratably over three years and expire five years after they become exercisable or vest ratably over four years and expire ten years from date of grant. Restricted stock awards issued generally have a five-year cliff vesting or four year ratable vesting schedule. The Company issues new shares of common stock to satisfy share option exercises and restricted stock awards.

On July 24, 2014, the Company's shareholders approved the Heritage Financial Corporation 2014 Omnibus Equity Plan (the "Plan") under which 1,500,000 shares of the Company's common stock may be issued in the form of nonqualified stock option awards, restricted stock awards and restricted stock unit awards.

As of June 30, 2015, 1,265,569 shares remain available for future issuances under the Company's stock-based compensation plans.

(a) Stock Option Awards

For the three and six months ended June 30, 2015, the Company did not recognize compensation expense or the related tax benefit for the outstanding stock options as all compensation expense had been previously recognized. For thethree and six months ended June 30, 2014, the Company recognized compensation expense related to stock options of$4,000 and $20,000, respectively, with no related tax benefit for either period. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2015 was $177,000 and $525,000, respectively. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2014 was $201,000 and $427,000, respectively.

The following tables summarize the stock option activity for the six months ended June 30, 2015 and 2014:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2013	194,482		$	15.82
Granted (1)	90,248		10.72
Exercised	(38,844	)	10.98
Forfeited or expired	(35,744	)	23.66
Outstanding at June 30, 2014	210,142		$	13.19	3.30	$	677
Outstanding at December 31, 2014	156,407		$	13.59
Granted	—		—
Exercised	(42,893	)	12.24
Forfeited or expired	(11,249	)	16.91
Outstanding at June 30, 2015	102,265		$	13.79	3.08	$	422
Vested and expected to vest at June 30, 2015	102,265		$	13.79	3.08	$	422
Exercisable at June 30, 2015	102,265		$	13.79	3.08	$	422

(1) Options granted during the six months ended June 30, 2014 represent only the stock options issued in conjunction with the Washington Banking Merger. See "Note 14. Business Combination" for additional information. The weighted average exercise price reflects the exchange ratio applied to the original Washington Banking exercise price pursuant to the Merger Agreement.

(b) Restricted and Unrestricted Stock Awards

For the three and six months ended June 30, 2015, the Company recognized compensation expense related to restricted and unrestricted stock awards of $368,000 and $716,000, respectively, and a related tax benefit of $129,000 and $251,000, respectively. For the three and six months ended June 30, 2014, the Company recognized compensation expense related to restricted and unrestricted stock awards of $263,000 and $539,000, respectively, and a related tax benefit of $92,000 and $189,000, respectively. As of June 30, 2015, the total unrecognized compensation expense related to non-vested restricted and unrestricted stock awards was $3.6 million and the related weighted average period over which it is expected to be recognized is approximately 2.7 years. The vesting date fair value of restricted stock awards that vested during the six months ended June 30, 2015 and 2014 was $1.5 million and $1.1 million, respectively.

The following tables summarize the restricted and unrestricted stock award activity for the six months ended June 30, 2015 and 2014:

	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2013	202,939		$	14.29
Granted	10,168		16.72
Vested	(63,639	)	14.39
Forfeited	(3,993	)	14.28
Nonvested at June 30, 2014	145,475		$	14.42
Nonvested at December 31, 2014	238,669		$	15.20
Granted	117,868		16.66
Vested	(90,217	)	15.13
Forfeited	(2,087	)	15.58
Nonvested at June 30, 2015	264,233		$	15.87

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(Tables)

6 Months Ended

Jun. 30, 2015

Equity [Abstract]

Changes in accumulated other comprehensive income (AOCI) by component

The changes in accumulated other comprehensive income (loss) (“AOCI”) by component, during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30, 2015
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	6,365		$	(181	)	$	6,184
Other comprehensive income before reclassification	(3,891		)	3			(3,888		)
Amounts reclassified from AOCI for gain on sale of investment securities included in net income	(276		)	178			(98		)
Net current period other comprehensive income	(4,167		)	181			(3,986		)
Balance of AOCI at the end of period	$	2,198		$	—		$	2,198

⁽¹⁾  All amounts are net of tax.

	Six Months Ended June 30, 2015
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	3,567		$	(189	)	$	3,378
Other comprehensive income before reclassification	(739		)	11			(728		)
Amounts reclassified from AOCI for gain on sale of investment securities included in net income	(630		)	178			(452		)
Net current period other comprehensive income	(1,369		)	189			(1,180		)
Balance of AOCI at the end of period	$	2,198		$	—		$	2,198

⁽¹⁾ All amounts are net of tax.

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Business Combination

6 Months Ended

Jun. 30, 2015

Business Combinations [Abstract]

Business Combination

Business Combination

There were no acquisitions or mergers completed during the three and six months ended June 30, 2015. During the three and six months ended June 30, 2014, the Company completed the Washington Banking Merger.

Washington Banking Merger

On October 23, 2013, the Company, along with the Bank, and Washington Banking and its wholly owned subsidiary bank, Whidbey, jointly announced the signing of a merger agreement for the Washington Banking Merger. The Washington Banking Merger was effective on May 1, 2014. Pursuant to the terms of the Washington Banking Merger, Washington Banking branches adopted the Heritage Bank name in all markets, with the exception of six branches in the Whidbey Island markets which have continued to operate using the Whidbey Island Bank name. The primary reasons for the merger were to expand the Company's geographic footprint consistent with its ongoing growth strategy and to achieve operational scale and realize efficiencies of a larger combined organization.

Under the terms of the merger agreement, Washington Banking shareholders received 0.89000 shares of Heritage common stock and $2.75 in cash for each share of Washington Banking common stock. The terms of the merger agreement also stipulated immediate vesting of the Washington Banking options and restricted stock awards units. At April 30, 2014, the number of Washington Banking common shares outstanding was 15,587,154. The closing price of Heritage common stock was $16.16 as of April 30, 2014. The total consideration transferred by the Company in conjunction with the Washington Banking Merger was $269.6 million and the total number of Heritage shares of common stock issued were 14,000,178. The Company also incurred $489,000 in capitalized stock issuance costs.

The total consideration transferred in the Washington Banking Merger consisted of the following:

	Washington Banking
	(In thousands)
Consideration transferred
Cash paid (1)	$	42,895
Fair value of common shares issued (2)	224,151
Fair value of restricted stock unit awards (3)	2,092
Fair value of common stock options	481
Total consideration transferred	$	269,619

(1) Includes $3,000 of cash paid due to fractional shares and $27,000 of cash paid from dissenters.

(2) Total of 13,870,716 shares issued. Excludes 1,686 shares dissented and paid in cash and 165 fractional shares paid in cash.

(3) Total number of converted shares was 129,462. Fair value includes 26,783 shares which were forfeited by the Washington Banking stockholder to pay applicable taxes, totaling fair value of $433,000.

The Washington Banking Merger resulted in $89.7 million of goodwill. This goodwill is not deductible for tax purposes. The transaction qualified as a tax-free reorganization for U.S. federal income tax purposes and Washington Banking shareholders did not recognize any taxable gain or loss in connection with the share exchange and the stock consideration received.

During the three and six months ended June 30, 2014, the Company incurred Washington Banking merger-related costs (including system conversion costs) of approximately $5.3 million and $5.6 million, respectively.

The Washington Banking Merger constitutes business acquisitions as defined by FASB ASC 805, Business Combinations. FASB ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed.  Heritage was considered the acquirer in the Washington Banking Merger. Accordingly, the preliminary estimates of fair values of the acquired bank's assets, including the identifiable intangible assets, and the assumed liabilities in the merger were measured and recorded as of the effective date of the merger.

The fair value estimates of the assets acquired and liabilities assumed in the merger were as follows:

	Washington Banking
	(In thousands)
Assets
Cash and cash equivalents	$	74,947
Investment securities available for sale	458,312
Loans held for sale	3,923
Noncovered loans receivable	895,978
Covered loans receivable	107,050
FDIC indemnification asset	7,174
Other real estate owned ($5,122 covered by FDIC shared-loss agreements)	7,121
Premises and equipment	31,776
Federal Home Loan Bank stock	7,064
Bank owned life insurance	32,519
Accrued Interest Receivable	4,943
Other intangible assets	11,194
Prepaid expenses and other assets	14,852
Total assets acquired	1,656,853
Liabilities
Deposits	1,433,894
Junior subordinated debentures	18,937
Accrued expenses and other liabilities	24,067
Total liabilities assumed	1,476,898
Net assets acquired	$	179,955

A summary of the net assets purchased, the fair value adjustments and resulting goodwill recognized from the Washington Banking Merger are presented in the following table. Goodwill on mergers represents the excess of the consideration transferred over the estimated fair value of the net assets acquired and liabilities assumed.

	Washington Banking
	(In thousands)
Cost basis of net assets on merger date	$	181,782
Less: Consideration transferred	(269,619		)
Fair value adjustments:
Loans held for sale	86
Noncovered loans receivable	(12,811		)
Covered loans receivable	6,384
FDIC indemnification asset	357
Other real estate owned	387
Premises and equipment	(1,540		)
Other intangible assets	10,216
Prepaid expenses and other assets	(6,416		)
Deposits	(1,737		)
Junior subordinated debentures	6,837
Accrued expenses and other liabilities	(3,590		)
Goodwill recognized	$	(89,664	)

The Company also considered the pro forma requirements of FASB ASC 805 and deemed it necessary for the Washington Banking Merger. The following table presents certain pro forma information, for illustrative purposes only, for the three and six months ended June 30, 2014 as if the Washington Banking Merger had occurred on January 1, 2014. The estimated pro forma information combines the historical results of Washington Banking with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the Washington Banking Merger occurred on January 1, 2014. In particular, no adjustments have been made to eliminate the impact of the Washington Banking loans previously accounted for under ASC 310-30 that may have been necessary if these loans had been recorded at fair value at January 1, 2014. The pro forma information also does not consider any changes to the provision for loan losses resulting from recorded loans at fair value. Additionally, Heritage expects to achieve further operating savings and other business synergies, including interest income growth, as a result of the Washington Banking Merger which are not reflected in the pro forma amounts in the following table. As a result, actual amounts will differ from the pro forma information presented.

	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014
	(Dollars In Thousands, except per share amounts)
Net interest income	$	34,699	$	70,997
Net income	$	5,161	$	16,453
Basic earnings per common share	$	0.17	$	0.55
Diluted earnings per common share	$	0.17	$	0.55

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FDIC Indemnification Asset (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
FDIC Indemnification Asset [Roll Forward]
Balance at the beginning of the period	$ 692	$ 3,969	$ 1,116	$ 4,382
Additions as a result of the Washington Banking Merger	0	7,407	0	7,407
Cash payments received or receivable from the FDIC	0	(2,365)	(231)	(2,741)
FDIC share of additional estimated (gains) losses	(283)	469	(352)	805
Net amortization	(21)	(360)	(145)	(733)
Balance at the end of the period	$ 388	$ 9,120	$ 388	$ 9,120

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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss), Net
Beginning balance, shares at Dec. 31, 2013		16,211,000
Beginning balance at Dec. 31, 2013	$ 215,762	$ 138,659	$ 78,265	$ (1,162)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Restricted and unrestricted stock awards issued, net of forfeitures, shares		6,000
Restricted and unrestricted stock awards issued, net of forfeitures	0
Stock option compensation expense	$ 20	$ 20
Exercise of stock options (including excess tax benefits from nonqualified stock options), shares	38,844	38,000
Exercise of stock options (including excess tax benefits from nonqualified stock options)	$ 427	$ 427
Restricted stock compensation expense	539	539
Excess tax benefits from restricted stock	33	$ 33
Common stock repurchased, shares		(17,000)
Common stock repurchased	(271)	$ (271)
Net income	6,691		6,691
Other comprehensive income (loss), net of tax	2,471			2,471
Common stock issued in business combination, shares		13,975,000
Common stock issued in business combination	226,751	$ 226,751
Cash dividends declared on common stock	(2,594)		(2,594)
Ending balance, shares at Jun. 30, 2014		30,213,000
Ending balance at Jun. 30, 2014	449,829	$ 366,158	82,362	1,309
Beginning balance, shares at Dec. 31, 2014		30,260,000
Beginning balance at Dec. 31, 2014	454,506	$ 364,741	86,387	3,378
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Restricted and unrestricted stock awards issued, net of forfeitures, shares		116,000
Restricted and unrestricted stock awards issued, net of forfeitures	$ 0
Exercise of stock options (including excess tax benefits from nonqualified stock options), shares	42,893	43,000
Exercise of stock options (including excess tax benefits from nonqualified stock options)	$ 541	$ 541
Restricted stock compensation expense	716	716
Excess tax benefits from restricted stock	90	$ 90
Common stock repurchased, shares		(464,000)
Common stock repurchased	(7,723)	$ (7,723)
Net income	18,504		18,504
Other comprehensive income (loss), net of tax	(1,180)			(1,180)
Common stock issued in business combination	0
Cash dividends declared on common stock	(6,326)		(6,326)
Ending balance, shares at Jun. 30, 2015		29,955,000
Ending balance at Jun. 30, 2015	$ 459,128	$ 358,365	$ 98,565	$ 2,198

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Condensed Consolidated Statements of Financial Condition (Unaudited) (Parenthetical) - USD ($) $ in Thousands, None in scaling factor is -9223372036854775296	Jun. 30, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Investment securities held to maturity	$ 34,494	$ 36,874
Other real estate owned, covered by FDIC loss share	$ 2,758	$ 1,177
Preferred stock, par value (in usd per share)
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in usd per share)
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	29,954,936	30,259,838
Common stock, shares outstanding	29,954,936	30,259,838

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

(a) Goodwill

The Company’s goodwill represents the excess of the purchase price over the fair value of net assets acquired in the Washington Banking Merger on May 1, 2014, and the acquisitions of Valley on July 15, 2013, Western Washington Bancorp in 2006 and North Pacific Bank in 1998. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit).

There were no additions to goodwill during the three and six months ended June 30, 2015. The Company recorded $89.7 million in goodwill for each of the three and six months ended June 30, 2014. For additional information, see Note 14, Business Combination.

At June 30, 2015, the Company’s step-one analysis concluded that the reporting unit’s fair value was greater than its carrying value and therefore no goodwill impairment charges were required for the three and six months ended June 30, 2015. The Company did not record any goodwill impairment charges for the three and six months ended June 30, 2015or for the three and six months ended June 30, 2014. Even though there was no goodwill impairment at June 30, 2015, adverse events may impact the recoverability of goodwill and could result in a future impairment charge which could have a material impact on the Company’s operating results.

b) Other Intangible Assets

The other intangible assets represent the core deposit intangible ("CDI") acquired in business combinations. The useful life of the CDI related to the Washington Banking Merger, the acquisitions of Valley, NCB, Pierce, Cowlitz, and Western Washington Bancorp were estimated to be ten, ten, five, four, nine and eight years, respectively.

The following table presents the change in the other intangible assets for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Balance at the beginning of the period	$	10,362	$	1,459	$	10,889	$	1,615
Additions as a result of acquisitions	—		11,194		—		11,194
Less: Amortization	527		489		1,054		645
Balance at the end of the period	$	9,835	$	12,164	$	9,835	$	12,164

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Business Combination - Unaudited Pro Forma (Details) - Jun. 30, 2014 - Washington Banking - USD ($) $ / shares in Units, $ in Thousands	Total	Total
Business Acquisition [Line Items]
Interest income	$ 34,699	$ 70,997
Net income	$ 5,161	$ 16,453
Basic earnings per common share (in usd per share)	$ 0.17	$ 0.55
Diluted earnings per common share (in usd per share)	$ 0.17	$ 0.55

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 30, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	HERITAGE FINANCIAL CORP /WA/
Entity Central Index Key	0001046025
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		29,954,942

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Junior Subordinated Debentures

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Junior Subordinated Debentures

Junior Subordinated Debentures

As part of the Washington Banking Merger, the Company assumed trust preferred securities and junior subordinated debentures with a total fair value of $18.9 million at May 1, 2014.

Washington Banking Master Trust ("Trust"), a Delaware statutory business trust, was a wholly-owned subsidiary of Washington Banking created for the exclusive purposes of issuing and selling capital securities and utilizing sale proceeds to acquire junior subordinated debt issued by Washington Banking. During 2007, the Trust issued $25.0 million of trust preferred securities with a 30-year maturity, callable after the fifth year by Washington Banking. The trust preferred securities have a quarterly adjustable rate based upon the three-month London Interbank Offered Rate (“LIBOR”) plus 1.56%. On the Washington Banking Merger date of May 1, 2014, the Company acquired the Trust, which retained the Washington Banking Master Trust name, and assumed the performance and observance of the covenants under the indenture related to the trust preferred securities.

The adjustable rate of the trust preferred securities at June 30, 2015 was 1.84%. The weighted average rate of the junior subordinated debentures was 4.02% and 3.62% for the three months ended June 30, 2015 and 2014, respectively, and 4.54% and 3.62% for the six months ended June 30, 2015 and 2014, respectively. The weighted average rate includes the accretion of the discount established at the merger date which is amortized over the life of the trust preferred securities.

The junior subordinated debentures are the sole assets of the Trust, and payments under the junior subordinated debentures are the sole revenues of the Trust. At June 30, 2015, the balance of the junior subordinated debentures was $19.3 million. All of the common securities of the Trust are owned by the Company. Heritage has fully and unconditionally guaranteed the capital securities along with all obligations of the Trust under the trust agreements.

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Stock-Based Compensation - Restricted and Unrestricted Stock Award Activity (Details) - Restricted and Unrestricted Stock - $ / shares	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Shares
Nonvested at beginning of period (in shares)	238,669	202,939
Granted (in shares)	117,868	10,168
Vested (in shares)	(90,217)	(63,639)
Forfeited (in shares)	(2,087)	(3,993)
Nonvested at end of period (in shares)	264,233	145,475
Weighted-Average Grant Date Fair Value
Nonvested at beginning of period (in usd per share)	$ 15.20	$ 14.29
Granted (in usd per share)	16.66	16.72
Vested (in usd per share)	15.13	14.39
Forfeited (in usd per share)	15.58	14.28
Nonvested at end of period (in usd per share)	$ 15.87	$ 14.42

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Business Combination - Summary of Net Assets Purchased and Goodwill Recognized (Details) - USD ($) $ in Thousands	May. 01, 2014	Jun. 30, 2015	Dec. 31, 2014
Fair value adjustments:
Goodwill recognized from the Washington Banking Merger		$ (119,029)	$ (119,029)
Washington Banking
Business Acquisition [Line Items]
Cost basis of net assets on merger date	$ 181,782
Consideration transferred	(269,619)
Fair value adjustments:
FDIC indemnification asset	357
Other real estate owned	387
Premises and equipment	(1,540)
Other intangible assets	10,216
Prepaid expenses and other assets	(6,416)
Deposits	(1,737)
Junior subordinated debentures	6,837
Accrued expenses and other liabilities	(3,590)
Goodwill recognized from the Washington Banking Merger	(89,664)
Washington Banking | Noncovered Loans
Fair value adjustments:
Loans held for sale	86
Loans receivable	(12,811)
Washington Banking | Covered Loans
Fair value adjustments:
Loans receivable	$ 6,384

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Condensed Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
INTEREST INCOME:
Interest and fees on loans	$ 30,554	$ 27,446	$ 61,035	$ 43,897
Taxable interest on investment securities	2,328	1,812	5,012	2,451
Nontaxable interest on investment securities	1,048	638	2,081	1,074
Interest and dividends on other interest earning assets	60	127	111	214
Total interest income	33,990	30,023	68,239	47,636
INTEREST EXPENSE:
Deposits	1,309	1,297	2,626	2,151
Junior subordinated debentures	193	115	432	115
Other borrowings	18	15	37	33
Total interest expense	1,520	1,427	3,095	2,299
Net interest income	32,470	28,596	65,144	45,337
Provision for loan losses	1,189	691	2,397	1,149
Net interest income after provision for loan losses	31,281	27,905	62,747	44,188
NONINTEREST INCOME:
Service charges and other fees	3,687	2,777	6,982	4,175
Merchant Visa income, net	194	316	392	561
Change in FDIC indemnification asset	(304)	109	(497)	72
Gain on sale of investment securities, net	425	87	969	267
Gain on sale of loans, net	1,282	233	2,417	233
Other income	1,597	1,258	4,963	1,779
Total noninterest income	6,881	4,780	15,226	7,087
NONINTEREST EXPENSE:
Compensation and employee benefits	13,842	12,779	28,067	20,790
Occupancy and equipment	3,850	2,816	7,541	5,433
Data processing	1,925	4,003	3,552	4,999
Marketing	1,063	496	1,696	1,001
Professional services	904	3,230	1,708	4,060
State and local taxes	569	554	1,189	803
Impairment loss on investment of securities, net	0	37	0	45
Federal deposit insurance premium	523	460	1,038	712
Other real estate owned, net	200	214	859	266
Amortization of intangible assets	527	489	1,054	645
Other expense	2,676	1,915	5,413	3,018
Total noninterest expense	26,079	26,993	52,117	41,772
Income before income taxes	12,083	5,692	25,856	9,503
Income tax expense	3,358	1,544	7,352	2,812
Net income	$ 8,725	$ 4,148	$ 18,504	$ 6,691
Basic earnings per common share (in usd per share)	$ 0.29	$ 0.16	$ 0.61	$ 0.32
Diluted earnings per common share (in usd per share)	0.29	0.16	0.61	0.32
Dividends declared per common share (in usd per share)	$ 0.11	$ 0.08	$ 0.21	$ 0.16
Noncovered Loans
INTEREST EXPENSE:
Provision for loan losses	$ 1,189	$ 370	$ 2,474	$ 349
Covered Loans
INTEREST EXPENSE:
Provision for loan losses	$ 0	$ 321	$ (77)	$ 800

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Noncovered Loans Receivable

6 Months Ended

Jun. 30, 2015

Noncovered Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Noncovered Loans Receivable

Noncovered Loans Receivable

The Company originates loans in the ordinary course of business and has also acquired loans through FDIC-assisted and open bank transactions. Loans that are not covered by FDIC shared-loss agreements are referred to as "noncovered loans." Disclosures related to the Company’s recorded investment in noncovered loans receivable generally exclude accrued interest receivable and net deferred loan origination fees and costs because they are insignificant.

Loans acquired in a business combination may be further classified as “purchased” loans. Loans purchased with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are accounted for under FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans are identified as “purchased credit impaired” ("PCI") loans. Loans purchased that are not accounted for under FASB ASC 310-30 are accounted for under FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and are referred to as "non-PCI" loans.

(a) Loan Origination/Risk Management

The Company categorizes loans in one of the four segments of the total loan portfolio: commercial business, one-to-four family residential, real estate construction and land development and consumer. Within these segments are classes of loans to which management monitors and assesses credit risk in the loan portfolios. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. The Company also conducts internal loan reviews and validates the credit risk assessment on a periodic basis and presents the results of these reviews to management. The loan review process complements and reinforces the risk identification and assessment decisions made by loan officers and credit personnel, as well as the Company’s policies and procedures.

A discussion of the risk characteristics of each loan portfolio segment is as follows:

Commercial Business:

There are three significant classes of loans in the commercial portfolio segment: commercial and industrial loans, owner-occupied commercial real estate and non-owner occupied commercial real estate. The owner and non-owner occupied commercial real estate are both considered commercial real estate loans. As the commercial and industrial loans carry different risk characteristics than the commercial real estate loans, they are discussed separately below.

Commercial and industrial. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may include a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate. The Company originates commercial real estate loans within its primary market areas. These loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate involves more risk than other classes of loans in that the lending typically involves higher loan principal amounts, and payments on loans secured by real estate properties are dependent on successful operation and management of the properties. Repayment of these loans may be more adversely affected by conditions in the real estate market or the economy. Owner-occupied commercial real estate loans are generally of lower credit risk than non-owner occupied commercial real estate loans as the borrowers' businesses are likely dependent on the properties.

One-to-Four Family Residential:

The majority of the Company’s one-to-four family residential loans are secured by single-family residences located in its primary market areas. The Company’s underwriting standards require that single-family portfolio loans generally are owner-occupied and do not exceed 80% of the lower of appraised value at origination or cost of the underlying collateral. Terms of maturity typically range from 15 to 30 years. Historically, the Company sold most single-family loans in the secondary market and retained a smaller portion in its loan portfolio. From the second quarter of 2013 until May 1, 2014, the Company only originated single-family loans for its loan portfolio. As a result of the Washington Banking Merger, since May 1, 2014 the Company is originating and selling a majority of its single-family mortgages.

Real Estate Construction and Land Development:

The Company originates construction loans for one-to-four family residential and for five or more family residential and commercial properties. The one-to-four family residential construction loans generally include construction of custom homes whereby the home buyer is the borrower. The Company also provides financing to builders for the construction of pre-sold homes and, in selected cases, to builders for the construction of speculative residential property. Substantially all construction loans are short-term in nature and priced with variable rates of interest. Construction lending can involve a higher level of risk than other types of lending because funds are advanced partially based upon the value of the project, which is uncertain prior to the project’s completion. Because of the uncertainties inherent in estimating construction costs as well as the market value of a completed project and the effects of governmental regulation of real property, the Company’s estimates with regard to the total funds required to complete a project and the related loan-to-value ratio may vary from actual results. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness. If the Company’s estimate of the value of a project at completion proves to be overstated, it may have inadequate security for repayment of the loan and may incur a loss if the borrower does not repay the loan. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being dependent upon successful completion of the construction project, interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing.

Consumer:

The Company originates consumer loans and lines of credit that are both secured and unsecured. The underwriting process for these loans ensures a qualifying primary and secondary source of repayment. Underwriting standards for home equity loans are significantly influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. The majority of consumer loans are for relatively small amounts disbursed among many individual borrowers which reduces the credit risk for this type of loan. To further reduce the risk, trend reports are reviewed by management on a regular basis.

As a result of the Washington Banking Merger, the Company is originating indirect consumer loans. These loans are for new and used automobile and recreational vehicles that are originated indirectly by selected dealers located in the Company's market areas. The Company has limited its purchase of indirect loans primarily to dealerships that are established and well known in their market areas and to applicants that are not classified as sub-prime.

Noncovered loans receivable at June 30, 2015 and December 31, 2014 consisted of the following portfolio segments and classes:

	June 30, 2015			December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	551,989		$	551,343
Owner-occupied commercial real estate	565,721			535,742
Non-owner occupied commercial real estate	676,872			616,757
Total commercial business	1,794,582			1,703,842
One-to-four family residential	67,083			63,540
Real estate construction and land development:
One-to-four family residential	41,693			46,749
Five or more family residential and commercial properties	66,024			61,360
Total real estate construction and land development	107,717			108,109
Consumer	270,175			250,323
Gross noncovered loans receivable	2,239,557			2,125,814
Net deferred loan fees	64			(937		)
Noncovered loans receivable, net	2,239,621			2,124,877
Allowance for loan losses	(22,779		)	(22,153		)
Noncovered loans receivable, net of allowance for loan losses	$	2,216,842		$	2,102,724

(b) Concentrations of Credit

Most of the Company’s lending activity occurs within Washington State, and to a lesser extent Oregon. The Company’s primary market areas are concentrated along the I-5 corridor from Whatcom County to Clark County in Washington State and Multnomah County in Oregon, as well as other contiguous markets. The Washington Banking Merger allowed the expansion of the Company's market area north of Seattle, Washington to the Canadian border. The majority of the Company’s loan portfolio consists of (in order of balances at June 30, 2015) non-owner occupied commercial real estate, owner-occupied commercial real estate and commercial and industrial. As of June 30, 2015 and December 31, 2014, there were no concentrations of loans related to any single industry in excess of 10% of the Company’s total loans.

(c) Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of the loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions of the United States of America, and specifically the states of Washington and Oregon. The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 0 to 10. A description of the general characteristics of the risk grades is as follows:

• Grades 0 to 5: These grades are considered “pass grade” and include loans with negligible to above average but acceptable risk. These borrowers generally have strong to acceptable capital levels and consistent earnings and debt service capacity. Loans with the higher grades within the “pass” category may include borrowers who are experiencing unusual operating difficulties, but have acceptable payment performance to date. Increased monitoring of financials and/or collateral may be appropriate. Loans with this grade show no immediate loss exposure.

• Grade 6: This grade includes "Watch" loans and is considered a “pass grade”. The grade is intended to be utilized on a temporary basis for pass grade borrowers where a potentially significant risk-modifying action is anticipated in the near term.

• Grade 7: This grade includes “Other Assets Especially Mentioned” (“OAEM”) loans in accordance with regulatory guidelines, and is intended to highlight loans with elevated risks. Loans with this grade show signs of deteriorating profits and capital, and the borrower might not be strong enough to sustain a major setback. The borrower is typically higher than normally leveraged, and outside support might be modest and likely illiquid. The loan is at risk of further decline unless active measures are taken to correct the situation.

• Grade 8: This grade includes “Substandard” loans in accordance with regulatory guidelines, which the Company has determined have a high credit risk. These loans also have well-defined weaknesses which make payment default or principal exposure likely, but not yet certain. The borrower may have shown serious negative trends in financial ratios and performance. Such loans may be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. Loans with this grade can be placed on accrual or nonaccrual status based on the Company’s accrual policy.

• Grade 9: This grade includes “Doubtful” loans in accordance with regulatory guidelines, and the Company has determined these loans to have excessive credit risk. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have a specific valuation allowance or have been partially charged-off for the amount considered uncollectible.

• Grade 10: This grade includes “Loss” loans in accordance with regulatory guidelines, and the Company has determined these loans have the highest risk of loss. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

Numerical loan grades for all commercial business loans and real estate construction and land development loans are established at the origination of the loan. Prior to November 2014, one-to-four family residential loans and consumer loans (“non-commercial loans”) were not numerically graded at origination date as these loans were determined to be “pass graded” loans. A numeric grade was assigned to these non-commercial loans if subsequent to origination, the credit department evaluated the credit and determined it necessary to classify the loan. Subsequent to November 2014, non-commercial loans were designated a loan grade “4” at origination date to reflect a "pass grade". The Bank follows the FDIC’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Loan grades are reviewed on a quarterly basis, or more frequently if necessary, by the credit department. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency, direct communications with the borrower, or other borrower information that becomes known to management. Credit improvements are evidenced by known facts regarding the borrower or the collateral property.

The loan grades relate to the likelihood of losses in that the higher the grade, the greater the loss potential. Loans with a pass grade may have some estimated inherent losses, but to a lesser extent than the other loan grades. The OAEM loan grade is transitory in that the Company is waiting on additional information to determine the likelihood and extent of the potential loss. The likelihood of loss for OAEM graded loans, however, is greater than Watch graded loans because there has been measurable credit deterioration. Loans with a Substandard grade are generally loans for which the Company has individually analyzed for potential impairment. For Doubtful and Loss graded loans, the Company is almost certain of the losses, and the unpaid principal balances are generally charged-off to the realizable value.

The following tables present the balance of the noncovered loans receivable by credit quality indicator as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	522,215	$	10,389	$	19,073	$	312	$	551,989
Owner-occupied commercial real estate	545,857		8,136		11,728		—		565,721
Non-owner occupied commercial real estate	641,385		19,603		15,884		—		676,872
Total commercial business	1,709,457		38,128		46,685		312		1,794,582
One-to-four family residential	64,953		—		2,130		—		67,083
Real estate construction and land development:
One-to-four family residential	32,316		1,465		7,912		—		41,693
Five or more family residential and commercial properties	62,048		—		3,976		—		66,024
Total real estate construction and land development	94,364		1,465		11,888		—		107,717
Consumer	263,731		—		6,444		—		270,175
Gross noncovered loans	$	2,132,505	$	39,593	$	67,147	$	312	$	2,239,557

	December 31, 2014
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	509,483	$	14,487	$	27,049	$	324	$	551,343
Owner-occupied commercial real estate	496,234		22,946		16,562		—		535,742
Non-owner occupied commercial real estate	584,262		17,643		14,852		—		616,757
Total commercial business	1,589,979		55,076		58,463		324		1,703,842
One-to-four family residential	61,185		315		2,040		—		63,540
Real estate construction and land development:
One-to-four family residential	34,356		3,977		8,416		—		46,749
Five or more family residential and commercial properties	57,025		—		4,335		—		61,360
Total real estate construction and land development	91,381		3,977		12,751		—		108,109
Consumer	242,836		—		7,487		—		250,323
Gross noncovered loans	$	1,985,381	$	59,368	$	80,741	$	324	$	2,125,814

Noncovered potential problem loans are loans classified as OAEM or worse that are currently accruing interest and are not considered impaired, but which management is monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms. Noncovered potential problem loans also include PCI loans as these loans continue to accrete loan discounts established at acquisition based on the guidance of ASC 310-30. Noncovered potential problem loans as of June 30, 2015 and December 31, 2014 were $86.2 million and $117.3 million, respectively. The balance of noncovered potential problem loans guaranteed by a governmental agency, which guarantee reduces the Company's credit exposure, was $501,000 and $2.0 million as of June 30, 2015 and December 31, 2014, respectively.

(d) Nonaccrual Loans

Nonaccrual noncovered loans, segregated by segments and classes of loans, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	2,533	$	3,463
Owner-occupied commercial real estate	1,957		1,163
Non-owner occupied commercial real estate	—		93
Total commercial business	4,490		4,719
One-to-four family residential	—		—
Real estate construction and land development:
One-to-four family residential	2,489		2,652
Total real estate construction and land development	2,489		2,652
Consumer	19		139
Gross nonaccrual noncovered loans	$	6,998	$	7,510

The Company had $1.7 million and $1.6 million of nonaccrual noncovered loans guaranteed by governmental agencies at June 30, 2015 and December 31, 2014, respectively.

PCI noncovered loans are not included in the nonaccrual loan table above because these loans are accounted for under ASC 310-30, which provides that accretable yield is calculated based on a loan's expected cash flow even if the loan is not performing under its conventional terms.

(e) Past due loans

The Company performs an aging analysis of past due loans using the categories of 30-89 days past due and 90 or more days past due. This policy is consistent with regulatory reporting requirements.

The balances of past due noncovered loans, segregated by segments and classes of loans, as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	1,194	$	1,690	$	2,884	$	549,105	$	551,989	$	—
Owner-occupied commercial real estate	1,944		1,087		3,031		562,690		565,721		—
Non-owner occupied commercial real estate	378		182		560		676,312		676,872		—
Total commercial business	3,516		2,959		6,475		1,788,107		1,794,582		—
One-to-four family residential	41		—		41		67,042		67,083		—
Real estate construction and land development:
One-to-four family residential	668		1,964		2,632		39,061		41,693		—
Five or more family residential and commercial properties	—		—		—		66,024		66,024		—
Total real estate construction and land development	668		1,964		2,632		105,085		107,717		—
Consumer	1,358		—		1,358		268,817		270,175		—
Gross noncovered loans	$	5,583	$	4,923	$	10,506	$	2,229,051	$	2,239,557	$	—

(1) Excludes PCI loans.

	December 31, 2014
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	2,503	$	1,962	$	4,465	$	546,878	$	551,343	$	—
Owner-occupied commercial real estate	1,038		100		1,138		534,604		535,742		—
Non-owner occupied commercial real estate	113		75		188		616,569		616,757		—
Total commercial business	3,654		2,137		5,791		1,698,051		1,703,842		—
One-to-four family residential	200		—		200		63,340		63,540		—
Real estate construction and land development:
One-to-four family residential	62		2,135		2,197		44,552		46,749		—
Five or more family residential and commercial properties	—		376		376		60,984		61,360		—
Total real estate construction and land development	62		2,511		2,573		105,536		108,109		—
Consumer	2,413		125		2,538		247,785		250,323		—
Gross noncovered loans	$	6,329	$	4,773	$	11,102	$	2,114,712	$	2,125,814	$	—

(1) Excludes PCI loans.

(f) Impaired loans

Impaired noncovered loans includes nonaccrual noncovered loans and performing troubled debt restructured noncovered loans ("TDRs"). The table below excludes $624,000, as of June 30, 2015, of certain performing TDR noncovered loans classified as PCI as these loans are recorded at the recorded investment balance and may not have further impairment. The balance of impaired noncovered loans as of June 30, 2015 and December 31, 2014 are set forth in the following tables.

	June 30, 2015
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	865	$	5,860	$	6,725	$	7,111	$	746
Owner-occupied commercial real estate	—		3,214		3,214		3,232		755
Non-owner occupied commercial real estate	3,752		5,786		9,538		9,547		943
Total commercial business	4,617		14,860		19,477		19,890		2,444
One-to-four family residential	—		241		241		241		74
Real estate construction and land development:
One-to-four family residential	2,424		984		3,408		3,995		28
Five or more family residential and commercial properties	—		2,009		2,009		2,009		200
Total real estate construction and land development	2,424		2,993		5,417		6,004		228
Consumer	—		122		122		124		24
Total	$	7,041	$	18,216	$	25,257	$	26,259	$	2,770

	December 31, 2014
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	1,134	$	7,906	$	9,040	$	9,349	$	1,325
Owner-occupied commercial real estate	360		2,421		2,781		2,781		684
Non-owner occupied commercial real estate	2,459		4,846		7,305		7,279		465
Total commercial business	3,953		15,173		19,126		19,409		2,474
One-to-four family residential	—		245		245		245		75
Real estate construction and land development:
One-to-four family residential	2,307		2,217		4,524		4,964		396
Five or more family residential and commercial properties	—		2,056		2,056		2,056		234
Total real estate construction and land development	2,307		4,273		6,580		7,020		630
Consumer	33		172		205		208		56
Total	$	6,293	$	19,863	$	26,156	$	26,882	$	3,235

The Company had governmental guarantees of $2.1 million and $2.4 million related to the impaired noncovered loan balances at June 30, 2015 and December 31, 2014, respectively.

The average recorded investment of impaired noncovered loans for the three and six months ended June 30, 2015 and 2014 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Commercial business:
Commercial and industrial	$	7,524	$	11,899	$	9,464	$	11,596
Owner-occupied commercial real estate	2,779		3,489		3,137		3,325
Non-owner occupied commercial real estate	8,320		7,854		8,113		7,710
Total commercial business	18,623		23,242		20,714		22,631
One-to-four family residential	242		581		375		585
Real estate construction and land development:
One-to-four family residential	3,496		6,028		4,578		5,580
Five or more family residential and commercial properties	2,020		2,114		2,056		2,211
Total real estate construction and land development	5,516		8,142		6,634		7,791
Consumer	124		967		476		904
Total	$	24,505	$	32,932	$	28,199	$	31,911

For the three and six months ended June 30, 2015 and 2014, no interest income was recognized subsequent to a loan’s classification as nonaccrual. For the three months ended June 30, 2015 and 2014, the Bank recorded $224,000 and $260,000, respectively, of interest income related to performing TDR noncovered loans. For the six months ended June 30, 2015 and 2014, the Bank recorded $420,000 and $533,000, respectively, of interest income related to performing TDR noncovered loans.

(g) Troubled Debt Restructured Loans

A troubled debt restructured loan is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs are considered impaired and are separately measured for impairment under FASB ASC 310-10-35, whether on accrual ("performing") or nonaccrual ("nonperforming") status.

The majority of the Bank’s TDR noncovered loans are a result of granting extensions of maturity on troubled credits which have already been adversely classified. The Bank grants such extensions to reassess the borrower’s financial status and to develop a plan for repayment. Certain modifications with extensions also include interest rate reductions, which is the second most prevalent concession. Certain TDRs were additionally re-amortized over a longer period of time. The Bank additionally advanced funds to a troubled speculative home builder to complete established projects. These modifications would all be considered a concession for a borrower that could not obtain similar financing terms from another source other than from the Bank.

The financial effects of each modification will vary based on the specific restructure. For the majority of the Bank’s TDRs, the noncovered loans were interest-only with a balloon payment at maturity. If the interest rate is not adjusted and the modified terms are consistent with other similar credits being offered, the Bank may not experience any loss associated with the restructure. If, however, the restructure involves forbearance agreements or interest rate modifications, the Bank may not collect all the principal and interest based on the original contractual terms. The Bank estimates the necessary allowance for loan losses on noncovered TDRs using the same guidance as used for other noncovered impaired loans.

The recorded investment balance and related allowance for loan losses of performing and nonaccrual TDR noncovered loans as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Performing TDRs		Nonaccrual TDRs		Performing TDRs		Nonaccrual TDRs
	(In thousands)
TDR noncovered loans	$	19,783	$	4,288	$	18,764	$	5,010
Allowance for loan losses on TDR noncovered loans	2,280		282		1,908		1,033

The unfunded commitment to borrowers related to noncovered TDRs was $376,000 and $1.8 million at June 30, 2015 and December 31, 2014, respectively.

Noncovered loans that were modified as TDRs during the three and six months ended June 30, 2015 and 2014 are set forth in the following tables:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	12	$	1,691	6	$	1,942
Owner-occupied commercial real estate	3	873		—	—
Non-owner occupied commercial real estate	3	6,450		2	1,023
Total commercial business	18	9,014		8	2,965
One-to-four family residential	0	—		0	—
Real estate construction and land development:
One-to-four family residential	2	1,038		1	88
Total real estate construction and land development	2	1,038		1	88
Consumer	—	—		—	—
Total TDR noncovered loans	20	$	10,052	9	$	3,053

	Six Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	19	$	2,610	11	$	3,072
Owner-occupied commercial real estate	4	873		1	347
Non-owner occupied commercial real estate	3	6,450		2	1,023
Total commercial business	26	9,933		14	4,442
Real estate construction and land development:
One-to-four family residential	4	2,543		1	277
Total real estate construction and land development	4	2,543		1	277
Consumer	1	38		3	219
Total TDR noncovered loans	31	$	12,514	18	$	4,938

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2015 and 2014.

(2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification), except when the modification was the initial advance on a one-to-four family residential real estate construction and land development loan under a master guidance line. There were no advances on these types of loans during the three and six months ended June 30, 2015. During both the three and six months ended June 30, 2014, the Company's initial advance at the time of modification on these construction loans totaled $45,000 and the total commitment amount was $190,000.

Of the 20 noncovered loans modified during the three months ended June 30, 2015, 9 loans with a total outstanding principal balance of $4.0 million had no prior modifications. Of the 18 noncovered loans modified during the three months ended June 30, 2014, 4 loans with a total outstanding principal balance of $761,000 had no prior modifications. The remaining noncovered loans included in the tables above for the six months ended June 30, 2015 and 2014 were previously reported as noncovered TDRs. The Bank typically grants shorter extension periods to continually monitor the troubled credits despite the fact that the extended date might not be the date the Bank expects the cash flow. The Company does not consider these modifications a subsequent default of a noncovered TDR as new loan terms, specifically maturity dates, were granted. The potential losses related to these loans would have been considered in the period the loan was first reported as a noncovered TDR and adjusted, as necessary, in the current periods based on more recent information. The related specific valuation allowance at June 30, 2015 for noncovered loans that were modified as TDRs during the three months ended June 30, 2015 and during the six months ended June 30, 2015 was $1.2 million and $1.3 million, respectively.

The noncovered loans modified during the previous twelve months ended June 30, 2015 and 2014 that subsequently defaulted during the three and six months ended June 30, 2015 and 2014 are included in the following tables:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts	Outstanding Principal  Balance		Number of Contracts	Outstanding Principal  Balance
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	57	3	$	790
Non-owner occupied commercial real estate	0	—		1	2
Total commercial business	1	57		4	792
Real estate construction and land development:
One-to-four family residential	1	865		—	—
Total real estate construction and land development	1	865		—	—
Total	2	$	922	4	$	792

	Six Months Ended June 30,
	2015			2014
	Number of Contracts	Outstanding Principal  Balance		Number of Contracts	Outstanding Principal  Balance
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	57	3	$	790
Non-owner occupied commercial real estate	0	—		1	2
Total commercial business	1	57		4	792
Real estate construction and land development:
One-to-four family residential	1	865		—	—
Total real estate construction and land development	1	865		—	—
Total	2	$	922	4	$	792

The one-to-four family residential real estate construction loan totaling $865,000 included in the above table defaulted during the three months ended June 30, 2015 because it was past its modified maturity date, and the borrower had not repaid the credit. The Bank does not intend to extend the maturity date. All other loans included in the table above for both periods defaulted as the loans were greater than 90 days past due. The Bank had a specific valuation allowance at June 30, 2015 related to the credits which defaulted during the three months ended June 30, 2015 of $5,000.

(h) Purchased Credit Impaired Loans

The Company acquired PCI noncovered loans in the Washington Banking Merger and in previously completed acquisitions which are accounted for under FASB ASC 310-30. These previous acquisitions include the FDIC-assisted acquisitions of Cowlitz Bank ("Cowlitz") and Pierce Commercial Bank ("Pierce") on July 30, 2010 and November 8, 2010, respectively. In addition, the Company completed the acquisitions of Northwest Commercial Bank ("NCB") on January 9, 2013 and Valley Community Bancshares, Inc. ("Valley") on July 15, 2013.

The following table reflects the outstanding principal balance and recorded investment at June 30, 2015 and December 31, 2014 of the PCI noncovered loans:

	June 30, 2015				December 31, 2014
	Outstanding Principal		Recorded Investment		Outstanding Principal		Recorded Investment
	(In thousands)
Commercial business:
Commercial and industrial	$	15,338	$	11,775	$	22,144	$	18,040
Owner-occupied commercial real estate	12,435		11,271		18,165		16,208
Non-owner occupied commercial real estate	14,701		12,628		12,684		11,185
Total commercial business	42,474		35,674		52,993		45,433
One-to-four family residential	2,230		2,220		2,269		2,235
Real estate construction and land development:
One-to-four family residential	7,461		3,310		8,456		4,223
Five or more family residential and commercial properties	2,263		2,486		2,721		2,963
Total real estate construction and land development	9,724		5,796		11,177		7,186
Consumer	5,158		6,337		5,983		7,055
Gross PCI noncovered loans	$	59,586	$	50,027	$	72,422	$	61,909

On the acquisition dates, the amount by which the undiscounted expected cash flows of the PCI noncovered loans exceeded the estimate fair value of the loan is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the PCI noncovered loans.

The following table summarizes the accretable yield on the PCI noncovered loans resulting from the Pierce, NCB, and Valley acquisitions and the Washington Banking Merger for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	14,015		$	7,089		$	12,572		$	7,714
Accretion	(1,030		)	(761		)	(2,042		)	(1,589		)
Disposal and other	(1,221		)	(703		)	(1,505		)	(1,336		)
Change in accretable yield	—			10,773			2,739			11,609
Balance at the end of the period	$	11,764		$	16,398		$	11,764		$	16,398

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Investment Securities

6 Months Ended

Jun. 30, 2015

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

The Company’s investment policy is designed primarily to provide and maintain liquidity, generate a favorable return on assets without incurring undue interest rate and credit risk, and complement the Bank’s lending activities. Securities are classified as either available for sale or held to maturity when acquired.

(a) Securities by Type and Maturity

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of investment securities available for sale at the dates indicated were as follows:

	Securities Available for Sale
	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	26,339	$	113	$	(6	)	$	26,446
Municipal securities	172,837		2,246		(873		)	174,210
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	488,356		3,199		(1,285		)	490,270
Corporate obligations	6,243		—		(12		)	6,231
Mutual funds and other equities	1,956		9		—			1,965
Total	$	695,731	$	5,567	$	(2,176	)	$	699,122

	Securities Available for Sale
	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	21,414	$	44	$	(31	)	$	21,427
Municipal securities	170,082		3,139		(184		)	173,037
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government agencies	539,859		4,015		(1,475		)	542,399
Corporate obligations	4,034		—		(24		)	4,010
Mutual funds and other equities	1,956		17		—			1,973
Total	$	737,345	$	7,215	$	(1,714	)	$	742,846

The amortized cost, gross unrecognized gains, gross unrecognized losses and fair values of investment securities held to maturity at the dates indicated were as follows:

	Securities Held to Maturity
	June 30, 2015
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	1,582	$	158	$	—		$	1,740
Municipal securities	21,927		553		(24		)	22,456
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	10,078		313		(93		)	10,298
Private residential collateralized mortgage obligations	—		—		—			—
Total	$	33,587	$	1,024	$	(117	)	$	34,494

	Securities Held to Maturity
	December 31, 2014
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	1,591	$	167	$	—		$	1,758
Municipal securities	22,486		643		(11		)	23,118
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	10,866		364		(74		)	11,156
Private residential collateralized mortgage obligations	871		75		(104		)	842
Total	$	35,814	$	1,249	$	(189	)	$	36,874

There were no securities classified as trading at June 30, 2015 or December 31, 2014.

The amortized cost and fair value of securities at June 30, 2015, by contractual maturity, are set forth below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	3,543	$	3,555	$	3,005	$	3,019
Due after one year through three years	32,677		32,854		3,749		3,779
Due after three years through five years	34,919		35,246		6,911		7,211
Due after five years through ten years	148,604		149,692		16,745		17,331
Due after ten years	474,032		475,810		3,177		3,154
Investment securities with no stated maturities	1,956		1,965		—		—
Total	$	695,731	$	699,122	$	33,587	$	34,494

(b) Unrealized Losses and Other-Than-Temporary Impairments

Available for sale investment securities with unrealized losses as of June 30, 2015 and December 31, 2014 were as follows:

	Securities Available for Sale
	June 30, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	4,584	$	(6	)	$	—	$	—		$	4,584	$	(6	)
Municipal securities	$	54,568	$	(855	)	$	1,460	$	(18	)	$	56,028	$	(873	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	104,716		(569		)	49,465		(716		)	154,181		(1,285		)
Corporate obligations	6,231		(12		)	—		—			6,231		(12		)
Total	$	170,099	$	(1,442	)	$	50,925	$	(734	)	$	221,024	$	(2,176	)

	Securities Available for Sale
	December 31, 2014
	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	3,567	$	(31	)	$	—	$	—	$	3,567	$	(31	)
Municipal securities	25,176		(184		)	—		—		25,176		(184		)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	182,970		(1,475		)	—		—		182,970		(1,475		)
Corporate obligations	2,119		(24		)	—		—		2,119		(24		)
Total	$	213,832	$	(1,714	)	$	—	$	—	$	213,832	$	(1,714	)

Held to maturity investment securities with unrecognized losses as of June 30, 2015 and December 31, 2014 were as follows:

	Securities Held to Maturity
	June 30, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses
	(In thousands)
Municipal securities	$	1,094	$	(24	)	$	—	$	—		$	1,094	$	(24	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	—		—			2,009		(93		)	2,009		(93		)
Total	$	1,094	$	(24	)	$	2,009	$	(93	)	$	3,103	$	(117	)

	Securities Held to Maturity
	December 31, 2014
	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
	(In thousands)
Municipal securities	$	2,196	$	(11	)	$	—	$	—	$	2,196	$	(11	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	2,553		(74		)	—		—		2,553		(74		)
Private residential collateralized mortgage obligations	558		(104		)	—		—		558		(104		)
Total	$	5,307	$	(189	)	$	—	$	—	$	5,307	$	(189	)

The Company has evaluated these securities and has determined that, other than certain private residential collateralized mortgage obligations discussed below, the decline in their value is temporary. The unrealized losses are primarily due to increases in market interest rates and larger spreads in the market for mortgage-related products. The fair value of these securities is expected to recover as the securities approach their maturity date and/or as the pricing spreads narrow on mortgage-related securities. The Company has the ability and intent to hold the investments until recovery of the market value which may be the maturity date of the securities.

During the three months ended June 30, 2015, the Company sold its entire portfolio of private residential collateralized mortgage obligations with a carrying value of $829,000, all of which were classified as held-to-maturity. Since acquisition these securities had been downgraded below the Company's acceptable investment grades. As of result of these downgrades and the effects of Basel III on the risk-weighting of sub-investment grade securities, the Company's intent to hold these securities changed and management elected to divest of its interest in the downgraded securities. The Company recorded a realized loss of $125,000 on this sale. The Company's intent and ability to hold the remaining held-to-maturity securities was not impacted by this sale.

Prior to the sale of the securities noted above, to analyze the unrealized losses, the Company estimated expected future cash flows of the private residential collateralized mortgage obligations by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordinated interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which considers current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The average prepayment rate and average discount rate used in the valuation of the present value as of June 30, 2014 were 6.0% and 9.4%, respectively.

For the six months ended June 30, 2015, there were no private residential collateralized mortgage obligations determined to be other-than-temporarily impaired and the Company recorded no unrealized losses for the six months ended June 30, 2015 in earnings or other comprehensive income. In comparison, for the six months ended June 30, 2014, there were four private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. All unrealized losses for the three and six months ended June 30, 2014 were deemed to be credit related, and the Company recorded the impairment in earnings.

The following table summarizes activity for the six months ended June 30, 2014 related to the amount of impairments on held to maturity securities:

	Life-to-Date Gross Other-Than-Temporary Impairments		Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income		Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings
	(In thousands)
December 31, 2013	$	2,603	$	1,152	$	1,451
Subsequent impairments	45		—		45
June 30, 2014	$	2,648	$	1,152	$	1,496

(c) Pledged Securities

The following table summarizes the amortized cost and fair value of available for sale and held to maturity securities that are pledged as collateral for the following obligations at June 30, 2015 and December 31, 2014:

	June 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Washington and Oregon state to secure public deposits	$	195,548	$	197,810	$	150,507	$	153,785
Federal Reserve Bank of San Francisco and FHLB to secure borrowing arrangements	512		513		4,430		4,460
Repurchase agreements	31,612		31,801		43,676		44,457
Other securities pledged	15,073		15,162		14,828		14,922
Total	$	242,745	$	245,286	$	213,441	$	217,624

At June 30, 2015 and December 31, 2014, the total carrying value of pledged securities was $245.0 million and $216.7 million, respectively.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow the Company to sell its ownership interest back to the fund at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds.

Level 2: Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or valuations using methodologies with observable inputs.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques using unobservable inputs, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

(a) Recurring and Nonrecurring Basis

The Company used the following methods and significant assumptions to estimate fair value of certain assets on a recurring and nonrecurring basis:

Investment Securities Available for Sale and Held to Maturity:

The fair values of all investment securities are based upon the assumptions market participants would use in pricing the security. If available, investment securities are determined by quoted market prices which is generally the case for mutual funds and other equities (Level 1). For investment securities where quoted market prices are not available, fair values are calculated based on market prices on similar securities (Level 2). Level 2 includes U.S. Treasury, U.S. Government and agency debt securities, municipal securities, corporate securities and mortgage-backed securities and collateralized mortgage obligations-residential. For investment securities where quoted prices or market prices of similar securities are not available, fair values are calculated by using observable and unobservable inputs such as discounted cash flows or other market indicators (Level 3). Security valuations are obtained from third party pricing services for comparable assets or liabilities.

Impaired Loans:

At the time a loan is considered impaired, its impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market prices, or fair market value of the collateral if the loan is collateral-dependent. Impaired loans for which impairment is measured using the discounted cash flow approach are not considered to be measured at fair value because the loan’s effective interest rate is not a fair value input, and for the purposes of fair value disclosures, the fair value of these loans are measured commensurate with non-impaired loans. Generally, the Company utilizes the fair market value of the collateral, which is commonly based on recent real estate appraisals, to measure impairment. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3). Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned:

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers for commercial properties or certified residential appraisers for residential properties whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the actual selling price of collateral that has been liquidated to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.

The following tables summarize the balances of assets measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	26,446	$	—	$	26,446	$	—
Municipal securities	174,210		—		174,210		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies	490,270		—		490,270		—
Corporate obligations	6,231		—		6,231		—
Mutual funds and other equities	1,965		1,965		—		—
Total	$	699,122	$	1,965	$	697,157	$	—

	December 31, 2014
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	21,427	$	—	$	21,427	$	—
Municipal securities	173,037		—		173,037		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies	542,399		—		542,399		—
Corporate obligations	4,010		—		4,010		—
Mutual funds and other equities	1,973		1,973		—		—
Total	$	742,846	$	1,973	$	740,873	$	—

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2015 and 2014.

The Company may be required to measure certain financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

The tables below represent assets measured at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014 and the net losses (gains) recorded in earnings during three and six months ended June 30, 2015 and 2014.

	Basis(1)		Fair Value at June 30, 2015
			Total		Level 1		Level 2		Level 3		Net Losses Recorded in Earnings  During the Three Months Ended June 30, 2015			Net Losses (Gains) Recorded in Earnings  During the Six Months Ended June 30, 2015
	(In thousands)
Impaired noncovered loans:
Commercial business:
Commercial and industrial	$	83	$	81	$	—	$	—	$	81	$	1		$	1
Total commercial business	83		81		—		—		81		1			1
Real estate construction and land development:
One-to-four family residential	865		863		—		—		863		(2		)	103
Total real estate construction and land development	865		863		—		—		863		(2		)	103
Total	948		944		—		—		944		(1		)	104
Other real estate owned:	1,004		603		—		—		603		84			414
Total assets measured	$	1,952	$	1,547	$	—	$	—	$	1,547	$	83		$	518

⁽¹⁾ Basis represents the unpaid principal balance of impaired noncovered loans and carrying value at ownership date of other real estate owned.

	Basis(1)		Fair Value at December 31, 2014
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings  During the Three Months Ended June 30, 2014			Net Losses (Gains) Recorded in Earnings  During the Six Months Ended June 30, 2014
	(In thousands)
Impaired noncovered loans:
Commercial business:
Commercial and industrial	$	161	$	138	$	—	$	—	$	138	$	(79	)	$	81
Owner-occupied commercial real estate	—		—		—		—		—		(158		)	(220		)
Non-owner occupied commercial real estate	—		—		—		—		—		223			195
Total commercial business	161		138		—		—		138		(14		)	56
Real estate construction and land development:
One-to-four family residential	2,094		1,725		—		—		1,725		(32		)	(42		)
Five or more family residential and commercial properties	—		—		—		—		—		107			107
Total real estate construction and land development	2,094		1,725		—		—		1,725		75			65
Consumer	49		45		—		—		45		(1		)	23
Total	2,304		1,908		—		—		1,908		60			144
Covered impaired loans:
Commercial business:
Commercial and industrial	—		—		—		—		—		—			(234		)
Owner-occupied commercial real estate	—		—		—		—		—		(155		)	233
Total commercial business	—		—		—		—		—		(155		)	(1		)
Total	—		—		—		—		—		(155		)	(1		)
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations – residential:
Private residential collateralized mortgage obligations	36		11		—		11		—		25			25
Total assets measured	$	2,340	$	1,919	$	—	$	11	$	1,908	$	(70	)	$	168

⁽¹⁾  Basis represents the unpaid principal balance of impaired noncovered and impaired covered loans and amortized cost of investment securities held to maturity.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014.

	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range of Inputs; Weighted Average
	(Dollars in thousands)
Impaired noncovered loans	$	944	Market approach	Adjustment for differences between the comparable sales	(8.50%) - 10.4%; 0.95%
Other real estate owned	$	603	Market approach	Adjustment for differences between the comparable sales	(48.6%) - 3.0%; (7.03%)

	December 31, 2014
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range of Inputs; Weighted Average
	(Dollars in thousands)
Impaired noncovered loans	$	1,908	Market approach	Adjustment for differences between the comparable sales	(47.5%) - 96.2%; 7.0%

(b) Fair Value of Financial Instruments

Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company.

The tables below present the carrying value amount of the Company’s financial instruments and their corresponding estimated fair values at the dates indicated.

	June 30, 2015
	Carrying Value		Fair Value		Fair Value Measurements Using:
					Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	85,312	$	85,312	$	85,312	$	—	$	—
Other interest earning deposits	5,110		5,121		—		5,121		—
Investment securities available for sale	699,122		699,122		1,965		697,157		—
Investment securities held to maturity	33,587		34,494		—		34,494		—
Federal Home Loan Bank stock	4,148		N/A		N/A		N/A		N/A
Loans held for sale	6,939		7,089		—		7,089		—
Loans receivable, net of allowance for loan losses	2,319,024		2,359,950		—		—		2,359,950
Accrued interest receivable	9,883		9,883		2		3,061		6,820
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	$	2,485,276	$	2,485,276	$	2,485,276	$	—	$	—
Certificate of deposit accounts	461,211		461,049		—		461,049		—
Total deposits	$	2,946,487	$	2,946,325	$	2,485,276	$	461,049	$	—
Securities sold under agreement to repurchase	$	20,589	$	20,589	$	20,589	$	—	$	—
Junior subordinated debentures	19,278		19,278		—		—		19,278
Accrued interest payable	239		239		54		165		20

	December 31, 2014
	Carrying Value		Fair Value		Fair Value Measurements Using:
					Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	121,636	$	121,636	$	121,636	$	—	$	—
Other interest earning deposits	10,126		10,145		—		10,145		—
Investment securities available for sale	742,846		742,846		1,973		740,873		—
Investment securities held to maturity	35,814		36,874		—		36,874		—
Federal Home Loan Bank stock	12,188		N/A		N/A		N/A		N/A
Loans held for sale	5,582		5,710		—		5,710		—
Loans receivable, net of allowance for loan losses	2,223,348		2,279,081		—		—		2,279,081
Accrued interest receivable	9,836		9,836		3		3,009		6,824
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	$	2,380,934	$	2,380,934	$	2,380,934	$	—	$	—
Certificate of deposit accounts	525,397		525,768		—		525,768		—
Total deposits	$	2,906,331	$	2,906,702	$	2,380,934	$	525,768	$	—
Securities sold under agreement to repurchase	$	32,181	$	32,181	$	32,181	$	—	$	—
Junior subordinated debentures	19,082		19,082		—		—		19,082
Accrued interest payable	411		411		62		328		21

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and Cash Equivalents:

The fair value of financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value equal to carrying value (Level 1).

Other Interest Earning Deposits:

These deposits with other banks have maturities greater than three months. The fair value is calculated based upon market prices for similar deposits (Level 2).

Federal Home Loan Bank Stock:

Federal Home Loan Bank ("FHLB") stock is not publicly traded, as such, it is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. At June 30, 2015 the stock was that of FHLB of Des Moines and at December 31, 2014 the stock was that of FHLB of Seattle. The FHLB of Seattle merger with and into the FHLB of Des Moines was effective in second quarter 2015.

Loans Held for Sale:

The fair value of loans held for sale is estimated based upon binding contracts or quotes from third party investors. (Level 2).

Loans Receivable:

Except for impaired loans discussed previously, fair value is based on discounted cash flows using current market rates applied to the estimated life (Level 3). While these methodologies are permitted under U.S. GAAP, they are not based on the exit price concept of the fair value required under ASC 820-10, Fair Value Measurements and Disclosures, and generally produce a higher value.

Accrued Interest Receivable/Payable:

The fair value of accrued interest receivable/payable balances are determined using inputs and fair value measurements commensurate with the asset or liability from which the accrued interest is generated. The carrying amounts of accrued interest approximate fair value (Level 1, Level 2 and Level 3).

Deposits:

For deposits with no contractual maturity, the fair value is assumed to equal the carrying value (Level 1). The fair value of fixed maturity deposits is based on discounted cash flows using the difference between the deposit rate and the rates offered by the Company for deposits of similar remaining maturities (Level 2).

Securities Sold Under Agreement to Repurchase:

Securities sold under agreement to repurchase are short-term in nature and they reprice on a daily basis. Fair value financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value equal to carrying value (Level 1).

Junior Subordinated Debentures:

The fair value is estimated using discounted cash flow analysis based on current rates for similar types of debt, which many be unobservable, and considering recent trading activity of similar instruments in markets which can be inactive. At June 30, 2015, the fair value approximated the carrying value based on these valuation techniques (Level 3).

Off-Balance Sheet Financial Instruments:

The majority of our commitments to extend credit, standby letters of credit and commitments to sell mortgage loans carry current market interest rates if converted to loans. As such, no premium or discount was ascribed to these commitments (Level 1). They are excluded from the preceding tables.

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Repurchase Agreements

6 Months Ended

Jun. 30, 2015

Disclosure of Repurchase Agreements [Abstract]

Repurchase Agreements

Repurchase Agreements

The Company utilizes repurchase agreements with one day maturities as a supplement to funding sources. Repurchase agreements are secured by pledged investment securities available for sale. Under the repurchase agreements the Company is required to maintain an aggregate market value of securities pledged greater than the stated margin balance. The Company is required to pledge additional securities to cover any declines below the stated margin balance. Additional information on total value of securities pledged for repurchase agreements is found in footnote 2: Investment Securities.

The following table presents the Company's repurchase agreement obligations by class of collateral pledged:

	June 30, 2015
	(in thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	—
Municipal securities	—
Mortgage backed securities and collateralized mortgage obligations- residential:
U.S. Government-sponsored agencies	20,589
Corporate obligations	—
Total borrowings	$	20,589

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Fair Value Measurements - Quantitative Information, Level 3 (Details) - Nonrecurring - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Noncovered Impaired Loans
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired noncovered loans	$ 944	$ 1,908
Level 3 | Noncovered Impaired Loans
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired noncovered loans	$ 944	$ 1,908
Valuation Technique(s)	Market approach	Market approach
Unobservable Input(s)	Adjustment for differences between the comparable sales	Adjustment for differences between the comparable sales
Level 3 | Noncovered Impaired Loans | Minimum
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range of Inputs; Weighted Average	(8.50%)	(47.50%)
Level 3 | Noncovered Impaired Loans | Maximum
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range of Inputs; Weighted Average	10.40%	96.20%
Level 3 | Noncovered Impaired Loans | Weighted Average
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range of Inputs; Weighted Average	0.95%	7.00%
Level 3 | Other Real Estate Owned
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Other real estate owned	$ 603
Valuation Technique(s)	Market approach
Unobservable Input(s)	Adjustment for differences between the comparable sales
Level 3 | Other Real Estate Owned | Minimum
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range of Inputs; Weighted Average	(48.60%)
Level 3 | Other Real Estate Owned | Maximum
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range of Inputs; Weighted Average	3.00%
Level 3 | Other Real Estate Owned | Weighted Average
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range of Inputs; Weighted Average	(7.03%)

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FDIC Indemnification Asset

6 Months Ended

Jun. 30, 2015

FDIC Indemnification Asset [Roll Forward]

FDIC Indemnification Asset

FDIC Indemnification Asset

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	692		$	3,969		$	1,116		$	4,382
Additions as a result of the Washington Banking Merger	—			7,407			—			7,407
Cash payments received or receivable from the FDIC	—			(2,365		)	(231		)	(2,741		)
FDIC share of additional estimated (gains) losses	(283		)	469			(352		)	805
Net amortization	(21		)	(360		)	(145		)	(733		)
Balance at the end of the period	$	388		$	9,120		$	388		$	9,120

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Covered Loans Receivable - Past Due Loans (Details) - Covered Loans - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 4,191	$ 10,509
Current	103,490	115,691
Total	107,681	126,200
90 Days or More and Still Accruing	0	0
30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	544	5,173
90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,647	5,336
One-to-four Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	112
Current	5,080	5,878
Total	5,080	5,990
90 Days or More and Still Accruing	0	0
One-to-four Family Residential | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	112
One-to-four Family Residential | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial Business
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,019	8,919
Current	87,102	96,314
Total	90,121	105,233
90 Days or More and Still Accruing	0	0
Commercial Business | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	162	4,620
Commercial Business | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,857	4,299
Commercial Business | Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,335	3,425
Current	14,501	15,685
Total	16,836	19,110
90 Days or More and Still Accruing	0	0
Commercial Business | Commercial and Industrial | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	162	2,262
Commercial Business | Commercial and Industrial | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,173	1,163
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	684	3,325
Current	42,837	55,919
Total	43,521	59,244
90 Days or More and Still Accruing	0	0
Commercial Business | Owner-occupied Commercial Real Estate | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	645
Commercial Business | Owner-occupied Commercial Real Estate | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	684	2,680
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	2,169
Current	29,764	24,710
Total	29,764	26,879
90 Days or More and Still Accruing	0	0
Commercial Business | Non-owner Occupied Commercial Real Estate | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	1,713
Commercial Business | Non-owner Occupied Commercial Real Estate | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	456
Real Estate Construction and Land Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	352	488
Current	3,929	5,518
Total	4,281	6,006
90 Days or More and Still Accruing	0	0
Real Estate Construction and Land Development | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	311	178
Real Estate Construction and Land Development | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	41	310
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	268
Current	1,962	2,178
Total	1,962	2,446
90 Days or More and Still Accruing	0	0
Real Estate Construction and Land Development | One-to-four Family Residential | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	178
Real Estate Construction and Land Development | One-to-four Family Residential | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	90
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	352	220
Current	1,967	3,340
Total	2,319	3,560
90 Days or More and Still Accruing	0	0
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	311	0
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	41	220
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	820	990
Current	7,379	7,981
Total	8,199	8,971
90 Days or More and Still Accruing	0	0
Consumer | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	71	263
Consumer | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 749	$ 727

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Covered Loans Receivable

6 Months Ended

Jun. 30, 2015

Covered Loans

Accounts, Notes, Loans and Financing Receivable [Line Items]

Covered Loans Receivable

Covered Loans Receivable

The Company acquired loans through FDIC-assisted transactions which are covered by FDIC shared-loss agreements. These loans are referred to as "covered loans." Covered loans were acquired in the Cowlitz acquisition in July 2010 and in the Washington Banking Merger in May 2014. Included in the covered loans acquired from Washington Banking were loans Washington Banking had acquired from City Bank in April 2010 and North County Bank in September 2010. As part of the Washington Banking Merger, the shared-loss agreements with these acquisitions were transferred to Heritage Bank.

Loans purchased with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are accounted for under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality and are identified as PCI loans. Loans purchased that are not accounted for under FASB ASC 310-30 are accounted for under FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and are referred to as "non-PCI" loans.

Disclosures related to the Company’s recorded investment in covered loans receivable generally exclude accrued interest receivable because it is insignificant.

(a) Risk Management

The Company categorizes covered loans in the same four segments as the noncovered portfolio: commercial business, real estate construction and land development, one-to-four family residential and consumer.     

The recorded investment of covered loans receivable at June 30, 2015 and December 31, 2014 consisted of the following portfolio segments and classes:

	June 30, 2015			December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	16,836		$	19,110
Owner-occupied commercial real estate	43,521			59,244
Non-owner occupied commercial real estate	29,764			26,879
Total commercial business	90,121			105,233
One-to-four family residential	5,080			5,990
Real estate construction and land development:
One-to-four family residential	1,962			2,446
Five or more family residential and commercial properties	2,319			3,560
Total real estate construction and land development	4,281			6,006
Consumer	8,199			8,971
Gross covered loans receivable	107,681			126,200
Allowance for loan losses	(5,499		)	(5,576		)
Covered loans receivable, net	$	102,182		$	120,624

On April 16, 2015, the 5-year shared-loss period ended for certain non-single family loans, as categorized by the FDIC, in the City Bank portfolio. The Company's recorded investment balance of these loans totaled $25.4 million at June 30, 2015. Since the end of the shared-loss period, the Company has continued to report these loans as covered loans in the Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2015 as these loans are covered under the shared-loss agreement for an additional 3-year shared-recovery period.

At June 30, 2015 and December 31, 2014, the recorded investment balance of loans which are no longer covered under the FDIC shared-loss agreements due to Company modifications, but are included in the covered loan table above as they are included in the loan pool established at the time of acquisition, was $1.5 million and $872,000, respectively.

(b) Credit Quality Indicators

The following tables present the recorded invested balance of the covered loans receivable by credit quality indicator as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	10,185	$	104	$	4,727	$	1,820	$	16,836
Owner-occupied commercial real estate	31,867		3,266		8,135		253		43,521
Non-owner occupied commercial real estate	12,958		32		14,628		2,146		29,764
Total commercial business	55,010		3,402		27,490		4,219		90,121
One-to-four family residential	4,739		—		341				5,080
Real estate construction and land development:
One-to-four family residential	1,791		—		171		—		1,962
Five or more family residential and commercial properties	1,503		—		816		—		2,319
Total real estate construction and land development	3,294		—		987		—		4,281
Consumer	6,099		—		2,100		—		8,199
Gross covered loans receivable	$	69,142	$	3,402	$	30,918	$	4,219	$	107,681

	December 31, 2014
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	11,297	$	131	$	5,442	$	2,240	$	19,110
Owner-occupied commercial real estate	40,357		4,957		13,583		347		59,244
Non-owner occupied commercial real estate	9,656		40		17,183		—		26,879
Total commercial business	61,310		5,128		36,208		2,587		105,233
One-to-four family residential	5,414		425		151		—		5,990
Real estate construction and land development:
One-to-four family residential	2,178		—		268		—		2,446
Five or more family residential and commercial properties	1,758		—		1,802		—		3,560
Total real estate construction and land development	3,936		—		2,070		—		6,006
Consumer	7,030		—		1,941		—		8,971
Gross covered loans receivable	$	77,690	$	5,553	$	40,370	$	2,587	$	126,200

(c) Nonaccrual Loans

The recorded investment balance of nonaccrual covered loans, segregated by segments and classes of loans, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	1,820	$	2,321
Owner-occupied commercial real estate	1,087		1,132
Non-owner-occupied commercial real estate	401		424
Total commercial business	3,308		3,877
One-to-four family residential	171		179
Consumer	32		6
Gross nonaccrual covered loans	$	3,511	$	4,062

PCI covered loans are not included in the nonaccrual table above because the loans are accounted for under ASC 310-30, whereby accretable yield is calculated based on a loan's expected cash flow even if the loan is not performing under its conventional terms.

(d) Past Due Loans

The balances of past due covered loans, segregated by segments and classes of loans, as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	162	$	2,173	$	2,335	$	14,501	$	16,836	$	—
Owner-occupied commercial real estate	—		684		684		42,837		43,521		—
Non-owner occupied commercial real estate	—		—		—		29,764		29,764		—
Total commercial business	162		2,857		3,019		87,102		90,121		—
One-to-four family residential	—		—		—		5,080		5,080		—
Real estate construction and land development:
One-to-four family residential	—		—		—		1,962		1,962		—
Five or more family residential and commercial properties	311		41		352		1,967		2,319		—
Total real estate construction and land development	311		41		352		3,929		4,281		—
Consumer	71		749		820		7,379		8,199		—
Gross covered loans receivable	$	544	$	3,647	$	4,191	$	103,490	$	107,681	$	—

(1) Excludes covered PCI loans.

	December 31, 2014
	30-89 Days		90 Days or Greater		Total Past  Due		Current		Total		90 Days or More and  Still Accruing (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	2,262	$	1,163	$	3,425	$	15,685	$	19,110	$	—
Owner-occupied commercial real estate	645		2,680		3,325		55,919		59,244		—
Non-owner occupied commercial real estate	1,713		456		2,169		24,710		26,879		—
Total commercial business	4,620		4,299		8,919		96,314		105,233		—
One-to-four family residential	112		—		112		5,878		5,990		—
Real estate construction and land development:
One-to-four family residential	178		90		268		2,178		2,446		—
Five or more family residential and commercial properties	—		220		220		3,340		3,560		—
Total real estate construction and land development	178		310		488		5,518		6,006		—
Consumer	263		727		990		7,981		8,971		—
Gross covered loans receivable	$	5,173	$	5,336	$	10,509	$	115,691	$	126,200	$	—

(1) Excludes covered PCI loans.

(e) Impaired Loans

A covered loan, not initially classified as PCI, generally becomes impaired when classified as nonaccrual or when its modification results in a TDR. The table below excludes certain TDR loans totaling $10.0 million and $10.3 million as of June 30, 2015 and December 31, 2014, respectively, which are classified as PCI. These PCI loans are recorded at the recorded investment balance and may not have further impairment. Impaired covered loans as of June 30, 2015 and December 31, 2014 are set forth in the following tables.

	June 30, 2015
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	1,820	$	—	$	1,820	$	3,257	$	—
Owner-occupied commercial real estate	—		1,395		1,395		1,441		289
Non-owner occupied commercial real estate	—		401		401		435		49
Total commercial business	1,820		1,796		3,616		5,133		338
Real estate construction and land development:
One-to-four family residential	—		172		172		180		45
Total real estate construction and land development	—		172		172		180		45
Consumer	26		6		32		34		2
Total	$	1,846	$	1,974	$	3,820	$	5,347	$	385

	December 31, 2014
	Recorded Investment With No Specific Valuation Allowance		Recorded Investment With Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance
	(In thousands)
Commercial business:
Commercial and industrial	$	2,240	$	94	$	2,334	$	3,696	$	9
Owner-occupied commercial real estate	—		1,132		1,132		1,156		295
Non-owner occupied commercial real estate	—		424		424		440		66
Total commercial business	2,240		1,650		3,890		5,292		370
Real estate construction and land development:
One-to-four family residential	—		179		179		182		51
Total real estate construction and land development	—		179		179		182		51
Consumer	—		6		6		8		2
Total	$	2,240	$	1,835	$	4,075	$	5,482	$	423

The average recorded investment of impaired covered loans for the three and six months ended June 30, 2015 and 2014 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
Commercial business:
Commercial and industrial	$	2,000	$	3,648	$	2,739	$	3,686
Owner-occupied commercial real estate	1,407		353		844		235
Non-owner occupied commercial real estate	407		—		333		—
Total commercial business	3,814		4,001		3,916		3,921
One-to-four family residential	—		—		—		150
Real estate construction and land development:
One-to-four family residential	173		—		105		—
Total real estate construction and land development	173		—		105		—
Consumer	19		7		12		7
Total	$	4,006	$	4,008	$	4,033	$	4,078

For the three and six months ended June 30, 2015 and 2014, no interest income was recognized subsequent to a covered loan’s classification as nonaccrual. For the three months ended June 30, 2015 and 2014, the Bank recorded $26,000 and $47,000, respectively, of interest income related to performing TDR covered loans. For the six months ended June 30, 2015 and 2014, the Bank recorded $29,000 and $95,000, respectively, of interest income related to performing TDR covered loans.

(f) Troubled Debt Restructured Loans

The recorded investment balance and related allowance for loan losses of performing and nonaccrual covered TDRs as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Performing TDRs		Nonaccrual TDRs		Performing TDRs		Nonaccrual TDRs
	(In thousands)
TDR covered loans	$	10,303	$	1,826	$	10,289	$	2,246
Allowance for loan losses on TDR covered loans	29		2		1		2

There were no unfunded commitments related to credits classified as covered TDRs at June 30, 2015 and December 31, 2014.

Covered loans that were modified as TDRs during the three and six months ended June 30, 2015 and 2014 are set forth in the following table:

	Three Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	1	$	552	—	$	—
Non-owner occupied commercial real estate	1	7,245		—	—
Total commercial business	2	7,797		—	—
Real estate construction and land development:
Five or more family residential and commercial properties	1	418		—	—
Total real estate construction and land development	1	418		—	—
Total TDR covered loans	3	$	8,215	—	$	—

	Six Months Ended June 30,
	2015			2014
	Number of Contracts (1)	Outstanding Principal Balance  (1)(2)		Number of Contracts (1)	Outstanding Principal Balance  (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial	2	$	678	1	$	3,626
Owner-occupied commercial real estate	1	308		—	—
Non-owner occupied commercial real estate	1	7,245		—	—
Total commercial business	4	8,231		1	3,626
Real estate construction and land development:
Five or more family residential and commercial properties	1	418		—	—
Total real estate construction and land development	1	418		—	—
Consumer	1	104		—	—
Total TDR covered loans	6	$	8,753	1	$	3,626

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2015 and 2014.

(2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification).

All covered loan modified as a TDRs during the three and six months ended June 30, 2015 and 2014 included in the table above were extensions of credits to borrowers with financial difficulties. At June 30, 2015, the loans modified during the three and six months ended June 30, 2015 had a specific valuation allowance of $0 and $28,000, respectively.

There was one commercial and industrial loan of $1.8 million at June 30, 2015 that was modified during the previous twelve months and subsequently defaulted during both the three and six months ended June 30, 2015 as the borrower did not make specific curtailment payments. The defaulted loan had been written down to net realizable value at December 31, 2014 and no specific allowance for loan losses was recorded as of June 30, 2015. There were no covered loans modified during the previous twelve months ended June 30, 2014 that subsequently defaulted during the three and six months ended June 30, 2014.

(g) Purchased Credit Impaired Loans

The Company acquired covered loans which the Bank accounts for under FASB ASC 310-30 as they were identified as PCI loans at the time of acquisition.

The following table reflects the outstanding principal balance and recorded investment at June 30, 2015 and December 31, 2014 of the PCI covered loans:

	June 30, 2015				December 31, 2014
	Outstanding Principal		Recorded Investment		Outstanding Principal		Recorded Investment
	(In thousands)
Commercial business:
Commercial and industrial	$	10,324	$	8,139	$	9,635	$	7,134
Owner-occupied commercial real estate	15,431		13,755		23,071		20,666
Non-owner occupied commercial real estate	18,940		19,575		20,607		20,257
Total commercial business	44,695		41,469		53,313		48,057
One-to-four family residential	3,278		2,958		3,837		3,478
Real estate construction and land development:
One-to-four family residential	—		1,209		103		1,308
Five or more family residential and commercial properties	901		816		2,140		1,802
Total real estate construction and land development	901		2,025		2,243		3,110
Consumer	2,719		2,529		2,945		2,717
Gross PCI covered loans	$	51,593	$	48,981	$	62,338	$	57,362

The Bank has the option to modify PCI covered loans; however, modifying the loan may terminate the FDIC shared-loss coverage on those loans. At June 30, 2015 and December 31, 2014, the recorded investment balance of PCI covered loans which are no longer covered under the FDIC shared-loss agreements was $458,000 and $476,000, respectively. The Bank continues to report these loans in the covered portfolio as they are in a pool and they continue to be accounted for under FASB ASC 310-30. The FDIC indemnification asset has been adjusted to reflect the change in the loan status.

(h) Accretable Yield

The following table summarizes the accretable yield on the PCI covered loans resulting from the Cowlitz acquisition and Washington Banking Merger for the three and six months ended June 30, 2015 and 2014.

		Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period		$	8,310		$	9,063		$	8,520		$	9,535
Accretion		(798		)	(615		)	(1,696		)	(1,300		)
Disposal and other		(545		)	(392		)	(899		)	(435		)
Change in accretable yield		—			3,712			1,042			3,968
Balance at the end of the period		$	6,967		$	11,768		$	6,967		$	11,768

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Allowance for Loan Losses

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

Allowance for Loan Losses

Allowance for Loan Losses

The allowance for loan losses is maintained at a level deemed appropriate by management to provide for probable incurred credit losses in the loan portfolio.

A summary of the changes in the noncovered loans’ allowance for loan losses during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	22,317		$	22,820		$	22,153		$	22,657
Charge-offs	(1,110		)	(1,152		)	(2,545		)	(1,215		)
Recoveries of loans previously charged-off	383			331			697			578
Provision for loan losses	1,189			370			2,474			349
Balance at the end of the period	$	22,779		$	22,369		$	22,779		$	22,369

A summary of the changes in the covered loans’ allowance for loan losses during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	5,499	$	6,567		$	5,576		$	6,167
Charge-offs	—		(775		)	—			(854		)
Provision for loan losses	—		321			(77		)	800
Balance at the end of the period	$	5,499	$	6,114		$	5,499		$	6,114

The covered loans acquired in the Cowlitz acquisition and Washington Banking Merger (including Washington Banking's prior acquisitions of City Bank and North County Bank and related covered loans) are subject to the Company’s internal credit review. If and when credit deterioration occurs subsequent to the acquisition dates, a provision for loan losses will be charged to earnings for the full amount of the covered loan balance without regard to the FDIC shared-loss agreements. The portion of the estimated loss reimbursable from the FDIC is recorded in noninterest income and increases the FDIC indemnification asset.

The following tables detail activity in the allowance for loan losses disaggregated by segment and class as of and for the three and six months ended June 30, 2015:

	Balance at Beginning of Period		Charge-offs			Recoveries		Provision for Loan Losses			Balance at End of Period
	(In thousands)
Three Months Ended June 30, 2015
Commercial business:
Commercial and industrial	$	9,858	$	(662	)	$	187	$	508		$	9,891
Owner-occupied commercial real estate	4,173		—			—		414			4,587
Non-owner occupied commercial real estate	6,029		—			—		117			6,146
Total commercial business	20,060		(662		)	187		1,039			20,624
One-to-four family residential	1,242		—			—		29			1,271
Real estate construction and land development:
One-to-four family residential	1,565		—			100		(203		)	1,462
Five or more family residential and commercial properties	1,005		—			—		57			1,062
Total real estate construction and land development	2,570		—			100		(146		)	2,524
Consumer	3,175		(448		)	96		344			3,167
Unallocated	769		—			—		(77		)	692
Total	$	27,816	$	(1,110	)	$	383	$	1,189		$	28,278
Six Months Ended June 30, 2015
Commercial business:
Commercial and industrial	$	10,553	$	(1,322	)	$	388	$	272		$	9,891
Owner-occupied commercial real estate	4,095		—			—		492			4,587
Non-owner occupied commercial real estate	5,538		(188		)	—		796			6,146
Total commercial business	20,186		(1,510		)	388		1,560			20,624
One-to-four family residential	1,200		—			1		70			1,271
Real estate construction and land development:
One-to-four family residential	1,786		(106		)	100		(318		)	1,462
Five or more family residential and commercial properties	972		—			—		90			1,062
Total real estate construction and land development	2,758		(106		)	100		(228		)	2,524
Consumer	2,769		(929		)	208		1,119			3,167
Unallocated	816		—			—		(124		)	692
Total	$	27,729	$	(2,545	)	$	697	$	2,397		$	28,278

The following table details the activity in the allowance for loan losses disaggregated on the basis of the Company's impairment method as of June 30, 2015.

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of June 30, 2015
	(In thousands)
Commercial business:
Commercial and industrial	$	746	$	6,359	$	—	$	117	$	2,213	$	456	$	9,891
Owner-occupied commercial real estate	755		2,045		289		26		330		1,142		4,587
Non-owner occupied commercial real estate	943		2,729		49		14		363		2,048		6,146
Total commercial business	2,444		11,133		338		157		2,906		3,646		20,624
One-to-four family residential	74		607		—		11		207		372		1,271
Real estate construction and land development:
One-to-four family residential	28		386		45		—		264		739		1,462
Five or more family residential and commercial properties	200		774		—		—		88		—		1,062
Total real estate construction and land development	228		1,160		45		—		352		739		2,524
Consumer	24		2,286		2		4		666		185		3,167
Unallocated	—		692		—		—		—		—		692
Total	$	2,770	$	15,878	$	385	$	172	$	4,131	$	4,942	$	28,278

The following table details the recorded investment balance of the loan receivables disaggregated on the basis of the Company’s impairment method as of June 30, 2015:

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of June 30, 2015
	(In thousands)
Commercial business:
Commercial and industrial	$	6,725	$	533,489	$	1,820	$	6,877	$	11,775	$	8,139	$	568,825
Owner-occupied commercial real estate	3,214		551,236		1,395		28,371		11,271		13,755		609,242
Non-owner occupied commercial real estate	9,538		654,706		401		9,788		12,628		19,575		706,636
Total commercial business	19,477		1,739,431		3,616		45,036		35,674		41,469		1,884,703
One-to-four family residential	241		64,622		—		2,122		2,220		2,958		72,163
Real estate construction and land development:
One-to-four family residential	3,408		34,975		172		581		3,310		1,209		43,655
Five or more family residential and commercial properties	2,009		61,529		—		1,503		2,486		816		68,343
Total real estate construction and land development	5,417		96,504		172		2,084		5,796		2,025		111,998
Consumer	122		263,716		32		5,638		6,337		2,529		278,374
Total	$	25,257	$	2,164,273	$	3,820	$	54,880	$	50,027	$	48,981	$	2,347,238

The following tables detail activity in the allowance for loan losses disaggregated by segment and class as of and for the three and six months ended June 30, 2014 and as of December 31, 2014.

	Balance at Beginning of Period		Charge-offs			Recoveries		Provision for Loan Losses			Balance at End of Period
	(In thousands)
Three Months Ended June 30, 2014
Commercial business:
Commercial and industrial	$	12,277	$	(1,403	)	$	269	$	161		$	11,304
Owner-occupied commercial real estate	4,463		—			—		(263		)	4,200
Non-owner occupied commercial real estate	5,226		—			—		459			5,685
Total commercial business	21,966		(1,403		)	269		357			21,189
One-to-four family residential	1,121		—			—		34			1,155
Real estate construction and land development:
One-to-four family residential	1,979		(345		)	43		(144		)	1,533
Five or more family residential and commercial properties	1,983		—			—		(353		)	1,630
Total real estate construction and land development	3,962		(345		)	43		(497		)	3,163
Consumer	1,690		(179		)	20		644			2,175
Unallocated	648		—			—		153			801
Total	$	29,387	$	(1,927	)	$	332	$	691		$	28,483
Six Months Ended June 30, 2014
Commercial business:
Commercial and industrial	$	13,478	$	(1,482	)	$	501	$	(1,193	)	$	11,304
Owner-occupied commercial real estate	4,049		—			—		151			4,200
Non-owner occupied commercial real estate	5,326		—			—		359			5,685
Total commercial business	22,853		(1,482		)	501		(683		)	21,189
One-to-four family residential	1,100		—			—		55			1,155
Real estate construction and land development:
One-to-four family residential	1,720		(345		)	43		115			1,533
Five or more family residential and commercial properties	953		—			—		677			1,630
Total real estate construction and land development	2,673		(345		)	43		792			3,163
Consumer	1,597		(242		)	35		785			2,175
Unallocated	601		—			—		200			801
Total	$	28,824	$	(2,069	)	$	579	$	1,149		$	28,483

The following table details the activity in the allowance for loan losses disaggregated on the basis of the Company's impairment method as of December 31, 2014.

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	1,325	$	6,449	$	9	$	108	$	2,191	$	471	$	10,553
Owner-occupied commercial real estate	684		1,629		295		14		330		1,143		4,095
Non-owner occupied commercial real estate	465		2,541		66		6		353		2,107		5,538
Total commercial business	2,474		10,619		370		128		2,874		3,721		20,186
One-to-four family residential	75		530		—		8		207		380		1,200
Real estate construction and land development:
One-to-four family residential	396		322		51		—		264		753		1,786
Five or more family residential and commercial properties	234		650		—		—		88		—		972
Total real estate construction and land development	630		972		51		—		352		753		2,758
Consumer	56		1,931		2		12		617		151		2,769
Unallocated	—		816		—		—		—		—		816
Total	$	3,235	$	14,868	$	423	$	148	$	4,050	$	5,005	$	27,729

The following table details the recorded investment balance of the loan receivables disaggregated on the basis of the Company’s impairment method for the year ended December 31, 2014:

	Noncovered loans individually evaluated for impairment		Noncovered loans collectively evaluated for impairment		Covered loans individually evaluated for impairment		Covered loans collectively evaluated for impairment		PCI noncovered loans		PCI covered loans		Total as of December 31, 2014
	(In thousands)
Commercial business:
Commercial and industrial	$	9,040	$	524,263	$	2,334	$	9,642	$	18,040	$	7,134	$	570,453
Owner-occupied commercial real estate	2,781		516,753		1,132		37,446		16,208		20,666		594,986
Non-owner occupied commercial real estate	7,305		598,267		424		6,198		11,185		20,257		643,636
Total commercial business	19,126		1,639,283		3,890		53,286		45,433		48,057		1,809,075
One-to-four family residential	245		61,060		—		2,512		2,235		3,478		69,530
Real estate construction and land development:
One-to-four family residential	4,524		38,002		179		959		4,223		1,308		49,195
Five or more family residential and commercial properties	2,056		56,341		—		1,758		2,963		1,802		64,920
Total real estate construction and land development	6,580		94,343		179		2,717		7,186		3,110		114,115
Consumer	205		243,063		6		6,248		7,055		2,717		259,294
Total	$	26,156	$	2,037,749	$	4,075	$	64,763	$	61,909	$	57,362	$	2,252,014

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Other Real Estate Owned

6 Months Ended

Jun. 30, 2015

Real Estate [Abstract]

Other Real Estate Owned

Other Real Estate Owned

Changes in other real estate owned during the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Balance at the beginning of the period	$	4,094		$	4,284		$	3,355		$	4,559
Additions	85			—			1,813			218
Additions from acquisitions	—			7,121			—			7,121
Proceeds from dispositions	(1,050		)	(3,337		)	(1,639		)	(3,857		)
(Loss) gain on sales, net	(27		)	38			(97		)	65
Valuation adjustment	(85		)	—			(415		)	—
Balance at the end of the period	$	3,017		$	8,106		$	3,017		$	8,106

At June 30, 2015 and December 31, 2014, the balance of other real estate owned that was covered by shared-loss agreements was $2.8 million and $1.2 million, respectively.

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Covered Loans Receivable - Accretable Yield (Details) - Covered Loans - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Balance at the beginning of the period	$ 8,310	$ 9,063	$ 8,520	$ 9,535
Accretion	(798)	(615)	(1,696)	(1,300)
Disposal and other	(545)	(392)	(899)	(435)
Change in accretable yield	0	3,712	1,042	3,968
Balance at the end of the period	$ 6,967	$ 11,768	$ 6,967	$ 11,768

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Fair Value Measurements - Carrying Value and Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financial Assets:
Investment securities held to maturity	$ 34,494	$ 36,874
Level 1
Financial Assets:
Cash and cash equivalents	85,312	121,636
Other interest earning deposits	0	0
Investment securities available for sale	1,965	1,973
Investment securities held to maturity	0	0
Loans held for sale	0	0
Loans receivable, net of allowance for loan losses	0	0
Accrued interest receivable	2	3
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	2,485,276	2,380,934
Certificate of deposit accounts	0	0
Total deposits	2,485,276	2,380,934
Securities sold under agreement to repurchase	20,589	32,181
Junior subordinated debentures	0	0
Accrued interest payable	54	62
Level 2
Financial Assets:
Cash and cash equivalents	0	0
Other interest earning deposits	5,121	10,145
Investment securities available for sale	697,157	740,873
Investment securities held to maturity	34,494	36,874
Loans held for sale	7,089	5,710
Loans receivable, net of allowance for loan losses	0	0
Accrued interest receivable	3,061	3,009
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	0	0
Certificate of deposit accounts	461,049	525,768
Total deposits	461,049	525,768
Securities sold under agreement to repurchase	0	0
Junior subordinated debentures	0	0
Accrued interest payable	165	328
Level 3
Financial Assets:
Cash and cash equivalents	0	0
Other interest earning deposits	0	0
Investment securities available for sale	0	0
Investment securities held to maturity	0	0
Loans held for sale	0	0
Loans receivable, net of allowance for loan losses	2,359,950	2,279,081
Accrued interest receivable	6,820	6,824
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	0	0
Certificate of deposit accounts	0	0
Total deposits	0	0
Securities sold under agreement to repurchase	0	0
Junior subordinated debentures	19,278	19,082
Accrued interest payable	20	21
Carrying Value
Financial Assets:
Cash and cash equivalents	85,312	121,636
Other interest earning deposits	5,110	10,126
Investment securities available for sale	699,122	742,846
Investment securities held to maturity	33,587	35,814
Federal Home Loan Bank stock	4,148	12,188
Loans held for sale	6,939	5,582
Loans receivable, net of allowance for loan losses	2,319,024	2,223,348
Accrued interest receivable	9,883	9,836
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	2,485,276	2,380,934
Certificate of deposit accounts	461,211	525,397
Total deposits	2,946,487	2,906,331
Securities sold under agreement to repurchase	20,589	32,181
Junior subordinated debentures	19,278	19,082
Accrued interest payable	239	411
Fair Value
Financial Assets:
Cash and cash equivalents	85,312	121,636
Other interest earning deposits	5,121	10,145
Investment securities available for sale	699,122	742,846
Investment securities held to maturity	34,494	36,874
Loans held for sale	7,089	5,710
Loans receivable, net of allowance for loan losses	2,359,950	2,279,081
Accrued interest receivable	9,883	9,836
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	2,485,276	2,380,934
Certificate of deposit accounts	461,049	525,768
Total deposits	2,946,325	2,906,702
Securities sold under agreement to repurchase	20,589	32,181
Junior subordinated debentures	19,278	19,082
Accrued interest payable	$ 239	$ 411

XML

Allowance for Loan Losses - Activity in Allowance for Losses Disaggregated on Basis of Impairment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	$ 27,816	$ 29,387	$ 27,729	$ 28,824
Charge-offs	(1,110)	(1,927)	(2,545)	(2,069)
Recoveries	383	332	697	579
Provision for loan losses	1,189	691	2,397	1,149
Balance at the end of period	28,278	28,483	28,278	28,483
Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	2,770		2,770		$ 3,235
Collectively evaluated for impairment	15,878		15,878		14,868
PCI loans	4,131		4,131
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period			22,153
Provision for loan losses	1,189	370	2,474	349
Balance at the end of period	22,779		22,779
Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	385		385		423
Collectively evaluated for impairment	172		172		148
PCI loans	4,942		4,942
Schedule of allowance for loan losses on the basis of impairment method
Provision for loan losses	0	321	(77)	800
PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					4,050
PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					5,005
One-to-four Family Residential
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	1,242	1,121	1,200	1,100
Charge-offs	0	0	0	0
Recoveries	0	0	1	0
Provision for loan losses	29	34	70	55
Balance at the end of period	1,271	1,155	1,271	1,155
One-to-four Family Residential | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	74		74		75
Collectively evaluated for impairment	607		607		530
PCI loans	207		207
One-to-four Family Residential | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0		0		0
Collectively evaluated for impairment	11		11		8
PCI loans	372		372
One-to-four Family Residential | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					207
One-to-four Family Residential | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					380
Commercial Business
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	20,060	21,966	20,186	22,853
Charge-offs	(662)	(1,403)	(1,510)	(1,482)
Recoveries	187	269	388	501
Provision for loan losses	1,039	357	1,560	(683)
Balance at the end of period	20,624	21,189	20,624	21,189
Commercial Business | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	2,444		2,444		2,474
Collectively evaluated for impairment	11,133		11,133		10,619
PCI loans	2,906		2,906
Commercial Business | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	338		338		370
Collectively evaluated for impairment	157		157		128
PCI loans	3,646		3,646
Commercial Business | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					2,874
Commercial Business | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					3,721
Commercial Business | Commercial and Industrial
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	9,858	12,277	10,553	13,478
Charge-offs	(662)	(1,403)	(1,322)	(1,482)
Recoveries	187	269	388	501
Provision for loan losses	508	161	272	(1,193)
Balance at the end of period	9,891	11,304	9,891	11,304
Commercial Business | Commercial and Industrial | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	746		746		1,325
Collectively evaluated for impairment	6,359		6,359		6,449
PCI loans	2,213		2,213
Commercial Business | Commercial and Industrial | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0		0		9
Collectively evaluated for impairment	117		117		108
PCI loans	456		456
Commercial Business | Commercial and Industrial | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					2,191
Commercial Business | Commercial and Industrial | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					471
Commercial Business | Owner-occupied Commercial Real Estate
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	4,173	4,463	4,095	4,049
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	414	(263)	492	151
Balance at the end of period	4,587	4,200	4,587	4,200
Commercial Business | Owner-occupied Commercial Real Estate | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	755		755		684
Collectively evaluated for impairment	2,045		2,045		1,629
PCI loans	330		330
Commercial Business | Owner-occupied Commercial Real Estate | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	289		289		295
Collectively evaluated for impairment	26		26		14
PCI loans	1,142		1,142
Commercial Business | Owner-occupied Commercial Real Estate | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					330
Commercial Business | Owner-occupied Commercial Real Estate | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					1,143
Commercial Business | Non-owner Occupied Commercial Real Estate
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	6,029	5,226	5,538	5,326
Charge-offs	0	0	(188)	0
Recoveries	0	0	0	0
Provision for loan losses	117	459	796	359
Balance at the end of period	6,146	5,685	6,146	5,685
Commercial Business | Non-owner Occupied Commercial Real Estate | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	943		943		465
Collectively evaluated for impairment	2,729		2,729		2,541
PCI loans	363		363
Commercial Business | Non-owner Occupied Commercial Real Estate | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	49		49		66
Collectively evaluated for impairment	14		14		6
PCI loans	2,048		2,048
Commercial Business | Non-owner Occupied Commercial Real Estate | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					353
Commercial Business | Non-owner Occupied Commercial Real Estate | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					2,107
Real Estate Construction and Land Development
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	2,570	3,962	2,758	2,673
Charge-offs	0	(345)	(106)	(345)
Recoveries	100	43	100	43
Provision for loan losses	(146)	(497)	(228)	792
Balance at the end of period	2,524	3,163	2,524	3,163
Real Estate Construction and Land Development | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	228		228		630
Collectively evaluated for impairment	1,160		1,160		972
PCI loans	352		352
Real Estate Construction and Land Development | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	45		45		51
Collectively evaluated for impairment	0		0		0
PCI loans	739		739
Real Estate Construction and Land Development | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					352
Real Estate Construction and Land Development | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					753
Real Estate Construction and Land Development | One-to-four Family Residential
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	1,565	1,979	1,786	1,720
Charge-offs	0	(345)	(106)	(345)
Recoveries	100	43	100	43
Provision for loan losses	(203)	(144)	(318)	115
Balance at the end of period	1,462	1,533	1,462	1,533
Real Estate Construction and Land Development | One-to-four Family Residential | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	28		28		396
Collectively evaluated for impairment	386		386		322
PCI loans	264		264
Real Estate Construction and Land Development | One-to-four Family Residential | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	45		45		51
Collectively evaluated for impairment	0		0		0
PCI loans	739		739
Real Estate Construction and Land Development | One-to-four Family Residential | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					264
Real Estate Construction and Land Development | One-to-four Family Residential | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					753
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	1,005	1,983	972	953
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	57	(353)	90	677
Balance at the end of period	1,062	1,630	1,062	1,630
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	200		200		234
Collectively evaluated for impairment	774		774		650
PCI loans	88		88
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0		0		0
Collectively evaluated for impairment	0		0		0
PCI loans	0		0
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					88
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					0
Consumer
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	3,175	1,690	2,769	1,597
Charge-offs	(448)	(179)	(929)	(242)
Recoveries	96	20	208	35
Provision for loan losses	344	644	1,119	785
Balance at the end of period	3,167	2,175	3,167	2,175
Consumer | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	24		24		56
Collectively evaluated for impairment	2,286		2,286		1,931
PCI loans	666		666
Consumer | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	2		2		2
Collectively evaluated for impairment	4		4		12
PCI loans	185		185
Consumer | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					617
Consumer | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					151
Unallocated
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	769	648	816	601
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	(77)	153	(124)	200
Balance at the end of period	692	$ 801	692	$ 801
Unallocated | Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0		0		0
Collectively evaluated for impairment	692		692		816
PCI loans	0		0
Unallocated | Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0		0		0
Collectively evaluated for impairment	0		0		0
PCI loans	$ 0		$ 0
Unallocated | PCI Noncovered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					0
Unallocated | PCI Covered Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
PCI loans					$ 0

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Covered Loans Receivable - Covered Purchased Credit Impaired Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Recorded investment balance which are no longer covered under the FDIC shared-loss agreements	$ 458	$ 476,000
Covered Loans | Receivables Acquired with Deteriorated Credit Quality
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	48,981	57,362
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	51,593	62,338
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,958	3,478
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | One-to-four Family Residential | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	3,278	3,837
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	41,469	48,057
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	44,695	53,313
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Commercial and Industrial
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	8,139	7,134
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Commercial and Industrial | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	10,324	9,635
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	13,755	20,666
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Owner-occupied Commercial Real Estate | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	15,431	23,071
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	19,575	20,257
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Commercial Business | Non-owner Occupied Commercial Real Estate | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	18,940	20,607
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,025	3,110
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	901	2,243
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	1,209	1,308
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | One-to-four Family Residential | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	0	103
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	816	1,802
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	901	2,140
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Consumer
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	2,529	2,717
Covered Loans | Receivables Acquired with Deteriorated Credit Quality | Consumer | Outstanding Principal
Financing Receivable, Impaired [Line Items]
Recorded investment of PCI loans	$ 2,719	$ 2,945

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Subsequent Event (Details) - USD ($) $ in Thousands	Aug. 04, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Subsequent Event [Line Items]
FDIC clawback liability		$ 9,300
FDIC indemnification asset		$ 388	$ 692	$ 1,116	$ 9,120	$ 3,969	$ 4,382
Subsequent Event
Subsequent Event [Line Items]
Consideration paid to FDIC for the termination of shared-loss agreements	$ 7,100
Pre-tax gain associated with termination of shared-loss agreements	$ 1,700

XML

Repurchase Agreements (Tables)

6 Months Ended

Jun. 30, 2015

Disclosure of Repurchase Agreements [Abstract]

Repurchase agreement obligations

The following table presents the Company's repurchase agreement obligations by class of collateral pledged:

	June 30, 2015
	(in thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	—
Municipal securities	—
Mortgage backed securities and collateralized mortgage obligations- residential:
U.S. Government-sponsored agencies	20,589
Corporate obligations	—
Total borrowings	$	20,589

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Noncovered Loans Receivable - Past Due Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	$ 2,347,238	$ 2,252,014
One-to-four Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	72,163	69,530
Commercial Business
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	1,884,703	1,809,075
Commercial Business | Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	568,825	570,453
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	609,242	594,986
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	706,636	643,636
Real Estate Construction and Land Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	111,998	114,115
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	43,655	49,195
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	68,343	64,920
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total	278,374	259,294
Noncovered Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	10,506	11,102
Current	2,229,051	2,114,712
Total	2,239,557	2,125,814
90 Days or More and Still Accruing	0	0
Noncovered Loans | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,583	6,329
Noncovered Loans | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	4,923	4,773
Noncovered Loans | One-to-four Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	41	200
Current	67,042	63,340
Total	67,083	63,540
90 Days or More and Still Accruing	0	0
Noncovered Loans | One-to-four Family Residential | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	41	200
Noncovered Loans | One-to-four Family Residential | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Noncovered Loans | Commercial Business
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	6,475	5,791
Current	1,788,107	1,698,051
Total	1,794,582	1,703,842
90 Days or More and Still Accruing	0	0
Noncovered Loans | Commercial Business | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,516	3,654
Noncovered Loans | Commercial Business | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,959	2,137
Noncovered Loans | Commercial Business | Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,884	4,465
Current	549,105	546,878
Total	551,989	551,343
90 Days or More and Still Accruing	0	0
Noncovered Loans | Commercial Business | Commercial and Industrial | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,194	2,503
Noncovered Loans | Commercial Business | Commercial and Industrial | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,690	1,962
Noncovered Loans | Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,031	1,138
Current	562,690	534,604
Total	565,721	535,742
90 Days or More and Still Accruing	0	0
Noncovered Loans | Commercial Business | Owner-occupied Commercial Real Estate | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,944	1,038
Noncovered Loans | Commercial Business | Owner-occupied Commercial Real Estate | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,087	100
Noncovered Loans | Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	560	188
Current	676,312	616,569
Total	676,872	616,757
90 Days or More and Still Accruing	0	0
Noncovered Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	378	113
Noncovered Loans | Commercial Business | Non-owner Occupied Commercial Real Estate | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	182	75
Noncovered Loans | Real Estate Construction and Land Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,632	2,573
Current	105,085	105,536
Total	107,717	108,109
90 Days or More and Still Accruing	0	0
Noncovered Loans | Real Estate Construction and Land Development | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	668	62
Noncovered Loans | Real Estate Construction and Land Development | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,964	2,511
Noncovered Loans | Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,632	2,197
Current	39,061	44,552
Total	41,693	46,749
90 Days or More and Still Accruing	0	0
Noncovered Loans | Real Estate Construction and Land Development | One-to-four Family Residential | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	668	62
Noncovered Loans | Real Estate Construction and Land Development | One-to-four Family Residential | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,964	2,135
Noncovered Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	376
Current	66,024	60,984
Total	66,024	61,360
90 Days or More and Still Accruing	0	0
Noncovered Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Noncovered Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	376
Noncovered Loans | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,358	2,538
Current	268,817	247,785
Total	270,175	250,323
90 Days or More and Still Accruing	0	0
Noncovered Loans | Consumer | 30-89 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,358	2,413
Noncovered Loans | Consumer | 90 Days or Greater
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 125

XML

Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2015

Equity [Abstract]

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) (“AOCI”) by component, during the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30, 2015
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	6,365		$	(181	)	$	6,184
Other comprehensive income before reclassification	(3,891		)	3			(3,888		)
Amounts reclassified from AOCI for gain on sale of investment securities included in net income	(276		)	178			(98		)
Net current period other comprehensive income	(4,167		)	181			(3,986		)
Balance of AOCI at the end of period	$	2,198		$	—		$	2,198

⁽¹⁾  All amounts are net of tax.

	Six Months Ended June 30, 2015
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	3,567		$	(189	)	$	3,378
Other comprehensive income before reclassification	(739		)	11			(728		)
Amounts reclassified from AOCI for gain on sale of investment securities included in net income	(630		)	178			(452		)
Net current period other comprehensive income	(1,369		)	189			(1,180		)
Balance of AOCI at the end of period	$	2,198		$	—		$	2,198

⁽¹⁾ All amounts are net of tax.

	Three Months Ended June 30, 2014
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	(447	)	$	(224	)	$	(671	)
Other comprehensive income before reclassification	2,022			15			2,037
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	(57		)	—			(57		)
Net current period other comprehensive income	1,965			15			1,980
Balance of AOCI at the end of period	$	1,518		$	(209	)	$	1,309

⁽¹⁾  All amounts are net of tax.

	Six Months Ended June 30, 2014
	Changes in fair value of available for sale securities (1)			Accretion of other-than- temporary impairment on held to maturity securities (1)			Total
	(In thousands)
Balance of AOCI at the beginning of the period	$	(923	)	$	(239	)	$	(1,162	)
Other comprehensive income before reclassification	2,615			30			2,645
Amounts reclassified from AOCI for gain on sale of investment securities available for sale included in net income	(174		)	—			(174		)
Net current period other comprehensive income	2,441			30			2,471
Balance of AOCI at the end of the period	$	1,518		$	(209	)	$	1,309

⁽¹⁾  All amounts are net of tax.

XML

Description of Business, Basis of Presentation and Significant Accounting Policies and Recent Issued Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business

Description of Business

Heritage Financial Corporation ("Heritage" or the “Company”) is a bank holding company that was incorporated in the State of Washington in August 1997. The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, Heritage Bank (the “Bank”). The Bank is a Washington-chartered commercial bank and its deposits are insured by the FDIC under the Deposit Insurance Fund. The Bank is headquartered in Olympia, Washington and conducts business from its 67 branch offices located throughout Washington State and the greater Portland, Oregon area. The Bank’s business consists primarily of commercial lending and deposit relationships with small businesses and their owners in its market areas and attracting deposits from the general public. The Bank also makes real estate construction and land development loans and consumer loans and originates first mortgage loans on residential properties primarily located in its market area.

The Company has expanded its footprint through mergers and acquisitions. The largest of these transactions was the strategic merger with Washington Banking Company (“Washington Banking”) and its wholly owned subsidiary bank, Whidbey Island Bank ("Whidbey"). Effective May 1, 2014, Washington Banking merged with and into Heritage and Whidbey merged with and into Heritage Bank and this transaction is referred to herein as the "Washington Banking Merger". In connection with the Washington Banking Merger, Heritage also acquired as a subsidiary the Washington Banking Master Trust, a Delaware statutory business trust. Pursuant to the merger agreement, Heritage assumed the performance and observance of the covenants to be performed by Washington Banking under an indenture relating to $25.0 million in trust preferred securities issued in 2007 and the due and punctual payment of the principal of and premium and interest on such trust preferred securities. For additional information, see Note 9, Junior Subordinated Debentures.

Basis of Presentation

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. It is recommended that these unaudited Condensed Consolidated Financial Statements and accompanying Notes be read with the audited Consolidated Financial Statements and the accompanying Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Annual Form 10-K”). In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. In preparing the unaudited Condensed Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures. Estimates related to the allowance for loan losses, other than temporary impairments in the fair value of investment securities, expected cash flows of purchased credit impaired loans and related indemnification asset, fair value measurements, stock-based compensation, impairment of goodwill and other intangible assets and income taxes are particularly subject to change. Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the facts and circumstances at the time. Actual results, however, could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period’s presentation. Reclassifications had no effect on prior periods' net income or stockholders’ equity.

Significant Accounting Policies

Significant Accounting Policies

The significant accounting policies used in preparation of the Company's Condensed Consolidated Financial Statements are disclosed in the 2014 Annual Form 10-K. There have not been any material changes in the Company's significant accounting policies from those contained in the 2014 Annual Form 10-K.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU" or "Update") 2014-09, Revenue from Contracts with Customers, was issued in May 2014. Under this Update, FASB created a new Topic 606 which is in response to a joint initiative of FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and international financial reporting standards that would:

• Remove inconsistencies and weaknesses in revenue requirements.

• Provide a more robust framework for addressing revenue issues.

• Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.

• Provide more useful information to users of financial statements through improved disclosure requirements.

• Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

The Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact that this Update will have on its Condensed Consolidated Financial Statements.

FASB ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued in June 2014. This Update aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements, such as secured borrowings. The guidance eliminates sale accounting and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The Update requires new and expanded disclosures that are effective for interim or annual reporting periods beginning after December 15, 2014, with certain requirements applicable for periods beginning after March 31, 2015. The adoption of this Update did not have a material impact on the Company's Condensed Consolidated Financial Statements.

Fair Value Measurements

Loans Receivable:

Except for impaired loans discussed previously, fair value is based on discounted cash flows using current market rates applied to the estimated life (Level 3). While these methodologies are permitted under U.S. GAAP, they are not based on the exit price concept of the fair value required under ASC 820-10, Fair Value Measurements and Disclosures, and generally produce a higher value.

XML

Noncovered Loans Receivable - Credit Quality Indicators (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Total	$ 2,347,238	$ 2,252,014
One-to-four Family Residential
Financing Receivable, Recorded Investment [Line Items]
Total	72,163	69,530
Commercial Business
Financing Receivable, Recorded Investment [Line Items]
Total	1,884,703	1,809,075
Commercial Business | Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Total	568,825	570,453
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total	609,242	594,986
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total	706,636	643,636
Real Estate Construction and Land Development
Financing Receivable, Recorded Investment [Line Items]
Total	111,998	114,115
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Recorded Investment [Line Items]
Total	43,655	49,195
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Recorded Investment [Line Items]
Total	68,343	64,920
Consumer
Financing Receivable, Recorded Investment [Line Items]
Total	278,374	259,294
Noncovered Loans
Financing Receivable, Recorded Investment [Line Items]
Pass	2,132,505	1,985,381
OAEM	39,593	59,368
Substandard	67,147	80,741
Doubtful	312	324
Total	2,239,557	2,125,814
Potential problem loans receivable	86,200	117,300
Government guaranteed potential problem loans	501	2,000
Noncovered Loans | One-to-four Family Residential
Financing Receivable, Recorded Investment [Line Items]
Pass	64,953	61,185
OAEM	0	315
Substandard	2,130	2,040
Doubtful	0	0
Total	67,083	63,540
Noncovered Loans | Commercial Business
Financing Receivable, Recorded Investment [Line Items]
Pass	1,709,457	1,589,979
OAEM	38,128	55,076
Substandard	46,685	58,463
Doubtful	312	324
Total	1,794,582	1,703,842
Noncovered Loans | Commercial Business | Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Pass	522,215	509,483
OAEM	10,389	14,487
Substandard	19,073	27,049
Doubtful	312	324
Total	551,989	551,343
Noncovered Loans | Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Pass	545,857	496,234
OAEM	8,136	22,946
Substandard	11,728	16,562
Doubtful	0	0
Total	565,721	535,742
Noncovered Loans | Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Pass	641,385	584,262
OAEM	19,603	17,643
Substandard	15,884	14,852
Doubtful	0	0
Total	676,872	616,757
Noncovered Loans | Real Estate Construction and Land Development
Financing Receivable, Recorded Investment [Line Items]
Pass	94,364	91,381
OAEM	1,465	3,977
Substandard	11,888	12,751
Doubtful	0	0
Total	107,717	108,109
Noncovered Loans | Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Recorded Investment [Line Items]
Pass	32,316	34,356
OAEM	1,465	3,977
Substandard	7,912	8,416
Doubtful	0	0
Total	41,693	46,749
Noncovered Loans | Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Recorded Investment [Line Items]
Pass	62,048	57,025
OAEM	0	0
Substandard	3,976	4,335
Doubtful	0	0
Total	66,024	61,360
Noncovered Loans | Consumer
Financing Receivable, Recorded Investment [Line Items]
Pass	263,731	242,836
OAEM	0	0
Substandard	6,444	7,487
Doubtful	0	0
Total	$ 270,175	$ 250,323

XML

Investment Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Securities Available for Sale
Amortized Cost	$ 695,731	$ 737,345
Gross Unrealized Gains	5,567	7,215
Gross Unrealized Losses	(2,176)	(1,714)
Fair Value	699,122	742,846
Securities Held to Maturity
Amortized Cost	33,587	35,814
Gross Unrecognized Gains	1,024	1,249
Gross Unrecognized Losses	(117)	(189)
Fair Value	34,494	36,874
U.S. Treasury and U.S. Government-sponsored agencies
Securities Available for Sale
Amortized Cost	26,339	21,414
Gross Unrealized Gains	113	44
Gross Unrealized Losses	(6)	(31)
Fair Value	26,446	21,427
Securities Held to Maturity
Amortized Cost	1,582	1,591
Gross Unrecognized Gains	158	167
Gross Unrecognized Losses	0	0
Fair Value	1,740	1,758
Municipal securities
Securities Available for Sale
Amortized Cost	172,837	170,082
Gross Unrealized Gains	2,246	3,139
Gross Unrealized Losses	(873)	(184)
Fair Value	174,210	173,037
Securities Held to Maturity
Amortized Cost	21,927	22,486
Gross Unrecognized Gains	553	643
Gross Unrecognized Losses	(24)	(11)
Fair Value	22,456	23,118
U.S. Government-sponsored agencies
Securities Available for Sale
Amortized Cost	488,356	539,859
Gross Unrealized Gains	3,199	4,015
Gross Unrealized Losses	(1,285)	(1,475)
Fair Value	490,270	542,399
Securities Held to Maturity
Amortized Cost	10,078	10,866
Gross Unrecognized Gains	313	364
Gross Unrecognized Losses	(93)	(74)
Fair Value	10,298	11,156
Corporate obligations
Securities Available for Sale
Amortized Cost	6,243	4,034
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(12)	(24)
Fair Value	6,231	4,010
Mutual funds and other equities
Securities Available for Sale
Amortized Cost	1,956	1,956
Gross Unrealized Gains	9	17
Gross Unrealized Losses	0	0
Fair Value	1,965	1,973
Private residential collateralized mortgage obligations
Securities Held to Maturity
Amortized Cost	0	871
Gross Unrecognized Gains	0	75
Gross Unrecognized Losses	0	(104)
Fair Value	$ 0	$ 842

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
Net income	$ 8,725	$ 4,148	$ 18,504	$ 6,691
Change in fair value of securities available for sale, net of tax of $(2,106), $1,089, $(402) and $1,410, respectively	(3,891)	2,022	(739)	2,615
Reclassification adjustment of net gain from sale of investment securities included in income, net of tax of $(149), $(30), $(339) and $(93), respectively	(276)	(57)	(630)	(174)
Accretion of other-than-temporary impairment on investment securities, net of tax of $1, $8, $4 and $16, respectively	3	15	11	30
Reclassification of other-than-temporary impairment on securities from sale of investment securities, net of tax $99, $0, $99, $0	178	0	178	0
Other comprehensive (loss) income	(3,986)	1,980	(1,180)	2,471
Comprehensive income	$ 4,739	$ 6,128	$ 17,324	$ 9,162

XML

Business Combination - Consideration Transferred (Details) - May. 01, 2014 - Washington Banking - USD ($) $ in Thousands	Total
Business Acquisition [Line Items]
Cash paid for business combination	$ 42,895
Total consideration transferred	$ 269,619
Total shares issued	13,870,716
Converted restricted stock award units	129,462
Number of shares surrendered at conversion	26,783
Fair value of forfeited shares	$ 433
Restricted Stock Units (RSUs) [Member]
Business Acquisition [Line Items]
Fair value of equity interest issued	2,092
Employee Stock Option [Member]
Business Acquisition [Line Items]
Fair value of equity interest issued	481
Common Stock [Member]
Business Acquisition [Line Items]
Fair value of equity interest issued	224,151
Cash Paid Due to Fractional Shares [Member]
Business Acquisition [Line Items]
Cash paid	$ 3,000
Number of shares paid in cash	165,000
Cash Paid from Dissenters [Member]
Business Acquisition [Line Items]
Cash paid	$ 27,000
Number of shares paid in cash	1,686,000

XML

Description of Business, Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business, Basis of Presentation and Significant Accounting Policies and Recently Issued Accounting Pronouncements

Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements

(a) Description of Business

Heritage Financial Corporation ("Heritage" or the “Company”) is a bank holding company that was incorporated in the State of Washington in August 1997. The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, Heritage Bank (the “Bank”). The Bank is a Washington-chartered commercial bank and its deposits are insured by the FDIC under the Deposit Insurance Fund. The Bank is headquartered in Olympia, Washington and conducts business from its 67 branch offices located throughout Washington State and the greater Portland, Oregon area. The Bank’s business consists primarily of commercial lending and deposit relationships with small businesses and their owners in its market areas and attracting deposits from the general public. The Bank also makes real estate construction and land development loans and consumer loans and originates first mortgage loans on residential properties primarily located in its market area.

The Company has expanded its footprint through mergers and acquisitions. The largest of these transactions was the strategic merger with Washington Banking Company (“Washington Banking”) and its wholly owned subsidiary bank, Whidbey Island Bank ("Whidbey"). Effective May 1, 2014, Washington Banking merged with and into Heritage and Whidbey merged with and into Heritage Bank and this transaction is referred to herein as the "Washington Banking Merger". In connection with the Washington Banking Merger, Heritage also acquired as a subsidiary the Washington Banking Master Trust, a Delaware statutory business trust. Pursuant to the merger agreement, Heritage assumed the performance and observance of the covenants to be performed by Washington Banking under an indenture relating to $25.0 million in trust preferred securities issued in 2007 and the due and punctual payment of the principal of and premium and interest on such trust preferred securities. For additional information, see Note 9, Junior Subordinated Debentures.

(b) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. It is recommended that these unaudited Condensed Consolidated Financial Statements and accompanying Notes be read with the audited Consolidated Financial Statements and the accompanying Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Annual Form 10-K”). In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. In preparing the unaudited Condensed Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures. Estimates related to the allowance for loan losses, other than temporary impairments in the fair value of investment securities, expected cash flows of purchased credit impaired loans and related indemnification asset, fair value measurements, stock-based compensation, impairment of goodwill and other intangible assets and income taxes are particularly subject to change. Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the facts and circumstances at the time. Actual results, however, could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period’s presentation. Reclassifications had no effect on prior periods' net income or stockholders’ equity.

(c) Significant Accounting Policies

The significant accounting policies used in preparation of the Company's Condensed Consolidated Financial Statements are disclosed in the 2014 Annual Form 10-K. There have not been any material changes in the Company's significant accounting policies from those contained in the 2014 Annual Form 10-K.

(d) Recently Issued Accounting Pronouncements

Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU" or "Update") 2014-09, Revenue from Contracts with Customers, was issued in May 2014. Under this Update, FASB created a new Topic 606 which is in response to a joint initiative of FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and international financial reporting standards that would:

• Remove inconsistencies and weaknesses in revenue requirements.

• Provide a more robust framework for addressing revenue issues.

• Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.

• Provide more useful information to users of financial statements through improved disclosure requirements.

• Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

The Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact that this Update will have on its Condensed Consolidated Financial Statements.

FASB ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued in June 2014. This Update aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements, such as secured borrowings. The guidance eliminates sale accounting and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The Update requires new and expanded disclosures that are effective for interim or annual reporting periods beginning after December 15, 2014, with certain requirements applicable for periods beginning after March 31, 2015. The adoption of this Update did not have a material impact on the Company's Condensed Consolidated Financial Statements.

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Covered Loans Receivable - Credit Quality Indicators (Details) - Covered Loans - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Pass	$ 69,142	$ 77,690
OAEM	3,402	5,553
Substandard	30,918	40,370
Doubtful	4,219	2,587
Total	107,681	126,200
One-to-four Family Residential
Financing Receivable, Recorded Investment [Line Items]
Pass	4,739	5,414
OAEM	0	425
Substandard	$ 341	151
Doubtful		0
Total	$ 5,080	5,990
Commercial Business
Financing Receivable, Recorded Investment [Line Items]
Pass	55,010	61,310
OAEM	3,402	5,128
Substandard	27,490	36,208
Doubtful	4,219	2,587
Total	90,121	105,233
Commercial Business | Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Pass	10,185	11,297
OAEM	104	131
Substandard	4,727	5,442
Doubtful	1,820	2,240
Total	16,836	19,110
Commercial Business | Owner-occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Pass	31,867	40,357
OAEM	3,266	4,957
Substandard	8,135	13,583
Doubtful	253	347
Total	43,521	59,244
Commercial Business | Non-owner Occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Pass	12,958	9,656
OAEM	32	40
Substandard	14,628	17,183
Doubtful	2,146	0
Total	29,764	26,879
Real Estate Construction and Land Development
Financing Receivable, Recorded Investment [Line Items]
Pass	3,294	3,936
OAEM	0	0
Substandard	987	2,070
Doubtful	0	0
Total	4,281	6,006
Real Estate Construction and Land Development | One-to-four Family Residential
Financing Receivable, Recorded Investment [Line Items]
Pass	1,791	2,178
OAEM	0	0
Substandard	171	268
Doubtful	0	0
Total	1,962	2,446
Real Estate Construction and Land Development | Five or More Family Residential and Commercial Properties
Financing Receivable, Recorded Investment [Line Items]
Pass	1,503	1,758
OAEM	0	0
Substandard	816	1,802
Doubtful	0	0
Total	2,319	3,560
Consumer
Financing Receivable, Recorded Investment [Line Items]
Pass	6,099	7,030
OAEM	0	0
Substandard	2,100	1,941
Doubtful	0	0
Total	$ 8,199	$ 8,971

XML

Fair Value Measurements - Fair Value Measurement on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair value measurements of assets on a recurring basis
Investment securities available for sale	$ 699,122	$ 742,846
Recurring
Fair value measurements of assets on a recurring basis
Total	699,122	742,846
Recurring | U.S. Treasury and U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	26,446	21,427
Recurring | Municipal securities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	174,210	173,037
Recurring | U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	490,270	542,399
Recurring | Corporate obligations
Fair value measurements of assets on a recurring basis
Investment securities available for sale	6,231	4,010
Recurring | Mutual funds and other equities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	1,965	1,973
Recurring | Level 1
Fair value measurements of assets on a recurring basis
Total	1,965	1,973
Recurring | Level 1 | U.S. Treasury and U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 1 | Municipal securities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 1 | U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 1 | Corporate obligations
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 1 | Mutual funds and other equities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	1,965	1,973
Recurring | Level 2
Fair value measurements of assets on a recurring basis
Total	697,157	740,873
Recurring | Level 2 | U.S. Treasury and U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	26,446	21,427
Recurring | Level 2 | Municipal securities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	174,210	173,037
Recurring | Level 2 | U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	490,270	542,399
Recurring | Level 2 | Corporate obligations
Fair value measurements of assets on a recurring basis
Investment securities available for sale	6,231	4,010
Recurring | Level 2 | Mutual funds and other equities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 3
Fair value measurements of assets on a recurring basis
Total	0	0
Recurring | Level 3 | U.S. Treasury and U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 3 | Municipal securities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 3 | U.S. Government-sponsored agencies
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 3 | Corporate obligations
Fair value measurements of assets on a recurring basis
Investment securities available for sale	0	0
Recurring | Level 3 | Mutual funds and other equities
Fair value measurements of assets on a recurring basis
Investment securities available for sale	$ 0	$ 0

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Other Real Estate Owned (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Changes in other real estate owned
Balance at the beginning of the period	$ 4,094	$ 4,284	$ 3,355	$ 4,559
Additions	85	0	1,813	218
Additions from acquisitions	0	7,121	0	7,121
Proceeds from dispositions	(1,050)	(3,337)	(1,639)	(3,857)
(Loss) gain on sales, net	(27)	38	(97)	65
Valuation adjustment	(85)	0	(415)	0
Balance at the end of the period	3,017	$ 8,106	3,017	$ 8,106
Other real estate owned, covered by FDIC loss share	$ 2,758		$ 2,758		$ 1,177

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2015

Investments, Debt and Equity Securities [Abstract]

Schedule of securities available for sale

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of investment securities available for sale at the dates indicated were as follows:

	Securities Available for Sale
	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	26,339	$	113	$	(6	)	$	26,446
Municipal securities	172,837		2,246		(873		)	174,210
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	488,356		3,199		(1,285		)	490,270
Corporate obligations	6,243		—		(12		)	6,231
Mutual funds and other equities	1,956		9		—			1,965
Total	$	695,731	$	5,567	$	(2,176	)	$	699,122

	Securities Available for Sale
	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	21,414	$	44	$	(31	)	$	21,427
Municipal securities	170,082		3,139		(184		)	173,037
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government agencies	539,859		4,015		(1,475		)	542,399
Corporate obligations	4,034		—		(24		)	4,010
Mutual funds and other equities	1,956		17		—			1,973
Total	$	737,345	$	7,215	$	(1,714	)	$	742,846

Schedule of securities held to maturity

The amortized cost, gross unrecognized gains, gross unrecognized losses and fair values of investment securities held to maturity at the dates indicated were as follows:

	Securities Held to Maturity
	June 30, 2015
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	1,582	$	158	$	—		$	1,740
Municipal securities	21,927		553		(24		)	22,456
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	10,078		313		(93		)	10,298
Private residential collateralized mortgage obligations	—		—		—			—
Total	$	33,587	$	1,024	$	(117	)	$	34,494

	Securities Held to Maturity
	December 31, 2014
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	1,591	$	167	$	—		$	1,758
Municipal securities	22,486		643		(11		)	23,118
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	10,866		364		(74		)	11,156
Private residential collateralized mortgage obligations	871		75		(104		)	842
Total	$	35,814	$	1,249	$	(189	)	$	36,874

Schedule of maturities of investment securities

The amortized cost and fair value of securities at June 30, 2015, by contractual maturity, are set forth below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	3,543	$	3,555	$	3,005	$	3,019
Due after one year through three years	32,677		32,854		3,749		3,779
Due after three years through five years	34,919		35,246		6,911		7,211
Due after five years through ten years	148,604		149,692		16,745		17,331
Due after ten years	474,032		475,810		3,177		3,154
Investment securities with no stated maturities	1,956		1,965		—		—
Total	$	695,731	$	699,122	$	33,587	$	34,494

Schedule of fair value and unrealized losses of available for sale investment securities

Available for sale investment securities with unrealized losses as of June 30, 2015 and December 31, 2014 were as follows:

	Securities Available for Sale
	June 30, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	4,584	$	(6	)	$	—	$	—		$	4,584	$	(6	)
Municipal securities	$	54,568	$	(855	)	$	1,460	$	(18	)	$	56,028	$	(873	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	104,716		(569		)	49,465		(716		)	154,181		(1,285		)
Corporate obligations	6,231		(12		)	—		—			6,231		(12		)
Total	$	170,099	$	(1,442	)	$	50,925	$	(734	)	$	221,024	$	(2,176	)

	Securities Available for Sale
	December 31, 2014
	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies	$	3,567	$	(31	)	$	—	$	—	$	3,567	$	(31	)
Municipal securities	25,176		(184		)	—		—		25,176		(184		)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	182,970		(1,475		)	—		—		182,970		(1,475		)
Corporate obligations	2,119		(24		)	—		—		2,119		(24		)
Total	$	213,832	$	(1,714	)	$	—	$	—	$	213,832	$	(1,714	)

Schedule of fair value and unrealized losses of held to maturity investment securities

Held to maturity investment securities with unrecognized losses as of June 30, 2015 and December 31, 2014 were as follows:

	Securities Held to Maturity
	June 30, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses
	(In thousands)
Municipal securities	$	1,094	$	(24	)	$	—	$	—		$	1,094	$	(24	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	—		—			2,009		(93		)	2,009		(93		)
Total	$	1,094	$	(24	)	$	2,009	$	(93	)	$	3,103	$	(117	)

	Securities Held to Maturity
	December 31, 2014
	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
	(In thousands)
Municipal securities	$	2,196	$	(11	)	$	—	$	—	$	2,196	$	(11	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies	2,553		(74		)	—		—		2,553		(74		)
Private residential collateralized mortgage obligations	558		(104		)	—		—		558		(104		)
Total	$	5,307	$	(189	)	$	—	$	—	$	5,307	$	(189	)

Schedule of other-than-temporary impairment losses investment securities

The following table summarizes activity for the six months ended June 30, 2014 related to the amount of impairments on held to maturity securities:

	Life-to-Date Gross Other-Than-Temporary Impairments		Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income		Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings
	(In thousands)
December 31, 2013	$	2,603	$	1,152	$	1,451
Subsequent impairments	45		—		45
June 30, 2014	$	2,648	$	1,152	$	1,496

Scheduled of amortized cost and fair value of securities pledged as collateral

The following table summarizes the amortized cost and fair value of available for sale and held to maturity securities that are pledged as collateral for the following obligations at June 30, 2015 and December 31, 2014:

	June 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Washington and Oregon state to secure public deposits	$	195,548	$	197,810	$	150,507	$	153,785
Federal Reserve Bank of San Francisco and FHLB to secure borrowing arrangements	512		513		4,430		4,460
Repurchase agreements	31,612		31,801		43,676		44,457
Other securities pledged	15,073		15,162		14,828		14,922
Total	$	242,745	$	245,286	$	213,441	$	217,624

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Stockholders' Equity - Reconciliation of Weighted Average Shares (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Net income:
Net income	$ 8,725	$ 4,148	$ 18,504	$ 6,691
Less: Dividends and undistributed earnings allocated to participating securities	(76)	(20)	(162)	(32)
Net income allocated to common shareholders	$ 8,649	$ 4,128	$ 18,342	$ 6,659
Basic:
Weighted average common shares outstanding (in shares)	30,046,211	25,592,389	30,150,063	20,929,467
Less: Restricted stock awards (in shares)	(281,774)	(166,577)	(271,843)	(182,051)
Total basic weighted average common shares outstanding (in shares)	29,764,437	25,425,812	29,878,220	20,747,416
Diluted:
Basic weighted average common shares outstanding (in shares)	29,764,437	25,425,812	29,878,220	20,747,416
Incremental shares from stock options (in shares)	21,007	50,091	22,359	58,313
Total diluted weighted average common shares outstanding (in shares)	29,785,444	25,475,903	29,900,579	20,805,729

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Fair value measurements of assets on a recurring basis

The following tables summarize the balances of assets measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	26,446	$	—	$	26,446	$	—
Municipal securities	174,210		—		174,210		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies	490,270		—		490,270		—
Corporate obligations	6,231		—		6,231		—
Mutual funds and other equities	1,965		1,965		—		—
Total	$	699,122	$	1,965	$	697,157	$	—

	December 31, 2014
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	21,427	$	—	$	21,427	$	—
Municipal securities	173,037		—		173,037		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies	542,399		—		542,399		—
Corporate obligations	4,010		—		4,010		—
Mutual funds and other equities	1,973		1,973		—		—
Total	$	742,846	$	1,973	$	740,873	$	—

Fair value measurements of assets on a nonrecurring basis

The tables below represent assets measured at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014 and the net losses (gains) recorded in earnings during three and six months ended June 30, 2015 and 2014.

	Basis(1)		Fair Value at June 30, 2015
			Total		Level 1		Level 2		Level 3		Net Losses Recorded in Earnings  During the Three Months Ended June 30, 2015			Net Losses (Gains) Recorded in Earnings  During the Six Months Ended June 30, 2015
	(In thousands)
Impaired noncovered loans:
Commercial business:
Commercial and industrial	$	83	$	81	$	—	$	—	$	81	$	1		$	1
Total commercial business	83		81		—		—		81		1			1
Real estate construction and land development:
One-to-four family residential	865		863		—		—		863		(2		)	103
Total real estate construction and land development	865		863		—		—		863		(2		)	103
Total	948		944		—		—		944		(1		)	104
Other real estate owned:	1,004		603		—		—		603		84			414
Total assets measured	$	1,952	$	1,547	$	—	$	—	$	1,547	$	83		$	518

⁽¹⁾ Basis represents the unpaid principal balance of impaired noncovered loans and carrying value at ownership date of other real estate owned.

	Basis(1)		Fair Value at December 31, 2014
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings  During the Three Months Ended June 30, 2014			Net Losses (Gains) Recorded in Earnings  During the Six Months Ended June 30, 2014
	(In thousands)
Impaired noncovered loans:
Commercial business:
Commercial and industrial	$	161	$	138	$	—	$	—	$	138	$	(79	)	$	81
Owner-occupied commercial real estate	—		—		—		—		—		(158		)	(220		)
Non-owner occupied commercial real estate	—		—		—		—		—		223			195
Total commercial business	161		138		—		—		138		(14		)	56
Real estate construction and land development:
One-to-four family residential	2,094		1,725		—		—		1,725		(32		)	(42		)
Five or more family residential and commercial properties	—		—		—		—		—		107			107
Total real estate construction and land development	2,094		1,725		—		—		1,725		75			65
Consumer	49		45		—		—		45		(1		)	23
Total	2,304		1,908		—		—		1,908		60			144
Covered impaired loans:
Commercial business:
Commercial and industrial	—		—		—		—		—		—			(234		)
Owner-occupied commercial real estate	—		—		—		—		—		(155		)	233
Total commercial business	—		—		—		—		—		(155		)	(1		)
Total	—		—		—		—		—		(155		)	(1		)
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations – residential:
Private residential collateralized mortgage obligations	36		11		—		11		—		25			25
Total assets measured	$	2,340	$	1,919	$	—	$	11	$	1,908	$	(70	)	$	168

⁽¹⁾  Basis represents the unpaid principal balance of impaired noncovered and impaired covered loans and amortized cost of investment securities held to maturity.

Fair value measurements for financial instruments measured at fair value on a non-recurring basis

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014.

	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range of Inputs; Weighted Average
	(Dollars in thousands)
Impaired noncovered loans	$	944	Market approach	Adjustment for differences between the comparable sales	(8.50%) - 10.4%; 0.95%
Other real estate owned	$	603	Market approach	Adjustment for differences between the comparable sales	(48.6%) - 3.0%; (7.03%)

	December 31, 2014
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range of Inputs; Weighted Average
	(Dollars in thousands)
Impaired noncovered loans	$	1,908	Market approach	Adjustment for differences between the comparable sales	(47.5%) - 96.2%; 7.0%

Schedule of carrying value and fair value of financial instruments

	June 30, 2015
	Carrying Value		Fair Value		Fair Value Measurements Using:
					Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	85,312	$	85,312	$	85,312	$	—	$	—
Other interest earning deposits	5,110		5,121		—		5,121		—
Investment securities available for sale	699,122		699,122		1,965		697,157		—
Investment securities held to maturity	33,587		34,494		—		34,494		—
Federal Home Loan Bank stock	4,148		N/A		N/A		N/A		N/A
Loans held for sale	6,939		7,089		—		7,089		—
Loans receivable, net of allowance for loan losses	2,319,024		2,359,950		—		—		2,359,950
Accrued interest receivable	9,883		9,883		2		3,061		6,820
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	$	2,485,276	$	2,485,276	$	2,485,276	$	—	$	—
Certificate of deposit accounts	461,211		461,049		—		461,049		—
Total deposits	$	2,946,487	$	2,946,325	$	2,485,276	$	461,049	$	—
Securities sold under agreement to repurchase	$	20,589	$	20,589	$	20,589	$	—	$	—
Junior subordinated debentures	19,278		19,278		—		—		19,278
Accrued interest payable	239		239		54		165		20

	December 31, 2014
	Carrying Value		Fair Value		Fair Value Measurements Using:
					Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	121,636	$	121,636	$	121,636	$	—	$	—
Other interest earning deposits	10,126		10,145		—		10,145		—
Investment securities available for sale	742,846		742,846		1,973		740,873		—
Investment securities held to maturity	35,814		36,874		—		36,874		—
Federal Home Loan Bank stock	12,188		N/A		N/A		N/A		N/A
Loans held for sale	5,582		5,710		—		5,710		—
Loans receivable, net of allowance for loan losses	2,223,348		2,279,081		—		—		2,279,081
Accrued interest receivable	9,836		9,836		3		3,009		6,824
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts and savings accounts	$	2,380,934	$	2,380,934	$	2,380,934	$	—	$	—
Certificate of deposit accounts	525,397		525,768		—		525,768		—
Total deposits	$	2,906,331	$	2,906,702	$	2,380,934	$	525,768	$	—
Securities sold under agreement to repurchase	$	32,181	$	32,181	$	32,181	$	—	$	—
Junior subordinated debentures	19,082		19,082		—		—		19,082
Accrued interest payable	411		411		62		328		21

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Stockholders' Equity

6 Months Ended

Jun. 30, 2015

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Stockholders’ Equity

(a) Earnings Per Common Share

The following table illustrates the reconciliation of weighted average shares used for earnings per common share computations for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Net income:
Net income	$	8,725		$	4,148		$	18,504		$	6,691
Less: Dividends and undistributed earnings allocated to participating securities	(76		)	(20		)	(162		)	(32		)
Net income allocated to common shareholders	$	8,649		$	4,128		$	18,342		$	6,659
Basic:
Weighted average common shares outstanding	30,046,211			25,592,389			30,150,063			20,929,467
Less: Restricted stock awards	(281,774		)	(166,577		)	(271,843		)	(182,051		)
Total basic weighted average common shares outstanding	29,764,437			25,425,812			29,878,220			20,747,416
Diluted:
Basic weighted average common shares outstanding	29,764,437			25,425,812			29,878,220			20,747,416
Incremental shares from stock options	21,007			50,091			22,359			58,313
Total diluted weighted average common shares outstanding	29,785,444			25,475,903			29,900,579			20,805,729

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three months ended June 30, 2015 and 2014, anti-dilutive shares outstanding related to options to acquire common stock totaled 5,009 and 23,204, respectively, as the assumed proceeds from exercise price, tax benefits and future compensation was in excess of the market value. For the six months ended June 30, 2015 and 2014, anti-dilutive shares outstanding related to options to acquire common stock totaled 6,017 and 32,940, respectively for the same reasons indicated for the three-month periods.

(b) Dividends

The timing and amount of cash dividends paid on the Company's common stock depends on the Company’s earnings, capital requirements, financial condition and other relevant factors. Dividends on common stock from the Company depend substantially upon receipt of dividends from the Bank, which is the Company’s predominant source of income.

On July 22, 2015, the Company declared a cash dividend of $0.11 per common share payable on August 20, 2015 to shareholders of record on August 6, 2015.

The following table summarizes the dividend activity for the six months ended June 30, 2015 and calendar year 2014.

Declared	Cash Dividend per Share	Record Date	Paid Date
January 29, 2014	$0.08	February 10, 2014	February 24, 2014
March 27, 2014	$0.08	April 8, 2014	April 23, 2014
July 24, 2014	$0.09	August 7, 2014	August 21, 2014
October 23, 2014	$0.09	November 6, 2014	November 20, 2014
November 11, 2014	$0.16	December 2, 2014	December 12, 2014
January 28, 2015	$0.10	February 10, 2015	February 24, 2015
April 22, 2015	$0.11	May 7, 2015	May 21, 2015

The FDIC and the Washington State Department of Financial Institutions, Division of Banks have the authority under their supervisory powers to prohibit the payment of dividends by the Bank to the Company. Additionally, current guidance from the Board of Governors of the Federal Reserve System ("Federal Reserve Board") provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters. Current regulations allow the Company and the Bank to pay dividends on their common stock if the Company’s or the Bank’s regulatory capital would not be reduced below the statutory capital requirements set by the Federal Reserve Board and the FDIC.

(c) Stock Repurchase Program

The Company has had various stock repurchase programs since March 1999. On October 23, 2014, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common shares, or approximately 1,513,000 shares, under the eleventh stock repurchase plan. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital. On August 30, 2012, the Board of Directors approved the Company’s tenth stock repurchase plan, authorizing the repurchase of up to 5% of the Company’s outstanding shares of common stock, or approximately 757,000 shares. The Company repurchased 704,975 shares under the tenth stock repurchase plan, leaving 52,025 shares unpurchased.

The following table provides total repurchased shares and average share prices under the applicable plans for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014		Plan Total (1)
Tenth Plan
Repurchased shares	—		—		—		—		704,975
Stock repurchase average share price	$	—	$	—	$	—	$	—	$	15.85
Eleventh Plan
Repurchased shares	304,600		—		441,966		—		441,966
Stock repurchase average share price	$	16.88	$	—	$	16.64	$	—	$	16.64

(1) Represents shares repurchased and average share price paid during the duration of the plan.

During the three months ended June 30, 2015 and 2014, the Company repurchased 11,687 and 8,186 shares at an average price of $17.37 and $12.91, respectively, to pay withholding taxes on the vesting of restricted stock that vested during the respective periods. During the six months ended June 30, 2015 and 2014, the Company repurchased 21,610 and 17,484 shares at an average price of $16.66 and $15.49, respectively, to pay withholding taxes on the vesting of restricted stock that vested during the respective periods.