INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2011

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3. INVESTMENT SECURITIES

     The following tables present the available for sale investment portfolio as of September 30, 2011, and December 31, 2010:

(Dollars in thousands)
September 30, 2011	Amortized		Unrealized		Unrealized
	Cost		Gross Gains		Gross Losses			Fair Value
U.S. Treasury securities	$	200	$	5	$	-		$	205
U.S. Government agency securities		274,282		3,569		(182	)		277,669
Corporate securities		14,352		-		(5,494	)		8,858
Mortgage-backed securities		450,334		10,722		(129	)		460,927
Obligations of state and political subdivisions		59,736		4,036		(11	)		63,761
Equity investments and other securities		11,345		709		(16	)		12,038
Total	$	810,249	$	19,041	$	(5,832	)	$	823,458
(Dollars in thousands)
December 31, 2010	Amortized		Unrealized		Unrealized
	Cost		Gross Gains		Gross Losses			Fair Value
U.S. Treasury securities	$	14,347	$	45	$	-		$	14,392
U.S. Government agency securities		193,901		836		(507	)		194,230
Corporate securities		14,499		-		(5,107	)		9,392
Mortgage-backed securities		359,965		5,853		(2,200	)		363,618
Obligations of state and political subdivisions		51,111		1,789		(255	)		52,645
Equity investments and other securities		11,423		437		(25	)		11,835
Total	$	645,246	$	8,960	$	(8,094	)	$	646,112

At September 30, 2011, the fair value of the securities in the investment portfolio was $823.4 million while the amortized cost was $810.2 million, reflecting a net unrealized gain in the portfolio of $13.2 million. At December 31, 2010, the fair value and amortized cost of securities in the investment portfolio were $646.1 million and $645.2 million, respectively, reflecting a net unrealized gain of $.9 million.

The Company analyzes investment securities for other-than-temporary impairment (“OTTI”) on a quarterly basis. The Company assesses whether OTTI is present when the fair value of an investment security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) the Company intends to sell the security; (2) it is “more likely than not” the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Credit related OTTI is recognized in earnings, while noncredit related OTTI on securities not expected to be sold, is recognized in other comprehensive income (“OCI”). Noncredit related OTTI is based on other factors, including illiquidity and changes in interest rates. Presentation of OTTI is made in the statements of income on a gross basis with an offset for the amount of OTTI recognized in OCI.

The following table presents a tabular roll forward of the amount of credit related OTTI recognized in earnings for the periods presented:

(Dollars in thousands)
	Three months ended					Nine months ended
	September 30, 2011			September 30, 2010		September 30, 2011			September 30, 2010
Balance of credit related OTTI at beginning of period	$	(179	)	$	-	$	-		$	-
Credit related OTTI recognized in the period		-			-		(179	)		-
Balance of credit related OTTI at end of period	$	(179	)	$	-	$	(179	)	$	-

The Company did not recognize OTTI on its securities for the three months ended September 30, 2011. For the nine months ended September 30 2011, the Company recorded an OTTI charge of $.2 million related to a pooled trust preferred security in its investment securities portfolio. At June 30, 2011, this security had $1.6 million of impairment loss of which $1.4 million was due to noncredit related factors and therefore recognized in OCI. Given regulatory guidelines on expectation of full payment of interest and principal as well as extended principal in kind payments, this pooled trust preferred security was placed on nonaccrual status in second quarter of 2011. In addition, in October 2011 the Company placed another pooled trust preferred security with principal in kind payments on nonaccrual status. However, while this security had an impairment loss of $1.5 million at September 30, 2011, the security had no credit related OTTI as of September 30, 2011.

     In reaching the determination to record impairment, management reviewed the facts and circumstances available surrounding the security, including the projected cash flows from the security, the duration and amount of the unrealized loss, the financial condition of the underlying issuers in the pool, and the prospects for a change in market value within a reasonable period of time. For pooled trust preferred investments, the Company analyzes cash flow projections that utilize inputs for deferral, default and recovery rates, and the timing of such projected deferrals, defaults and recoveries. Utilizing projected cash flows, the credit loss of $.2 million on the pooled trust preferred security was measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows were discounted by the current effective interest rate.

The primary cause of the credit related loss was the reduction of projected future cash flows as a result of issuers deferring interest payments. The corporate securities segment of the investment securities portfolio had a $5.5 million net unrealized loss at September 30, 2011, with an amortized cost of $14.4 million and a fair value of $8.9 million as of that date. The unrealized loss was associated with the decline in fair value of the four investments in pooled trust preferred securities issued primarily by banks and insurance companies. The unrealized loss associated with these securities at September 30, 2011, was caused by an increase in liquidity and credit spreads, an extension of expected cash flows, mainly due to issuers’ election to defer interest payments and certain issuer defaults since the purchase of these securities. Compared to December 31, 2010, the fair value of these securities decreased slightly during the first nine months of 2011. These securities have several features that reduce credit risk, including seniority over certain tranches in the same pool and the benefit of certain collateral coverage tests.

The following tables provide the fair value and gross unrealized losses on securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position:

(Dollars in thousands)	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
As of September 30, 2011	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	28,000	$	(182	)	$	-	$	-			28,000		(182	)
Corporate securities		-		-			8,358		(5,494	)		8,358		(5,494	)
Mortgage-backed securities		38,769		(129	)		-		-			38,769		(129	)
Obligations of state and political subdivisions		3,906		(11	)		-		-			3,906		(11	)
Equity and other securities		599		(1	)		1,185		(15	)		1,784		(16	)
Total	$	71,274	$	(323	)	$	9,543	$	(5,509	)	$	80,817	$	(5,832	)
(Dollars in thousands)	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
As of December 31, 2010	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	40,528	$	(507	)	$	-	$	-		$	40,528	$	(507	)
Corporate securities		-		-			8,892		(5,107	)		8,892		(5,107	)
Mortgage-backed securities		110,414		(2,088	)		978		(112	)		111,392		(2,200	)
Obligations of state and political subdivisions		4,084		(255	)		-		-			4,084		(255	)
Equity and other securities		1,776		(24	)		1		(1	)		1,777		(25	)
Total	$	156,802	$	(2,874	)	$	9,871	$	(5,220	)	$	166,673	$	(8,094	)
(Dollars in thousands)	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
As of September 30, 2010	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	51,824	$	(197	)	$	-	$	-		$	51,824	$	(197	)
Corporate securities		-		-			8,514		(5,470	)		8,514		(5,470	)
Mortgage-backed securities		30,109		(82	)		982		(141	)		31,091		(223	)
Obligations of state and political subdivisions		1,199		(127	)		-		-			1,199		(127	)
Equity and other securities		1,193		(7	)		1		(1	)		1,194		(8	)
Total	$	84,325	$	(413	)	$	9,497	$	(5,612	)	$	93,822	$	(6,025	)

At September 30, 2011, the Company had six investment securities with an amortized cost of $15.0 million and an unrealized loss of $5.5 million that have been in a continuous unrealized loss position for more than 12 months. Pooled trust preferred securities accounted for the majority of unrealized loss in these securities.

There were a total of 10 securities in Bancorp’s investment portfolio that have been in a continuous unrealized loss position for less than 12 months with an amortized cost of $71.6 million and a total unrealized loss of $.3 million at September 30, 2011. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates, average life, or credit spreads subsequent to purchase. The fair value of most of the Company’s securities fluctuates as market interest rates change.

At September 30, 2011, and December 31, 2010, the Company had $332.4 million and $504.0 million, respectively, in investment securities being provided as collateral to the Federal Home Loan Bank of Seattle (“FHLB”), the Federal Reserve Bank of San Francisco (“Reserve Bank”), the State of Oregon, the State of Washington, and others to support the Company’s borrowing capacities and certain public fund deposits. At September 30, 2011, and December 31, 2010, Bancorp had no reverse repurchase agreements.

The following table presents the contractual maturities of the investment securities available for sale at September 30, 2011:

(Dollars in thousands)	Available for sale
September 30, 2011	Amortized cost		Fair value
U.S. Treasury securities
One year or less	$	200	$	205
After one year through five years		-		-
After five through ten years		-		-
Due after ten years		-		-
Total		200		205
U.S. Government agency securities:
One year or less		550		550
After one year through five years		223,716		227,101
After five through ten years		50,016		50,018
Due after ten years		-		-
Total		274,282		277,669
Corporate securities:
One year or less		-		-
After one year through five years		500		500
After five through ten years		-		-
Due after ten years		13,852		8,358
Total		14,352		8,858
Obligations of state and political subdivisions:
One year or less		3,515		3,557
After one year through five years		14,532		15,369
After five through ten years		30,061		32,521
Due after ten years		11,628		12,314
Total		59,736		63,761
Sub-total		348,570		350,493
Mortgage-backed securities		450,334		460,927
Equity investments and other securities		11,345		12,038
Total securities	$	810,249	$	823,458

     Certain investments have maturities that will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.