Edgar Filing: COLUMBIA BANKING SYSTEM INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

COLB 03.31.13 Pub.10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________

FORM 10-Q

________________________________________________________

(Mark One)



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

For the quarterly period ended March 31, 2013.



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

For the transition period from to .

Commission File Number 0-20288

________________________________________________________

COLUMBIA BANKING SYSTEM, INC.

(Exact name of issuer as specified in its charter)

________________________________________________________



Washington		91-1422237
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1301 “A” Street Tacoma, Washington		98402-2156
(Address of principal executive offices)		(Zip Code)

(253) 305-1900

(Issuer’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares of common stock outstanding at April 30, 2013 was 51,027,081.

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TABLE OF CONTENTS



		Page
	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets – March 31, 2013 and December 31, 2012	1

	Consolidated Statements of Income - three months ended March 31, 2013 and 2012	2

	Consolidated Statements of Comprehensive Income - three months ended March 31, 2013 and 2012	3

	Consolidated Statements of Changes in Shareholders’ Equity - three months ended March 31, 2013 and 2012	4

	Consolidated Statements of Cash Flows - three months ended March 31, 2013 and 2012	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50

Item 4.	Controls and Procedures	50

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	53

	Signatures	54

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)



			March 31, 2013		December 31, 2012
ASSETS			(in thousands)
Cash and due from banks			$	91,889	$	124,573
Interest-earning deposits with banks			356,056		389,353
Total cash and cash equivalents			447,945		513,926
Securities available for sale at fair value (amortized cost of $984,075 and $969,359, respectively)			1,012,162		1,001,665
Federal Home Loan Bank stock at cost			21,621		21,819
Loans held for sale			888		2,563
Loans, excluding covered loans, net of unearned income of ($6,985) and ($7,767), respectively			2,621,212		2,525,710
Less: allowance for loan and lease losses			51,119		52,244
Loans, excluding covered loans, net			2,570,093		2,473,466
Covered loans, net of allowance for loan losses of ($29,489) and ($30,056), respectively			363,213		391,337
Total loans, net			2,933,306		2,864,803
FDIC loss-sharing asset			83,115		96,354
Interest receivable			16,321		14,268
Premises and equipment, net			120,665		118,708
Other real estate owned ($13,811 and $16,311 covered by FDIC loss-share, respectively)			25,727		26,987
Goodwill			115,554		115,554
Core deposit intangible, net			14,693		15,721
Other assets			113,014		113,967
Total assets			$	4,905,011	$	4,906,335
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing			$	1,274,330	$	1,321,171
Interest-bearing			2,772,209		2,720,914
Total deposits			4,046,539		4,042,085
Federal Home Loan Bank advances			6,634		6,644
Securities sold under agreements to repurchase			25,000		25,000
Other liabilities			57,178		68,598
Total liabilities			4,135,351		4,142,327
Commitments and contingent liabilities
Shareholders’ equity:
	March 31, 2013	December 31, 2012
Common stock (no par value)
Authorized shares	63,033	63,033
Issued and outstanding	39,844	39,686	582,348		581,471
Retained earnings			170,593		162,388
Accumulated other comprehensive income			16,719		20,149
Total shareholders’ equity			769,660		764,008
Total liabilities and shareholders’ equity			$	4,905,011	$	4,906,335

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME

Columbia Banking System, Inc.

(Unaudited)



	Three Months Ended
	March 31,
	2013			2012
	(in thousands except per share amounts)
Interest Income
Loans	$	48,028		$	61,777
Taxable securities	4,234			5,245
Tax-exempt securities	2,298			2,525
Federal funds sold and deposits in banks	201			165
Total interest income	54,761			69,712
Interest Expense
Deposits	1,089			1,779
Federal Home Loan Bank advances	71			750
Other borrowings	119			120
Total interest expense	1,279			2,649
Net Interest Income	53,482			67,063
Provision (recapture) for loan and lease losses	(1,000		)	4,500
Provision for losses on covered loans	980			15,685
Net interest income after provision for loan and lease losses	53,502			46,878
Noninterest Income
Service charges and other fees	7,594			7,177
Merchant services fees	1,851			2,018
Investment securities gains, net	370			62
Bank owned life insurance	698			711
Change in FDIC loss-sharing asset	(10,483		)	(1,668		)
Other	1,628			1,274
Total noninterest income	1,658			9,574
Noninterest Expense
Compensation and employee benefits	21,653			21,995
Occupancy	4,753			5,333
Merchant processing	857			873
Advertising and promotion	870			882
Data processing and communications	2,580			2,213
Legal and professional fees	2,050			1,609
Taxes, licenses and fees	1,387			1,355
Regulatory premiums	857			860
Net cost (benefit) of operation of other real estate owned	(2,501		)	910
Amortization of intangibles	1,029			1,150
Other	4,514			7,172
Total noninterest expense	38,049			44,352
Income before income taxes	17,111			12,100
Income tax provision	4,935			3,198
Net Income	$	12,176		$	8,902
Earnings per common share
Basic	$	0.31		$	0.22
Diluted	$	0.31		$	0.22
Dividends paid per common share	$	0.10		$	0.37
Weighted average number of common shares outstanding	39,348			39,195
Weighted average number of diluted common shares outstanding	39,351			39,298

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Columbia Banking System, Inc.

(Unaudited)



	Three Months Ended
	March 31,
	2013			2012
	(in thousands)
Net income as reported	$	12,176		$	8,902
Unrealized loss from securities:
Net unrealized holding loss from available for sale securities arising during the period, net of tax of $1,357 and $926	(2,493		)	(1,645		)
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $130 and $22	(240		)	(40		)
Net unrealized loss from securities, net of reclassification adjustment	(2,733		)	(1,685		)
Pension plan liability adjustment:
Net unrealized loss from unfunded defined benefit plan liability arising during the period, net of tax of $412 and $0	(757		)	—
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($32) and ($7)	60			13
Pension plan liability adjustment, net	(697		)	13
Total comprehensive income	$	8,746		$	7,230

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Columbia Banking System, Inc.

(Unaudited)



	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
	Number of Shares	Amount		Retained Earnings			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
	(in thousands)
Balance at January 1, 2012	39,506	$	579,136	$	155,069		$	25,133		$	759,338
Net income	—	—		8,902			—			8,902
Other comprehensive loss	—	—		—			(1,672		)	(1,672		)
Issuance of common stock - stock option and other plans	18	308		—			—			308
Issuance of common stock - restricted stock awards, net of canceled awards	146	450		—			—			450
Cash dividends paid on common stock	—	—		(14,623		)	—			(14,623		)
Balance at March 31, 2012	39,670	$	579,894	$	149,348		$	23,461		$	752,703
Balance at January 1, 2013	39,686	$	581,471	$	162,388		$	20,149		$	764,008
Net income	—	—		12,176			—			12,176
Other comprehensive income	—	—		—			(3,430		)	(3,430		)
Issuance of common stock - stock option and other plans	18	326		—			—			326
Issuance of common stock - restricted stock awards, net of canceled awards	140	551		—			—			551
Cash dividends paid on common stock	—	—		(3,971		)	—			(3,971		)
Balance at March 31, 2013	39,844	$	582,348	$	170,593		$	16,719		$	769,660

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Columbia Banking System, Inc.

(Unaudited)



	Three Months Ended March 31,
	2013			2012
	(in thousands)
Cash Flows From Operating Activities
Net Income	$	12,176		$	8,902
Adjustments to reconcile net income to net cash provided by operating activities
Provision (recapture) for loan and lease losses and losses on covered loans	(20		)	20,185
Stock-based compensation expense	551			450
Depreciation, amortization and accretion	13,015			16,141
Investment securities gain, net	(370		)	(62		)
Net realized gain on sale of other assets	(80		)	(21		)
Net realized gain on sale of other real estate owned	(2,787		)	(2,954		)
Write-down on other real estate owned	158			3,127
Net change in:
Loans held for sale	1,675			82
Interest receivable	(2,053		)	(750		)
Interest payable	(40		)	(148		)
Other assets	3,192			(1,166		)
Other liabilities	(11,739		)	(8,403		)
Net cash provided by operating activities	13,678			35,383
Cash Flows From Investing Activities
Loans originated and acquired, net of principal collected	(71,815		)	(16,814		)
Purchases of:
Securities available for sale	(84,673		)	(30,177		)
Premises and equipment	(3,624		)	(6,682		)
Proceeds from:
FDIC reimbursement on loss-sharing asset	3,119			14,804
Sales of securities available for sale	3,023			3,845
Principal repayments and maturities of securities available for sale	64,758			49,654
Sales of other assets	287			—
Sales of covered other real estate owned	6,438			8,025
Sales of other real estate and other personal property owned	2,019			7,829
Capital improvements on other real estate properties	—			(90		)
Net cash (used in) provided by investing activities	(80,468		)	30,394
Cash Flows From Financing Activities
Net increase in deposits	4,454			49,916
Proceeds from:
Federal Home Loan Bank advances	100			—
Federal Reserve Bank borrowings	50			—
Exercise of stock options	326			308
Payments for:
Repayment of Federal Home Loan Bank advances	(100		)	(4,210		)
Repayment of Federal Reserve Bank borrowings	(50		)	—
Common stock dividends	(3,971		)	(14,623		)
Net cash provided by financing activities	809			31,391
Increase (Decrease) in cash and cash equivalents	(65,981		)	97,168
Cash and cash equivalents at beginning of period	513,926			294,289
Cash and cash equivalents at end of period	$	447,945		$	391,457
Supplemental Information:
Cash paid during the year for:
Cash paid for interest	$	1,319		$	2,797
Cash paid for income tax	$	5,500		$	—
Non-cash investing activities
Loans transferred to other real estate owned	$	4,114		$	6,092

See accompanying Notes to unaudited Consolidated Financial Statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Columbia Banking System, Inc.


1.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of the Company, and its wholly owned banking subsidiary Columbia Bank (the “Bank”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of results to be anticipated for the year ending December 31, 2013. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2012 Annual Report on Form 10-K.

Significant Accounting Policies

The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2012 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2012 Form 10-K disclosure for the year ended December 31, 2012, except for the adoption of ASU 2012-06 as noted below.


2.	Accounting Pronouncements Recently Issued

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2012. The Company adopted the ASU 2013-02 reporting requirements during the current period with no impact to the Company's financial condition or results of operations. See Note 11 to the Consolidated Financial Statements of this report for new disclosures related to accumulated other comprehensive income.

In October 2012, the FASB issued ASU 2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. ASU 2012-06 clarifies that when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and there is a subsequent change in the amount of cash flows expected to be collected on the indemnified asset, the reporting entity should subsequently measure the indemnification asset on the same basis as the underlying loans by taking into account the contractual limitations of the Loss-Sharing Agreement ("LSA"). For amortization of changes in value, the reporting entity should use the term of the indemnification agreement if it is shorter than the term of the acquired loans. ASU 2012-06 is effective for interim and annual periods beginning after December 15, 2012. The Company adopted the ASU as of January 1, 2013. As a result of the adoption of the ASU, an additional $2.5 million of indemnification asset amortization was recorded during the period, resulting in a reduction of $1.6 million in net income and $0.04 in earnings per share.

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3.	Securities

The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2013
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	502,652	$	15,484	$	(6,181	)	$	511,955
State and municipal securities	256,608		19,586		(589		)	275,605
U.S. government agency and government-sponsored enterprise securities	201,680		828		(981		)	201,527
U.S. government securities	19,811		—		(105		)	19,706
Other securities	3,324		87		(42		)	3,369
Total	$	984,075	$	35,985	$	(7,898	)	$	1,012,162
December 31, 2012
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	561,076	$	16,719	$	(5,426	)	$	572,369
State and municipal securities	265,070		20,893		(388		)	285,575
U.S. government agency and government-sponsored enterprise securities	120,085		851		(435		)	120,501
U.S. government securities	19,804		39		(15		)	19,828
Other securities	3,324		104		(36		)	3,392
Total	$	969,359	$	38,606	$	(6,300	)	$	1,001,665

The scheduled contractual maturities of investment securities available for sale at March 31, 2013 are presented as follows:



	March 31, 2013
	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	17,771	$	18,025
Due after one year through five years	158,054		161,996
Due after five years through ten years	244,429		249,097
Due after ten years	560,497		579,677
Other securities with no stated maturity	3,324		3,367
Total investment securities available-for-sale	$	984,075	$	1,012,162

The following table summarizes, as of March 31, 2013, the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:



	Carrying Amount
	(in thousands)
To Washington and Oregon State to secure public deposits	$	282,025
To Federal Reserve Bank to secure borrowings	45,405
Other securities pledged	44,948
Total securities pledged as collateral	$	372,378

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The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012:




	Less than 12 Months			12 Months or More			Total
	Fair Value	Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(in thousands)
March 31, 2013
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	160,587	(5,914	)	11,250	(267	)	171,837	(6,181	)
State and municipal securities	21,513	(584	)	210	(5	)	21,723	(589	)
U.S. government agency and government-sponsored enterprise securities	137,814	(981	)	—	—		137,814	(981	)
U.S. government securities	19,706	(105	)	—	—		19,706	(105	)
Other securities	—	—		958	(42	)	958	(42	)
Total	339,620	(7,584	)	12,418	(314	)	352,038	(7,898	)

December 31, 2012
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	167,739	(5,090	)	12,204	(336	)	179,943	(5,426	)
State and municipal securities	20,413	(383	)	210	(5	)	20,623	(388	)
U.S. government agency and government-sponsored enterprise securities	56,600	(435	)	—	—		56,600	(435	)
U.S. government securities	9,914	(15	)	—	—		9,914	(15	)
Other securities	—	—		964	(36	)	964	(36	)
Total	254,666	(5,923	)	13,378	(377	)	268,044	(6,300	)

At March 31, 2013, there were 18 U.S. government agency and government-sponsored enterprise mortgage-backed securities & collateralized mortgage obligations securities in an unrealized loss position, of which one was in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2013.

At March 31, 2013, there were 15 state and municipal government securities in an unrealized loss position, of which one was in a continuous loss position for 12 months or more. The unrealized losses on state and municipal securities were caused by interest rate changes or widening of market spreads subsequent to the purchase of the individual securities. Management monitors published credit ratings of these securities for adverse changes. As of March 31, 2013, none of the rated obligations of state and local government entities held by the Company had a below investment grade credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2013.

At March 31, 2013, there were 11 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, of which none were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2013.

At March 31, 2013, there were two U.S. government securities in an unrealized loss position, neither of which was in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not

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currently intend to sell this security nor does the Company consider it more likely than not that it will be required to sell this security before the recovery of amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at March 31, 2013.

At March 31, 2013, there was one other security, a mortgage-backed securities fund in a continuous unrealized loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates and the additional risk premium investors are demanding for investment securities with these characteristics. The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2013 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.


4.	Noncovered Loans

Noncovered loans include loans originated through our branch network and loan departments as well as acquired loans that are not subject to FDIC loss-sharing agreements.

The following is an analysis of the noncovered loan portfolio by major types of loans (net of unearned income):



	March 31, 2013			December 31, 2012
Noncovered loans:	(in thousands)
Commercial business	$	1,204,760		$	1,155,158
Real estate:
One-to-four family residential	43,604			43,922
Commercial and multifamily residential	1,106,987			1,061,201
Total real estate	1,150,591			1,105,123
Real estate construction:
One-to-four family residential	52,946			50,602
Commercial and multifamily residential	67,213			65,101
Total real estate construction	120,159			115,703
Consumer	152,687			157,493
Less: Net unearned income	(6,985		)	(7,767		)
Total noncovered loans, net of unearned income	2,621,212			2,525,710
Less: Allowance for loan and lease losses	(51,119		)	(52,244		)
Total noncovered loans, net	$	2,570,093		$	2,473,466
Loans held for sale	$	888		$	2,563

At March 31, 2013 and December 31, 2012, the Company had no material foreign activities. Substantially all of the Company’s loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington and Oregon.

The Company has granted loans to officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans was $13.7 million and $14.2 million at March 31, 2013 and December 31, 2012, respectively. During the first three months of 2013, advances on related party loans were $475 thousand and repayments totaled $948 thousand.

At March 31, 2013 and December 31, 2012, $463.7 million and $443.4 million of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank borrowings and additional borrowing capacity. The Company has also pledged $17.4 million and $13.8 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at March 31, 2013 and December 31, 2012, respectively.

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The following is an analysis of noncovered, nonaccrual loans as of March 31, 2013 and December 31, 2012:



	March 31, 2013				December 31, 2012
	Recorded Investment Nonaccrual Loans		Unpaid Principal Balance Nonaccrual Loans		Recorded Investment Nonaccrual Loans		Unpaid Principal Balance Nonaccrual Loans
Noncovered loans:	(in thousands)
Commercial business
Secured	$	9,383	$	16,192	$	9,037	$	17,821
Unsecured	121		121		262		262
Real estate:
One-to-four family residential	1,684		2,023		2,349		2,672
Commercial & multifamily residential
Commercial land	3,347		6,701		4,076		7,491
Income property	8,230		11,439		8,520		10,815
Owner occupied	5,825		6,997		6,608		7,741
Real estate construction:
One-to-four family residential
Land and acquisition	2,646		5,841		3,084		6,704
Residential construction	388		388		1,816		2,431
Consumer	1,262		1,559		1,643		1,940
Total	$	32,886	$	51,261	$	37,395	$	57,877

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The following is an aging of the recorded investment of the noncovered loan portfolio as of March 31, 2013 and December 31, 2012:



	Current Loans		30 - 59 Days Past Due		60 - 89 Days Past Due		Total Past Due		Nonaccrual Loans		Total Loans
March 31, 2013	(in thousands)
Noncovered loans:
Commercial business
Secured	$	1,142,942	$	3,739	$	1,154	$	4,893	$	9,383	$	1,157,218
Unsecured	43,918		112		164		276		121		44,315
Real estate:
One-to-four family residential	41,330		849		61		910		1,684		43,924
Commercial & multifamily residential
Commercial land	43,785		1,006		—		1,006		3,347		48,138
Income property	645,058		2,434		—		2,434		8,230		655,722
Owner occupied	389,803		2,525		1,621		4,146		5,825		399,774
Real estate construction:
One-to-four family residential
Land and acquisition	18,330		204		314		518		2,646		21,494
Residential construction	30,768		—		—		—		388		31,156
Commercial & multifamily residential
Income property	24,479		—		—		—		—		24,479
Owner occupied	42,192		—		—		—		—		42,192
Consumer	150,423		885		230		1,115		1,262		152,800
Total	$	2,573,028	$	11,754	$	3,544	$	15,298	$	32,886	$	2,621,212

	Current Loans		30 - 59 Days Past Due		60 - 89 Days Past Due		Total Past Due		Nonaccrual Loans		Total Loans
December 31, 2012	(in thousands)
Noncovered loans:
Commercial business
Secured	$	1,091,770	$	4,259	$	1,485	$	5,744	$	9,037	$	1,106,551
Unsecured	44,817		252		12		264		262		45,343
Real estate:
One-to-four family residential	41,508		193		142		335		2,349		44,192
Commercial & multifamily residential
Commercial land	42,818		311		122		433		4,076		47,327
Income property	603,339		2,726		227		2,953		8,520		614,812
Owner occupied	387,525		1,040		—		1,040		6,608		395,173
Real estate construction:
One-to-four family residential
Land and acquisition	15,412		—		—		—		3,084		18,496
Residential construction	29,848		—		—		—		1,816		31,664
Commercial & multifamily residential
Income property	28,342		—		—		—		—		28,342
Owner occupied	36,211		—		—		—		—		36,211
Consumer	155,207		387		362		749		1,643		157,599
Total	$	2,476,797	$	9,168	$	2,350	$	11,518	$	37,395	$	2,525,710

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The following is an analysis of impaired loans as of March 31, 2013 and December 31, 2012:



	Recorded Investment of Loans Collectively Measured for Contingency Provision		Recorded Investment of Loans Individually Measured for Specific Impairment		Impaired Loans With Recorded Allowance						Impaired Loans Without Recorded Allowance
					Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
March 31, 2013	(in thousands)
Noncovered loans:
Commercial business
Secured	$	1,152,246	$	4,972	$	293	$	414	$	67	$	4,680	$	7,488
Unsecured	44,231		84		84		84		84		—		—
Real estate:
One-to-four family residential	42,380		1,544		340		362		108		1,204		1,341
Commercial & multifamily residential
Commercial land	45,366		2,772		—		—		—		2,772		5,845
Income property	646,457		9,265		18		66		18		9,246		12,442
Owner occupied	388,437		11,337		605		606		34		10,732		14,135
Real estate construction:
One-to-four family residential
Land and acquisition	18,914		2,580		117		116		74		2,463		4,033
Residential construction	31,011		145		—		—		—		145		144
Commercial & multifamily residential
Income property	24,479		—		—		—		—		—		—
Owner occupied	42,192		—		—		—		—		—		—
Consumer	152,674		126		—		—		—		126		126
Total	$	2,588,387	$	32,825	$	1,457	$	1,648	$	385	$	31,368	$	45,554

	Recorded Investment of Loans Collectively Measured for Contingency Provision		Recorded Investment of Loans Individually Measured for Specific Impairment		Impaired Loans With Recorded Allowance						Impaired Loans Without Recorded Allowance
					Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
December 31, 2012	(in thousands)
Noncovered loans:
Commercial business
Secured	$	1,101,689	$	4,862	$	690	$	1,994	$	113	$	4,172	$	6,769
Unsecured	45,251		92		92		92		92		—		—
Real estate:
One-to-four family residential	42,103		2,089		345		364		112		1,744		1,902
Commercial & multifamily residential
Commercial land	44,672		2,655		—		—		—		2,655		5,727
Income property	606,656		8,156		2,670		2,727		1,040		5,486		7,860
Owner occupied	383,269		11,904		608		610		38		11,296		14,642
Real estate construction:
One-to-four family residential
Land and acquisition	15,677		2,819		—		—		—		2,819		4,813
Residential construction	29,707		1,957		—		—		—		1,957		2,570
Commercial & multifamily residential
Income property	28,342		—		—		—		—		—		—
Owner occupied	36,211		—		—		—		—		—		—
Consumer	157,472		127		—		—		—		127		127
Total	$	2,491,049	$	34,661	$	4,405	$	5,787	$	1,395	$	30,256	$	44,410

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The following table provides additional information on impaired loans for the three month periods indicated.



	Three Months Ended March 31,
	2013				2012
	Average Recorded Investment Impaired Loans		Interest Recognized on Impaired Loans		Average Recorded Investment Impaired Loans		Interest Recognized on Impaired Loans
Noncovered loans:	(in thousands)
Commercial business
Secured	$	4,917	$	4	$	9,709	$	309
Unsecured	88		1		119		1
Real estate:
One-to-four family residential	1,816		4		2,266		1
Commercial & multifamily residential
Commercial land	2,714		—		3,405		—
Income property	8,710		29		8,083		115
Owner occupied	11,620		279		14,152		107
Real estate construction:
One-to-four family residential
Land and acquisition	2,700		1		6,539		—
Residential construction	1,051		2		4,286		358
Commercial & multifamily residential
Income property	—		—		6,045		—
Consumer	127		2		1,672		—
Total	$	33,743	$	322	$	56,276	$	891

There were no Troubled Debt Restructurings ("TDR") during the three months ended March 31, 2012. The following is an analysis of loans classified as TDR during the three months ended March 31, 2013:



	Three months ended March 31, 2013
	Number of TDR Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Noncovered loans:	(dollars in thousands)
Real estate construction:
One-to-four family residential:
Land and acquisition	1	$	117	$	117
Total	1	$	117	$	117

The Company's loans classified as TDR are loans that have been modified or the borrower has been granted special concessions due to financial difficulties that, if not for the challenges of the borrower, the Company would not otherwise consider. The Company had commitments to lend $1.8 million and $236 thousand of additional funds on loans classified as TDR as of March 31, 2013 and December 31, 2012, respectively. The TDR modifications or concessions are made to increase the likelihood that these borrowers with financial difficulties will be able to satisfy their debt obligations as amended. Credit losses for loans classified as TDR are measured on the same basis as impaired loans. For impaired loans, an allowance is established when the collateral value less selling costs (or discounted cash flows or observable market price) of the impaired loan is lower than the recorded investment of that loan. The Company did not have any loans modified as TDR within the past twelve months that have defaulted during the three months ended March 31, 2013.

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5.	Allowance for Noncovered Loan and Lease Losses and Unfunded Commitments and Letters of Credit

We maintain an allowance for loan and lease losses (“ALLL”) to absorb losses inherent in the loan portfolio. The size of the ALLL is determined through quarterly assessments of the probable estimated losses in the loan portfolio. Our methodology for making such assessments and determining the adequacy of the ALLL includes the following key elements:


1.	General valuation allowance consistent with the Contingencies topic of the FASB Accounting Standards Codification ("ASC").


2.	Classified loss reserves on specific relationships. Specific allowances for identified problem loans are determined in accordance with the Receivables topic of the FASB ASC.


3.	The unallocated allowance provides for other factors inherent in our loan portfolio that may not have been contemplated in the general and specific components of the allowance. This unallocated amount generally comprises less than 5% of the allowance. The unallocated amount is reviewed quarterly based on trends in credit losses, the results of credit reviews and overall economic trends.

The general valuation allowance is systematically calculated quarterly using quantitative and qualitative information about specific loan classes. The minimum required level an entity develops a methodology to determine its allowance for loan and lease losses is by general categories of loans, such as commercial business, real estate, and consumer. However, the Company’s methodology in determining its allowance for loan and lease losses is prepared in a more detailed manner at the loan class level, utilizing specific categories such as commercial business secured, commercial business unsecured, real estate commercial land, and real estate income property multifamily. The quantitative information uses historical losses from a specific loan class and incorporates the loan’s risk rating migration from origination to the point of loss based upon the consideration of an appropriate look back period.

A loan’s risk rating is primarily determined based upon the borrower’s ability to fulfill its debt obligation from a cash flow perspective. In the event there is financial deterioration of the borrower, the borrower’s other sources of income or repayment are also considered, including recent appraisal values for collateral dependent loans. The qualitative information takes into account general economic and business conditions affecting our marketplace, seasoning of the loan portfolio, duration of the business cycle, etc. to ensure our methodologies reflect the current economic environment and other factors as using historical loss information exclusively may not give an accurate estimate of inherent losses within the Company’s loan portfolio.

When a loan is deemed to be impaired, the Company has to determine if a specific valuation allowance is required for that loan. The specific valuation allowance is a reserve, calculated at the individual loan level, for each loan determined to be both impaired and containing a value less than its recorded investment. The Company measures the impairment based on the discounted expected future cash flows, observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent or if foreclosure is probable. The specific reserve for each loan is equal to the difference between the recorded investment in the loan and its determined impairment value.

The ALLL is increased by provisions for loan and lease losses (“provision”) charged to expense, and is reduced by loans charged off, net of recoveries or a recovery of previous provisions. While the Company’s management believes the best information available is used to determine the ALLL, changes in market conditions could result in adjustments to the ALLL, affecting net income, if circumstances differ from the assumptions used in determining the ALLL.

We have used the same methodology for ALLL calculations during the three months ended March 31, 2013 and 2012. Adjustments to the percentages of the ALLL allocated to loan categories are made based on trends with respect to delinquencies and problem loans within each class of loans. The Company reviews the ALLL quantitative and qualitative methodology on a quarterly basis and makes adjustments when appropriate. The Company continues to strive towards maintaining a conservative approach to credit quality and will continue to prudently adjust our ALLL as necessary in order to maintain adequate reserves. The Company carefully monitors the loan portfolio and continues to emphasize the importance of credit quality.

Once it is determined that all or a portion of a loan balance is uncollectable, and the amount can be reasonably estimated, the uncollectable portion of the loan is charged-off.

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The following tables show a detailed analysis of the allowance for loan and lease losses for noncovered loans for the three months ended March 31, 2013 and 2012: