INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2011

Investments, Debt and Equity Securities [Abstract]

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

2. INVESTMENT SECURITIES

The following table presents the available for sale investment securities as of December 31, 2011, and 2010:

(Dollars in thousands)
December 31, 2011	Amortized		Unrealized		Unrealized
	Cost		Gross Gains		Gross Losses			Fair Value
U.S. Treasury securities	$	200	$	3	$	-		$	203
U.S. Government agency securities		216,211		3,453		(33	)		219,631
Corporate securities		14,351		-		(5,844	)		8,507
Mortgage-backed securities		419,510		9,351		(136	)		428,725
Obligations of state and political subdivisions		56,003		4,736		(7	)		60,732
Equity investments and other securities		11,318		749		(21	)		12,046
Total	$	717,593	$	18,292	$	(6,041	)	$	729,844
(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 December 31, 2011, the estimated fair value of the investment portfolio was $729.8 million, an increase of $83.7 million or 13% from $646.1 million at year end 2010. The estimated net unrealized gain on the investment portfolio at December 31, 2011, was $12.3 million, or 1.7% of the total portfolio, compared to $.9 million and .1% respectively, at year end 2010. During 2011 the net unrealized gain on the mortgage-backed securities increased by $5.6 million to $9.2 million while the net unrealized gains in the U.S Government agency and obligations of state and political subdivisions categories increased by $3.1 million and $3.2 million, respectively.

At December 31, 2011, the corporate securities portfolio included four pooled trust preferred securities with amortized cost of $13.8 million and an estimated fair market value of $8.0 million resulting in an estimated $5.8 million unrealized loss. This unrealized loss was associated with the decline in market value since purchase of our investments in pooled trust preferred securities issued by banks and insurance companies. Continued wide credit and liquidity spreads contributed to the unrealized loss associated with these securities. These pooled trust preferred securities are rated C or better by the rating agencies that cover these securities and they have several features that reduce credit risk, including seniority over certain tranches in the same pool and the benefit of certain collateral coverage tests.

Gross realized gains on the sale of investment securities included in earnings in 2011, 2010, and 2009 were $1,022,000, $1,562,000, and $833,000, respectively. Gross realized losses were $309,000 in 2011 and there were no such losses in 2010 and 2009.

Dividends on equity investments for the years 2011, 2010, and 2009 were $100,000, $105,000, and $106,000, respectively.

     During 2011, in terms of amortized cost, we increased our investment securities balance by $72.4 million principally due to our efforts reducing cash balances. The purchases over the past year were primarily of US Government agency securities with 3 to 5 year maturities and 10 to 15 year fully amortizing US Agency mortgage backed securities. Our U.S. Government agency securities increased by $25.4 million from December 31, 2010, to December 31, 2011, as part of our effort to maintain liquidity and portfolio diversification as well as to provide collateral for public funds and borrowing sources such as the FHLB.

Our mortgage-backed securities portfolio had a fair value of $428.7 million, an increase of $65.1 million from $363.6 one year ago. This segment of our portfolio primarily consists solely of U.S. Government agency ten and fifteen year fully amortizing mortgage backed securities with limited extension risk. This portfolio consisted of U.S. Agency backed mortgages with an amortized cost of $332.3 million and U.S. Government backed mortgage securities with an amortized cost of $87.3 million. Floating or adjustable rate securities represented $20.5 million of this portfolio while the remainder consisted of fixed rate securities. Ten and fifteen year pass-through mortgages with a projected average life of 3.1 years represented the majority of fixed rate securities with in this portfolio. Mortgage backed securities are subject to prepayment risk. Rising prepayments reduces the projected average life and accelerates the amortization of premium thus reducing the income from this portfolio. At December 31, 2011 the bank owned no privately issued mortgage backed securities.

Our portfolio of securities representing obligations of state and political subdivisions had a fair value of $60.7 million, with an amortized cost of $56.0 million, indicating an unrealized gain of $4.7 million.

At December 31, 2011, our equity and other investment securities had a fair value of $12.0 million and consisted of three investments in mutual fund shares and three investments in government backed Housing and Urban Development (“HUD”) Bonds. In addition to interest income, these investments provide the Bank with a Community Reinvestment Act (“CRA”) benefits.

     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 December 31, 2011	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	14,627	$	(33	)	$	-	$	-			14,627		(33	)
Corporate securities		-		-			8,007		(5,844	)		8,007		(5,844	)
Mortgage-backed securities		26,416		(130	)		9,538		(6	)		35,954		(136	)
Obligations of state and political subdivisions		234		(7	)		-		-			234		(7	)
Equity and other securities		598		(2	)		1,182		(19	)		1,780		(21	)
Total	$	41,875	$	(172	)	$	18,727	$	(5,869	)	$	60,602	$	(6,041	)
(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	)

     There were six investment securities with a 12 month or greater continuous unrealized loss in the investment portfolio at December 31, 2011, with a total unrealized loss of $5.9 million. In comparison, at December 31, 2010, there were six investment securities with a 12 month or greater continuous unrealized loss in the investment portfolio, with a total unrealized loss of $5.2 million. The unrealized loss on these investment securities was primarily due to continued increased credit and liquidity spreads and an extension of expected cash flow causing a decline in the fair market value of our pooled trust preferred securities (corporate security category). These securities had a fair value of $8.0 million compared to a $13.8 million amortized cost at December 31, 2011. The value of most of our securities fluctuates as market interest rates change.

There were a total of eight securities in Bancorp’s investment portfolio at December 31, 2011, that have been in a continuous unrealized loss position for less than 12 months, with an amortized cost of $42.0 million and a total unrealized loss of $.2 million. At December 31, 2010, there were a total of 28 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 $159.7 million and a total unrealized loss of $2.9 million. The fair value of these securities fluctuates as market interest rates change.

     Management reviews and evaluates the Company’s debt securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”). Our analysis takes into consideration current market conditions, length and severity of impairment, extent and nature of the change in fair value, issuer ratings, and whether or not the Company intends to, or may be required to, sell debt securities before recovering any unrealized losses.

In the first quarter of 2009, the Company recorded OTTI charges totaling $.2 million pretax consisting of $.1 million relating to a Lehman Brothers bond held in our corporate securities portfolio and $.1 for the investment in Freddie Mac preferred stock held in our equity and other securities portfolio. Both of these investments were sold in the second quarter of 2009 for no additional gain or loss.

In the second quarter of 2011, the Company recorded a credit related OTTI charge of $.2 million pretax related to a pooled trust preferred security in our investment portfolio which also was placed on nonaccrual status at the same time. We do not intend to sell this security, and it is not likely that we will be required to sell this security, but we do not expect to recover the entire amortized cost basis of the security. The amount of OTTI related to credit losses recognized in earnings represents the amortized cost of the security that we do not expect to recover and is based on the estimated cash flow expected from the security, discounted by the estimated future coupon rates of the security. We estimate cash flows based on the performance of the underlying collateral for the security and the overall structure of the security. Factors considered in the performance of underlying collateral include current default and deferral rates, estimated future default, deferral and recovery rates, and prepayment rates. Factors considered in the overall structure of the security include the impact of the underlying collateral cash flow on debt coverage tests and subordination levels. The remaining impairment on this security that is related to all other factors is recognized in other comprehensive income. 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 addition, in October 2011 the Company placed another pooled trust preferred security with principal in kind payments on nonaccrual status. While this security had an impairment loss of $1.6 million at December 31, 2011, based on our projections of future interest and principal payments, this security had no credit related OTTI as of December 31, 2011. At year end 2011, these securities were rated C or better by the rating agencies that cover these securities. They 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 table presents a summary of the significant inputs utilized to measure the other-than-temporary impairment related to credit losses associated with the above pooled trust preferred security at December 31, 2011 and 2010:

(Dollars in thousands)
	December 31, 2011		December 31, 2010
Default Rate	0.75	%	0.75	%
Recovery Rate	15.00	%	15.00	%
Prepayments	1.00	%	1.00	%

The following table presents information about the securities with OTTI losses for the years ended December 31, 2011, and 2010:

(Dollars in thousands)
	Year to date December 31,
	2011			2010		2009
Other-than-temporary impairment losses on securities	$	(1,636	)	$	-	$	(6,738	)
Portion of other-than temporary, non-credit related losses
recognized in other comprehensive income		1,457			-		6,546
Net other-than-temporary impairment losses on securities	$	(179	)	$	-	$	(192	)

     The following table presents a tabular roll forward of the amount of credit related OTTI recognized in earnings for years ended December 31, 2011, and 2010:

(Dollars in thousands)
	Year ended December 31,
	2011			2010
Balance of net other-than-temporary impairment losses on securities, beginning of period	$	-		$	-
Net other-than-temporary impairment losses on securities in the period		(179	)		-
Balance of net other-than-temporary impairment losses on securities, end of period	$	(179	)	$	-

At December 31, 2011, and 2010, the Company had $291.0 and $504.0 million, respectively, in investment securities being provided as collateral to the FHLB, the Federal Reserve Bank of San Francisco (the “Reserve Bank”), the State of Oregon and the State of Washington, and others for our borrowings and certain public fund deposits. At December 31, 2011, and December 31, 2010, Bancorp had no reverse repurchase agreements.

The follow table presents the maturities of the investment portfolio at December 31, 2011:

(Dollars in thousands)	Available for sale
	Amortized cost		Fair value
U.S. Treasury securities
One year or less	$	200	$	203
After one year through five years		-		-
After five through ten years		-		-
Due after ten years		-		-
Total		200		203
U.S. Government agency securities:
One year or less		499		502
After one year through five years		185,726		189,062
After five through ten years		29,986		30,067
Due after ten years		-		-
Total		216,211		219,631
Corporate securities:
One year or less		-		-
After one year through five years		500		500
After five through ten years		-		-
Due after ten years		13,851		8,007
Total		14,351		8,507
Obligations of state and political subdivisions:
One year or less		1,065		1,107
After one year through five years		16,394		17,391
After five through ten years		28,686		31,584
Due after ten years		9,858		10,650
Total		56,003		60,732
Sub-total		286,765		289,073
Mortgage-backed securities		419,510		428,725
Equity investments and other securities		11,318		12,046
Total securities	$	717,593	$	729,844

Mortgage-backed securities, including collateralized mortgage obligations and asset-backed securities, have maturities that will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.