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, 2013

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  x    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  x    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  x

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 19, 2013 there were 16,742,667 common shares outstanding, with no par value, of the registrant.

HERITAGE FINANCIAL CORPORATION

FORM 10-Q

INDEX

FORWARD LOOKING STATEMENT

		Page
PART I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Statements of Financial Condition as of June 30, 2013 and December 31, 2012		4
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and 2012		5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012		6
	Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2013		7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012		8
	Notes to Condensed Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		66
Item 4.	Controls and Procedures		66
PART II.	Other Information
Item 1.	Legal Proceedings		67
Item 1A.	Risk Factors		67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		67
Item 3.	Defaults Upon Senior Securities		68
Item 4.	Mine Safety Disclosures		68
Item 5.	Other Information		68
Item 6.	Exhibits		69
	Signatures		71
	Certifications

2

Forward Looking Statements

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This 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 the Valley Community Bancshares, Northwest Commercial Bank, Cowlitz Bank and Pierce Commercial Bank transactions, 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 the 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 impacted 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 Federal Reserve and of our bank subsidiary by the Federal Deposit Insurance Corporation (the “FDIC”), the Washington State Department of Financial Institutions, Division of Banks (the “Washington DFI”) 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, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of 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 as a result of Basel III; our ability to control operating costs and expenses; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and 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 statement 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; 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 (“SEC”).

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 the remainder of 2013 and beyond 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 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 subsidiary, unless the context otherwise requires.

3

ITEM 1. HERITAGE FINANCIAL CORPORATION

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

(Unaudited)

	June 30, 2013			December 31, 2012
A S S E T S
Cash on hand and in banks	$	31,062		$	37,180
Interest earning deposits		63,060			69,906
Cash and cash equivalents		94,122			107,086
Investment securities available for sale		143,155			144,293
Investment securities held to maturity (fair value of $13,546 and $11,010)		13,078			10,099
Loans held for sale		—			1,676
Originated loans receivable, net		932,488			874,485
Less: Allowance for loan losses		(17,822	)		(19,125	)
Originated loans receivable, net of allowance for loan losses		914,666			855,360
Purchased covered loans receivable, net of allowance for loan losses of ($5,769 and $4,352)		74,957			83,978
Purchased non-covered loans receivable, net of allowance for loan losses of ($4,789 and $5,117)		96,830			59,006
Total loans receivable, net		1,086,453			998,344
Federal Deposit Insurance Corporation (“FDIC”) indemnification asset		4,753			7,100
Other real estate owned ($316 and $260 covered by FDIC loss share, respectively)		3,796			5,666
Premises and equipment, net		27,356			24,755
Federal Home Loan Bank (“FHLB”) stock, at cost		5,482			5,495
Accrued interest receivable		4,822			4,821
Prepaid expenses and other assets		10,910			8,288
Deferred income taxes, net		17,683			13,819
Other intangible assets, net		1,013			1,086
Goodwill		13,012			13,012
Total assets	$	1,425,635		$	1,345,540
L I A B I L I T I E S    A N D    S T O C K H O L D E R S’    E Q U I T Y
Deposits	$	1,196,531		$	1,117,971
Securities sold under agreement to repurchase		16,360			16,021
Accrued expenses and other liabilities		12,219			12,610
Total liabilities		1,225,110			1,146,602
Stockholders’ equity:
Preferred stock, no par value, 2,500,000 shares authorized; no shares issued and outstanding at June 30, 2013 and December 31, 2012		—			—
Common stock, no par value, 50,000,000 shares authorized; 15,207,784 and 15,117,980 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		122,519			121,832
Retained earnings		78,515			75,362
Accumulated other comprehensive (loss) income, net		(509	)		1,744
Total stockholders’ equity		200,525			198,938
Total liabilities and stockholders’ equity	$	1,425,635		$	1,345,540

See accompanying Notes to Condensed Consolidated Financial Statements.

4

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except for per share amounts)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013			2012
INTEREST INCOME:
Interest and fees on loans	$	16,028	$	16,465		$	32,747		$	33,483
Taxable interest on investment securities		404		604			777			1,256
Nontaxable interest on investment securities		345		267			680			523
Interest and dividends on other interest earning assets		82		53			139			116
Total interest income		16,859		17,389			34,343			35,378
INTEREST EXPENSE:
Deposits		909		1,163			1,847			2,440
Other borrowings		10		16			19			34
Total interest expense		919		1,179			1,866			2,474
Net interest income		15,940		16,210			32,477			32,904
Provision for loan losses on originated loans		345		200			840			200
Provision for loan losses on purchased loans		963		419			1,326			310
Net interest income after provision for loan losses		14,632		15,591			30,311			32,394
NONINTEREST INCOME:
Bargain purchase gain on bank acquisition		—		—			399			—
Service charges and other fees		1,432		1,394			2,785			2,720
Merchant Visa income, net		211		182			384			352
Change in FDIC indemnification asset		281		(19	)		14			(195	)
Other income		433		507			1,059			1,095
Total noninterest income		2,357		2,064			4,641			3,972
NONINTEREST EXPENSE:
Impairment loss on investment securities		24		62			26			98
Less: Portion recorded as other comprehensive loss		—		(38	)		—			(38	)
Impairment loss on investment securities, net		24		24			26			60
Compensation and employee benefits		7,617		7,287			15,206			14,485
Occupancy and equipment		1,995		1,832			3,915			3,617
Data processing		720		668			1,856			1,259
Marketing		386		369			712			772
Professional services		640		628			1,670			1,182
State and local taxes		305		320			584			630
Federal deposit insurance premium		275		263			507			538
Other real estate owned, net		5		196			(98	)		452
Other expense		1,040		1,283			2,349			2,473
Total noninterest expense		13,007		12,870			26,727			25,468
Income before income taxes		3,982		4,785			8,225			10,898
Income tax expense		1,292		1,591			2,650			3,534
Net income	$	2,690	$	3,194		$	5,575		$	7,364
Basic earnings per common share	$	0.18	$	0.21		$	0.37		$	0.48
Diluted earnings per common share	$	0.18	$	0.21		$	0.37		$	0.48
Dividends declared per common share:	$	0.08	$	0.28		$	0.16		$	0.34

See accompanying Notes to Condensed Consolidated Financial Statements.

5

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
Comprehensive Income	2013			2012			2013			2012
Net income	$	2,690		$	3,194		$	5,575		$	7,364
Change in fair value of securities available for sale, net of tax of $(1,049), $194, $(1,232) and $17		(1,947	)		360			(2,289	)		33
Other-than-temporary impairment on securities held to maturity, net of tax of $0 $(13), $0 and $(13)		—			(25	)		—			(25	)
Accretion of other-than-temporary impairment in securities held to maturity, net of tax of $12, $14, $19 and $28		22			26			36			52
Other comprehensive (loss) income	$	(1,925	)	$	361		$	(2,253	)	$	60
Comprehensive income	$	765		$	3,555		$	3,322		$	7,424

See accompanying Notes to Condensed Consolidated Financial Statements.

6

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED

JUNE 30, 2013

(Dollars and shares in thousands, except for per share amounts)

(Unaudited)

	Number of common shares			Common stock			Retained earnings			Accumulated other comprehensive income (loss), net			Total stock holders’ equity
Balance at December 31, 2012		15,118		$	121,832		$	75,362		$	1,744		$	198,938
Restricted and unrestricted stock awards issued, net of forfeitures		99			—			—			—			—
Stock option compensation expense		—			42			—			—			42
Exercise of stock options (including excess tax benefits from nonqualified stock options)		3			37			—			—			37
Restricted stock compensation expense		—			722			—			—			722
Excess tax benefits from restricted stock		—			68			—			—			68
Common stock repurchased and retired		(12	)		(182	)		—			—			(182	)
Net income		—			—			5,575			—			5,575
Other comprehensive loss, net of tax		—			—			—			(2,253	)		(2,253	)
Cash dividends declared on common stock ($0.16 per share)		—			—			(2,422	)		—			(2,422	)
Balance at June 30, 2013		15,208		$	122,519		$	78,515		$	(509	)	$	200,525

See accompanying Notes to Condensed Consolidated Financial Statements.

7

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2013 and 2012

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	5,575		$	7,364
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,572			1,868
Changes in net deferred loan fees, net of amortization		397			36
Provision for loan losses		2,166			510
Net change in accrued interest receivable, prepaid expenses and other assets, accrued expenses and other liabilities		(378	)		(3,621	)
Recognition of compensation related to ESOP shares and share based payment		722			620
Stock option compensation expense		42			60
Tax provision realized from stock options exercised, share based payment and dividends on unallocated ESOP shares		(68	)		44
Amortization of intangible assets		229			214
Deferred income tax		222			217
Bargain purchase gain on bank acquisition		(399	)		—
Impairment loss on investment of securities		26			60
Origination of loans held for sale		(6,784	)		(7,568	)
Gain on sale of loans		(142	)		(116	)
Proceeds from sale of loans		8,602			8,338
Valuation adjustment on other real estate owned		(22	)		483
(Gain) loss on other real estate owned, net		(232	)		2
Loss on sale of premises and equipment, net		—			2
Net cash provided by operating activities		12,528			8,513
Cash flows from investing activities:
Loans originated, net of principal payments		(39,426	)		(4,012	)
Maturities of investment securities available for sale		31,369			25,989
Maturities of investment securities held to maturity		784			1,037
Purchase of investment securities available for sale		(32,508	)		(32,113	)
Purchase of investment securities held to maturity		(3,733	)		—
Purchase of premises and equipment		(3,451	)		(1,215	)
Proceeds from sales of other real estate owned		4,666			891
Proceeds from redemption of FHLB stock		101			—
Net cash received from acquisitions		748			—
Net cash used in investing activities		(41,450	)		(9,423	)
Cash flows from financing activities:
Net increase (decrease) in deposits		18,118			(22,698	)
Common stock cash dividends paid		(2,422	)		(2,157	)
Net increase (decrease) in securities sold under agreement to repurchase		339			(9,435	)
Proceeds from exercise of stock options		37			11
Tax provision realized from stock options exercised, share based payment and dividends on unallocated ESOP shares		68			(44	)
Repurchase of common stock		(182	)		(5,270	)
Net cash provided by (used in) financing activities		15,958			(39,593	)
Net decrease in cash and cash equivalents		(12,964	)		(40,503	)
Cash and cash equivalents at beginning of period		107,086			123,759
Cash and cash equivalents at end of period	$	94,122		$	83,256
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,874		$	2,531
Cash paid for income taxes		3,074			7,372
Seller-financed sale of other real estate owned		250			—
Loans transferred to other real estate owned		513			5,526
Assets acquired (liabilities assumed) in acquisitions:
Investment securities available for sale		2,753			—
Purchased non-covered loans receivable		51,509			—
Other real estate owned		2,279			—
Premises and equipment		214			—
FHLB stock		88			—
Accrued interest receivable		232			—
Prepaid expenses and other assets		1,175			—
Deferred income taxes, net		2,873			—
Core deposit intangible		156			—
Deposits		(60,442	)		—
Accrued expenses and other liabilities		(1,186	)		—

See accompanying Notes to Condensed Consolidated Financial Statements.

8

HERITAGE FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2013 and 2012

(Unaudited)

(1) Description of Business and Basis of Presentation

(a) Description of Business

Heritage Financial Corporation (the “Company”) is a bank holding company 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 (“DIF”). The Bank is headquartered in Olympia, Washington and conducts business from its forty-two, including the eight branches acquired in the Valley Acquisition effective July 15, 2013, branch offices located throughout Washington state and the greater Portland, Oregon area. The Bank’s business consists primarily of 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 located in western and central Washington State and the greater Portland, Oregon area.

The Company has expanded its footprint during the past three years through acquisitions beginning with the FDIC-assisted acquisition of Cowlitz Bank, a Washington state-chartered bank headquartered in Longview, Washington effective on July 30, 2010. Heritage Bank entered into a definitive agreement with the FDIC, pursuant to which Heritage Bank acquired certain assets and assumed certain liabilities of Cowlitz Bank (the “Cowlitz Acquisition”). The Cowlitz Acquisition included nine branches of Cowlitz Bank, including its division Bay Bank, which opened as branches of Heritage Bank as of August 2, 2010. It also included the Trust Services Division of Cowlitz Bank. Effective November 5, 2010, Heritage Bank entered into a definitive agreement with the FDIC, pursuant to which Heritage Bank acquired certain assets and assumed certain liabilities of Pierce Commercial Bank, a Washington state-chartered bank headquartered in Tacoma, Washington (the “Pierce Commercial Acquisition”). The Pierce Commercial Acquisition included one branch, which opened as a branch of Heritage Bank as of November 8, 2010. On September 14, 2012, the Company announced that it had entered into a definitive agreement along with its financial institution subsidiary, Heritage Bank, to acquire Northwest Commercial Bank (“NCB”) a full service commercial bank headquartered in Lakewood, Washington (the “NCB Acquisition”). NCB operated two branch locations in Lakewood and Auburn, Washington. The NCB Acquisition was completed on January 9, 2013, with the merger of NCB into Heritage Bank. See Note 2, “Business Combination.” The Cowlitz Acquisition, Pierce Commercial Acquisition and NCB Acquisition are collectively referred to as the “Cowlitz, Pierce and NCB Acquisitions.”

On March 11, 2013, the Company announced it had entered into a definitive agreement to acquire Valley Community Bancshares, Inc. and its wholly-owned subsidiary, Valley Bank, both headquartered in Puyallup, Washington (the “Valley Acquisition”). The Valley Acquisition was completed on July 15, 2013. For additional information, see Note 14, “Subsequent Event.”

Finally, on April 8, 2013, the Company announced the proposed merger of its two wholly-owned bank subsidiaries Central Valley Bank and Heritage Bank, with Central Valley Bank merging into Heritage Bank. The common control merger was completed on June 19, 2013 and on a consolidated basis had no accounting impact on the Company. Central Valley Bank is now operating as a division of Heritage Bank.

(b) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), for interim financial information, pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements and accompanying Notes should be read with our December 31, 2012 audited Consolidated Financial Statements and the accompanying Notes included in our Annual Report on Form 10-K (“2012 Annual Form 10-K”). In our 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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. In preparing the Condensed Consolidated Financial Statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Estimates related to the allowance for loan losses, other than temporary impairments in the fair value of investment securities, expected cash flows of purchased 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.

9

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

(c) Significant Accounting Policies

The significant accounting policies used in preparation of our Condensed Consolidated Financial Statements are disclosed in our 2012 Annual Form 10-K. There have not been any material changes in our significant accounting policies from those contained in our 2012 Annual Form 10-K disclosure for the year ended December 31, 2012.

(d) Recently Issued Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Updated (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities, was issued in December 2011 to require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of the Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements at the date of adoption.

FASB ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution, was issued in October 2012. The objective of the Update is to address the diversity in practice about how to interpret the terms “on the same basis” and “contractual limitations” when subsequently measuring an indemnification asset. This Update is effective for fiscal years and interim periods beginning on or after December 15, 2012. Early adoption was permitted, and adoption was to be applied prospectively to indemnification assets existing as of the date of adoption. The adoption of this Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements at the date of adoption as the Company previously accounted for its indemnification asset in a manner consistent with the Update.

FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, was issued in February 2013. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) 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 (loss) 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 adoption of this Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements. The additional disclosures are included in Note 7, “Accumulated Other Comprehensive Income (Loss).”

(2) Business Combination

On September 14, 2012, the Company announced that it had entered into a definitive agreement along with its wholly-owned bank subsidiary, Heritage Bank, to acquire NCB headquartered in Lakewood, Washington. NCB was a full service commercial bank that operated two branch locations in Lakewood and Auburn, Washington. Prior to the closing of the transaction, NCB redeemed its outstanding preferred stock of approximately $2.0 million issued to the U.S. Department of Treasury in connection with its participation in the Troubled Asset Relief Program Capital Purchase Plan. The NCB Acquisition was completed on January 9, 2013, and NCB was merged into Heritage Bank. After the NCB Acquisition, the NCB Lakewood branch was consolidated into one of Heritage Bank’s full service banking offices in Lakewood, Washington.

In connection with the NCB Acquisition, the Company paid a cash consideration of $3.0 million, or $5.50 per NCB share, to NCB shareholders on January 9, 2013. In addition, per the merger agreement, the NCB shareholders had the ability to potentially receive an additional cash payment based on an earn-out structure from the sale of an NCB asset included in “other real estate owned.” This contingent payment was factored into the liabilities assumed as of the January 9, 2013 acquisition date. This asset was sold during the three months ended June 30, 2013, and the proceeds from the sale in the amount of $491,000 were paid to the NCB shareholders subsequent to June 30, 2013. The payment of these proceeds did not impact the recorded bargain purchase gain on bank acquisition.

10

The acquisition of the net assets constitutes a business acquisition as defined by FASB Accounting Standards Codification (“ASC”) 805, Business Combinations. The Business Combinations topic 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. Accordingly, the estimated fair values of the acquired assets, including the identifiable intangible assets, and the assumed liabilities in the acquisition were measured and recorded as of the acquisition date.

A statement of the fair value of the assets acquired and liabilities assumed in the NCB Acquisition was as follows:

	Northwest Commercial Bank January 9, 2013
	(In thousands)
Assets
Cash on hand and in banks	$	2,463
Interest earning deposits		1,252
Investment securities available for sale		2,753
Purchased non-covered loans receivable		51,509
Other real estate owned		2,279
Premises and equipment		214
FHLB stock		88
Accrued interest receivable		232
Core deposit intangible		156
Prepaid expenses and other assets		1,175
Deferred income taxes, net		2,873
Total assets acquired	$	64,994
Liabilities
Deposits	$	60,442
Accrued expenses and other liabilities		1,186
Total liabilities assumed		61,628
Net assets acquired	$	3,366

The cost basis of net assets transferred to Heritage Bank was $6.1 million. A bargain purchase gain on bank acquisition of $399,000 was recognized by the Company in the Condensed Consolidated Statement of Income for the six months ended June 30, 2013. A summary of the net assets purchased and the estimated fair value adjustments and resulting bargain purchase gain recognized from the NCB Acquisition was as follows:

	Northwest Commercial Bank January 9, 2013
	(In thousands)
Cost basis of net assets on acquisition date	$	6,113
Cash consideration paid		(2,967	)
Fair value adjustments:
Interest earning deposits		7
Investment securities		(2	)
Purchased non-covered loans, net		(3,299	)
Other real estate owned		(1,301	)
Premises and equipment		(69	)
Core deposit intangible		156
Prepaid expenses and other assets		(479	)
Deferred income tax, net		2,873
Certificates of deposit		(11	)
Accrued expenses and other liabilities		(622	)
Bargain purchase gain recognized from the acquisition	$	399

11

The bargain purchase gain on bank acquisition represents the excess of the estimated fair value of the net assets acquired and liabilities assumed over the value of the consideration paid. The bargain purchase gain was influenced significantly by the net deferred tax asset acquired in the NCB Acquisition. NCB had significant net operating losses and as a result of its estimate of whether or not it was more likely than not that the net deferred tax asset would be realized, had recorded a full valuation allowance on the net deferred tax asset. The Company, however, has reviewed the net deferred tax asset and determined it is more likely than not that the net deferred tax asset would be realized by the Company.

The operating results of the Company for the three and six months ended June 30, 2013 include the operating results produced by the net assets acquired from the NCB Acquisition since the January 9, 2013 acquisition date. The Company has considered the requirement of FASB ASC 805 related to the contribution of the NCB Acquisition to the Company’s results of operations. The table below presents only the significant results for the acquired business from the acquisition date.

	Northwest Commercial Bank
	Three Months Ended June 30, 2013			January 10, 2013 to June 30, 2013
	(In thousands)
Interest income: Interest and fees on loans (1)	$	595		$	1,160
Interest income: Interest and fees on loan (2)		366			1,462
Interest expense: Deposits		(81	)		(157	)
Provision for loan losses on purchased loans:		(250	)		(250	)
Noninterest income:		35			473
Noninterest expense:		(196	)		(1,224	)
Net effect, pre-tax	$	469		$	1,464

(1) Includes the contractual interest income on the purchased other loans.

(2) Includes the accretion of the purchased impaired loans and the amortization of the discount on the purchased other loans.

The Company also considered the pro forma requirements of FASB ASC 805 and deemed it not necessary to provide pro forma financial statements as required under the standard as the NCB Acquisition was not material to the Company. The Company believes that the historical NCB operating results are not significant to be meaningful to the Company’s results of operations.

There were no acquisitions completed by the Company during the year ended December 31, 2012.

(3) Loans Receivable

The Company originates loans in the ordinary course of business. These loans are identified as “originated” loans. Disclosures related to the Company’s recorded investment in originated loans receivable generally exclude accrued interest receivable and net deferred loan origination fees and costs because they are insignificant. The Company has also acquired loans through FDIC-assisted and open bank transactions. Loans acquired in a business acquisition are designated as “purchased” loans. The Company refers to the purchased loans subject to the FDIC shared-loss agreements as “covered” loans, and those loans without shared-loss agreements are referred to as “non-covered” 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 ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans are identified as “purchased impaired” 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. These loans are identified as “purchased other” loans.

12

(a) Loan Origination/Risk Management

The Company originates loans in one of the four segments of the total loan portfolio: commercial business, real estate construction and land development, one-to-four family residential, 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 external 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 portfolio segment is as follows:

Commercial Business:

There are three significant classes of loans in the commercial portfolio segment, including 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.

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.

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 a variable rate 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 regards 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 sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

13

Consumer:

The Company originates consumer loans and lines of credit that are both secured and unsecured. The underwriting process for this segment of 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 the consumer loans are relatively small amounts spread across many individual borrowers which minimizes the credit risk. Additionally, trend reports are reviewed by management on a regular basis.

Originated loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	284,291		$	277,240
Owner-occupied commercial real estate		187,964			188,494
Non-owner occupied commercial real estate		337,009			265,835
Total commercial business		809,264			731,569
One-to-four family residential		39,603			38,848
Real estate construction and land development:
One-to-four family residential		22,153			25,175
Five or more family residential and commercial properties		37,234			52,075
Total real estate construction and land development		59,387			77,250
Consumer		26,727			28,914
Gross originated loans receivable		934,981			876,581
Net deferred loan fees		(2,493	)		(2,096	)
Originated loans receivable, net		932,488			874,485
Allowance for loan losses		(17,822	)		(19,125	)
Originated loans receivable, net of allowance for loan losses	$	914,666		$	855,360

14

The recorded investment of purchased covered loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	20,432		$	25,781
Owner-occupied commercial real estate		30,283			34,796
Non-owner occupied commercial real estate		18,670			13,028
Total commercial business		69,385			73,605
One-to-four family residential		4,936			5,027
Real estate construction and land development:
One-to-four family residential		1,885			4,433
Five or more family residential and commercial properties		—			—
Total real estate construction and land development		1,885			4,433
Consumer		4,520			5,265
Gross purchased covered loans receivable		80,726			88,330
Allowance for loan losses		(5,769	)		(4,352	)
Purchased covered loans receivable, net	$	74,957		$	83,978

The June 30, 2013 and December 31, 2012 gross recorded investment balance of purchased impaired covered loans accounted for under FASB ASC 310-30 was $52.2 million and $59.0 million, respectively. The gross recorded investment balance of purchased other covered loans was $28.5 million and $29.3 million at June 30, 2013 and December 31, 2012, respectively. At June 30, 2013 and December 31, 2012, the recorded investment balance of purchased covered loans which are no longer covered under the FDIC loss-sharing agreements was $4.3 million and $3.5 million, respectively.

Funds advanced on the purchased covered loans subsequent to acquisition, referred to as “subsequent advances,” are included in the purchased covered loan balances as these subsequent advances are covered under the loss-sharing agreements. These subsequent advances are not accounted for under FASB ASC 310-30. The total balance of subsequent advances on the purchased covered loans was $9.0 million and $6.9 million as of June 30, 2013 and December 31, 2012, respectively.

The recorded investment of purchased non-covered loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	37,279		$	24,763
Owner-occupied commercial real estate		25,741			13,211
Non-owner occupied commercial real estate		21,051			11,019
Total commercial business		84,071			48,993
One-to-four family residential		3,767			3,040
Real estate construction and land development:
One-to-four family residential		551			513
Five or more family residential and commercial properties		2,509			864
Total real estate construction and land development		3,060			1,377
Consumer		10,721			10,713
Gross purchased non-covered loans receivable		101,619			64,123
Allowance for loan losses		(4,789	)		(5,117	)
Purchased non-covered loans receivable, net	$	96,830		$	59,006

The loans purchased in the NCB Acquisition on January 9, 2013 are included in the purchased non-covered loans receivable balances shown above as of June 30, 2013. The estimated fair value of the purchased non-covered loans totaled $51.5 million at the NCB Acquisition date. The gross recorded investment balance of the NCB purchased impaired loans and the NCB purchased other loans was $4.7 million and $40.2 million at June 30, 2013, respectively.

15

The June 30, 2013 and December 31, 2012 gross recorded investment balance of purchased impaired non-covered loans accounted for under FASB ASC 310-30 was $41.7 million and $42.0 million, respectively. The recorded investment balance of purchased other non-covered loans was $60.0 million and $22.1 million at June 30, 2013 and December 31, 2012, respectively.

(b) Concentrations of Credit

Most of the Company’s lending activity occurs within Washington State, and to a lesser extent Oregon State. The Company’s primary market areas include Thurston, Pierce, King, Mason, Cowlitz and Clark counties in Washington and Multnomah County in Oregon, as well as other contiguous markets. The majority of the Company’s loan portfolio consists of commercial and industrial, non-owner occupied commercial real estate, and owner occupied commercial real estate. As of June 30, 2013 and December 31, 2012, 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 9, and a “W”. A description of the general characteristics of the risk grades is as follows:

• Grades 0 to 5: These grades are considered “pass grade” and includes 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 “W”: This grade is considered “pass grade” and includes loans on management’s “watch list” and 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 6: 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 7: This grade includes “Substandard” loans in accordance with regulatory guidelines, for 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 8: 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.

• Grade 9: 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.

Loan grades for all commercial business loans and real estate construction and land development loans are established at the origination of the loan. One-to-four family residential loans and consumer loans (“non-commercial loans”) are not graded as a 0 to 9 at origination date as these loans are determined to be “pass graded” loans. These non-commercial loans may subsequently require a 0-9 risk grade if the credit department has evaluated the credit and determined it necessary to classify the loan. 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.

16

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 inherent losses in the portfolios, but to a lesser extent than the other loan grades. These pass graded loans may also have a zero percent loss based on historical experience and current market trends. 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 originated loans receivable by credit quality indicator as of June 30, 2013 and December 31, 2012.

	June 30, 2013
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	260,627	$	3,001	$	19,538	$	1,125	$	284,291
Owner-occupied commercial real estate		179,149		3,010		5,805		—		187,964
Non-owner occupied commercial real estate		325,380		4,558		7,071		—		337,009
Total commercial business		765,156		10,569		32,414		1,125		809,264
One-to-four family residential		38,439		272		892		—		39,603
Real estate construction and land development:
One-to-four family residential		12,982		4,476		4,695		—		22,153
Five or more family residential and commercial properties		34,450		—		2,784		—		37,234
Total real estate construction and land development		47,432		4,476		7,479		—		59,387
Consumer		26,560		—		167		—		26,727
Gross originated loans	$	877,587	$	15,317	$	40,952	$	1,125	$	934,981

	December 31, 2012
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	254,593	$	3,908	$	18,157	$	582	$	277,240
Owner-occupied commercial real estate		181,630		2,658		4,206		—		188,494
Non-owner occupied commercial real estate		256,077		4,132		5,257		369		265,835
Total commercial business		692,300		10,698		27,620		951		731,569
One-to-four family residential		37,239		920		689		—		38,848
Real estate construction and land development:
One-to-four family residential		16,446		1,795		6,934		—		25,175
Five or more family residential and commercial properties		48,718		—		3,357		—		52,075
Total real estate construction and land development		65,164		1,795		10,291		—		77,250
Consumer		28,748		—		156		10		28,914
Gross originated loans	$	823,451	$	13,413	$	38,756	$	961	$	876,581

17

The tables above include $31.2 million and $27.5 million of originated impaired loans as of June 30, 2013 and December 31, 2012, respectively, as detailed in the impaired loans section below. These impaired loans have been individually reviewed for probable losses and have a specific valuation allowance, as necessary. The tables above also include potential problem loans. Potential problem loans are those loans 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. Potential problem originated loans as of June 30, 2013 and December 31, 2012 were $29.2 million and $28.3 million, respectively. The balance of potential problem originated loans guaranteed by a governmental agency was $2.0 million and $3.2 million as of June 30, 2013 and December 31, 2012, respectively. This guarantee reduces the Company’s credit exposure.

The following tables present the recorded invested balance of the purchased other loans receivable by credit quality indicator as of June 30, 2013 and December 31, 2012.

	June 30, 2013
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	23,834	$	498	$	1,561	$	—	$	25,893
Owner-occupied commercial real estate		31,774		2,341		677		—		34,792
Non-owner occupied commercial real estate		14,423		723		1,850		—		16,996
Total commercial business		70,031		3,562		4,088		—		77,681
One-to-four family residential		760		546		—		—		1,306
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—
Five or more family residential and commercial properties		939		—		—		—		939
Total real estate construction and land development		939		—		—		—		939
Consumer		8,096		183		280		—		8,559
Gross purchased other loans	$	79,826	$	4,291	$	4,368	$	—	$	88,485

	December 31, 2012
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	11,393	$	496	$	92	$	—	$	11,981
Owner-occupied commercial real estate		23,685		2,390		335		—		26,410
Non-owner occupied commercial real estate		3,108		732		973		—		4,813
Total commercial business		38,186		3,618		1,400		—		43,204
One-to-four family residential		770		553		61		—		1,384
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		—		—
Total real estate construction and land development		—		—		—		—		—
Consumer		6,385		2		346		32		6,765
Gross purchased other loans	$	45,341	$	4,173	$	1,807	$	32	$	51,353

The tables above include $2.3 million and $2.2 million of purchased other impaired loans as of June 30, 2013 and December 31, 2012, respectively, as detailed in the impaired loans section below. These purchased other impaired loans have been individually reviewed for potential losses and have a specific valuation allowance, as necessary.

18

(d) Nonaccrual loans

Originated nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2013 and December 31, 2012:

	June 30, 2013(1)		December 31, 2012(1)
	(In thousands)
Commercial business:
Commercial and industrial	$	4,947	$	4,560
Owner-occupied commercial real estate		1,132		563
Non-owner occupied commercial real estate		—		369
Total commercial business		6,079		5,492
One-to-four family residential		583		389
Real estate construction and land development:
One-to-four family residential		2,179		3,063
Five or more family residential and commercial properties		2,785		3,357
Total real estate construction and land development		4,964		6,420
Consumer		120		157
Gross originated nonaccrual loans	$	11,746	$	12,458

(1) $2.0 million and $1.2 million of nonaccrual originated loans were guaranteed by governmental agencies at June 30, 2013 and December 31, 2012, respectively.

The recorded investment balance of purchased other nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2013 and December 31, 2012:

	June 30, 2013(1)		December 31, 2012(1)
	(In thousands)
Commercial business:
Commercial and industrial	$	223	$	—
Owner-occupied commercial real estate		134		139
Non-owner occupied commercial real estate		437		437
Total commercial business		794		576
One-to-four family residential		—		61
Consumer		10		163
Gross purchased other nonaccrual loans	$	804	$	800

(1) $7,000 and $39,000 of purchased other nonaccrual loans were covered by the FDIC shared-loss agreements at June 30, 2013 and December 31, 2012, respectively.

(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 originated past due loans, segregated by segments and classes of loans, as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	809	$	3,102	$	3,911	$	280,380	$	284,291	$	—
Owner-occupied commercial real estate		340		1,042		1,382		186,582		187,964		—

19

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Non-owner occupied commercial real estate		43		—		43		336,966		337,009		—
Total commercial business		1,192		4,144		5,336		803,928		809,264		—
One-to-four family residential		359		225		584		39,019		39,603		—
Real estate construction and land development:
One-to-four family residential		305		2,179		2,484		19,669		22,153		—
Five or more family residential and commercial properties		—		—		—		37,234		37,234		—
Total real estate construction and land development		305		2,179		2,484		56,903		59,387		—
Consumer		175		80		255		26,472		26,727		—
Gross originated loans	$	2,031	$	6,628	$	8,659	$	926,322	$	934,981	$	—

	December 31, 2012
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	2,768	$	2,014	$	4,782	$	272,458	$	277,240	$	25
Owner-occupied commercial real estate		920		112		1,032		187,462		188,494		—
Non-owner occupied commercial real estate		92		369		461		265,374		265,835		—
Total commercial business		3,780		2,495		6,275		725,294		731,569		25
One-to-four family residential		239		375		614		38,234		38,848		—
Real estate construction and land development:
One-to-four family residential		847		3,242		4,089		21,086		25,175		179
Five or more family residential and commercial properties		—		3,018		3,018		49,057		52,075		—
Total real estate construction and land development		847		6,260		7,107		70,143		77,250		179
Consumer		68		146		214		28,700		28,914		10
Gross originated loans	$	4,934	$	9,276	$	14,210	$	862,371	$	876,581	$	214

20

The balances of purchased other past due loans, segregated by segments and classes of loans, as of June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	222	$	—	$	222	$	25,671	$	25,893	$	—
Owner-occupied commercial real estate		134		265		399		34,393		34,792		265
Non-owner occupied commercial real estate		882		437		1,319		15,677		16,996		—
Total commercial business		1,238		702		1,940		75,741		77,681		265
One-to-four family residential		—		—		—		1,306		1,306		—
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		939		939		—
Total real estate construction and land development		—		—		—		939		939		—
Consumer		530		—		530		8,029		8,559		—
Gross purchased other loans	$	1,768	$	702	$	2,470	$	86,015	$	88,485	$	265

	December 31, 2012
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	—	$	—	$	—	$	11,981	$	11,981	$	—
Owner-occupied commercial real estate		662		—		662		25,748		26,410		—
Non-owner occupied commercial real estate		—		437		437		4,376		4,813		—
Total commercial business		662		437		1,099		42,105		43,204		—
One-to-four family residential		—		61		61		1,323		1,384		—
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		—		—		—
Total real estate construction and land development		—		—		—		—		—		—
Consumer		75		216		291		6,474		6,765		135
Gross purchased other loans	$	737	$	714	$	1,451	$	49,902	$	51,353	$	135

21

(f) Impaired loans

Originated impaired loans (including restructured loans) at June 30, 2013 and December 31, 2012 are set forth in the following tables.

	June 30, 2013
	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	$	7,742	$	5,047	$	12,789	$	14,600	$	1,878
Owner-occupied commercial real estate		1,182		1,414		2,596		2,643		518
Non-owner occupied commercial real estate		2,627		4,173		6,800		6,800		1,333
Total commercial business		11,551		10,634		22,185		24,043		3,729
One-to-four family residential		480		359		839		851		16
Real estate construction and land development:
One-to-four family residential		1,434		3,831		5,265		6,438		591
Five or more family residential and commercial properties		2,785		—		2,785		2,785		—
Total real estate construction and land development		4,219		3,831		8,050		9,223		591
Consumer		80		40		120		120		7
Gross originated loans	$	16,330	$	14,864	$	31,194	$	34,237	$	4,343

	December 31, 2012
	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	$	7,797	$	2,643	$	10,440	$	10,741	$	858
Owner-occupied commercial real estate		633		1,418		2,051		2,134		509
Non-owner occupied commercial real estate		3,031		4,226		7,257		7,257		1,386
Total commercial business		11,461		8,287		19,748		20,132		2,753
One-to-four family residential		422		389		811		811		46
Real estate construction and land development:
One-to-four family residential		700		2,724		3,424		4,597		792
Five or more family residential and commercial properties		—		3,357		3,357		3,397		658
Total real estate construction and land development		700		6,081		6,781		7,994		1,450
Consumer		47		110		157		157		110
Gross originated loans	$	12,630	$	14,867	$	27,497	$	29,094	$	4,359

22

The Company had governmental guarantees of $3.3 million and $1.9 million related to the impaired originated loan balances at June 30, 2013 and December 31, 2012, respectively.

The average recorded investment of originated impaired loans (including restructured loans) for the three and six months ended June 30, 2013 and 2012 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Commercial business:
Commercial and industrial	$	13,032	$	12,044	$	12,168	$	11,455
Owner-occupied commercial real estate		2,524		1,780		2,366		1,976
Non-owner occupied commercial real estate		6,867		7,406		6,997		7,680
Total commercial business		22,423		21,230		21,531		21,111
One-to-four family residential		1,050		1,165		970		1,054
Real estate construction and land development:
One-to-four family residential		4,133		4,606		3,897		4,908
Five or more family residential and commercial properties		3,024		4,652		3,135		6,367
Total real estate construction and land development		7,157		9,258		7,032		11,275
Consumer		83		189		108		168
Gross impaired originated loans	$	30,713	$	31,842	$	29,641	$	33,608

Purchased other loans become impaired when classified as nonaccrual or when modification resulted in a troubled debt restructure. Purchased other impaired loans (including restructured loans) at June 30, 2013 and December 31, 2012 are set forth in the following tables.

	June 30, 2013
	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	$	291	$	449	$	740	$	739	$	233
Owner-occupied commercial real estate		163		—		163		159		—
Non-owner occupied commercial real estate		437		530		967		924		13
Total commercial business		891		979		1,870		1,822		246
One-to-four family residential		—		460		460		431		39
Consumer		7		3		10		11		3
Gross purchased other impaired loans	$	898	$	1,442	$	2,340	$	2,264	$	288

23

	December 31, 2012
	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	$	330	$	106	$	436	$	434	$	14
Owner-occupied commercial real estate		—		139		139		135		7
Non-owner occupied commercial real estate		437		536		973		926		18
Total commercial business		767		781		1,548		1,495		39
One-to-four family residential		—		527		527		489		105
Consumer		—		163		163		173		157
Gross purchased other impaired loans	$	767	$	1,471	$	2,238	$	2,157	$	301

24

The average recorded investment of purchased other impaired loans (including restructured loans) for three and six months ended June 30, 2013 and 2012 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Commercial business:
Commercial and industrial	$	589	$	19	$	538	$	12
Owner-occupied commercial real estate		150		72		146		48
Non-owner occupied commercial real estate		968		708		970		472
Total commercial business		1,707		799		1,654		532
One-to-four family residential		461		—		483		—
Consumer		25		409		71		438
Gross impaired purchased other loans	$	2,193	$	1,208	$	2,208	$	970

For the three and six months ended June 30, 2013 and 2012 no interest income was recognized subsequent to a loan’s classification as impaired.

(g) Troubled Debt Restructured Loans

A troubled debt restructured loan (“TDR”) 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 or nonaccrual status.

The recorded investment balance and related allowance for loan losses of accruing and non-accruing TDRs as of June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013				December 31, 2012
	Accruing TDRs		Non-Accruing TDRs		Accruing TDRs		Non-Accruing TDRs
	(In thousands)
Originated TDRs	$	19,448	$	6,715	$	15,039	$	9,311
Allowance for loan losses on originated TDRs		3,632		518		2,131		1,994
Purchased other TDRs		1,535		10		1,437		7
Allowance for loan losses on purchased other TDRs		96		3		76		2

The unfunded commitment to borrowers related to originated TDRs was $3.9 million and $1.5 million as of June 30, 2013 and December 31, 2012, respectively. There were no unfunded commitments to borrowers related to the purchased other TDRs as of June 30, 2013 and December 31, 2012.

Originated loans that were modified as TDRs during the three and six months ended June 30, 2013 and 2012 are set forth in the following tables:

	Three Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		8	$	1,598		13	$	2,083
Total commercial business		8		1,598		13		2,083
Real estate construction and land development:
One-to-four family residential		24		3,086		1		222
Five or more family residential and commercial properties		1		2,784		—		—
Total real estate construction and land development		25		5,870		—		—
Consumer		1		40		—		—
Total originated TDRs		34	$	7,508		14	$	2,305

25

	Six Months Ended June 30,
	2013				2012
	Number of Contracts (2)		Outstanding Principal Balance (1)(2)		Number of Contracts (2)		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		18	$	4,174		22	$	3,940
Owner-occupied commercial real estate		—		—		1		198
Total commercial business		18		4,174		23		4,138
One-to-four family residential		1		256		—		—
Real estate construction and land development:
One-to-four family residential		24		3,086		3		577
Five or more family residential and commercial properties		1		2,784		—		—
Total real estate construction and land development		25		5,870		3		577
Consumer		1		40		—		—
Total originated TDRs		45	$	10,340		26	$	4,715

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end dates as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2013 and 2012.

(2) Includes subsequent payments after modifications and reflects the balance as of the end of the period. The Bank’s initial recorded investments in the loans did not change as a result of the modifications as the Bank did not forgive any principal or interest balance as part of the modifications.

26

Of the 45 loans modified during the six months ended June 30, 2013, eight loans with a total outstanding principal balance of $4.5 million were previously reported as TDRs as of December 31, 2012. Of the 26 loans modified during the six months ended June 30, 2012, nine loans with a total outstanding principal balance of $1.9 million were previously reported as TDRs as of December 31, 2011. 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 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 TDR and adjusted, as necessary, in the current periods based on more recent information.

Purchased other loans that were modified as TDRs during the three and six months ended June 30, 2013 and 2012 are set forth in the following tables:

	Three Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		1	$	125		—	$	—
Owner occupied commercial real estate		1		29		—		—
Non-owner occupied commercial real estate		—		—		1		542
Total commercial business		2		154		1		542
Consumer		1		3		—		—
Total originated TDRs		3	$	157		1	$	542

	Six Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		1	$	125		1	$	18
Owner occupied commercial real estate		1		29		—		—
Non-owner occupied commercial real estate		—		—		1		542
Total commercial business		2		154		2		560
Consumer		1		3		—		—
Total originated TDRs		3	$	157		2	$	560

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end dates as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2013 and 2012.

(2) Includes subsequent payments after modifications and reflects the balance as of the end of the period. The Bank’s initial recorded investments in the loans did not change as a result of the modifications as the Bank did not forgive any principal or interest balance as part of the modifications.

27

The majority of the Bank’s TDRs are a result of granting extensions to troubled credits which have already been adversely classified. We grant 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. 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 loans were interest-only with a balloon payment at maturity. If the interest rate is not adjusted and the terms are consistent with market, 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 TDRs using the same guidance as used for other impaired loans.

There were no originated or purchased other TDRs that had been modified during the previous twelve months ended that subsequently defaulted during the three and six months ended June 30, 2013 and 2012.

(h) Purchased Impaired Loans

As indicated above, the Company purchased impaired loans from the Cowlitz, Pierce and NCB Acquisitions which are accounted for under FASB ASC 310-30.

The following tables reflect the outstanding balance at June 30, 2013 and December 31, 2012 of the purchased impaired loans by acquisition:

	Cowlitz Bank
	June 30, 2013		December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	15,736	$	21,624
Owner-occupied commercial real estate		15,556		17,157
Non-owner occupied commercial real estate		14,817		12,908
Total commercial business		46,109		51,689
One-to-four family residential		4,107		4,262
Real estate construction and land development:
One-to-four family residential		1,678		6,122
Five or more family residential and commercial properties		—		—
Total real estate construction and land development		1,678		6,122
Consumer		2,613		3,533
Gross purchased impaired covered loans	$	54,507	$	65,606

The total balance of subsequent advances on the purchased impaired covered loans was $5.5 million and $3.8 million as of June 30, 2013 and December 31, 2012, respectively. The Bank has the option to modify certain purchased covered loans which may terminate the FDIC shared-loss coverage on those modified loans. At June 30, 2013 and December 31, 2012, the recorded investment balance of purchased impaired covered loans which are no longer covered under the FDIC shared-loss agreements was $1.6 million and $1.7 million, 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 properly adjusted to reflect the change in the loan status.

	Pierce Commercial Bank
	June 30, 2013		December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	19,945	$	21,953
Owner-occupied commercial real estate		5,315		5,748
Non-owner occupied commercial real estate		5,525		7,802
Total commercial business		30,785		35,503
One-to-four family residential		4,108		3,303
Real estate construction and land development:
One-to-four family residential		2,841		3,375
Five or more family residential and commercial properties		712		820
Total real estate construction and land development		3,553		4,195
Consumer		2,602		4,393
Gross purchased impaired non-covered loans	$	41,048	$	47,394

28

	Northwest Commercial Bank
	June 30, 2013 (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	1,624
Owner-occupied commercial real estate		1,890
Non-owner occupied commercial real estate		2,049
Total commercial business		5,563
One-to-four family residential		—
Real estate construction and land development:
One-to-four family residential		—
Five or more family residential and commercial properties		700
Total real estate construction and land development		700
Consumer		84
Gross purchased impaired non-covered loans	$	6,347

(1) The NCB Acquisition was completed on January 9, 2013

On the January 9, 2013 acquisition date, the amount by which the undiscounted expected cash flows of the purchased impaired 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 purchased impaired loan.

The following table summarizes the accretable yield on the purchased impaired loans resulting from the Cowlitz, Pierce and NCB Acquisitions for the three and six months ended June 30, 2013 and 2012. As the NCB Acquisition was completed on January 9, 2013, there are no balances for the three or six months ended June 30, 2012.

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Cowlitz Bank			Pierce Commercial Bank			NCB			Cowlitz Bank			Pierce Commercial Bank			NCB
	(In thousands)
Balance at the beginning of period (1)	$	14,108		$	8,920		$	684		$	14,286		$	7,352		$	745
Accretion		(1,109	)		(1,051	)		(29	)		(2,463	)		(2,333	)		(90	)
Disposal and other		(443	)		(760	)		(16	)		502			2,062			(16	)
Change in accretable yield		713			615			—			944			643			—
Balance at the end of period	$	13,269		$	7,724		$	639		$	13,269		$	7,724		$	639

29

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Cowlitz Bank			Pierce Commercial Bank			Cowlitz Bank			Pierce Commercial Bank
	(In thousands)
Balance at the beginning of period	$	17,824		$	12,548		$	19,912		$	14,638
Accretion		(1,743	)		(1,585	)		(3,659	)		(3,156	)
Disposals and other		(147	)		(225	)		(386	)		(744	)
Change in accretable yield		630			1,077			697			1,077
Balance at the end of period	$	16,564		$	11,815		$	16,564		$	11,815

(1) For the NCB Acquisition, the balance at the beginning of the period represents the balance acquired at January 9, 2013. The contractual cash flows were $8.5 million and the expected cash flows were $5.6 million, resulting in a non-accretable difference of $2.9 million. As the fair value of these purchased impaired loans at the January 9, 2013 NCB Acquisition date was $4.9 million, this provides an accretable yield of $745,000.

(4) Allowance for Loan Losses

The allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan portfolio. A summary of the changes in the originated loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	17,912		$	22,563		$	19,125		$	22,317
Charge-offs		(662	)		(1,961	)		(2,489	)		(3,295	)
Recoveries of loans previously charged-off		227			41			346			1,621
Provision for loan losses		345			200			840			200
Balance at the end of period	$	17,822		$	20,843		$	17,822		$	20,843

A summary of the changes in the purchased covered loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	4,710		$	4,111		$	4,352		$	3,963
Charge-offs		(40	)		—			(40	)		(33	)
Provision (recapture) for loan losses		1,099			(138	)		1,457			43
Balance at the end of period	$	5,769		$	3,973		$	5,769		$	3,973

A summary of the changes in the purchased noncovered loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	4,925		$	4,121		$	5,117		$	4,635
Charge-offs		—			(11	)		(197	)		(235	)
Provision (recapture) for loan losses		(136	)		557			(131	)		267
Balance at the end of period	$	4,789		$	4,667		$	4,789		$	4,667

30

The purchased loans acquired in the Cowlitz, Pierce and NCB Acquisitions are subject to the Company’s internal and external 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 without regard to the FDIC loss-sharing agreement for the covered loan balances. The portion of the estimated loss reimbursable from the FDIC is recorded in noninterest income and increases the FDIC indemnification asset.

31

The following table details activity in the allowance for loan losses disaggregated on the basis of the Company’s impairment method as of and for the three and six months ended June 30, 2013:

	Commercial and industrial			Owner- occupied commercial real estate			Non-owner occupied commercial real estate		One-to-four family residential			Real estate construction and land development: one-to-four family residential			Real estate construction and land development: five or more family residential and commercial properties			Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses for the three months ended June 30, 2013:
March 31, 2013	$	10,844		$	3,841		$	5,275	$	1,206		$	2,655		$	1,335		$	1,495		$	896		$	27,547
Charge-offs		(541	)		—			—		—			—			(59	)		(102	)		—			(702	)
Recoveries		35			155			—		—			—			32			5			—			227
Provision for / (Reallocation of) loan losses		1,840			(271	)		1,012		(108	)		(448	)		(669	)		20			(68	)		1,308
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380
Allowance for loan losses for the six months ended June 30, 2013:
December 31, 2012	$	9,912		$	4,021		$	5,369	$	1,221		$	3,131		$	2,309		$	1,761		$	870		$	28,594
Charge-offs		(2,178	)		—			—		(52	)		—			(142	)		(354	)		—			(2,726	)
Recoveries		145			155			—		—			—			32			14			—			346
Provisions for / (Reallocation of) loan losses		4,299			(451	)		918		(71	)		(924	)		(1,560	)		(3	)		(42	)		2,166
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380
Allowance for loan losses as of June 30, 2013 allocated to:
Originated loans individually evaluated for impairment	$	1,878		$	518		$	1,333	$	16		$	591		$	—		$	7		$	—		$	4,343
Originated loans collectively evaluated for impairment		6,484			1,736			2,403		569			448			534			477			828			13,479
Purchased other covered loans individually evaluated for impairment		1			—			—		39			—			—			—			—			40
Purchased other covered loans collectively evaluated for impairment		53			32			8		5			—			—			48			—			146
Purchased other non-covered loans individually evaluated for impairment		232			—			13		—			—			—			3			—			248
Purchased other non-covered loans collectively evaluated for impairment		33			36			11		—			—			—			74			—			154
Purchased impaired covered loans collectively evaluated for impairment		1,132			1,043			2,147		246			859			—			156			—			5,583
Purchased impaired non-covered loans collectively evaluated for impairment		2,365			360			372		223			309			105			653			—			4,387
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380

32

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, 2013:

	Commercial and industrial		Owner- occupied commercial real estate		Non-owner occupied commercial real estate		One-to-four family residential		Real estate construction and land development: one-to-four family residential		Real estate construction and land development: five or more family residential and commercial properties		Consumer		Total
	(In thousands)
Originated loans individually evaluated for impairment	$	12,789	$	2,596	$	6,800	$	839	$	5,265	$	2,785	$	120	$	31,194
Originated loans collectively evaluated for impairment		271,502		185,368		330,209		38,764		16,888		34,449		26,607		903,787
Purchased other covered loans individually evaluated for impairment		14		—		—		460		—		—		7		481
Purchased other covered loans collectively evaluated for impairment		7,376		15,315		2,463		846		—		—		2,035		28,035
Purchased other non-covered loans individually evaluated for impairment		726		163		967		—		—		—		3		1,859
Purchased other non-covered loans collectively evaluated for impairment		17,777		19,314		13,566		—		—		939		6,514		58,110
Purchased impaired covered loans collectively evaluated for impairment		13,042		14,968		16,207		3,630		1,885		—		2,478		52,210
Purchased impaired non-covered loans collectively evaluated for impairment		18,776		6,264		6,518		3,767		551		1,570		4,204		41,650
Total gross loans receivable as of June 30, 2013	$	342,002	$	243,988	$	376,730	$	48,306	$	24,589	$	39,743	$	41,968	$	1,117,326

33

The following table details the balance in the allowance for loan losses disaggregated on the basis of the Company’s impairment method for the three and six months ended June 30, 2012 and as of December 31, 2012:

	Commercial and industrial			Owner- occupied commercial real estate			Non-owner occupied commercial real estate			One-to-four family residential			Real estate construction and land development: one-to-four family residential			Real estate construction and land development: five or more family residential and commercial properties			Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses for the three months ended June 30, 2012:
March 31, 2012	$	11,695		$	3,668		$	4,424		$	857		$	4,039		$	3,677		$	1,460		$	975		$	30,795
Charge-offs		(411	)		(1,000	)		(292	)		(76	)		(104	)		—			(89	)		—			(1,972	)
Recoveries		29			8			—			—			—			—			4			—			41
Provision for / (Reallocation of) loan losses		(580	)		817			300			367			(115	)		(325	)		202			(47	)		619
June 30, 2012	$	10,733		$	3,493		$	4,432		$	1,148		$	3,820		$	3,352		$	1,577		$	928		$	29,483
Allowance for loan losses for the six months ended June 30, 2012:
December 31, 2011	$	11,805		$	2,979		$	4,394		$	794		$	4,823		$	3,800		$	1,410		$	910		$	30,915
Charge-offs		(900	)		(1,000	)		(292	)		(118	)		(475	)		(445	)		(333	)		—			(3,563	)
Recoveries		1,457			8			11			—			125			—			20			—			1,621
Provision for / (Reallocation of) loan losses		(1,629	)		1,506			319			472			(653	)		(3	)		480			18			510
June 30, 2012	$	10,733		$	3,493		$	4,432		$	1,148		$	3,820		$	3,352		$	1,577		$	928		$	29,483
Allowance for loan losses as of December 31, 2012 allocated to:
Originated loans individually evaluated for impairment	$	858		$	509		$	1,386		$	46		$	792		$	658		$	110		$	—		$	4,359
Originated loans collectively evaluated for impairment		5,372			2,054			2,375			591			1,339			1,527			638			870			14,766
Purchased other covered loans individually evaluated for impairment		4			—			—			44			—			—			33			—			81
Purchased other covered loans collectively evaluated for impairment		38			29			—			23			—			—			4			—			94
Purchased other non-covered loans individually evaluated for impairment		10			7			18			61			—			—			124			—			220
Purchased other non-covered loans collectively evaluated for impairment		30			40			16			5			—			—			14			—			105
Purchased impaired covered loans collectively evaluated for impairment		1,034			989			1,164			210			639			—			141			—			4,177
Purchased impaired non-covered loans collectively evaluated for impairment		2,566			393			410			241			361			124			697			—			4,792
December 31, 2012	$	9,912		$	4,021		$	5,369		$	1,221		$	3,131		$	2,309		$	1,761		$	870		$	28,594

34

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, 2012:

	Commercial and industrial		Owner- occupied commercial real estate		Non-owner occupied commercial real estate		One-to-four family residential		Real estate construction and land development: one-to-four family residential		Real estate construction and land development: five or more family residential and commercial properties		Consumer		Total
	(In thousands)
Originated loans individually evaluated for impairment	$	10,440	$	2,051	$	7,257	$	811	$	3,424	$	3,357	$	157	$	27,497
Originated loans collectively evaluated for impairment		266,800		186,443		258,578		38,037		21,751		48,718		28,757		849,084
Purchased other covered loans individually evaluated for impairment		51		—		—		466		—		—		38		555
Purchased other covered loans collectively evaluated for impairment		7,232		18,347		384		857		—		—		1,911		28,731
Purchased other non-covered loans individually evaluated for impairment		385		139		973		61		—		—		125		1,683
Purchased other non-covered loans collectively evaluated for impairment		4,313		7,924		3,456		—		—		—		4,691		20,384
Purchased impaired covered loans collectively evaluated for impairment		18,498		16,449		12,644		3,704		4,433		—		3,316		59,044
Purchased impaired non-covered loans collectively evaluated for impairment		20,065		5,148		6,590		2,979		513		864		5,897		42,056
Total gross loans receivable as of December 31, 2012	$	327,784	$	236,501	$	289,882	$	46,915	$	30,121	$	52,939	$	44,892	$	1,029,034

35

(5) FDIC Indemnification Asset

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	5,353		$	8,921		$	7,100		$	10,350
Cash payments received or receivable from the FDIC		(881	)		(692	)		(2,361	)		(1,920	)
FDIC share of additional estimated losses		523			450			611			766
Net amortization		(242	)		(467	)		(597	)		(984	)
Balance at the end of period	$	4,753		$	8,212		$	4,753		$	8,212

(6) Other Real Estate Owned

Changes in other real estate owned during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	5,263		$	8,349		$	5,666		$	4,484
Additions		513			1,217			513			5,526
Additions from acquisitions		—			—			2,279			—
Proceeds from dispositions		(1,955	)		(790	)		(4,916	)		(891	)
Gain (loss) on sales		60			10			232			(2	)
Valuation adjustment		(85	)		(152	)		22			(483	)
Balance at the end of period	$	3,796		$	8,634		$	3,796		$	8,634

(7) Accumulated Other Comprehensive (Loss) Income

The changes in accumulated other comprehensive (loss) income (“AOCI”) by component, during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Changes in fair value of available for sale securities (1)			Accretion of other- than- temporary impairment on held to maturity securities (1)			Total			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	$	1,700		$	(284	)	$	1,416		$	2,042		$	(298	)	$	1,744
Other comprehensive (loss) income before reclassification		(1,947	)		22			(1,925	)		(2,289	)		36			(2,253	)
Amounts reclassified from AOCI		—			—			—			—			—			—
Net current period other comprehensive (loss) income		(1,947	)		22			(1,925	)		(2,289	)		36			(2,253	)
Balance of AOCI at the end of period	$	(247	)	$	(262	)	$	(509	)	$	(247	)	$	(262	)	$	(509	)

36

	Three Months Ended June 30, 2012										Six Months Ended June 30, 2012
	Changes in fair value of available for sale securities (1)		Accretion of other- than- temporary impairment on held to maturity securities (1)			Other-than- temporary impairments on securities held to maturity (1)			Total		Changes in fair value of available for sale securities (1)		Accretion of other- than- temporary impairment on held to maturity securities (1)			Other-than- temporary impairments on securities held to maturity (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	1,778	$	(343	)	$	—		$	1,435	$	2,105	$	(369	)	$	—		$	1,736
Other comprehensive (loss) income before reclassification		360		26			(25	)		361		33		52			(25	)		60
Amounts reclassified from AOCI		—		—			—			—		—		—			—			—
Net current period other comprehensive (loss) income		360		26			(25	)		361		33		52			(25	)		60
Balance of AOCI at the end of period	$	2,138	$	(317	)	$	(25	)	$	1,796	$	2,138	$	(317	)	$	(25	)	$	1,796

(1) All amounts are net of tax.

(8) 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, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Net income:
Net income	$	2,690		$	3,194		$	5,575		$	7,364
Less: Dividends and undistributed earnings allocated to participating securities		(36	)		(40	)		(74	)		(91	)
Net income allocated to common shareholders	$	2,654		$	3,154		$	5,501		$	7,273
Basic:
Weighted average common shares outstanding		15,151,743			15,292,477			15,140,406			15,378,994
Less: Restricted stock awards		(171,542	)		(168,326	)		(179,104	)		(169,573	)
Total basic weighted average common shares outstanding		14,980,201			15,124,151			14,961,302			15,209,421
Diluted:
Basic weighted average common shares outstanding		14,980,201			15,124,151			14,961,302			15,209,421
Incremental shares from stock options		11,941			14,553			12,440			14,544
Total diluted weighted average common shares outstanding		14,992,142			15,138,704			14,973,742			15,223,965

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three and six months ended June 30, 2013 anti-dilutive shares outstanding related to options to acquire common stock totaled 167,147 and 187,196, respectively, as the assumed proceeds from exercise price, tax benefits and future compensation was in excess of the market value. For the three and six months ended June 30, 2012 anti-dilutive shares outstanding related to options and warrants to acquire common stock totaled 239,321 and 272,491, respectively, as the assumed proceeds from exercise price, tax benefits and future compensation was in excess of the market value.

37

(b) Dividends

Common Stock: 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 Banks, which are the Company’s predominant sources of income. The following table summarizes the dividend activity for the six months ended June 30, 2013 and subsequent through the date of this filing.

Declared	Cash Dividend per Share		Record Date	Paid or Payable
January 30, 2013	$	0.08	February 8, 2013	February 22, 2013
April 24, 2013	$	0.08	May 10, 2013	May 24, 2013
July 23, 2013	$	0.18	August 6, 2013	August 15, 2013

The FDIC and the Washington DFI have the authority under their supervisory powers to prohibit the payment of dividends by Heritage Bank to the Company. Additionally, current guidance from the 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 its subsidiary 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 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. During the three and six months ended June 30, 2013, the Company did not repurchase any shares under the plan. In total, the Company has repurchased 52,900 shares at an average price of $13.88 per share under this tenth plan. The Company repurchased 4,539 and 12,319 shares at an average price of $14.22 and $14.82 to pay withholding taxes on restricted stock that vested during the three and six months ended June 30, 2013, respectively.

(9) 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 to satisfy share option exercises and restricted stock awards. As of June 30, 2013, 110,162 shares remain available for future issuances under stock-based compensation plans.

(a) Stock Option Awards

For the three and six months ended June 30, 2013, the Company recognized compensation expense related to stock options of $21,000 and $42,000, respectively. No related tax benefit was recognized for the three or six months ended June 30, 2013. For the three and six months ended June 30, 2012, the Company recognized compensation expense related to stock options of $18,000 and $60,000, respectively, and a related tax benefit of $0 and $1,000, respectively. As of June 30, 2013, the total unrecognized compensation expense related to non-vested stock options was $58,000 and the related weighted average period over which it is expected to be recognized is approximately 0.9 years. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2013 totaled $9,000 and $37,000, respectively. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2012 totaled $2,000 and $11,000, respectively.

38

The following tables summarize the stock option activity for the six months ended June 30, 2013 and 2012.

	June 30, 2013
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2012		300,658		$	17.48
Granted		—			—
Exercised		(3,300	)		11.35
Forfeited or expired		(71,682	)		22.56
Outstanding at June 30, 2013		225,676		$	15.96		3.7 years	$	240
Vested and expected to vest at June 30, 2013		225,600		$	15.96		3.7 years	$	240
Exercisable at June 30, 2013		206,944		$	16.07		3.4 years	$	240

	June 30, 2012
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011		417,123		$	18.33
Granted		—			—
Exercised		(1,000	)		11.35
Forfeited or expired		(99,057	)		21.63
Outstanding at June 30, 2012		317,066		$	17.32		3.8 years	$	292
Vested and expected to vest at June 30, 2012		316,549		$	17.33		3.8 years	$	292
Exercisable at June 30, 2012		272,090		$	17.74		3.2 years	$	292

(b) Restricted and Unrestricted Stock Awards

For the three and six months ended June 30, 2013, the Company recognized compensation expense related to restricted and unrestricted stock awards of $471,000 and $722,000, respectively, and a related tax benefit of $165,000 and $253,000, respectively. For the three and six months ended June 30, 2012, the Company recognized compensation expense related to restricted stock awards of $362,000 and $557,000, respectively, and a related tax benefit of $127,000 and $195,000, respectively. As of June 30, 2013, the total unrecognized compensation expense related to non-vested restricted stock awards was $2.3 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, 2013 and 2012 was $1.2 million and $632,000, respectively.

The following tables summarize the restricted and unrestricted stock award activity for the six months ended June 30, 2013 and 2012.

	June 30, 2013
	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2012		189,670		$	14.86
Granted		99,790			14.26
Vested		(84,346	)		15.62
Forfeited		(964	)		15.52
Nonvested at June 30, 2013		204,150		$	14.25

39

	June 30, 2012
	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2011		164,880		$	16.29
Granted		76,420			14.01
Vested		(45,688	)		17.90
Forfeited		(3,496	)		15.32
Nonvested at June 30, 2012		192,116		$	15.02

(10) 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 our 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 and losses, and fair values of investment securities at the dates indicated were as follows:

Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2013
U.S. Treasury and U.S. Government-sponsored agencies	$	1,119	$	—	$	(28	)	$	1,091
Municipal securities		52,961		911		(1,472	)		52,400
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		89,454		984		(774	)		89,664
Total	$	143,534	$	1,895	$	(2,274	)	$	143,155
December 31, 2012
U.S. Treasury and U.S. Government-sponsored agencies	$	11,016	$	19	$	—		$	11,035
Municipal securities		45,537		1,943		(120	)		47,360
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government agencies		84,598		1,593		(293	)		85,898
Total	$	141,151	$	3,555	$	(413	)	$	144,293

Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2013
U.S. Treasury and U.S. Government-sponsored agencies	$	1,710	$	206	$	—		$	1,916
Municipal securities		4,086		141		(69	)		4,158
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		6,173		186		(153	)		6,206
Private residential collateralized mortgage obligations		1,109		178		(21	)		1,266
Total	$	13,078	$	711	$	(243	)	$	13,546

40

Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2012
U.S. Treasury and U.S. Government-sponsored agencies	$	1,740	$	284	$	—		$	2,024
Municipal securities		2,946		212		—			3,158
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		4,245		277		—			4,522
Private residential collateralized mortgage obligations		1,168		193		(55	)		1,306
Total	$	10,099	$	966	$	(55	)	$	11,010

There were no securities classified as trading at June 30, 2013 or December 31, 2012.

The amortized cost and fair value of securities at June 30, 2013, 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	$	1,192	$	1,198	$	220	$	222
Due after one year through three years		1,105		1,120		1,028		1,075
Due after three years through five years		5,039		5,156		289		303
Due after five years through ten years		44,157		44,219		2,958		3,235
Due after ten years		92,041		91,462		8,583		8,711
Total	$	143,534	$	143,155	$	13,078	$	13,546

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

Available for sale investment securities with unrealized losses as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	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	$	1,091	$	(28	)	$	—	$	—		$	1,091	$	(28	)
Municipal securities		24,218		(1,472	)		—		—			24,218		(1,472	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		29,964		(733	)		3,641		(41	)		33,605		(774	)
Total	$	55,273	$	(2,233	)	$	3,641	$	(41	)	$	58,914	$	(2,274	)

	December 31, 2012
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Municipal securities	$	7,843	$	(120	)	$	—	$	—		$	7,843	$	(120	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		31,197		(248	)		3,779		(45	)		34,976		(293	)
Total	$	39,040	$	(368	)	$	3,779	$	(45	)	$	42,819	$	(413	)

41

Held to maturity investment securities with unrealized losses as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Municipal securities	$	1,081	$	(69	)	$	—	$	—		$	1,081	$	(69	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		2,413		(153	)		—		—			2,413		(153	)
Private residential collateralized mortgage obligations		171		(4	)		159		(17	)		330		(21	)
Total	$	3,665	$	(226	)	$	159	$	(17	)	$	3,824	$	(243	)

	December 31, 2012
	Less than 12 Months				12 Months or Longer					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Mortgage backed securities and collateralized mortgage obligations-residential:
Private residential collateralized mortgage obligations	$	—	$	—	$	317	$	(55	)	$	317	$	(55	)
Total	$	—	$	—	$	317	$	(55	)	$	317	$	(55	)

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 unusually large spreads in the market for mortgage-related products. The fair value of the mortgage backed securities and the collateralized mortgage obligations 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.

For the private residential collateralized mortgage obligations, the Company estimated expected future cash flows of the securities by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination 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. For the six months ended June 30, 2013, there were six private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. For the six months ended June 30, 2012, there were three private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. The Company did not record losses through other comprehensive income (loss) for the three and six months ended June 30, 2013 as all unrealized losses totaling $24,000 and $26,000 for the three and six months ended June 30, 2013, respectively, were deemed to be credit related. The Company recorded $38,000 in impairments not related to credit losses through other comprehensive income (loss) for both the three and six months ended June 30, 2012. The Company recorded $24,000 and $60,000 in losses through earnings for the three and six months ended June 30, 2012, respectively, due to credit losses. The average discount interest rates used in the valuations of the present value as of June 30, 2013 and 2012 were 6.43% and 7.75%, respectively, and the average prepayment rates as of both June 30, 2013 and 2012 was 6.0%.

42

The following table summarizes activity for the six months ended June 30, 2013 and 2012 related to the amount of other-than-temporary impairments related to credit losses on held to maturity securities:

	Life-to-Date Gross  Other- Than-Temporary Impairments		Life-to-Date Other-Than- Temporary Impairments Included in Other Comprehensive (Loss) Income		Life-to-Date Net Other- Than- Temporary Impairments Included in Earnings
	(In thousands)
December 31, 2011	$	2,435	$	1,100	$	1,335
Subsequent impairments		98		38		60
June 30, 2012	$	2,533	$	1,138	$	1,395
December 31, 2012	$	2,565	$	1,152	$	1,413
Subsequent impairments		26		—		26
June 30, 2013	$	2,591	$	1,152	$	1,439

(c) Redemption-in-Kind

In May 2008, the Board of Trustees of the AMF Ultra Short Mortgage Fund (“Fund”) decided to activate the Fund’s redemption-in-kind provision because of the uncertainty in the mortgage backed securities market. Exiting participants in the Fund were allowed to redeem and receive up to $250,000 in cash per quarter or receive 100% of their investment in “like-kind” securities equal to their proportional ownership in the Fund. The Company elected to receive the like-kind securities. Details of private residential collateralized mortgage obligation securities received from the redemption-in-kind election as of June 30, 2013 were as follows:

															Current Ratings
Type of Security	Par Value		Amortized Cost		Fair Value (2)		Aggregate Unrealized Gain (Loss)		Year-to- date Change in Unrealized Gain		Year-to- date Impairment Charge		Life-to- date Impairment Charge (1)		AAA		AA			A			BBB			Below Investment Grade
	(Dollars in thousands)
Alt-A	$	771	$	272	$	278	$	6	$	18	$	21	$	675		—		—			—			1	%		99	%
Prime		1,343		837		988		151		2		5		764		—		5	%		2	%		5	%		88	%
Totals	$	2,114	$	1,109	$	1,266	$	157	$	20	$	26	$	1,439		—		3	%		2	%		4	%		91	%

(1) Life-to-date impairment charge represents impairment charges recognized in earnings subsequent to redemption of the Fund.

(2) Level two valuation assumptions were used to determine the fair value of held to maturity securities in the Fund.

(d) 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, 2013 and December 31, 2012:

	June 30, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Washington and Oregon state to secure public deposits	$	58,024	$	59,132	$	53,642	$	56,300
Federal Reserve Bank and FHLB to secure borrowing arrangements		—		—		6,231		6,245
Repurchase agreements		18,583		18,368		17,479		17,705
Total	$	76,607	$	77,500	$	77,352	$	80,250

43

(11) Federal Home Loan Bank Stock

The Bank is required to maintain an investment in the stock of the FHLB of Seattle in an amount equal to the greater of $500,000 or 0.50% of residential mortgage loans and pass-through securities or an advance requirement to be confirmed on the date of the advance and 5.0% of the outstanding balance of mortgage loans sold to the FHLB of Seattle. At June 30, 2013 and December 31, 2012, the Bank was required to maintain an investment in the stock of FHLB of Seattle of at least $1.3 million and $1.2 million, respectively. The Bank maintained $5.5 million in FHLB stock at both June 30, 2013 and December 31, 2012. The stock has no contractual maturity and amounts in excess of the required minimum for FHLB membership may be redeemed at par subject to certain restrictions.

The Company evaluated its investment in FHLB of Seattle stock for other-than-temporary impairment, consistent with its accounting policy. Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment, the liquidity position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle to address its regulatory situation and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the par value, the Company did not recognize an other-than-temporary impairment loss on its FHLB of Seattle stock. Further, during the year ended December 31, 2012, the Federal Housing Finance Agency (“Finance Agency”) granted the FHLB of Seattle authority to repurchase up to $25 million of excess capital stock per quarter at par ($100 per share), provided they receive a non-objection for each quarter’s repurchase from the Finance Agency. Even though the Company did not recognize an other-than-temporary impairment loss on its FHLB of Seattle stock during the six months ended June 30, 2013 or 2012, further deterioration in the FHLB of Seattle’s financial position may result in future impairment losses.

(12) Goodwill

The Company’s goodwill represents the excess of the purchase price over the fair value of net assets acquired in the purchases of North Pacific Bank in 1998 and Western Washington Bancorp in 2006. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit).

At June 30, 2013, 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 six months ended June 30, 2013. The Company did not record goodwill impairment charges for the three or six months ended June 30, 2013 or 2012. Even though there was no goodwill impairment at June 30, 2013, 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 Condensed Consolidated Financial Statements.

(13) 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 or quoted prices in markets that are not active.

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, 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.

44

(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 value 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 (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 using the lower of cost or fair value. Fair values are 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 table summarizes the balances of assets measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012.

	June 30, 2013
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	1,091	$	—	$	1,091	$	—
Municipal securities		52,400		—		52,400		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies		89,664		—		89,664		—
Total	$	143,155	$	—	$	143,155	$	—

45

	December 31, 2012
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	11,035	$	—	$	11,035	$	—
Municipal securities		47,360		—		47,360		—
Mortgage backed securities and collateralized mortgage obligations—residential
U.S Government-sponsored agencies		85,898		—		85,898		—
Total	$	144,293	$	—	$	144,293	$	—

There were no transfers between Level 1 and Level 2 during the three or six months ended June 30, 2013 or 2012.

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, 2013 and December 31, 2012 and the net losses (gains) recorded in earnings during the three and six months ended June 30, 2013 and 2012.

	Basis (1)		Fair Value at June 30, 2013
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings During the Three Months Ended June 30, 2013			Net Losses (Gains) Recorded in Earnings During the Six Months Ended June 30, 2013
	(In thousands)
Impaired originated loans:
Commercial business	$	10,634	$	6,905	$	—	$	—	$	6,905	$	684		$	1,484
One-to-four family residential		359		343		—		—		343		(2	)		(16	)
Real estate construction and land development		3,831		3,240		—		—		3,240		(70	)		(145	)
Consumer		40		33		—		—		33		7			7
Total impaired originated loans		14,864		10,521		—		—		10,521		619			1,330
Purchased other impaired loans:
Commercial business		979		733		—		—		733		219			214
One-to-four family residential		459		421		—		—		421		(3	)		(5	)
Consumer		3		—		—		—		—		3			3
Total purchased other impaired loans		1,441		1,154		—		—		1,154		219			212
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations—residential:
Private residential collateralized mortgage obligations		37		12		—		12		—		24			26
Other real estate owned		1,432		1,130		—		—		1,130		—			—
Total	$	17,774	$	12,817	$	—	$	12	$	12,805	$	862		$	1,568

46

	Basis (1)		Fair Value at December 31, 2012
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings During the Three Months Ended June 30, 2012			Net Losses (Gains) Recorded in Earnings During the Six Months Ended June 30, 2012
	(In thousands)
Impaired originated loans:
Commercial business	$	11,781	$	9,028	$	—	$	—	$	9,028	$	524		$	616
One-to-four family residential		811		764		—		—		764		102			(4	)
Real estate construction and land development		6,077		4,628		—		—		4,628		(44	)		377
Consumer		109		—		—		—		—		100			100
Total impaired originated loans		18,778		14,420		—		—		14,420		682			1,089
Purchased other impaired loans:
Commercial business		781		742		—		—		742		23			23
One-to-four family residential		527		422		—		—		422		—			—
Consumer		163		6		—		—		6		(2	)		(2	)
Total purchased other impaired loans		1,471		1,170		—		—		1,170		21			21
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations – residential:
Private residential collateralized mortgage obligations		117		113		—		113		—		24			60
Other real estate owned		3,042		2,391		—		—		2,391		—			324
Total	$	23,408	$	18,094	$	—	$	113	$	17,981	$	727		$	1,494

(1) Basis represents the unpaid principal balance of impaired originated and purchased other impaired loans, amortized cost of investment securities held to maturity, and carrying value at ownership date of other real estate owned.

47

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, 2013 and December 31, 2012.

	June 30, 2013
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired originated loans	$	10,521	Market approach	Adjustment for differences between the comparable sales	0.2%-100.0% (15.2%)
Purchased other impaired loans	$	1,154	Market approach	Adjustment for differences between the comparable sales	2.4%-100% (20.0%)
Other real estate owned	$	1,130	Market approach	Adjustment for differences between the comparable sales	18.1%-45.0% (21.1%)

	December 31, 2012
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired originated loans	$	14,420	Market approach	Adjustment for differences between the comparable sales	1.1%-100.0% (21.7%)
Purchased other impaired loans	$	1,170	Market approach	Adjustment for differences between the comparable sales	4.3%-42.9% (4.8%)
Other real estate owned	$	2,391	Market approach	Adjustment for differences between the comparable sales	16.2%-31.0% (20.1%)

(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, 2013
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	31,062	$	31,062	$	31,062	$	—	$	—
Interest earning deposits		63,060		63,060		63,060		—		—
Investment securities available for sale		143,155		143,155		—		143,155		—
Investment securities held to maturity		13,078		13,546		—		13,546		—
FHLB stock		5,482		N/A		N/A		—		—
Loans receivable, net of allowance		1,086,453		1,090,459		—		—		1,090,459
Accrued interest receivable		4,822		4,822		5		774		4,043

48

	June 30, 2013
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts, savings accounts		910,800		910,800		910,800		—		—
Certificate of deposit accounts		285,731		288,869		—		288,869		—
Total deposits	$	1,196,531	$	1,199,669	$	910,800	$	288,869	$	—
Securities sold under agreement to repurchase	$	16,360	$	16,360	$	16,360	$	—	$	—
Accrued interest payable	$	98	$	98	$	15	$	83	$	—

	December 31, 2012
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	37,180	$	37,180	$	37,180	$	—	$	—
Interest earning deposits		69,906		69,906		69,906		—		—
Investment securities available for sale		144,293		144,293		—		144,293		—
Investment securities held to maturity		10,099		11,010		—		11,010		—
FHLB stock		5,495		N/A		N/A		—		—
Loans held for sale		1,676		1,676		—		—		1,676
Loans receivable, net of allowance		998,344		1,012,880		—		—		1,012,880
Accrued interest receivable		4,821		4,821		6		717		4,098
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts, savings accounts		829,044		829,044		829,044		—		—
Certificate of deposit accounts		288,927		290,484		—		290,484		—
Total deposits	$	1,117,971	$	1,119,528	$	829,044	$	290,484	$	—
Securities sold under agreement to repurchase	$	16,021	$	16,021	$	16,021	$	—	$	—
Accrued interest payable	$	106	$	106	$	19	$	87	$	—

49

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

Cash on Hand and in Banks and Interest Earning Deposits:

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

FHLB Stock:

FHLB of Seattle 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.

Loans Receivable and Loans Held for Sale:

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 produces 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 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, repricing 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).

50

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.

(14) Subsequent Event

On March 11, 2013, the Company announced that it had entered into a merger agreement with Valley Community Bancshares, Inc. (“Valley”) pursuant to which Valley will be merged with and into the Company and immediately thereafter Valley’s wholly-owned bank subsidiary, Valley Bank, will be merged with Heritage Bank. The Board of Directors and shareholders of Valley unanimously approved the acquisition. The Company received all required regulatory approvals for the acquisition, which was completed on July 15, 2013. Pursuant to the terms of the merger agreement, the shareholders of Valley common stock received $19.50 per share in cash and 1.3611 shares of Heritage common stock per Valley share. The merger consideration for Valley consisted of cash and stock, with $22.0 million paid in cash by the Company and 1,533,433 shares of the Company’s common stock being issued.

The operating results of the Company for the three and six months ended June 30, 2013 do not include the operating results related to the Valley acquired assets and assumed liabilities as the Valley Acquisition was not completed until July 15, 2013. As of June 30, 2013, Valley Bank had $233.2 million in total assets, $123.0 million in total loans and $203.2 million in total deposits. It is not practical to present financial information related to the assets acquired and liabilities assumed from Valley at this time because the fair value information has not been finalized.

For the three and six months ended June 30, 2013, the Company incurred $223,000 and $346,000, respectively, of costs related to the Valley Acquisition.

51

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 and six months ended June 30, 2013. The information contained in this section should be read with the unaudited Condensed Consolidated Financial Statements and the accompanying Notes, and the December 31, 2012 audited Consolidated Financial Statements and the accompanying Notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

Heritage Financial Corporation is a bank holding company, which primarily engages in the business activities of our wholly owned subsidiary, Heritage Bank (the “Bank”). We provide financial services to our local communities with an ongoing strategic focus in expanding our commercial lending relationships, market area and a continual focus on asset quality. At June 30, 2013, we had total assets of $1.43 billion and total stockholders’ equity of $200.5 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.

Our business consists primarily of 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 after provision for loan losses. 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 in the volume and mix of interest earning assets, interest earned on those 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 cover known and inherent credit losses in its loan portfolio.

Net income is also affected by noninterest income and noninterest expenses. Noninterest income consists of a bargain purchase gain on bank acquisition, service charges and other fees, merchant Visa income (net), change in FDIC indemnification asset, and other income. Noninterest expenses consist 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.

Earnings Summary

Net income was $0.18 per diluted common share for the three months ended June 30, 2013 compared to $0.21 per diluted common share for the three months ended June 30, 2012. Net income for the three months ended June 30, 2013 was $2.7 million compared to net income of $3.2 million for the same period in 2012. The $504,000 decrease was primarily the result of a $689,000 increase in the provision for loan losses, a $530,000 decrease in interest income, and a $137,000 increase in noninterest expense, partially offset by a $293,000 increase in noninterest income and a $260,000 decrease in interest expense.

52

Net income was $0.37 per diluted common share for the six months ended June 30, 2013 compared to $0.48 per diluted common share for the six months ended June 30, 2012. Net income for the six months ended June 30, 2013 was $5.6 million compared to net income of $7.4 million for the same period in 2012. The $1.8 million decrease was primarily the result of a $1.7 million increase in the provision for loan losses, a $1.3 million increase in noninterest expense, a $1.0 million decrease in interest income, offset partially by a $608,000 decrease in interest expense and a $669,000 increase in noninterest income.

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 increased to 71.1% for the three months ended June 30, 2013 from 70.4% for the three months ended June 30, 2012. The Company’s efficiency ratio increased to 72.0% for the six months ended June 30, 2013 from 69.1% for the six months ended June 30, 2012. The increase in the ratio is due primarily to the increase in noninterest expense, largely as a result of the NCB Acquisition, Central Valley Bank merger, and subsequent Valley Acquisition. The noninterest expense also increased as a result of core system conversion costs (appearing as data processing and professional service expenses) which is scheduled to be completed in the fourth quarter of 2013. The efficiency ratio additionally increased for the three and six months ended June 30, 2013 compared to the same periods in 2012 because of the decrease in the net interest income, which was a result of a decline in the net interest margin. While growth strategies are being executed, the Company expects to incur higher expenses as evidenced in the current efficiency ratio. Expenses are expected to be more consistent with revenue in the future since these growth strategies are being implemented to produce long term positive results.

Net Interest Income

Net interest income decreased $270,000, or 1.7%, to $15.9 million for the three months ended June 30, 2013, compared with $16.2 million in the same period in 2012. Net interest income decreased $427,000, or 1.3%, to $32.5 million for the six months ended June 30, 2013, compared with $32.9 million in the same period in 2012. This decrease in net interest income for both the three and six months ended June 30, 2013 was primarily a result of a decrease in the net interest margin, partially offset by the affects of the NCB Acquisition. The incremental accretion income related to the loans purchased in the NCB Acquisition was $371,000 and $1.4 million for the three and six months ended June 30, 2013, respectively. 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, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net interest margin, excluding incremental accretion on purchased loans (1)		4.37	%		4.68	%		4.42	%		4.78	%
Impact on net interest margin from incremental accretion on purchased loans (1)		0.45			0.55			0.58			0.52
Net interest margin		4.82	%		5.23	%		5.00	%		5.30	%

(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.

Net interest income as a percentage of average earning assets (net interest margin) for the three months ended June 30, 2013, decreased 41 basis points to 4.82% from 5.23% for the same period in 2012. Net interest income as a percentage of average earning assets (net interest margin) for the six months ended June 30, 2013, decreased 30 basis points to 5.00% from 5.30% for the same period in 2012. The decrease in net interest margin for the three and six months ended June 30, 2013 was primarily due to lower contractual loan note rates partially offset by the decreased costs of interest bearing deposits. The net interest spread for the three months ended June 30, 2013 decreased to 4.71% from 5.09% for the same period in 2012. The net interest spread for the six months ended June 30, 2013 decreased to 4.89% from 5.15% for the same period in 2012.

53

The following table 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.

	For the Three Months Ended June 30,
	2013							2012
	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	$	1,065,465	$	16,028		6.03	%	$	993,880	$	16,465		6.64	%
Taxable securities		105,687		404		1.53			123,841		604		1.96
Nontaxable securities		57,109		345		2.42			39,713		267		2.70
Interest earning deposits		91,736		64		0.28			79,872		53		0.27
FHLB and Pacific Coast Bankers’ Bank stock		5,689		18		1.27			5,654		—		—
Total interest earning assets	$	1,325,686	$	16,859		5.10	%	$	1,242,960	$	17,389		5.61	%
Noninterest earning assets		111,293							104,789
Total assets	$	1,436,979						$	1,347,749
Interest Bearing Liabilities:
Certificates of deposit	$	292,781	$	614		0.84	%	$	310,776	$	786		1.01	%
Savings accounts		134,697		42		0.13			111,825		57		0.21
Interest bearing demand and money market accounts		511,049		253		0.20			466,583		320		0.28
Total interest bearing deposits		938,527		909		0.39			889,184		1,163		0.52
FHLB advances and other borrowings		1		—		0.75			2		—		0.32
Securities sold under agreement to repurchase		14,831		10		0.26			18,301		16		0.36
Total interest bearing liabilities	$	953,359	$	919		0.39	%	$	907,487	$	1,179		0.52	%
Demand and other non-interest bearing deposits		273,307							226,344
Other noninterest bearing liabilities		7,942							8,746
Stockholders’ equity		202,371							205,172
Total liabilities and stockholders’ equity	$	1,436,979						$	1,347,749
Net interest income			$	15,940						$	16,210
Net interest spread						4.71	%						5.09	%
Net interest margin						4.82	%						5.23	%
Average interest earning assets to average interest bearing liabilities						139.05	%						136.97	%

(1) Annualized

	For the Six Months Ended June 30,
	2013							2012
	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	$	1,053,475	$	32,747		6.27	%	$	995,093	$	33,483		6.77	%
Taxable securities		105,955		777		1.48			120,986		1,256		2.09
Nontaxable securities		55,526		680		2.47			38,734		523		2.72
Interest earning deposits and Federal funds sold		88,614		121		0.27			88,098		116		0.26
FHLB and Pacific Coast Bankers’ Bank stock		5,703		18		0.64			5,654		—		—
Total interest earning assets	$	1,309,273	$	34,343		5.29	%	$	1,248,565	$	35,378		5.70	%
Noninterest earning assets		112,617							103,214
Total assets	$	1,421,890						$	1,351,779

54

	For the Six Months Ended June 30,
	2013							2012
	Average Balance		Interest Earned/ Paid		Average Yield/Rate(1)			Average Balance		Interest Earned/ Paid		Average Yield/Rate(1)
	(Dollars in thousands)
Interest Bearing Liabilities:
Certificates of deposit	$	299,027	$	1,247		0.84	%	$	316,731	$	1,667		1.06	%
Savings accounts		131,616		85		0.13			110,477		116		0.21
Interest bearing demand and money market accounts		497,311		515		0.21			466,105		657		0.28
Total interest bearing deposits		927,954		1,847		0.40			893,313		2,440		0.55
FHLB advances and other borrowings		1		—		0.75			2		—		0.36
Securities sold under agreement to repurchase		14,162		19		0.27			18,999		34		0.36
Total interest bearing liabilities	$	942,117	$	1,866		0.40	%	$	912,314	$	2,474		0.55	%
Demand and other non-interest bearing deposits		268,166							227,157
Other noninterest bearing liabilities		10,036							7,284
Stockholders’ equity		201,571							205,024
Total liabilities and stockholders’ equity	$	1,421,890						$	1,351,779
Net interest income			$	32,477						$	32,904
Net interest spread						4.89	%						5.15	%
Net interest margin						5.00	%						5.30	%
Average interest earning assets to average interest bearing liabilities						138.97	%						136.86	%

(1) Annualized

Total interest income decreased $530,000, or 3.0%, to $16.9 million for the three months ended June 30, 2013, from $17.4 million for the three months ended June 30, 2012. Total interest income decreased $1.0 million, or 2.9%, to $34.3 million for the six months ended June 30, 2013, from $35.4 million for the six months ended June 30, 2012. The decrease in interest income for both the three and six months ended June 30, 2013 was primarily due to lower contractual loan yields.

The balance of average interest earning assets (including nonaccrual loans) increased $82.7 million, or 6.7%, to $1.33 billion for the three months ended June 30, 2013, from $1.24 billion for the three months ended June 30, 2012. The balance of average interest earning assets (including nonaccrual loans) increased $60.7 million, or 4.9%, to $1.31 billion for the six months ended June 30, 2013, from $1.25 billion for the six months ended June 30, 2012. The increase in average interest earning assets for both the three and six months ended June 30, 2013 was due primarily to an increase in loan originations and the NCB Acquisition. Originated loans receivable, net increased $45.4 million and $58.0 million during the three and six months ended June 30, 2013, respectively. Average interest earning assets also increased for the six months ended June 30, 2013 due to the $51.5 million fair value of non-covered loans acquired in the NCB Acquisition on January 9, 2013. As of June 30, 2013 the carrying value of the NCB loans was $44.9 million.

The yield on total interest earning assets decreased 51 basis points from 5.61% for the three months ended June 30, 2012 to 5.10% for the three months ended June 30, 2013. The yield on total interest earning assets decreased 41 basis points from 5.70% for the six months ended June 30, 2012 to 5.29% for the six months ended June 30, 2013. The decrease in the yield on interest earning assets for the three and six months ended June 30, 2013 reflects the decrease in loan yields as a result of lower contractual loan rates and to a lesser extent the decrease in yields on investment securities. The effect of discount accretion on loan yields for the three months ended June 30, 2013 and June 30, 2012 was approximately 56 basis points and 69 basis points, respectively. The effect of discount accretion on loan yields for the six months ended June 30, 2013 and June 30, 2012 was approximately 73 basis points and 66 basis points, respectively. The increase in discount accretion yield for the six months ended June 30, 2013 as compared to the same period in 2012 was due to the accretion of the loans purchased in the NCB Acquisition, which generated $371,000 and $1.4 million of interest income for the three and six months ended June 30, 2013, respectively, as a result of shorter-term maturities of the purchased loans and the early payoff of certain significant loans. For the three months ended June 30, 2013 and June 30, 2012, originated nonaccruing loans reduced the yield earned on loans by approximately six basis points and ten basis points, respectively. For the six months ended June 30, 2013 and June 30, 2012, originated nonaccruing loans reduced the yield earned on loans by approximately seven basis points and ten basis points, respectively. Originated nonaccrual loans totaled $11.7 million at June 30, 2013 as compared to $12.5 million at December 31, 2012.

55

Total interest expense decreased by $260,000, or 22.1%, to $919,000 for the three months ended June 30, 2013 from $1.2 million for the three months ended June 30, 2012. Total interest expense decreased by $608,000, or 24.6%, to $1.9 million for the six months ended June 30, 2013 from $2.5 million for the six months ended June 30, 2012. The decrease in interest expense was attributable to lower average rates paid on interest bearing liabilities.

The average cost of interest bearing liabilities decreased 13 basis points to 0.39% for the three months ended June 30, 2013 from 0.52% for the three months ended June 30, 2012. The average cost of interest bearing liabilities decreased 15 basis points to 0.40% for the six months ended June 30, 2013 from 0.55% for the six months ended June 30, 2012. Total average interest bearing liabilities increased by $45.9 million, or 5.1%, to $953.4 million for the three months ended June 30, 2013 from $907.5 million for the three months ended June 30, 2012. Total average interest bearing liabilities increased by $29.8 million, or 3.3%, to $942.1 million for the six months ended June 30, 2013 from $912.3 million for the six months ended June 30, 2012. The increases in average interest bearing liabilities were due primarily to the increase in interest bearing demand and money market accounts. During the six months ended June 30, 2013, $40.8 million of interest-bearing deposits were assumed in the NCB Acquisition on January 9, 2013. Additionally, $26.8 million in money market deposits were added during the six months ended June 30, 2013 from one customer, which are expected to be withdrawn by the end of 2013. These increases in deposits were offset partially by deposit runoff.

Deposit interest expense decreased $254,000, or 21.8%, to $909,000 for the three months ended June 30, 2013 compared to $1.2 million for the same quarter in 2012. Deposit interest expense decreased $593,000, or 24.3%, to $1.8 million for the six months ended June 30, 2013 compared to $2.4 million for the six months ended June 30, 2012. The decrease in deposit interest expense for the three and six months ended June 30, 2013 is primarily a result of a 13 and 15 basis point decrease, respectively, in the average cost of interest-bearing deposits, reflecting the low interest rate environment, and to a lesser extent the decrease in certificate of deposit accounts.

Provision for Loan Losses

The provision for loan losses for originated loans increased $145,000, or 72.5%, to $345,000 for the three months ended June 30, 2013 from $200,000 for the three months ended June 30, 2012. The provision for loan losses for originated loans increased $640,000, or 320.0%, to $840,000 for the six months ended June 30, 2013 from $200,000 for the six months ended June 30, 2012. The Bank had net charge-offs on originated loans of $435,000 for the three months ended June 30, 2013 compared to $1.9 million for the three months ended June 30, 2012. The net charge-offs for the six months ended June 30, 2013 and 2012 were $2.1 million and $1.7 million, respectively. The net charge-offs for the three months ended June 30, 2013 were due primarily to $320,000 in charge-offs related to one borrower whose sole collateral was sold during the period. The net charge-offs for the six months ended June 30, 2013 were due primarily to $1.6 million in charge-offs related to one significant borrower who defaulted during the period. Based on the change in mix and volume of the originated loan portfolio at June 30, 2013 compared to December 31, 2012, as well as the decrease in certain historical loss factors and improvements in certain environmental factors, the Company determined that it was appropriate that the provision for loan losses for originated loans for the six months ended June 30, 2013 were lower than the net charge-offs for the same period. The ratio of net charge-offs to average total originated loans outstanding was 0.05% and 0.24% for the three and six months ended June 30, 2013, respectively, compared to 0.23% and 0.20% for the three and six months ended June 20, 2012, respectively.

The Bank has established a comprehensive methodology for determining the allowance for loan losses. 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. The allowance for loan losses on originated loans decreased by $1.3 million, or 6.8%, to $17.8 million at June 30, 2013 from $19.1 million at December 31, 2012. As of June 30, 2013, the Bank identified $31.2 million of impaired originated loans, which includes $19.4 million of restructured originated performing loans. Of those impaired loans, $16.3 million have no allowances for credit losses as their estimated collateral value is equal to or exceeds their carrying costs. The remaining $14.9 million have related allowances for credit losses totaling $4.3 million.

56

Based on the established comprehensive methodology, management deemed the allowance for loan losses on originated loans of $17.8 million at June 30, 2013 (1.91% of total originated loans and 182.81% of nonperforming originated loans, net of amounts guaranteed by governmental agencies) appropriate to provide for probable incurred losses based on an evaluation of known and inherent risks in the loan portfolio at that date.

The provision for loan losses on purchased loans for the three months ended June 30, 2013 totaled $963,000 compared to $419,000 for the three months ended June 30, 2012. The increase in provision expense for the three months ended June 30, 2013 was due substantially to a large nonperforming purchased covered impaired loan which experienced a collateral valuation adjustment during the quarter. The provision for loan losses on purchased loans for the six months ended June 30, 2013 totaled $1.3 million compared to $310,000 for the six months ended June 30, 2012. The increase in provision expense for the six months ended June 30, 2013 was due to the previously mentioned collateral valuation adjustment of a purchased covered impaired loan as well as the resolution of a separate purchased covered impaired loan. Excluding these two transactions, the purchased loans were generally performing in accordance with or better than cash flow estimates from prior periods. As of the acquisition dates, purchased loans were recorded at their estimated fair value, incorporating 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 purchased loan portfolios 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 the Bank believes it has established its existing allowances for loan losses in accordance with GAAP, there can be no assurance that regulators, in reviewing the Bank’s loan portfolios, 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.

Noninterest Income

Total noninterest income increased $293,000, or 14.2%, to $2.4 million for the three months ended June 30, 2013 compared to $2.1 million for the same period in 2012. Total noninterest income increased $669,000, or 16.8%, to $4.6 million for the six months ended June 30, 2013 compared to $4.0 million for the same period in 2012. The increase for both the three and six months ended June 30, 2013 was due primarily to the effects of the change in the FDIC indemnification asset. The change in the FDIC indemnification asset, net was an increase of $300,000 and $209,000 for the three and six months ended June 30, 2013. The change in the FDIC indemnification asset increase for the three and six months ended June 30, 2013 was the result of the two previously mentioned purchased covered impaired loans discussed in the Provision for Loan Losses section above which anticipated losses were submitted to the FDIC for claim reimbursement. The increase in noninterest income for the six months ended June 30, 2013 was also the result of the bargain purchase gain on bank acquisition of $399,000 recorded in connection with the NCB Acquisition on January 9, 2013.

Noninterest Expense

Noninterest expense increased $137,000, or 1.1%, to $13.0 million during the three months ended June 30, 2013 compared to $12.9 million for the three months ended June 30, 2012. The increase for the three months ended June 30, 2013 compared to the same period in 2012 was primarily the result of the following: increased compensation and employee benefits of $330,000 and increased occupancy and equipment of $163,000 partially offset by a $191,000 decrease in other real estate owned, net. Noninterest expense increased $1.3 million, or 4.9%, to $26.7 million during the six months ended June 30, 2013 compared to $25.5 million for the six months ended June 30, 2012. The increase for the six months ended June 30, 2013 compared to the same period in 2012 was primarily the result of the following: increased compensation and employee benefits of $721,000; increased data processing of $597,000; increased professional services of $488,000; and increased occupancy and equipment of $298,000; and was partially offset by a $550,000 decrease in other real estate owned, net. The increases in noninterest expense for the three and six months ended June 30, 2013 were primarily due to the NCB Acquisition, CVB merger, and subsequent Valley Acquisition (appearing as data processing and professional service expenses) as well as ongoing additional expenses relating to a core system conversion expected to be completed during the fourth quarter 2013. The aggregate amount of these costs totaled $1.2 million for the six months ended June 30, 2013.

57

Income Tax Expense

The provision for income taxes decreased by $299,000, or 18.8%, to $1.3 million for the three months ended June 30, 2013 from $1.6 million for the three months ended June 30, 2012. The Company’s effective tax rate was 32.4% for the three months ended June 30, 2013 compared to 33.2% for the same period in 2012. The provision for income taxes decreased by $884,000, or 25.0%, to $2.7 million for the six months ended June 30, 2013 from $3.5 million for the six months ended June 30, 2012. The Company’s effective tax rate was 32.2% for the six months ended June 30, 2013 compared to 32.4% for the same period in 2012. The decreases in the Company’s effective tax rate for the three and six months ended June 30, 2013 is due primarily to the increase in the amount of tax exempt income.

Financial Condition Data

Total assets were $1.43 billion as of June 30, 2013 as compared to $1.35 billion as of December 31, 2012. The increase was due primarily to an increase of originated loans receivable of $58.0 million, an increase in purchased non-covered loans receivable, net of $37.8 million, an increase in the net deferred tax asset of $3.9 million, an increase in investment securities held to maturity of $3.0 million, and an increase in premises and equipment of $2.6 million, partially offset by a decrease in cash and cash equivalents of $13.0 million and a decrease of purchased covered loans, net of $9.0 million. The purchased non-covered loans receivable, net deferred tax asset, and premises and equipment increased primarily as a result of the NCB Acquisition. The cash and cash equivalents decreased due primarily to the increase in originated loans receivable as the cash and cash equivalents were used to fund the originated loan growth.

Deposits increased by $78.6 million, or 7.0%, to $1.20 billion as of June 30, 2013 compared to $1.12 billion as of December 31, 2012. The increase in deposits was due primarily to the $60.4 million of NCB deposits assumed at the acquisition date. In addition, $26.8 million in money market deposits related to one customer was added during the three months ended June 30, 2013, which are anticipated to be withdrawn by the end of 2013. Securities sold under agreement to repurchase increased $339,000, or 2.1%, to $16.4 million as of June 30, 2013 from $16.0 million as of December 31, 2012 primarily due to increases in customer balances. The accrued expenses and other liabilities decreased $391,000, or 3.1%, from $12.6 million at December 31, 2012 to $12.2 million at June 30, 2013 due primarily to payment of incentive compensation accrued for in 2012.

Total stockholders’ equity increased by $1.6 million, or 0.8%, to $200.5 million as of June 30, 2013 from $198.9 million at December 31, 2012 primarily as a result of net income of $5.6 million and stock based compensation of $869,000 for the six months ended June 30, 2013, partially offset by $2.4 million in cash dividends, $2.3 million other comprehensive loss which was mostly the result of a decrease in the fair value of investment securities available for sale, and $182,000 in tax benefits associated with stock based compensation. The Company’s capital position remains strong at 14.1% of total assets as of June 30, 2013 compared to 14.8% at December 31, 2012.

58

Lending Activities

As indicated in the table below, total loans receivable, net of deferred loan fees (excluding loans held for sale) increased $87.9 million, or 8.6%, to $1.11 billion at June 30, 2013 from $1.03 billion at December 31, 2012. Originated loans, net of deferred loan fees (excluding loans held for sale) increased $58.0 million, or 6.6%, to $932.5 million at June 30, 2013 from $874.5 million at December 31, 2012.

	At June, 2013			% of Total Originated			At December 31, 2012			% of Total Originated
	(Dollars in thousands)
Originated Loans:
Commercial business:
Commercial and industrial	$	284,291			30.5	%	$	277,240			31.7	%
Owner-occupied commercial real estate		187,964			20.2			188,494			21.6
Non-owner occupied commercial real estate		337,009			36.1			265,835			30.4
Total commercial business		809,264			86.8			731,569			83.7
One-to-four family residential mortgages		39,603			4.2			38,848			4.4
Real estate construction and land development:
One-to-four family residential		22,153			2.4			25,175			2.9
Multifamily residential and commercial properties		37,234			4.0			52,075			5.9
Total real estate construction and land development		59,387			6.4			77,250			8.8
Consumer		26,727			2.9			28,914			3.3
Gross originated loans receivable		934,981			100.3			876,581			100.2
Less: deferred loan fees		(2,493	)		(0.3	)		(2,096	)		(0.2	)
Originated loans receivable, net		932,488			100.0	%		874,485			100.0	%
Purchased covered loans		80,726						88,330
Purchased non-covered loans		101,619						64,123
Total loans receivable, net of net deferred loan fees	$	1,114,833					$	1,026,938

59

Nonperforming Assets

The following table describes our nonperforming assets for the dates indicated.

	At June 30, 2013			At December 31, 2012
	(Dollars in thousands)
Nonaccrual originated loans:
Commercial business	$	6,079		$	5,492
One-to-four family residential		583			389
Real estate construction and land development		4,964			6,420
Consumer		120			157
Total nonaccrual originated loans (1)(2)		11,746			12,458
Other real estate owned, non-covered		3,480			5,406
Total nonperforming originated assets	$	15,226		$	17,864
Restructured originated performing loans:
Commercial business	$	16,088		$	14,256
One-to-four family residential		256			422
Real estate construction and land development		3,086			361
Consumer		18			—
Total restructured originated performing loans(3)	$	19,448		$	15,039
Accruing originated loans past due 90 days or more(4)		—			214
Potential problem originated loans(5)		29,171			28,270
Allowance for loan losses on originated loans		17,822			19,125
Nonperforming originated loans to total originated loans(6)		1.05	%		1.28	%
Allowance for loan losses to total originated loans		1.91	%		2.19	%
Allowance for loan losses to nonperforming originated loans(6)		182.81	%		170.44	%
Nonperforming originated assets to total originated assets(6)		1.06	%		1.39	%

(1) $6.7 million and $9.3 million of nonaccrual originated loans were considered troubled debt restructurings at June 30, 2013 and December 31, 2012, respectively.

(2) $2.0 million and $1.2 million of nonaccrual originated loans were guaranteed by government agencies at June 30, 2013 and December 31 2012, respectively.

(3) $1.3 million and $679,000 of restructured originated performing loans were guaranteed by government agencies at June 30, 2013 and December 31, 2012, respectively.

(4) There were no accruing originated loans past due 90 days or more that were guaranteed by government agencies at June 30, 2013 and there were $6,000 of accruing originated loans past due 90 days or more guaranteed by government agencies at December 31, 2012.

(5) $1.5 million and $3.2 million of potential problem originated loans were guaranteed by government agencies at June 30, 2013 and December 31, 2012, respectively.

(6) Excludes portions guaranteed by government agencies.

Nonperforming originated assets decreased $2.6 million to $15.2 million, or 1.06% of total originated assets, at June 30, 2013 from $17.9 million, or 1.39% of total originated assets, at December 31, 2012 due to decreases in both the nonperforming originated loans and other real estate owned. During the three months ended June 30, 2013, the nonperforming loans decrease was a result of $2.0 million in payments, $647,000 in charge-offs, and $438,000 in transfers to other real estate owned, partially offset by $1.1 million of additions to nonperforming loans, of which $975,000 were previously reported as potential problem loans. For the six months ended June 30, 2013, the decrease in nonperforming loans was the result of principal payments of $3.0 million, charge-offs of $757,000 and transfers to other real estate owned of $438,000, partially offset by additions to nonperforming loans of $3.4 million. The additions to the nonperforming loans were typically in the commercial and industrial loans. The other real estate owned balance decreased from $5.4 million at December 31, 2012 to $3.5 million at June 30, 2013 as a result of the sale of 22 properties with net proceeds of $4.9 million and net gain of $232,000 and a $22,000 valuation increase for the six months ended June 30, 2013, partially offset by the addition of $2.8 million in other real estate owned of which $2.3 million was a result of the NCB Acquisition.

60

Restructured originated performing loans were $19.4 million and $15.0 million as of June 30, 2013 and December 31, 2012, respectively. The increase in the restructured performing originated loans for the three months ended June 30, 2013 was primarily the result of one credit relationship totaling $2.1 million. This borrower in this relationship is a builder who constructs mostly single family dwellings. At June 30, 2013, the allowance for loan losses on this modified credit relationship was $204,000.

Potential problem originated loans as of June 30, 2013 and December 31, 2012 were $29.2 million and $28.3 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 increase in the potential problem loans was primarily the result of the downgrade of two credit relationships which totaled $5.6 million as of June 30, 2013 offset partially by $6.3 million of principal payments of other previously categorized potential problem loans for the six months ended June 30, 2013.

61

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 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.

While we believe we use the best information available to determine the allowance for loan losses, 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.

The following table provides information regarding changes in our allowance for originated loan losses for the three and six months ended June 30, 2013 and 2012:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Originated loans outstanding at end of period	$	932,488		$	853,633		$	932,488		$	853,633
Average originated loans receivable during period		910,342			842,926			891,700			839,107
Allowance for originated loan losses at beginning of period		17,912			22,563			19,125			22,317
Provision for loan losses on originated loans		345			200			840			200
Charge offs:
Commercial business		(541	)		(1,703	)		(2,178	)		(2,192	)
One-to-four family residential		—			(76	)		—			(76	)
Real estate construction and land development		(59	)		(104	)		(142	)		(920	)
Consumer		(62	)		(78	)		(169	)		(107	)
Total charge offs		(662	)		(1,961	)		(2,489	)		(3,295	)
Recoveries:
Commercial business		190			37			300			1,476
Real estate construction and land development		32			—			32			125
Consumer		5			4			14			20
Total recoveries		227			41			346			1,621
Net charge offs		(435	)		(1,920	)		(2,143	)		(1,674	)
Allowance for originated loan losses at end of period	$	17,822		$	20,843		$	17,822		$	20,843
Allowance for originated loan losses to total originated loans receivable		1.91	%		2.44	%		1.91	%		2.44	%
Ratio of net charge offs during period to average originated loans receivable		0.05	%		0.23	%		0.24	%		0.20	%

62

The allowance for loan losses for originated loans at June 30, 2013 decreased $1.3 million to $17.8 million from $19.1 million at December 31, 2012. The decrease was due primarily to net charge-offs recorded during the three and six months ended June 30, 2013 of $435,000 and $2.1 million, respectively. Nonperforming originated loans to total originated loans decreased to 1.05% at June 30, 2013 from 1.28% at December 31, 2012 and the allowance for loan losses to nonperforming originated loans was 182.81% at June 30, 2013 and 170.44% at December 31, 2012. Potential problem originated loans increased $901,000 to $29.2 million at June 30, 2013 from $28.3 million at December 31, 2012. 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, 2013.

Liquidity and Capital Resources

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.

As indicated in the table below, total deposits increased $78.6 million, or 7.0%, to $1.2 billion at June 30, 2013 from $1.1 billion at December 31, 2012.

	June 30, 2013		% of Total			December 31, 2012		% of Total
	(Dollars in thousands)
Non-interest demand deposits	$	274,256		22.9	%	$	247,048		22.1	%
NOW accounts		299,442		25.0			303,487		27.2
Money market accounts		206,630		17.3			157,728		14.1
Savings accounts		130,472		10.9			120,781		10.8
Total non-maturity deposits		910,800		76.1			829,044		74.2
Certificate of deposit accounts		285,731		23.9			288,927		25.8
Total deposits	$	1,196,531		100.0	%	$	1,117,971		100.0	%

Since December 31, 2012, non-maturity deposits (total deposits less certificate of deposit accounts) have increased $81.8 million, or 9.9%, to $910.8 million from $829.0 million and certificate of deposit accounts have decreased $3.2 million, or 1.1%, from $288.9 million to $285.7 million. The increase in total deposits is primarily the result of the deposits assumed in the NCB Acquisition of $60.4 million at the January 9, 2013 acquisition date. In addition, $26.8 million of the increase in money market accounts is due to one customer, which is expected to be withdrawn by the end of 2013. As a result of the change in volume and types of deposits, the percentage of certificate of deposit accounts to total deposits decreased to 23.9% at June 30, 2013 from 25.8% at December 31, 2012.

63

Borrowings may also 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 our funding sources. Our repurchase agreements are secured by available for sale investment securities. At June 30, 2013, the Bank had securities sold under agreements to repurchase totaling $16.4 million, an increase of $339,000 from $16.0 million at December 31, 2012. The increase is the result of customer activity during the period.

We must 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, 2013, cash and cash equivalents totaled $94.1 million, or 6.6% of total assets. The fair value of investment securities available for sale totaled $143.2 million at June 30, 2013; however, management generally does not consider those with maturities beyond one year to be a viable source of liquidity given that many securities available for sale are pledged to secure borrowing arrangements. The fair value of investment securities classified as either available for sale or held to maturity with maturities of one year or less amounted to $1.4 million, or less than 0.1% of total assets. At June 30, 2013, the Bank maintained credit facilities with the FHLB of Seattle for $253.5 million and credit facilities with the Federal Reserve Bank of San Francisco for $33.1 million, of which there were no borrowings outstanding at June 30, 2013. The Bank also maintains advance lines with Zions Bank, Wells Fargo, US Bank and Pacific Coast Bankers’ Bank to purchase federal funds totaling $50.0 million as of June 30, 2013. There were no federal funds purchased as of June 30, 2013.

Stockholders’ equity at June 30, 2013 was $200.5 million compared with $198.9 million at December 31, 2012. During the three months ended June 30, 2013, the Company realized net income of $2.7 million, recorded $1.9 million in other comprehensive loss, recorded stock based compensation totaling $529,000, declared dividends of $1.2 million and repurchased $64,000 of common stock for tax benefit of stock based compensation. During the six months ended June 30, 2013, the Company realized net income of $5.6 million, declared dividends of $2.4 million, recorded $2.3 million in other comprehensive loss, and recorded stock based compensation totaling $869,000, and repurchased stock for $182,000 to pay taxes on restricted stock that vested during the six months ended June 30, 2013.

Capital Requirements

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 financial statements and operations. Management believes the Company and Bank meet all capital adequacy requirement to which they are subject.

Pursuant to minimum capital requirements of the FDIC, Heritage Bank is required to maintain a leverage ratio (Tier 1 capital to average assets ratio) of 4% and risk-based capital ratios of Tier 1 capital and total capital (to total risk-weighted assets) of 4% and 8%, respectively. As of June 30, 2013 and December 31, 2012, 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.

64

On June 19, 2013, the Company merged its two subsidiary banks, Heritage Bank and Central Valley Bank, with Central Valley Bank being merged into and within Heritage Bank. Therefore, the tables below do not show the capital ratios for Central Valley Bank at June 30, 2013.

	Minimum Requirements					Well- Capitalized Requirements					Actual
	$		%			$		%			$		%
	(Dollars in thousands)
As of June 30, 2013:
The Company consolidated
Tier 1 leverage capital to average assets	$	56,807		4.0	%	$	N/A		N/A	%	$	185,636		13.1	%
Tier 1 capital to risk-weighted assets		42,468		4.0			N/A		N/A			185,636		17.5
Total capital to risk-weighted assets		84,937		8.0			N/A		N/A			199,094		18.8
Heritage Bank
Tier 1 leverage capital to average assets		55,864		4.0			69,829		5.0			158,314		11.3
Tier 1 capital to risk-weighted assets		42,445		4.0			63,667		6.0			158,314		14.9
Total capital to risk-weighted assets		84,890		8.0			106,112		10.0			171,767		16.2
As of December 31, 2012:
The Company consolidated
Tier 1 leverage capital to average assets	$	53,756		4.0	%	$	N/A		N/A	%	$	183,099		13.6	%
Tier 1 capital to risk-weighted assets		39,249		4.0			N/A		N/A			183,099		18.7
Total capital to risk-weighted assets		78,498		8.0			N/A		N/A			195,561		19.9
Heritage Bank
Tier 1 leverage capital to average assets		47,112		4.0			58,890		5.0			149,613		12.7
Tier 1 capital to risk-weighted assets		34,130		4.0			51,195		6.0			149,613		17.5
Total capital to risk-weighted assets		68,259		8.0			85,324		10.0			160,457		18.8
Central Valley Bank
Tier 1 leverage capital to average assets		6,632		4.0			8,289		5.0			16,953		10.2
Tier 1 capital to risk-weighted assets		5,081		4.0			7,622		6.0			16,953		13.4
Total capital to risk-weighted assets		10,162		8.0			12,703		10.0			18,562		14.6

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 Dodd-Frank Wall Street Reform and Consumer Protection Act (the 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. Community banking organizations, such as the Company and the Bank, become subject to the new rule on January 1, 2015 and certain provisions of the new rule will be phased in over the period of 2015 through 2019. The final rule:

• Permits banking organizations that had less than $15 billion in total consolidated assets as of December 31, 2009, or were mutual holding companies as of May 19, 2010, to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock that were issued and included in Tier 1 capital prior to May 19, 2010, subject to a limit of 25% of Tier 1 capital elements, excluding any non-qualifying capital instruments and after all regulatory capital deductions and adjustments have been applied to Tier 1 capital.

• Establishes new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights.

• Requires a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%.

• Increases the minimum Tier 1 capital to risk-weighted assets ratio requirement from 4% to 6%.

• Retains the minimum total capital to risk-weighted assets ratio requirement of 8%.

• Establishes a minimum leverage ratio requirement of 4%.

• Retains the existing regulatory capital framework for 1-4 family residential mortgage exposures.

65

• Permits banking organizations that are not subject to the advanced approaches rule, such as the Company and the Bank, to retain, through a one-time election, the existing treatment for most accumulated other comprehensive income, such that unrealized gains and losses on securities available for sale will not affect regulatory capital amounts and ratios.

• Implements a new capital conservation buffer requirement for a banking organization 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. A banking organization with a buffer of less than the required amount would be subject to increasingly stringent limitations on such distributions and payments as the buffer approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5% or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income.

• Increases capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term commitments and securitization exposures.

• Expands the recognition of collateral and guarantors in determining risk-weighted assets.

• Removes references to credit ratings consistent with the Dodd Frank Act and establishes due diligence requirements for securitization exposures.

The Company’s management is currently evaluating the provisions of the final rule and their expected impact on the Company.

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 are the Company’s predominant sources of income. On April 24, 2013, the Company’s Board of Directors declared a cash dividend of $0.08 per share payable on May 24, 2013 to shareholders of record on May 10, 2013. Additionally, on July 23, 2013, the Company’s Board of Directors declared a regular cash dividend of $0.08 per share and a special cash dividend of $0.10 per share both payable on August 15, 2013, to shareholders of record on August 6, 2013.

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 December 31, 2012.

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, 2013 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.

66

(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, 2013, that have materially affected, or is 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

The Company is a party to certain legal proceedings incidental to its business. Management believes that the outcome of such currently pending proceedings, in the aggregate, will not have a material effect on our consolidated financial condition or results of operations.

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, 2012.

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

The Company has had various stock repurchase programs since March 1999. In August 2012, the Board of Directors approved the tenth stock repurchase plan, allowing the Company to repurchase up to 5% of the then outstanding shares, or approximately 757,000 shares. During the three and six months ended June 30, 2013, the Company did not repurchase shares under this plan. In total, the Company has repurchased 52,900 shares at an average price of $13.88 per share under this tenth plan. The Company repurchased 4,539 and 12,319 shares at an average price of $14.22 and $14.82 to pay withholding taxes on restricted stock that vested during the three and six months ended June 30, 2013, respectively.

The following table sets forth information about the Company’s purchases of its outstanding common stock during the quarter ended June 30, 2013.

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, 2013 – April 30, 2013		—	$	—		6,661,348		704,100
May 1, 2013 – May 31, 2013		2,391		14.06		6,661,348		704,100
June 1, 2013 – June 30, 2013		2,148		14.40		6,661,348		704,100
Total		4,539	$	14.22		6,661,348		704,100

(1) Common shares repurchased by the Company between April 1, 2013 and June 30, 2013 consistent entirely of the cancellation of 4,539 shares of restricted stock to pay withholding taxes on restricted stock that vested during the three months ended June 30, 2013.

67

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

68

Item 6. Exhibits

Exhibit No.
2.1	Purchase and Assumption Agreement for Cowlitz Bank Transaction (1)
2.2	Purchase and Assumption Agreement for Pierce Commercial Bank Transaction (2)
2.3	Definitive Agreement for Valley Community Bancshares, Inc. (3)
3.1	Articles of Incorporation(4)
3.2	Bylaws of the Company(5)
4.2	Warrant for purchase(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	Transition Employment and Retirement Agreement between Heritage Financial Corporation and D. Michael Broadhead, dated April 8, 2013(11)
10.6	Letter of Understanding between Heritage Financial Corporation and Donald V. Rhodes dated August 18, 2009(12)
10.7	Annual Incentive Compensation Plan(13)
10.8	2010 Omnibus Equity Plan(14)
10.9	Deferred Compensation Plan and Participation Agreements for Brian L. Vance, Jeffrey J. Deuel and Donald J. Hinson dated September 7, 2012 (15)
10.10	Employment Agreements for Brian L. Vance, Jeffrey J. Deuel and Donald J. Hinson dated September 7, 2012 (15)
10.11	Change in Control Agreement by and between Heritage Bank and David A. Spurling (16)
11.0	Statement regarding computation of earnings per share (17)
14.0	Code of Ethics and Conduct Policy(18)
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 Financial 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 June 30, 2013 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 of Comprehensive Income (iv) the Unaudited Condensed Consolidated Statement of Stockholders’ Equity, (v) the Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) the Unaudited Notes to Condensed Consolidated Financial Statements(19)

69

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

(2) Incorporated by reference to the Current Report on Form 8-K dated November 12, 2010.

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

(4) Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 333-35573) declared effective on November 12, 1997; as amended, said amendments being incorporated by reference to the Amendment to the Articles of Incorporation filed as an exhibit to the Current Report on Form 8-K dated November 25, 2008 to the Amended and Restated Articles of Incorporation filed as an exhibit to the Current Report on Form 8-K dated May 14, 2010, and to the Amended and Restated Articles of Incorporation filed as an exhibit to the Current Report on Form 8-K dated June 1, 2011.

(5) Incorporated by reference to the Current Report on Form 8-K dated November 29, 2007.

(6) Incorporated by reference to the Current Report on Form 8-K dated November 25, 2008.

(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 Current Report on Form 8-K dated April 8, 2013.

(12) Incorporated by reference to the Current Report on Form 8-K dated August 20, 2009.

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

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

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

(16) Incorporated by reference to the Annual Report on Form 10-K dated March 6, 2013. Reference is made to Note 8, “Stockholders’ Equity” in the Notes to the Condensed Consolidated Financial Statements under Item 1. herein.

(17) 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.

(18) Pursuant to Rule 406T of Regulation S-T, these interactive data file 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.

70

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: July 31, 2013	/S/    BRIAN L. VANCE
	Brian L. Vance
	President and Chief Executive Officer
	(Duly Authorized Officer)
Date: July 31, 2013	/S/    DONALD J. HINSON
	Donald J. Hinson
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

71

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
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 six months ended June 30, 2013 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 Statement of Stockholders’ Equity, (v) the Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) the Unaudited Notes to Condensed Consolidated Financial Statements.

72

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.

July 31, 2013

/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.

July 31, 2013

/s/ Donald J. Hinson

Donald J. Hinson

Executive Vice President and Chief Financial Officer

Principal Financial 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, 2013 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, as amended; 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.

July 31, 2013

/s/ Brian L. Vance

Brian L. Vance

President and Chief Executive Officer

Principal Executive Officer

/s/ Donald J. Hinson

Donald J. Hinson

Executive Vice President and Chief Financial Officer

Principal Financial Officer

XML

Fair Value Measurements (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Financial Assets:
Investment securities available for sale	$ 143,155	$ 144,293
Investment securities held to maturity, fair value	13,546	11,010
Carrying Value [Member]
Financial Assets:
Cash on hand and in banks	31,062	37,180
Interest earning deposits	63,060	69,906
Investment securities available for sale	143,155	144,293
Investment securities held to maturity, fair value	13,078	10,099
FHLB stock	5,482	5,495
Loans held for sale		1,676
Loans receivable, net of allowance	1,086,453	998,344
Accrued interest receivable	4,822	4,821
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts, savings accounts	910,800	829,044
Certificate of deposit accounts	285,731	288,927
Total deposits	1,196,531	1,117,971
Securities sold under agreement to repurchase	16,360	16,021
Accrued interest payable	98	106
Fair Value [Member]
Financial Assets:
Cash on hand and in banks	31,062	37,180
Interest earning deposits	63,060	69,906
Investment securities available for sale	143,155	144,293
Investment securities held to maturity, fair value	13,546	11,010
FHLB stock
Loans held for sale		1,676
Loans receivable, net of allowance	1,090,459	1,012,880
Accrued interest receivable	4,822	4,821
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts, savings accounts	910,800	829,044
Certificate of deposit accounts	288,869	290,484
Total deposits	1,199,669	1,119,528
Securities sold under agreement to repurchase	16,360	16,021
Accrued interest payable	98	106
Fair Value, Inputs, Level 1 [Member]
Financial Assets:
Cash on hand and in banks	31,062	37,180
Interest earning deposits	63,060	69,906
Investment securities available for sale
Investment securities held to maturity, fair value
FHLB stock
Loans held for sale
Loans receivable, net of allowance
Accrued interest receivable	5	6
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts, savings accounts	910,800	829,044
Certificate of deposit accounts
Total deposits	910,800	829,044
Securities sold under agreement to repurchase	16,360	16,021
Accrued interest payable	15	19
Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Cash on hand and in banks
Interest earning deposits
Investment securities available for sale	143,155	144,293
Investment securities held to maturity, fair value	13,546	11,010
FHLB stock
Loans held for sale
Loans receivable, net of allowance
Accrued interest receivable	774	717
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts, savings accounts
Certificate of deposit accounts	288,869	290,484
Total deposits	288,869	290,484
Securities sold under agreement to repurchase
Accrued interest payable	83	87
Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Cash on hand and in banks
Interest earning deposits
Investment securities available for sale
Investment securities held to maturity, fair value
FHLB stock
Loans held for sale		1,676
Loans receivable, net of allowance	1,090,459	1,012,880
Accrued interest receivable	4,043	4,098
Financial Liabilities:
Noninterest deposits, NOW accounts, money market accounts, savings accounts
Certificate of deposit accounts
Total deposits
Securities sold under agreement to repurchase
Accrued interest payable

XML

Investment Securities (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Schedule of fair value and unrealized losses of securities
Temporarily impaired securities, Less than 12 Months, Fair Value	$ 55,273	$ 39,040
Temporarily impaired securities, Less than 12 Months, Unrealized Losses	(2,233)	(368)
Temporarily impaired securities, 12 Months or Longer, Fair Value	3,641	3,779
Temporarily impaired securities, 12 Months or Longer, Unrealized Losses	(41)	(45)
Temporarily impaired securities, Total, Fair Value	58,914	42,819
Temporarily impaired securities, Total, Unrealized Losses	(2,274)	(413)
Held to maturity investment securities, Less than 12 Months, Fair Value	3,665
Held to maturity investment securities, Less than 12 Months, Unrealized Losses	(226)
Held to maturity investment securities, 12 months or Longer, Fair Value	159	317
Held to maturity investment securities, 12 months or Longer, Unrealized Losses	(17)	(55)
Held to maturity investment securities, Total, Fair Value	3,824	317
Held to maturity investment securities, Total, Unrealized Losses	(243)	(55)
U.S. Treasury and U.S. Government-sponsored agencies [Member]
Schedule of fair value and unrealized losses of securities
Temporarily impaired securities, Less than 12 Months, Fair Value	1,091
Temporarily impaired securities, Less than 12 Months, Unrealized Losses	(28)
Temporarily impaired securities, Total, Fair Value	1,091
Temporarily impaired securities, Total, Unrealized Losses	(28)
Municipal securities [Member]
Schedule of fair value and unrealized losses of securities
Temporarily impaired securities, Less than 12 Months, Fair Value	24,218	7,843
Temporarily impaired securities, Less than 12 Months, Unrealized Losses	(1,472)	(120)
Temporarily impaired securities, 12 Months or Longer, Fair Value
Temporarily impaired securities, 12 Months or Longer, Unrealized Losses
Temporarily impaired securities, Total, Fair Value	24,218	7,843
Temporarily impaired securities, Total, Unrealized Losses	(1,472)	(120)
Held to maturity investment securities, Less than 12 Months, Fair Value	1,081
Held to maturity investment securities, Less than 12 Months, Unrealized Losses	(69)
Held to maturity investment securities, 12 months or Longer, Unrealized Losses
Held to maturity investment securities, Total, Fair Value	1,081
Held to maturity investment securities, Total, Unrealized Losses	(69)
U.S. Government-sponsored agencies [Member]
Schedule of fair value and unrealized losses of securities
Temporarily impaired securities, Less than 12 Months, Fair Value	29,964	31,197
Temporarily impaired securities, Less than 12 Months, Unrealized Losses	(733)	(248)
Temporarily impaired securities, 12 Months or Longer, Fair Value	3,641	3,779
Temporarily impaired securities, 12 Months or Longer, Unrealized Losses	(41)	(45)
Temporarily impaired securities, Total, Fair Value	33,605	34,976
Temporarily impaired securities, Total, Unrealized Losses	(774)	(293)
Held to maturity investment securities, Less than 12 Months, Fair Value	2,413
Held to maturity investment securities, Less than 12 Months, Unrealized Losses	(153)
Held to maturity investment securities, Total, Fair Value	2,413
Held to maturity investment securities, Total, Unrealized Losses	(153)
Private residential collateralized mortgage obligations [Member]
Schedule of fair value and unrealized losses of securities
Held to maturity investment securities, Less than 12 Months, Fair Value	171
Held to maturity investment securities, Less than 12 Months, Unrealized Losses	(4)
Held to maturity investment securities, 12 months or Longer, Fair Value	159	317
Held to maturity investment securities, 12 months or Longer, Unrealized Losses	(17)	(55)
Held to maturity investment securities, Total, Fair Value	330	317
Held to maturity investment securities, Total, Unrealized Losses	$ (21)	$ (55)

XML

Investment Securities (Details 4) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011
Schedule of residential collateralized mortgage obligation securities
Held to maturity securities carrying value	$ 13,078,000		$ 13,078,000		$ 10,099,000
Fair Value	13,546,000		13,546,000		11,010,000
Year-to-date Impairment Charge	24,000	24,000	26,000	60,000
Life-to-date Impairment Charge	1,439,000	1,395,000	1,439,000	1,395,000	1,413,000	1,335,000
Alt-A [Member]
Schedule of residential collateralized mortgage obligation securities
Par Value	771,000		771,000
Held to maturity securities carrying value	272,000		272,000
Fair Value	278,000		278,000
Aggregate Unrealized Gain (loss)	6,000		6,000
Year-to-date Change in Unrealized Gain (loss)	18,000		18,000
Year-to-date Impairment Charge			21,000
Life-to-date Impairment Charge	675,000		675,000
Prime [Member]
Schedule of residential collateralized mortgage obligation securities
Par Value	1,343,000		1,343,000
Held to maturity securities carrying value	837,000		837,000
Fair Value	988,000		988,000
Aggregate Unrealized Gain (loss)	151,000		151,000
Year-to-date Change in Unrealized Gain (loss)	2,000		2,000
Year-to-date Impairment Charge			5,000
Life-to-date Impairment Charge	764,000		764,000
Private residential collateralized mortgage obligations [Member]
Schedule of residential collateralized mortgage obligation securities
Par Value	2,114,000		2,114,000
Held to maturity securities carrying value	1,109,000		1,109,000		1,168,000
Fair Value	1,266,000		1,266,000		1,306,000
Aggregate Unrealized Gain (loss)	157,000		157,000
Year-to-date Change in Unrealized Gain (loss)	20,000		20,000
Year-to-date Impairment Charge			26,000
Life-to-date Impairment Charge	$ 1,439,000		$ 1,439,000
AAA [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings
AAA [Member] | Alt-A [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings
AAA [Member] | Prime [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings
AA [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			3.00%
AA [Member] | Alt-A [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings
AA [Member] | Prime [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			5.00%
A [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			2.00%
A [Member] | Alt-A [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings
A [Member] | Prime [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			2.00%
BBB [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			4.00%
BBB [Member] | Alt-A [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			1.00%
BBB [Member] | Prime [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			5.00%
Below Investment Grade [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			91.00%
Below Investment Grade [Member] | Alt-A [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			99.00%
Below Investment Grade [Member] | Prime [Member]
Schedule of residential collateralized mortgage obligation securities
Percentage of Credit Ratings			88.00%

XML

Stockholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

(8) 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, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Net income:
Net income	$	2,690		$	3,194		$	5,575		$	7,364
Less: Dividends and undistributed earnings allocated to participating securities		(36	)		(40	)		(74	)		(91	)
Net income allocated to common shareholders	$	2,654		$	3,154		$	5,501		$	7,273
Basic:
Weighted average common shares outstanding		15,151,743			15,292,477			15,140,406			15,378,994
Less: Restricted stock awards		(171,542	)		(168,326	)		(179,104	)		(169,573	)
Total basic weighted average common shares outstanding		14,980,201			15,124,151			14,961,302			15,209,421
Diluted:
Basic weighted average common shares outstanding		14,980,201			15,124,151			14,961,302			15,209,421
Incremental shares from stock options		11,941			14,553			12,440			14,544
Total diluted weighted average common shares outstanding		14,992,142			15,138,704			14,973,742			15,223,965

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three and six months ended June 30, 2013 anti-dilutive shares outstanding related to options to acquire common stock totaled 167,147 and 187,196, respectively, as the assumed proceeds from exercise price, tax benefits and future compensation was in excess of the market value. For the three and six months ended June 30, 2012 anti-dilutive shares outstanding related to options and warrants to acquire common stock totaled 239,321 and 272,491, respectively, as the assumed proceeds from exercise price, tax benefits and future compensation was in excess of the market value.

(b) Dividends

Common Stock: 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 Banks, which are the Company’s predominant sources of income. The following table summarizes the dividend activity for the six months ended June 30, 2013 and subsequent through the date of this filing.

Declared	Cash Dividend per Share		Record Date	Paid or Payable
January 30, 2013	$	0.08	February 8, 2013	February 22, 2013
April 24, 2013	$	0.08	May 10, 2013	May 24, 2013
July 23, 2013	$	0.18	August 6, 2013	August 15, 2013

The FDIC and the Washington DFI have the authority under their supervisory powers to prohibit the payment of dividends by Heritage Bank to the Company. Additionally, current guidance from the 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 its subsidiary 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 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. During the three and six months ended June 30, 2013, the Company did not repurchase any shares under the plan. In total, the Company has repurchased 52,900 shares at an average price of $13.88 per share under this tenth plan. The Company repurchased 4,539 and 12,319 shares at an average price of $14.22 and $14.82 to pay withholding taxes on restricted stock that vested during the three and six months ended June 30, 2013, respectively.

XML

Loans Receivable (Details 13) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Recorded investment balance and related allowance for loan losses of accruing and non-accruing TDRs
Originated TDRs, Accruing TDRs	$ 19,448	$ 15,039
Originated TDRs, Non-Accruing TDRs	6,715	9,311
Allowance for loan losses on originated TDRs, Accruing TDRs	3,632	2,131
Allowance for loan losses on originated TDRs, Non-Accruing TDRs	518	1,994
Purchased other TDRs, Accruing TDRs	1,535	1,437
Purchased other TDRs, Non-Accruing TDRs	10	7
Allowance for loan losses on purchased other TDRs, Accruing TDRs	96	76
Allowance for loan losses on purchased other TDRs, Non-Accruing TDRs	$ 3	$ 2

XML

Condensed Consolidated Statements of Income (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
INTEREST INCOME:
Interest and fees on loans	$ 16,028,000	$ 16,465,000	$ 32,747,000	$ 33,483,000
Taxable interest on investment securities	404,000	604,000	777,000	1,256,000
Nontaxable interest on investment securities	345,000	267,000	680,000	523,000
Interest and dividends on other interest earning assets	82,000	53,000	139,000	116,000
Total interest income	16,859,000	17,389,000	34,343,000	35,378,000
INTEREST EXPENSE:
Deposits	909,000	1,163,000	1,847,000	2,440,000
Other borrowings	10,000	16,000	19,000	34,000
Total interest expense	919,000	1,179,000	1,866,000	2,474,000
Net interest income	15,940,000	16,210,000	32,477,000	32,904,000
Provision for loan losses on originated loans	345,000	200,000	840,000	200,000
Provision for loan losses on purchased loans	963,000	419,000	1,326,000	310,000
Net interest income after provision for loan losses	14,632,000	15,591,000	30,311,000	32,394,000
NONINTEREST INCOME:
Bargain purchase gain on bank acquisition			399,000
Service charges and other fees	1,432,000	1,394,000	2,785,000	2,720,000
Merchant Visa income, net	211,000	182,000	384,000	352,000
Change in FDIC indemnification asset	281,000	(19,000)	14,000	(195,000)
Other income	433,000	507,000	1,059,000	1,095,000
Total noninterest income	2,357,000	2,064,000	4,641,000	3,972,000
NONINTEREST EXPENSE:
Impairment loss on investment securities	24,000	62,000	26,000	98,000
Less: Portion recorded as other comprehensive loss		(38,000)		(38,000)
Impairment loss on investment securities, net	24,000	24,000	26,000	60,000
Compensation and employee benefits	7,617,000	7,287,000	15,206,000	14,485,000
Occupancy and equipment	1,995,000	1,832,000	3,915,000	3,617,000
Data processing	720,000	668,000	1,856,000	1,259,000
Marketing	386,000	369,000	712,000	772,000
Professional services	640,000	628,000	1,670,000	1,182,000
State and local taxes	305,000	320,000	584,000	630,000
Federal deposit insurance premium	275,000	263,000	507,000	538,000
Other real estate owned, net	5,000	196,000	(98,000)	452,000
Other expense	1,040,000	1,283,000	2,349,000	2,473,000
Total noninterest expense	13,007,000	12,870,000	26,727,000	25,468,000
Income before income taxes	3,982,000	4,785,000	8,225,000	10,898,000
Income tax expense	1,292,000	1,591,000	2,650,000	3,534,000
Net income	$ 2,690,000	$ 3,194,000	$ 5,575,000	$ 7,364,000
Basic earnings per common share	$ 0.18	$ 0.21	$ 0.37	$ 0.48
Diluted earnings per common share	$ 0.18	$ 0.21	$ 0.37	$ 0.48
Dividends declared per common share:	$ 0.08	$ 0.28	$ 0.16	$ 0.34

XML

Description of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2013

Description of Business and Basis of Presentation [Abstract]

Description of Business and Basis of Presentation

(1) Description of Business and Basis of Presentation

(a) Description of Business

Heritage Financial Corporation (the “Company”) is a bank holding company 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 (“DIF”). The Bank is headquartered in Olympia, Washington and conducts business from its forty-two, including the eight branches acquired in the Valley Acquisition effective July 15, 2013, branch offices located throughout Washington state and the greater Portland, Oregon area. The Bank’s business consists primarily of 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 located in western and central Washington State and the greater Portland, Oregon area.

The Company has expanded its footprint during the past three years through acquisitions beginning with the FDIC-assisted acquisition of Cowlitz Bank, a Washington state-chartered bank headquartered in Longview, Washington effective on July 30, 2010. Heritage Bank entered into a definitive agreement with the FDIC, pursuant to which Heritage Bank acquired certain assets and assumed certain liabilities of Cowlitz Bank (the “Cowlitz Acquisition”). The Cowlitz Acquisition included nine branches of Cowlitz Bank, including its division Bay Bank, which opened as branches of Heritage Bank as of August 2, 2010. It also included the Trust Services Division of Cowlitz Bank. Effective November 5, 2010, Heritage Bank entered into a definitive agreement with the FDIC, pursuant to which Heritage Bank acquired certain assets and assumed certain liabilities of Pierce Commercial Bank, a Washington state-chartered bank headquartered in Tacoma, Washington (the “Pierce Commercial Acquisition”). The Pierce Commercial Acquisition included one branch, which opened as a branch of Heritage Bank as of November 8, 2010. On September 14, 2012, the Company announced that it had entered into a definitive agreement along with its financial institution subsidiary, Heritage Bank, to acquire Northwest Commercial Bank (“NCB”) a full service commercial bank headquartered in Lakewood, Washington (the “NCB Acquisition”). NCB operated two branch locations in Lakewood and Auburn, Washington. The NCB Acquisition was completed on January 9, 2013, with the merger of NCB into Heritage Bank. See Note 2, “Business Combination.” The Cowlitz Acquisition, Pierce Commercial Acquisition and NCB Acquisition are collectively referred to as the “Cowlitz, Pierce and NCB Acquisitions.”

On March 11, 2013, the Company announced it had entered into a definitive agreement to acquire Valley Community Bancshares, Inc. and its wholly-owned subsidiary, Valley Bank, both headquartered in Puyallup, Washington (the “Valley Acquisition”). The Valley Acquisition was completed on July 15, 2013. For additional information, see Note 14, “Subsequent Event.”

Finally, on April 8, 2013, the Company announced the proposed merger of its two wholly-owned bank subsidiaries Central Valley Bank and Heritage Bank, with Central Valley Bank merging into Heritage Bank. The common control merger was completed on June 19, 2013 and on a consolidated basis had no accounting impact on the Company. Central Valley Bank is now operating as a division of Heritage Bank.

(b) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), for interim financial information, pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements and accompanying Notes should be read with our December 31, 2012 audited Consolidated Financial Statements and the accompanying Notes included in our Annual Report on Form 10-K (“2012 Annual Form 10-K”). In our 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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. In preparing the Condensed Consolidated Financial Statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Estimates related to the allowance for loan losses, other than temporary impairments in the fair value of investment securities, expected cash flows of purchased 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.

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

(c) Significant Accounting Policies

The significant accounting policies used in preparation of our Condensed Consolidated Financial Statements are disclosed in our 2012 Annual Form 10-K. There have not been any material changes in our significant accounting policies from those contained in our 2012 Annual Form 10-K disclosure for the year ended December 31, 2012.

(d) Recently Issued Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Updated (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities, was issued in December 2011 to require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of the Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements at the date of adoption.

FASB ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution, was issued in October 2012. The objective of the Update is to address the diversity in practice about how to interpret the terms “on the same basis” and “contractual limitations” when subsequently measuring an indemnification asset. This Update is effective for fiscal years and interim periods beginning on or after December 15, 2012. Early adoption was permitted, and adoption was to be applied prospectively to indemnification assets existing as of the date of adoption. The adoption of this Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements at the date of adoption as the Company previously accounted for its indemnification asset in a manner consistent with the Update.

FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, was issued in February 2013. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) 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 (loss) 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 adoption of this Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements. The additional disclosures are included in Note 7, “Accumulated Other Comprehensive Income (Loss).”

XML

Description of Business and Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2013

Description of Business and Basis of Presentation [Abstract]

Description of Business

(a) Description of Business

Heritage Financial Corporation (the “Company”) is a bank holding company 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 (“DIF”). The Bank is headquartered in Olympia, Washington and conducts business from its forty-two, including the eight branches acquired in the Valley Acquisition effective July 15, 2013, branch offices located throughout Washington state and the greater Portland, Oregon area. The Bank’s business consists primarily of 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 located in western and central Washington State and the greater Portland, Oregon area.

The Company has expanded its footprint during the past three years through acquisitions beginning with the FDIC-assisted acquisition of Cowlitz Bank, a Washington state-chartered bank headquartered in Longview, Washington effective on July 30, 2010. Heritage Bank entered into a definitive agreement with the FDIC, pursuant to which Heritage Bank acquired certain assets and assumed certain liabilities of Cowlitz Bank (the “Cowlitz Acquisition”). The Cowlitz Acquisition included nine branches of Cowlitz Bank, including its division Bay Bank, which opened as branches of Heritage Bank as of August 2, 2010. It also included the Trust Services Division of Cowlitz Bank. Effective November 5, 2010, Heritage Bank entered into a definitive agreement with the FDIC, pursuant to which Heritage Bank acquired certain assets and assumed certain liabilities of Pierce Commercial Bank, a Washington state-chartered bank headquartered in Tacoma, Washington (the “Pierce Commercial Acquisition”). The Pierce Commercial Acquisition included one branch, which opened as a branch of Heritage Bank as of November 8, 2010. On September 14, 2012, the Company announced that it had entered into a definitive agreement along with its financial institution subsidiary, Heritage Bank, to acquire Northwest Commercial Bank (“NCB”) a full service commercial bank headquartered in Lakewood, Washington (the “NCB Acquisition”). NCB operated two branch locations in Lakewood and Auburn, Washington. The NCB Acquisition was completed on January 9, 2013, with the merger of NCB into Heritage Bank. See Note 2, “Business Combination.” The Cowlitz Acquisition, Pierce Commercial Acquisition and NCB Acquisition are collectively referred to as the “Cowlitz, Pierce and NCB Acquisitions.”

On March 11, 2013, the Company announced it had entered into a definitive agreement to acquire Valley Community Bancshares, Inc. and its wholly-owned subsidiary, Valley Bank, both headquartered in Puyallup, Washington (the “Valley Acquisition”). The Valley Acquisition was completed on July 15, 2013. For additional information, see Note 14, “Subsequent Event.”

Finally, on April 8, 2013, the Company announced the proposed merger of its two wholly-owned bank subsidiaries Central Valley Bank and Heritage Bank, with Central Valley Bank merging into Heritage Bank. The common control merger was completed on June 19, 2013 and on a consolidated basis had no accounting impact on the Company. Central Valley Bank is now operating as a division of Heritage Bank.

Basis of Presentation

(b) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), for interim financial information, pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements and accompanying Notes should be read with our December 31, 2012 audited Consolidated Financial Statements and the accompanying Notes included in our Annual Report on Form 10-K (“2012 Annual Form 10-K”). In our 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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. In preparing the Condensed Consolidated Financial Statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Estimates related to the allowance for loan losses, other than temporary impairments in the fair value of investment securities, expected cash flows of purchased 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.

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

Significant Accounting Policies

(c) Significant Accounting Policies

The significant accounting policies used in preparation of our Condensed Consolidated Financial Statements are disclosed in our 2012 Annual Form 10-K. There have not been any material changes in our significant accounting policies from those contained in our 2012 Annual Form 10-K disclosure for the year ended December 31, 2012.

Recently Issued Accounting Pronouncements

(d) Recently Issued Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Updated (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities, was issued in December 2011 to require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of the Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements at the date of adoption.

FASB ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution, was issued in October 2012. The objective of the Update is to address the diversity in practice about how to interpret the terms “on the same basis” and “contractual limitations” when subsequently measuring an indemnification asset. This Update is effective for fiscal years and interim periods beginning on or after December 15, 2012. Early adoption was permitted, and adoption was to be applied prospectively to indemnification assets existing as of the date of adoption. The adoption of this Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements at the date of adoption as the Company previously accounted for its indemnification asset in a manner consistent with the Update.

FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, was issued in February 2013. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) 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 (loss) 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 adoption of this Update did not have a material effect on the Company’s Condensed Consolidated Financial Statements. The additional disclosures are included in Note 7, “Accumulated Other Comprehensive Income (Loss).”

Fair Value Measurements and Disclosures

Loans Receivable and Loans Held for Sale:

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 produces a higher value.

XML

Accumulated Other Comprehensive (Loss) Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Changes in accumulated other comprehensive (loss) income ("AOCI") by component
Changes in fair value of available for sale securities, Balance of AOCI at the beginning of period	$ 1,700	$ 1,778	$ 2,042	$ 2,105
Changes in fair value of available for sale securities, Amounts reclassified from AOCI		360		33
Changes in fair value of available for sale securities, Other comprehensive (loss) income before reclassification	(1,947)		(2,289)
Changes in fair value of available for sale securities, Net current period other comprehensive (loss) income	(1,947)	360	(2,289)	33
Changes in fair value of available for sale securities, Balance of AOCI at the end of period	(247)	2,138	(247)	2,138
Accretion of other-than-temporary impairment on held to maturity securities, Balance of AOCI at the beginning of period	(284)	(343)	(298)	(369)
Accretion of other-than-temporary impairment on held to maturity securities, Amounts reclassified from AOCI	22	26	36	52
Accretion of other-than-temporary impairment on held to maturity securities, Other comprehensive (loss) income before reclassification
Accretion of other-than-temporary impairment on held to maturity securities, Net current period other comprehensive (loss) income	22	26	36	52
Accretion of other-than-temporary impairment on held to maturity securities, Balance of AOCI at the end of period	(262)	(317)	(262)	(317)
Other-than-temporary impairment on held to maturity securities, Balance of AOCI at the beginning of period
Other-than-temporary impairment on held to maturity securities, Amounts reclassified from AOCI		(25)		(25)
Other-than-temporary impairment on held to maturity securities, Other comprehensive (loss) income before reclassification
Other-than-temporary impairment on held to maturity securities, Net current period other comprehensive (loss) income		(25)		(25)
Other-than-temporary impairment on held to maturity securities, Balance of AOCI at the end of period		(25)		(25)
Total, Balance of AOCI at the beginning of period	1,416	1,435	1,744	1,736
Total, Amounts reclassified from AOCI	(1,925)	361	(2,253)	60
Total, Other comprehensive (loss) income before reclassification
Total, Net current period other comprehensive (loss) income	(1,925)	361	(2,253)	60
Total, Balance of AOCI at the end of period	$ (509)	$ 1,796	$ (509)	$ 1,796

XML

Loans Receivable (Details 16) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Cowlitz Bank [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	$ 54,507	$ 65,606
Cowlitz Bank [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	46,109	51,689
Cowlitz Bank [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	1,678	6,122
Cowlitz Bank [Member] | Consumer [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	2,613	3,533
Cowlitz Bank [Member] | Commercial and industrial [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	15,736	21,624
Cowlitz Bank [Member] | One-to-four family residential [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	4,107	4,262
Cowlitz Bank [Member] | One-to-four family residential [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	1,678	6,122
Cowlitz Bank [Member] | Owner-occupied commercial real estate [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	15,556	17,157
Cowlitz Bank [Member] | Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans	14,817	12,908
Cowlitz Bank [Member] | Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired covered loans
Pierce Commercial Bank [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	41,048	47,394
Pierce Commercial Bank [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	30,785	35,503
Pierce Commercial Bank [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	3,553	4,195
Pierce Commercial Bank [Member] | Consumer [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	2,602	4,393
Pierce Commercial Bank [Member] | Commercial and industrial [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	19,945	21,953
Pierce Commercial Bank [Member] | One-to-four family residential [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	4,108	3,303
Pierce Commercial Bank [Member] | One-to-four family residential [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	2,841	3,375
Pierce Commercial Bank [Member] | Owner-occupied commercial real estate [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	5,315	5,748
Pierce Commercial Bank [Member] | Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	5,525	7,802
Pierce Commercial Bank [Member] | Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	712	820
Northwest Commercial Bank [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	6,347
Northwest Commercial Bank [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	5,563
Northwest Commercial Bank [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	700
Northwest Commercial Bank [Member] | Consumer [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	84
Northwest Commercial Bank [Member] | Commercial and industrial [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	1,624
Northwest Commercial Bank [Member] | One-to-four family residential [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans
Northwest Commercial Bank [Member] | One-to-four family residential [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans
Northwest Commercial Bank [Member] | Owner-occupied commercial real estate [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	1,890
Northwest Commercial Bank [Member] | Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	2,049
Northwest Commercial Bank [Member] | Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Purchased Impaired Loans
Gross purchased impaired non-covered loans	$ 700

XML

Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

(9) 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 to satisfy share option exercises and restricted stock awards. As of June 30, 2013, 110,162 shares remain available for future issuances under stock-based compensation plans.

(a) Stock Option Awards

For the three and six months ended June 30, 2013, the Company recognized compensation expense related to stock options of $21,000 and $42,000, respectively. No related tax benefit was recognized for the three or six months ended June 30, 2013. For the three and six months ended June 30, 2012, the Company recognized compensation expense related to stock options of $18,000 and $60,000, respectively, and a related tax benefit of $0 and $1,000, respectively. As of June 30, 2013, the total unrecognized compensation expense related to non-vested stock options was $58,000 and the related weighted average period over which it is expected to be recognized is approximately 0.9 years. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2013 totaled $9,000 and $37,000, respectively. The intrinsic value and cash proceeds from options exercised during the six months ended June 30, 2012 totaled $2,000 and $11,000, respectively.

The following tables summarize the stock option activity for the six months ended June 30, 2013 and 2012.

	June 30, 2013
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2012		300,658		$	17.48
Granted		—			—
Exercised		(3,300	)		11.35
Forfeited or expired		(71,682	)		22.56
Outstanding at June 30, 2013		225,676		$	15.96		3.7 years	$	240
Vested and expected to vest at June 30, 2013		225,600		$	15.96		3.7 years	$	240
Exercisable at June 30, 2013		206,944		$	16.07		3.4 years	$	240

	June 30, 2012
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011		417,123		$	18.33
Granted		—			—
Exercised		(1,000	)		11.35
Forfeited or expired		(99,057	)		21.63
Outstanding at June 30, 2012		317,066		$	17.32		3.8 years	$	292
Vested and expected to vest at June 30, 2012		316,549		$	17.33		3.8 years	$	292
Exercisable at June 30, 2012		272,090		$	17.74		3.2 years	$	292

(b) Restricted and Unrestricted Stock Awards

For the three and six months ended June 30, 2013, the Company recognized compensation expense related to restricted and unrestricted stock awards of $471,000 and $722,000, respectively, and a related tax benefit of $165,000 and $253,000, respectively. For the three and six months ended June 30, 2012, the Company recognized compensation expense related to restricted stock awards of $362,000 and $557,000, respectively, and a related tax benefit of $127,000 and $195,000, respectively. As of June 30, 2013, the total unrecognized compensation expense related to non-vested restricted stock awards was $2.3 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, 2013 and 2012 was $1.2 million and $632,000, respectively.

The following tables summarize the restricted and unrestricted stock award activity for the six months ended June 30, 2013 and 2012.

	June 30, 2013
	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2012		189,670		$	14.86
Granted		99,790			14.26
Vested		(84,346	)		15.62
Forfeited		(964	)		15.52
Nonvested at June 30, 2013		204,150		$	14.25

	June 30, 2012
	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2011		164,880		$	16.29
Granted		76,420			14.01
Vested		(45,688	)		17.90
Forfeited		(3,496	)		15.32
Nonvested at June 30, 2012		192,116		$	15.02

XML

Fair Value Measurements (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Fair Value Measurements (Textual) [Abstract]
Fair value assets transfers between level 1 and level 2 transfer amount	$ 0	$ 0	$ 0	$ 0

XML

Loans Receivable (Details 8) (Purchased Other Loans [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days	$ 1,768	$ 737
90 Days or Greater	702	714
Total Past Due	2,470	1,451
Current	86,015	49,902
Gross loans receivable	88,485	51,353
90 Days or More and Still Accruing	265	135
Commercial business [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days	1,238	662
90 Days or Greater	702	437
Total Past Due	1,940	1,099
Current	75,741	42,105
Gross loans receivable	77,681	43,204
90 Days or More and Still Accruing	265
Real estate construction and land development [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days
90 Days or Greater
Total Past Due
Current	939
Gross loans receivable	939
90 Days or More and Still Accruing
Consumer [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days	530	75
90 Days or Greater		216
Total Past Due	530	291
Current	8,029	6,474
Gross loans receivable	8,559	6,765
90 Days or More and Still Accruing		135
Commercial and industrial [Member] | Commercial business [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days	222
90 Days or Greater
Total Past Due	222
Current	25,671	11,981
Gross loans receivable	25,893	11,981
90 Days or More and Still Accruing
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days	134	662
90 Days or Greater	265
Total Past Due	399	662
Current	34,393	25,748
Gross loans receivable	34,792	26,410
90 Days or More and Still Accruing	265
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days	882
90 Days or Greater	437	437
Total Past Due	1,319	437
Current	15,677	4,376
Gross loans receivable	16,996	4,813
90 Days or More and Still Accruing
One-to-four family residential [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days
90 Days or Greater		61
Total Past Due		61
Current	1,306	1,323
Gross loans receivable	1,306	1,384
90 Days or More and Still Accruing
One-to-four family residential [Member] | Real estate construction and land development [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days
90 Days or Greater
Total Past Due
Current
Loans receivable, Construction and land development
Gross loans receivable
90 Days or More and Still Accruing
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Schedule of balances of other purchased past due loans segregated by segments and classes of loans
30-89 Days
90 Days or Greater
Total Past Due
Current	939
Gross loans receivable	939
90 Days or More and Still Accruing

XML

Investment Securities (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Investment Securities (Textual) [Abstract]
Impairments not related to credit losses through earning		$ (38,000)		$ (38,000)
Investment Securities (Additional Textual) [Abstract]
Securities classified as trading	0		0		0
Average prepayment rate			6.00%	6.00%
Discount interest rate			6.43%	7.75%
Maximum cash allowed to redeem by participants per quarter			250,000
Percentage of investment in securities allowed to be received as a proportion of ownership in the fund	100.00%		100.00%
Unrealized holding gain (Loss) on securities arising during period	24,000		26,000
Impairment loss on investment securities	24,000	62,000	26,000	98,000
Year-to-date Impairment Charge	24,000	24,000	26,000	60,000
Private residential collateralized mortgage obligations [Member]
Investment Securities (Textual) [Abstract]
Mortgage backed securities evaluation non temporary decline number			6	3
Impairments not related to credit losses through earning		38,000		38,000
Investment Securities (Additional Textual) [Abstract]
Year-to-date Impairment Charge			$ 26,000

XML

Loans Receivable (Details 17) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Cowlitz Bank [Member]
Schedule of impaired purchased loans accretable yield
Balance at the beginning of period	$ 14,108	$ 17,824	$ 14,286	$ 19,912
Accretion	(1,109)	(1,743)	(2,463)	(3,659)
Disposals and other	(443)	(147)	502	(386)
Change in accretable yield	713	630	944	697
Balance at the end of period	13,269	16,564	13,269	16,564
Pierce Commercial Bank [Member]
Schedule of impaired purchased loans accretable yield
Balance at the beginning of period	8,920	12,548	7,352	14,638
Accretion	(1,051)	(1,585)	(2,333)	(3,156)
Disposals and other	(760)	(225)	2,062	(744)
Change in accretable yield	615	1,077	643	1,077
Balance at the end of period	7,724	11,815	7,724	11,815
Northwest Commercial Bank [Member]
Schedule of impaired purchased loans accretable yield
Balance at the beginning of period	684		745
Accretion	(29)		(90)
Disposals and other	(16)		(16)
Change in accretable yield
Balance at the end of period	$ 639		$ 639

XML

Business Combination (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Northwest Commercial Bank [Member]	Jun. 30, 2013 Northwest Commercial Bank [Member]
Net interest income and noninterest income for the acquired business
Interest income: Interest and fees on loans (1)					$ 595	$ 1,160
Interest income: Interest and fees on loan (2)					366	1,462
Interest expense: Deposits					(81)	(157)
Provision for loan losses on purchased loans:	(963)	(419)	(1,326)	(310)	(250)	(250)
Noninterest income:					35	473
Noninterest expense:					(196)	(1,224)
Net effect, pre-tax					$ 469	$ 1,464

XML

Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2013

Allowance for Loan Losses [Line Items]

Schedule of changes in allowance for loan losses

The following table details activity in the allowance for loan losses disaggregated on the basis of the Company’s impairment method as of and for the three and six months ended June 30, 2013:

	Commercial and industrial			Owner- occupied commercial real estate			Non-owner occupied commercial real estate		One-to-four family residential			Real estate construction and land development: one-to-four family residential			Real estate construction and land development: five or more family residential and commercial properties			Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses for the three months ended June 30, 2013:
March 31, 2013	$	10,844		$	3,841		$	5,275	$	1,206		$	2,655		$	1,335		$	1,495		$	896		$	27,547
Charge-offs		(541	)		—			—		—			—			(59	)		(102	)		—			(702	)
Recoveries		35			155			—		—			—			32			5			—			227
Provision for / (Reallocation of) loan losses		1,840			(271	)		1,012		(108	)		(448	)		(669	)		20			(68	)		1,308
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380
Allowance for loan losses for the six months ended June 30, 2013:
December 31, 2012	$	9,912		$	4,021		$	5,369	$	1,221		$	3,131		$	2,309		$	1,761		$	870		$	28,594
Charge-offs		(2,178	)		—			—		(52	)		—			(142	)		(354	)		—			(2,726	)
Recoveries		145			155			—		—			—			32			14			—			346
Provisions for / (Reallocation of) loan losses		4,299			(451	)		918		(71	)		(924	)		(1,560	)		(3	)		(42	)		2,166
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380
Allowance for loan losses as of June 30, 2013 allocated to:
Originated loans individually evaluated for impairment	$	1,878		$	518		$	1,333	$	16		$	591		$	—		$	7		$	—		$	4,343
Originated loans collectively evaluated for impairment		6,484			1,736			2,403		569			448			534			477			828			13,479
Purchased other covered loans individually evaluated for impairment		1			—			—		39			—			—			—			—			40
Purchased other covered loans collectively evaluated for impairment		53			32			8		5			—			—			48			—			146
Purchased other non-covered loans individually evaluated for impairment		232			—			13		—			—			—			3			—			248
Purchased other non-covered loans collectively evaluated for impairment		33			36			11		—			—			—			74			—			154
Purchased impaired covered loans collectively evaluated for impairment		1,132			1,043			2,147		246			859			—			156			—			5,583
Purchased impaired non-covered loans collectively evaluated for impairment		2,365			360			372		223			309			105			653			—			4,387
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380

The following table details the balance in the allowance for loan losses disaggregated on the basis of the Company’s impairment method for the three and six months ended June 30, 2012 and as of December 31, 2012:

	Commercial and industrial			Owner- occupied commercial real estate			Non-owner occupied commercial real estate			One-to-four family residential			Real estate construction and land development: one-to-four family residential			Real estate construction and land development: five or more family residential and commercial properties			Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses for the three months ended June 30, 2012:
March 31, 2012	$	11,695		$	3,668		$	4,424		$	857		$	4,039		$	3,677		$	1,460		$	975		$	30,795
Charge-offs		(411	)		(1,000	)		(292	)		(76	)		(104	)		—			(89	)		—			(1,972	)
Recoveries		29			8			—			—			—			—			4			—			41
Provision for / (Reallocation of) loan losses		(580	)		817			300			367			(115	)		(325	)		202			(47	)		619
June 30, 2012	$	10,733		$	3,493		$	4,432		$	1,148		$	3,820		$	3,352		$	1,577		$	928		$	29,483
Allowance for loan losses for the six months ended June 30, 2012:
December 31, 2011	$	11,805		$	2,979		$	4,394		$	794		$	4,823		$	3,800		$	1,410		$	910		$	30,915
Charge-offs		(900	)		(1,000	)		(292	)		(118	)		(475	)		(445	)		(333	)		—			(3,563	)
Recoveries		1,457			8			11			—			125			—			20			—			1,621
Provision for / (Reallocation of) loan losses		(1,629	)		1,506			319			472			(653	)		(3	)		480			18			510
June 30, 2012	$	10,733		$	3,493		$	4,432		$	1,148		$	3,820		$	3,352		$	1,577		$	928		$	29,483
Allowance for loan losses as of December 31, 2012 allocated to:
Originated loans individually evaluated for impairment	$	858		$	509		$	1,386		$	46		$	792		$	658		$	110		$	—		$	4,359
Originated loans collectively evaluated for impairment		5,372			2,054			2,375			591			1,339			1,527			638			870			14,766
Purchased other covered loans individually evaluated for impairment		4			—			—			44			—			—			33			—			81
Purchased other covered loans collectively evaluated for impairment		38			29			—			23			—			—			4			—			94
Purchased other non-covered loans individually evaluated for impairment		10			7			18			61			—			—			124			—			220
Purchased other non-covered loans collectively evaluated for impairment		30			40			16			5			—			—			14			—			105
Purchased impaired covered loans collectively evaluated for impairment		1,034			989			1,164			210			639			—			141			—			4,177
Purchased impaired non-covered loans collectively evaluated for impairment		2,566			393			410			241			361			124			697			—			4,792
December 31, 2012	$	9,912		$	4,021		$	5,369		$	1,221		$	3,131		$	2,309		$	1,761		$	870		$	28,594

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 as of June 30, 2013:

	Commercial and industrial		Owner- occupied commercial real estate		Non-owner occupied commercial real estate		One-to-four family residential		Real estate construction and land development: one-to-four family residential		Real estate construction and land development: five or more family residential and commercial properties		Consumer		Total
	(In thousands)
Originated loans individually evaluated for impairment	$	12,789	$	2,596	$	6,800	$	839	$	5,265	$	2,785	$	120	$	31,194
Originated loans collectively evaluated for impairment		271,502		185,368		330,209		38,764		16,888		34,449		26,607		903,787
Purchased other covered loans individually evaluated for impairment		14		—		—		460		—		—		7		481
Purchased other covered loans collectively evaluated for impairment		7,376		15,315		2,463		846		—		—		2,035		28,035
Purchased other non-covered loans individually evaluated for impairment		726		163		967		—		—		—		3		1,859
Purchased other non-covered loans collectively evaluated for impairment		17,777		19,314		13,566		—		—		939		6,514		58,110
Purchased impaired covered loans collectively evaluated for impairment		13,042		14,968		16,207		3,630		1,885		—		2,478		52,210
Purchased impaired non-covered loans collectively evaluated for impairment		18,776		6,264		6,518		3,767		551		1,570		4,204		41,650
Total gross loans receivable as of June 30, 2013	$	342,002	$	243,988	$	376,730	$	48,306	$	24,589	$	39,743	$	41,968	$	1,117,326

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, 2012:

	Commercial and industrial		Owner- occupied commercial real estate		Non-owner occupied commercial real estate		One-to-four family residential		Real estate construction and land development: one-to-four family residential		Real estate construction and land development: five or more family residential and commercial properties		Consumer		Total
	(In thousands)
Originated loans individually evaluated for impairment	$	10,440	$	2,051	$	7,257	$	811	$	3,424	$	3,357	$	157	$	27,497
Originated loans collectively evaluated for impairment		266,800		186,443		258,578		38,037		21,751		48,718		28,757		849,084
Purchased other covered loans individually evaluated for impairment		51		—		—		466		—		—		38		555
Purchased other covered loans collectively evaluated for impairment		7,232		18,347		384		857		—		—		1,911		28,731
Purchased other non-covered loans individually evaluated for impairment		385		139		973		61		—		—		125		1,683
Purchased other non-covered loans collectively evaluated for impairment		4,313		7,924		3,456		—		—		—		4,691		20,384
Purchased impaired covered loans collectively evaluated for impairment		18,498		16,449		12,644		3,704		4,433		—		3,316		59,044
Purchased impaired non-covered loans collectively evaluated for impairment		20,065		5,148		6,590		2,979		513		864		5,897		42,056
Total gross loans receivable as of December 31, 2012	$	327,784	$	236,501	$	289,882	$	46,915	$	30,121	$	52,939	$	44,892	$	1,029,034

Originated Loans [Member]

Allowance for Loan Losses [Line Items]

Schedule of changes in allowance for loan losses

A summary of the changes in the originated loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	17,912		$	22,563		$	19,125		$	22,317
Charge-offs		(662	)		(1,961	)		(2,489	)		(3,295	)
Recoveries of loans previously charged-off		227			41			346			1,621
Provision for loan losses		345			200			840			200
Balance at the end of period	$	17,822		$	20,843		$	17,822		$	20,843

Purchased Loans [Member]

Allowance for Loan Losses [Line Items]

Schedule of changes in allowance for loan losses

A summary of the changes in the purchased covered loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	4,710		$	4,111		$	4,352		$	3,963
Charge-offs		(40	)		—			(40	)		(33	)
Provision (recapture) for loan losses		1,099			(138	)		1,457			43
Balance at the end of period	$	5,769		$	3,973		$	5,769		$	3,973

A summary of the changes in the purchased noncovered loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	4,925		$	4,121		$	5,117		$	4,635
Charge-offs		—			(11	)		(197	)		(235	)
Provision (recapture) for loan losses		(136	)		557			(131	)		267
Balance at the end of period	$	4,789		$	4,667		$	4,789		$	4,667

XML

Loans Receivable (Tables)

6 Months Ended

Jun. 30, 2013

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

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 accruing and non-accruing TDRs as of June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013				December 31, 2012
	Accruing TDRs		Non-Accruing TDRs		Accruing TDRs		Non-Accruing TDRs
	(In thousands)
Originated TDRs	$	19,448	$	6,715	$	15,039	$	9,311
Allowance for loan losses on originated TDRs		3,632		518		2,131		1,994
Purchased other TDRs		1,535		10		1,437		7
Allowance for loan losses on purchased other TDRs		96		3		76		2

Troubled debt restructurings on financing receivables

Originated loans that were modified as TDRs during the three and six months ended June 30, 2013 and 2012 are set forth in the following tables:

	Three Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		8	$	1,598		13	$	2,083
Total commercial business		8		1,598		13		2,083
Real estate construction and land development:
One-to-four family residential		24		3,086		1		222
Five or more family residential and commercial properties		1		2,784		—		—
Total real estate construction and land development		25		5,870		—		—
Consumer		1		40		—		—
Total originated TDRs		34	$	7,508		14	$	2,305

	Six Months Ended June 30,
	2013				2012
	Number of Contracts (2)		Outstanding Principal Balance (1)(2)		Number of Contracts (2)		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		18	$	4,174		22	$	3,940
Owner-occupied commercial real estate		—		—		1		198
Total commercial business		18		4,174		23		4,138
One-to-four family residential		1		256		—		—
Real estate construction and land development:
One-to-four family residential		24		3,086		3		577
Five or more family residential and commercial properties		1		2,784		—		—
Total real estate construction and land development		25		5,870		3		577
Consumer		1		40		—		—
Total originated TDRs		45	$	10,340		26	$	4,715

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end dates as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2013 and 2012.

(2) Includes subsequent payments after modifications and reflects the balance as of the end of the period. The Bank’s initial recorded investments in the loans did not change as a result of the modifications as the Bank did not forgive any principal or interest balance as part of the modifications.

Purchased Impaired Loans

The following tables reflect the outstanding balance at June 30, 2013 and December 31, 2012 of the purchased impaired loans by acquisition:

	Cowlitz Bank
	June 30, 2013		December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	15,736	$	21,624
Owner-occupied commercial real estate		15,556		17,157
Non-owner occupied commercial real estate		14,817		12,908
Total commercial business		46,109		51,689
One-to-four family residential		4,107		4,262
Real estate construction and land development:
One-to-four family residential		1,678		6,122
Five or more family residential and commercial properties		—		—
Total real estate construction and land development		1,678		6,122
Consumer		2,613		3,533
Gross purchased impaired covered loans	$	54,507	$	65,606

The total balance of subsequent advances on the purchased impaired covered loans was $5.5 million and $3.8 million as of June 30, 2013 and December 31, 2012, respectively. The Bank has the option to modify certain purchased covered loans which may terminate the FDIC shared-loss coverage on those modified loans. At June 30, 2013 and December 31, 2012, the recorded investment balance of purchased impaired covered loans which are no longer covered under the FDIC shared-loss agreements was $1.6 million and $1.7 million, 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 properly adjusted to reflect the change in the loan status.

	Pierce Commercial Bank
	June 30, 2013		December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	19,945	$	21,953
Owner-occupied commercial real estate		5,315		5,748
Non-owner occupied commercial real estate		5,525		7,802
Total commercial business		30,785		35,503
One-to-four family residential		4,108		3,303
Real estate construction and land development:
One-to-four family residential		2,841		3,375
Five or more family residential and commercial properties		712		820
Total real estate construction and land development		3,553		4,195
Consumer		2,602		4,393
Gross purchased impaired non-covered loans	$	41,048	$	47,394

	Northwest Commercial Bank
	June 30, 2013 (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	1,624
Owner-occupied commercial real estate		1,890
Non-owner occupied commercial real estate		2,049
Total commercial business		5,563
One-to-four family residential		—
Real estate construction and land development:
One-to-four family residential		—
Five or more family residential and commercial properties		700
Total real estate construction and land development		700
Consumer		84
Gross purchased impaired non-covered loans	$	6,347

(1) The NCB Acquisition was completed on January 9, 2013

Schedule of impaired purchased loans accretable yield

The following table summarizes the accretable yield on the purchased impaired loans resulting from the Cowlitz, Pierce and NCB Acquisitions for the three and six months ended June 30, 2013 and 2012. As the NCB Acquisition was completed on January 9, 2013, there are no balances for the three or six months ended June 30, 2012.

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Cowlitz Bank			Pierce Commercial Bank			NCB			Cowlitz Bank			Pierce Commercial Bank			NCB
	(In thousands)
Balance at the beginning of period (1)	$	14,108		$	8,920		$	684		$	14,286		$	7,352		$	745
Accretion		(1,109	)		(1,051	)		(29	)		(2,463	)		(2,333	)		(90	)
Disposal and other		(443	)		(760	)		(16	)		502			2,062			(16	)
Change in accretable yield		713			615			—			944			643			—
Balance at the end of period	$	13,269		$	7,724		$	639		$	13,269		$	7,724		$	639

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Cowlitz Bank			Pierce Commercial Bank			Cowlitz Bank			Pierce Commercial Bank
	(In thousands)
Balance at the beginning of period	$	17,824		$	12,548		$	19,912		$	14,638
Accretion		(1,743	)		(1,585	)		(3,659	)		(3,156	)
Disposals and other		(147	)		(225	)		(386	)		(744	)
Change in accretable yield		630			1,077			697			1,077
Balance at the end of period	$	16,564		$	11,815		$	16,564		$	11,815

(1) For the NCB Acquisition, the balance at the beginning of the period represents the balance acquired at January 9, 2013. The contractual cash flows were $8.5 million and the expected cash flows were $5.6 million, resulting in a non-accretable difference of $2.9 million. As the fair value of these purchased impaired loans at the January 9, 2013 NCB Acquisition date was $4.9 million, this provides an accretable yield of $745,000.

Originated Loans Receivable [Member]

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

Schedule of loans receivable

Originated loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	284,291		$	277,240
Owner-occupied commercial real estate		187,964			188,494
Non-owner occupied commercial real estate		337,009			265,835
Total commercial business		809,264			731,569
One-to-four family residential		39,603			38,848
Real estate construction and land development:
One-to-four family residential		22,153			25,175
Five or more family residential and commercial properties		37,234			52,075
Total real estate construction and land development		59,387			77,250
Consumer		26,727			28,914
Gross originated loans receivable		934,981			876,581
Net deferred loan fees		(2,493	)		(2,096	)
Originated loans receivable, net		932,488			874,485
Allowance for loan losses		(17,822	)		(19,125	)
Originated loans receivable, net of allowance for loan losses	$	914,666		$	855,360

Loans receivable by credit quality indicator

The following tables present the balance of the originated loans receivable by credit quality indicator as of June 30, 2013 and December 31, 2012.

	June 30, 2013
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	260,627	$	3,001	$	19,538	$	1,125	$	284,291
Owner-occupied commercial real estate		179,149		3,010		5,805		—		187,964
Non-owner occupied commercial real estate		325,380		4,558		7,071		—		337,009
Total commercial business		765,156		10,569		32,414		1,125		809,264
One-to-four family residential		38,439		272		892		—		39,603
Real estate construction and land development:
One-to-four family residential		12,982		4,476		4,695		—		22,153
Five or more family residential and commercial properties		34,450		—		2,784		—		37,234
Total real estate construction and land development		47,432		4,476		7,479		—		59,387
Consumer		26,560		—		167		—		26,727
Gross originated loans	$	877,587	$	15,317	$	40,952	$	1,125	$	934,981

	December 31, 2012
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	254,593	$	3,908	$	18,157	$	582	$	277,240
Owner-occupied commercial real estate		181,630		2,658		4,206		—		188,494
Non-owner occupied commercial real estate		256,077		4,132		5,257		369		265,835
Total commercial business		692,300		10,698		27,620		951		731,569
One-to-four family residential		37,239		920		689		—		38,848
Real estate construction and land development:
One-to-four family residential		16,446		1,795		6,934		—		25,175
Five or more family residential and commercial properties		48,718		—		3,357		—		52,075
Total real estate construction and land development		65,164		1,795		10,291		—		77,250
Consumer		28,748		—		156		10		28,914
Gross originated loans	$	823,451	$	13,413	$	38,756	$	961	$	876,581

Past due financing receivables

The balances of originated past due loans, segregated by segments and classes of loans, as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	809	$	3,102	$	3,911	$	280,380	$	284,291	$	—
Owner-occupied commercial real estate		340		1,042		1,382		186,582		187,964		—
Non-owner occupied commercial real estate		43		—		43		336,966		337,009		—
Total commercial business		1,192		4,144		5,336		803,928		809,264		—
One-to-four family residential		359		225		584		39,019		39,603		—
Real estate construction and land development:
One-to-four family residential		305		2,179		2,484		19,669		22,153		—
Five or more family residential and commercial properties		—		—		—		37,234		37,234		—
Total real estate construction and land development		305		2,179		2,484		56,903		59,387		—
Consumer		175		80		255		26,472		26,727		—
Gross originated loans	$	2,031	$	6,628	$	8,659	$	926,322	$	934,981	$	—

	December 31, 2012
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	2,768	$	2,014	$	4,782	$	272,458	$	277,240	$	25
Owner-occupied commercial real estate		920		112		1,032		187,462		188,494		—
Non-owner occupied commercial real estate		92		369		461		265,374		265,835		—
Total commercial business		3,780		2,495		6,275		725,294		731,569		25
One-to-four family residential		239		375		614		38,234		38,848		—
Real estate construction and land development:
One-to-four family residential		847		3,242		4,089		21,086		25,175		179
Five or more family residential and commercial properties		—		3,018		3,018		49,057		52,075		—
Total real estate construction and land development		847		6,260		7,107		70,143		77,250		179
Consumer		68		146		214		28,700		28,914		10
Gross originated loans	$	4,934	$	9,276	$	14,210	$	862,371	$	876,581	$	214

Purchased Covered Loans Receivable [Member]

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

Schedule of loans receivable

The recorded investment of purchased covered loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	20,432		$	25,781
Owner-occupied commercial real estate		30,283			34,796
Non-owner occupied commercial real estate		18,670			13,028
Total commercial business		69,385			73,605
One-to-four family residential		4,936			5,027
Real estate construction and land development:
One-to-four family residential		1,885			4,433
Five or more family residential and commercial properties		—			—
Total real estate construction and land development		1,885			4,433
Consumer		4,520			5,265
Gross purchased covered loans receivable		80,726			88,330
Allowance for loan losses		(5,769	)		(4,352	)
Purchased covered loans receivable, net	$	74,957		$	83,978

Purchased Non Covered Loans Receivable [Member]

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

Schedule of loans receivable

The recorded investment of purchased non-covered loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	37,279		$	24,763
Owner-occupied commercial real estate		25,741			13,211
Non-owner occupied commercial real estate		21,051			11,019
Total commercial business		84,071			48,993
One-to-four family residential		3,767			3,040
Real estate construction and land development:
One-to-four family residential		551			513
Five or more family residential and commercial properties		2,509			864
Total real estate construction and land development		3,060			1,377
Consumer		10,721			10,713
Gross purchased non-covered loans receivable		101,619			64,123
Allowance for loan losses		(4,789	)		(5,117	)
Purchased non-covered loans receivable, net	$	96,830		$	59,006

Purchased Other Loans [Member]

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

Loans receivable by credit quality indicator

The following tables present the recorded invested balance of the purchased other loans receivable by credit quality indicator as of June 30, 2013 and December 31, 2012.

	June 30, 2013
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	23,834	$	498	$	1,561	$	—	$	25,893
Owner-occupied commercial real estate		31,774		2,341		677		—		34,792
Non-owner occupied commercial real estate		14,423		723		1,850		—		16,996
Total commercial business		70,031		3,562		4,088		—		77,681
One-to-four family residential		760		546		—		—		1,306
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—
Five or more family residential and commercial properties		939		—		—		—		939
Total real estate construction and land development		939		—		—		—		939
Consumer		8,096		183		280		—		8,559
Gross purchased other loans	$	79,826	$	4,291	$	4,368	$	—	$	88,485

	December 31, 2012
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	11,393	$	496	$	92	$	—	$	11,981
Owner-occupied commercial real estate		23,685		2,390		335		—		26,410
Non-owner occupied commercial real estate		3,108		732		973		—		4,813
Total commercial business		38,186		3,618		1,400		—		43,204
One-to-four family residential		770		553		61		—		1,384
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		—		—
Total real estate construction and land development		—		—		—		—		—
Consumer		6,385		2		346		32		6,765
Gross purchased other loans	$	45,341	$	4,173	$	1,807	$	32	$	51,353

Past due financing receivables

The balances of purchased other past due loans, segregated by segments and classes of loans, as of June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	222	$	—	$	222	$	25,671	$	25,893	$	—
Owner-occupied commercial real estate		134		265		399		34,393		34,792		265
Non-owner occupied commercial real estate		882		437		1,319		15,677		16,996		—
Total commercial business		1,238		702		1,940		75,741		77,681		265
One-to-four family residential		—		—		—		1,306		1,306		—
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		939		939		—
Total real estate construction and land development		—		—		—		939		939		—
Consumer		530		—		530		8,029		8,559		—
Gross purchased other loans	$	1,768	$	702	$	2,470	$	86,015	$	88,485	$	265

	December 31, 2012
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	—	$	—	$	—	$	11,981	$	11,981	$	—
Owner-occupied commercial real estate		662		—		662		25,748		26,410		—
Non-owner occupied commercial real estate		—		437		437		4,376		4,813		—
Total commercial business		662		437		1,099		42,105		43,204		—
One-to-four family residential		—		61		61		1,323		1,384		—
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		—		—		—
Total real estate construction and land development		—		—		—		—		—		—
Consumer		75		216		291		6,474		6,765		135
Gross purchased other loans	$	737	$	714	$	1,451	$	49,902	$	51,353	$	135

Schedule of Impaired Loans, including restructured

Purchased other impaired loans (including restructured loans) at June 30, 2013 and December 31, 2012 are set forth in the following tables.

	June 30, 2013
	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	$	291	$	449	$	740	$	739	$	233
Owner-occupied commercial real estate		163		—		163		159		—
Non-owner occupied commercial real estate		437		530		967		924		13
Total commercial business		891		979		1,870		1,822		246
One-to-four family residential		—		460		460		431		39
Consumer		7		3		10		11		3
Gross purchased other impaired loans	$	898	$	1,442	$	2,340	$	2,264	$	288

	December 31, 2012
	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	$	330	$	106	$	436	$	434	$	14
Owner-occupied commercial real estate		—		139		139		135		7
Non-owner occupied commercial real estate		437		536		973		926		18
Total commercial business		767		781		1,548		1,495		39
One-to-four family residential		—		527		527		489		105
Consumer		—		163		163		173		157
Gross purchased other impaired loans	$	767	$	1,471	$	2,238	$	2,157	$	301

Average recorded investment impaired purchased other financing receivable

The average recorded investment of purchased other impaired loans (including restructured loans) for three and six months ended June 30, 2013 and 2012 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Commercial business:
Commercial and industrial	$	589	$	19	$	538	$	12
Owner-occupied commercial real estate		150		72		146		48
Non-owner occupied commercial real estate		968		708		970		472
Total commercial business		1,707		799		1,654		532
One-to-four family residential		461		—		483		—
Consumer		25		409		71		438
Gross impaired purchased other loans	$	2,193	$	1,208	$	2,208	$	970

Troubled debt restructurings on financing receivables

Purchased other loans that were modified as TDRs during the three and six months ended June 30, 2013 and 2012 are set forth in the following tables:

	Three Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		1	$	125		—	$	—
Owner occupied commercial real estate		1		29		—		—
Non-owner occupied commercial real estate		—		—		1		542
Total commercial business		2		154		1		542
Consumer		1		3		—		—
Total originated TDRs		3	$	157		1	$	542

	Six Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		1	$	125		1	$	18
Owner occupied commercial real estate		1		29		—		—
Non-owner occupied commercial real estate		—		—		1		542
Total commercial business		2		154		2		560
Consumer		1		3		—		—
Total originated TDRs		3	$	157		2	$	560

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end dates as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2013 and 2012.

(2) Includes subsequent payments after modifications and reflects the balance as of the end of the period. The Bank’s initial recorded investments in the loans did not change as a result of the modifications as the Bank did not forgive any principal or interest balance as part of the modifications.

Originated nonaccrual loans [Member]

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

Schedule of nonaccrual loans

Originated nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2013 and December 31, 2012:

	June 30, 2013(1)		December 31, 2012(1)
	(In thousands)
Commercial business:
Commercial and industrial	$	4,947	$	4,560
Owner-occupied commercial real estate		1,132		563
Non-owner occupied commercial real estate		—		369
Total commercial business		6,079		5,492
One-to-four family residential		583		389
Real estate construction and land development:
One-to-four family residential		2,179		3,063
Five or more family residential and commercial properties		2,785		3,357
Total real estate construction and land development		4,964		6,420
Consumer		120		157
Gross originated nonaccrual loans	$	11,746	$	12,458

(1) $2.0 million and $1.2 million of nonaccrual originated loans were guaranteed by governmental agencies at June 30, 2013 and December 31, 2012, respectively.

Purchased Non Accrual Loans Receivable [Member]

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

Schedule of nonaccrual loans

The recorded investment balance of purchased other nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2013 and December 31, 2012:

	June 30, 2013(1)		December 31, 2012(1)
	(In thousands)
Commercial business:
Commercial and industrial	$	223	$	—
Owner-occupied commercial real estate		134		139
Non-owner occupied commercial real estate		437		437
Total commercial business		794		576
One-to-four family residential		—		61
Consumer		10		163
Gross purchased other nonaccrual loans	$	804	$	800

(1) $7,000 and $39,000 of purchased other nonaccrual loans were covered by the FDIC shared-loss agreements at June 30, 2013 and December 31, 2012, respectively.

Impaired Originated Loans [Member]

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

Schedule of Impaired Loans, including restructured

Originated impaired loans (including restructured loans) at June 30, 2013 and December 31, 2012 are set forth in the following tables.

	June 30, 2013
	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	$	7,742	$	5,047	$	12,789	$	14,600	$	1,878
Owner-occupied commercial real estate		1,182		1,414		2,596		2,643		518
Non-owner occupied commercial real estate		2,627		4,173		6,800		6,800		1,333
Total commercial business		11,551		10,634		22,185		24,043		3,729
One-to-four family residential		480		359		839		851		16
Real estate construction and land development:
One-to-four family residential		1,434		3,831		5,265		6,438		591
Five or more family residential and commercial properties		2,785		—		2,785		2,785		—
Total real estate construction and land development		4,219		3,831		8,050		9,223		591
Consumer		80		40		120		120		7
Gross originated loans	$	16,330	$	14,864	$	31,194	$	34,237	$	4,343

	December 31, 2012
	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	$	7,797	$	2,643	$	10,440	$	10,741	$	858
Owner-occupied commercial real estate		633		1,418		2,051		2,134		509
Non-owner occupied commercial real estate		3,031		4,226		7,257		7,257		1,386
Total commercial business		11,461		8,287		19,748		20,132		2,753
One-to-four family residential		422		389		811		811		46
Real estate construction and land development:
One-to-four family residential		700		2,724		3,424		4,597		792
Five or more family residential and commercial properties		—		3,357		3,357		3,397		658
Total real estate construction and land development		700		6,081		6,781		7,994		1,450
Consumer		47		110		157		157		110
Gross originated loans	$	12,630	$	14,867	$	27,497	$	29,094	$	4,359

Schedule of Average Recorded Investment Impaired Loans Including Restructuring Loans

The average recorded investment of originated impaired loans (including restructured loans) for the three and six months ended June 30, 2013 and 2012 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Commercial business:
Commercial and industrial	$	13,032	$	12,044	$	12,168	$	11,455
Owner-occupied commercial real estate		2,524		1,780		2,366		1,976
Non-owner occupied commercial real estate		6,867		7,406		6,997		7,680
Total commercial business		22,423		21,230		21,531		21,111
One-to-four family residential		1,050		1,165		970		1,054
Real estate construction and land development:
One-to-four family residential		4,133		4,606		3,897		4,908
Five or more family residential and commercial properties		3,024		4,652		3,135		6,367
Total real estate construction and land development		7,157		9,258		7,032		11,275
Consumer		83		189		108		168
Gross impaired originated loans	$	30,713	$	31,842	$	29,641	$	33,608

XML

Loans Receivable (Details 6) (Purchased Other Loans [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans	$ 804	$ 800
Commercial business [Member]
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans	794	576
Consumer [Member]
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans	10	163
Commercial and industrial [Member] | Commercial business [Member]
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans	223
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans	134	139
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans	437	437
One-to-four family residential [Member]
Gross purchased other nonaccrual loans
Gross purchased other nonaccrual loans		$ 61

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair value measurements of assets on a recurring basis

The following table summarizes the balances of assets measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012.

	June 30, 2013
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	1,091	$	—	$	1,091	$	—
Municipal securities		52,400		—		52,400		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies		89,664		—		89,664		—
Total	$	143,155	$	—	$	143,155	$	—

	December 31, 2012
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	11,035	$	—	$	11,035	$	—
Municipal securities		47,360		—		47,360		—
Mortgage backed securities and collateralized mortgage obligations—residential
U.S Government-sponsored agencies		85,898		—		85,898		—
Total	$	144,293	$	—	$	144,293	$	—

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, 2013 and December 31, 2012 and the net losses (gains) recorded in earnings during the three and six months ended June 30, 2013 and 2012.

	Basis (1)		Fair Value at June 30, 2013
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings During the Three Months Ended June 30, 2013			Net Losses (Gains) Recorded in Earnings During the Six Months Ended June 30, 2013
	(In thousands)
Impaired originated loans:
Commercial business	$	10,634	$	6,905	$	—	$	—	$	6,905	$	684		$	1,484
One-to-four family residential		359		343		—		—		343		(2	)		(16	)
Real estate construction and land development		3,831		3,240		—		—		3,240		(70	)		(145	)
Consumer		40		33		—		—		33		7			7
Total impaired originated loans		14,864		10,521		—		—		10,521		619			1,330
Purchased other impaired loans:
Commercial business		979		733		—		—		733		219			214
One-to-four family residential		459		421		—		—		421		(3	)		(5	)
Consumer		3		—		—		—		—		3			3
Total purchased other impaired loans		1,441		1,154		—		—		1,154		219			212
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations—residential:
Private residential collateralized mortgage obligations		37		12		—		12		—		24			26
Other real estate owned		1,432		1,130		—		—		1,130		—			—
Total	$	17,774	$	12,817	$	—	$	12	$	12,805	$	862		$	1,568

	Basis (1)		Fair Value at December 31, 2012
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings During the Three Months Ended June 30, 2012			Net Losses (Gains) Recorded in Earnings During the Six Months Ended June 30, 2012
	(In thousands)
Impaired originated loans:
Commercial business	$	11,781	$	9,028	$	—	$	—	$	9,028	$	524		$	616
One-to-four family residential		811		764		—		—		764		102			(4	)
Real estate construction and land development		6,077		4,628		—		—		4,628		(44	)		377
Consumer		109		—		—		—		—		100			100
Total impaired originated loans		18,778		14,420		—		—		14,420		682			1,089
Purchased other impaired loans:
Commercial business		781		742		—		—		742		23			23
One-to-four family residential		527		422		—		—		422		—			—
Consumer		163		6		—		—		6		(2	)		(2	)
Total purchased other impaired loans		1,471		1,170		—		—		1,170		21			21
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations – residential:
Private residential collateralized mortgage obligations		117		113		—		113		—		24			60
Other real estate owned		3,042		2,391		—		—		2,391		—			324
Total	$	23,408	$	18,094	$	—	$	113	$	17,981	$	727		$	1,494

(1) Basis represents the unpaid principal balance of impaired originated and purchased other impaired loans, amortized cost of investment securities held to maturity, and carrying value at ownership date of other real estate owned.

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, 2013 and December 31, 2012.

	June 30, 2013
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired originated loans	$	10,521	Market approach	Adjustment for differences between the comparable sales	0.2%-100.0% (15.2%)
Purchased other impaired loans	$	1,154	Market approach	Adjustment for differences between the comparable sales	2.4%-100% (20.0%)
Other real estate owned	$	1,130	Market approach	Adjustment for differences between the comparable sales	18.1%-45.0% (21.1%)

	December 31, 2012
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired originated loans	$	14,420	Market approach	Adjustment for differences between the comparable sales	1.1%-100.0% (21.7%)
Purchased other impaired loans	$	1,170	Market approach	Adjustment for differences between the comparable sales	4.3%-42.9% (4.8%)
Other real estate owned	$	2,391	Market approach	Adjustment for differences between the comparable sales	16.2%-31.0% (20.1%)

Schedule of carrying value and fair value of financial instruments

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, 2013
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	31,062	$	31,062	$	31,062	$	—	$	—
Interest earning deposits		63,060		63,060		63,060		—		—
Investment securities available for sale		143,155		143,155		—		143,155		—
Investment securities held to maturity		13,078		13,546		—		13,546		—
FHLB stock		5,482		N/A		N/A		—		—
Loans receivable, net of allowance		1,086,453		1,090,459		—		—		1,090,459
Accrued interest receivable		4,822		4,822		5		774		4,043
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts, savings accounts		910,800		910,800		910,800		—		—
Certificate of deposit accounts		285,731		288,869		—		288,869		—
Total deposits	$	1,196,531	$	1,199,669	$	910,800	$	288,869	$	—
Securities sold under agreement to repurchase	$	16,360	$	16,360	$	16,360	$	—	$	—
Accrued interest payable	$	98	$	98	$	15	$	83	$	—

	December 31, 2012
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	37,180	$	37,180	$	37,180	$	—	$	—
Interest earning deposits		69,906		69,906		69,906		—		—
Investment securities available for sale		144,293		144,293		—		144,293		—
Investment securities held to maturity		10,099		11,010		—		11,010		—
FHLB stock		5,495		N/A		N/A		—		—
Loans held for sale		1,676		1,676		—		—		1,676
Loans receivable, net of allowance		998,344		1,012,880		—		—		1,012,880
Accrued interest receivable		4,821		4,821		6		717		4,098
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts, savings accounts		829,044		829,044		829,044		—		—
Certificate of deposit accounts		288,927		290,484		—		290,484		—
Total deposits	$	1,117,971	$	1,119,528	$	829,044	$	290,484	$	—
Securities sold under agreement to repurchase	$	16,021	$	16,021	$	16,021	$	—	$	—
Accrued interest payable	$	106	$	106	$	19	$	87	$	—

XML

Loans Receivable (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of originated loans receivable
Originated loans receivable, net	$ 932,488	$ 874,485
Allowance for loan losses	(17,822)	(19,125)
Originated Loans Receivable [Member]
Schedule of originated loans receivable
Gross originated loans receivable	934,981	876,581
Net deferred loan fees	(2,493)	(2,096)
Originated loans receivable, net	932,488	874,485
Allowance for loan losses	(17,822)	(19,125)
Originated loans receivable, net of allowance for loan losses	914,666	855,360
Originated Loans Receivable [Member] | Commercial business [Member]
Schedule of originated loans receivable
Gross originated loans receivable	809,264	731,569
Originated Loans Receivable [Member] | Real estate construction and land development [Member]
Schedule of originated loans receivable
Gross originated loans receivable	59,387	77,250
Originated Loans Receivable [Member] | Consumer [Member]
Schedule of originated loans receivable
Gross originated loans receivable	26,727	28,914
Commercial and industrial [Member] | Originated Loans Receivable [Member] | Commercial business [Member]
Schedule of originated loans receivable
Gross originated loans receivable	284,291	277,240
Owner-occupied commercial real estate [Member] | Originated Loans Receivable [Member] | Commercial business [Member]
Schedule of originated loans receivable
Gross originated loans receivable	187,964	188,494
Non-owner occupied commercial real estate [Member] | Originated Loans Receivable [Member] | Commercial business [Member]
Schedule of originated loans receivable
Gross originated loans receivable	337,009	265,835
One-to-four family residential [Member] | Originated Loans Receivable [Member]
Schedule of originated loans receivable
Gross originated loans receivable	39,603	38,848
One-to-four family residential [Member] | Originated Loans Receivable [Member] | Real estate construction and land development [Member]
Schedule of originated loans receivable
Gross originated loans receivable	22,153	25,175
Five or more family residential and commercial properties [Member] | Originated Loans Receivable [Member] | Real estate construction and land development [Member]
Schedule of originated loans receivable
Gross originated loans receivable	$ 37,234	$ 52,075

XML

Loans Receivable (Details 9) (Impaired Originated Loans [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	$ 16,330	$ 12,630
Recorded Investment With Specific Valuation Allowance	14,864	14,867
Total Recorded Investment	31,194	27,497
Unpaid Contractual Principal Balance	34,237	29,094
Related Specific Valuation Allowance	4,343	4,359
Commercial business [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	11,551	11,461
Recorded Investment With Specific Valuation Allowance	10,634	8,287
Total Recorded Investment	22,185	19,748
Unpaid Contractual Principal Balance	24,043	20,132
Related Specific Valuation Allowance	3,729	2,753
Real estate construction and land development [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	4,219	700
Recorded Investment With Specific Valuation Allowance	3,831	6,081
Total Recorded Investment	8,050	6,781
Unpaid Contractual Principal Balance	9,223	7,994
Related Specific Valuation Allowance	591	1,450
Consumer [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	80	47
Recorded Investment With Specific Valuation Allowance	40	110
Total Recorded Investment	120	157
Unpaid Contractual Principal Balance	120	157
Related Specific Valuation Allowance	7	110
Commercial and industrial [Member] | Commercial business [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	7,742	7,797
Recorded Investment With Specific Valuation Allowance	5,047	2,643
Total Recorded Investment	12,789	10,440
Unpaid Contractual Principal Balance	14,600	10,741
Related Specific Valuation Allowance	1,878	858
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	1,182	633
Recorded Investment With Specific Valuation Allowance	1,414	1,418
Total Recorded Investment	2,596	2,051
Unpaid Contractual Principal Balance	2,643	2,134
Related Specific Valuation Allowance	518	509
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	2,627	3,031
Recorded Investment With Specific Valuation Allowance	4,173	4,226
Total Recorded Investment	6,800	7,257
Unpaid Contractual Principal Balance	6,800	7,257
Related Specific Valuation Allowance	1,333	1,386
One-to-four family residential [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	480	422
Recorded Investment With Specific Valuation Allowance	359	389
Total Recorded Investment	839	811
Unpaid Contractual Principal Balance	851	811
Related Specific Valuation Allowance	16	46
One-to-four family residential [Member] | Real estate construction and land development [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	1,434	700
Recorded Investment With Specific Valuation Allowance	3,831	2,724
Total Recorded Investment	5,265	3,424
Unpaid Contractual Principal Balance	6,438	4,597
Related Specific Valuation Allowance	591	792
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Schedule of originated impaired loans
Recorded Investment With No Specific Valuation Allowance	2,785
Recorded Investment With Specific Valuation Allowance		3,357
Total Recorded Investment	2,785	3,357
Unpaid Contractual Principal Balance	2,785	3,397
Related Specific Valuation Allowance		$ 658

XML

Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2013

Stockholders' Equity [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, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Net income:
Net income	$	2,690		$	3,194		$	5,575		$	7,364
Less: Dividends and undistributed earnings allocated to participating securities		(36	)		(40	)		(74	)		(91	)
Net income allocated to common shareholders	$	2,654		$	3,154		$	5,501		$	7,273
Basic:
Weighted average common shares outstanding		15,151,743			15,292,477			15,140,406			15,378,994
Less: Restricted stock awards		(171,542	)		(168,326	)		(179,104	)		(169,573	)
Total basic weighted average common shares outstanding		14,980,201			15,124,151			14,961,302			15,209,421
Diluted:
Basic weighted average common shares outstanding		14,980,201			15,124,151			14,961,302			15,209,421
Incremental shares from stock options		11,941			14,553			12,440			14,544
Total diluted weighted average common shares outstanding		14,992,142			15,138,704			14,973,742			15,223,965

Schedule of dividends activity

The following table summarizes the dividend activity for the six months ended June 30, 2013 and subsequent through the date of this filing.

Declared	Cash Dividend per Share		Record Date	Paid or Payable
January 30, 2013	$	0.08	February 8, 2013	February 22, 2013
April 24, 2013	$	0.08	May 10, 2013	May 24, 2013
July 23, 2013	$	0.18	August 6, 2013	August 15, 2013

XML

Allowance for Loan Losses (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	$ 31,200	$ 27,500
Loans Receivable [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	1,117,326	1,029,034
Loans Receivable [Member] | Commercial and industrial [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	342,002	327,784
Loans Receivable [Member] | Owner-occupied commercial real estate [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	243,988	236,501
Loans Receivable [Member] | Non-owner occupied commercial real estate [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	376,730	289,882
Loans Receivable [Member] | One-to-four family residential [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	48,306	46,915
Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	24,589	30,121
Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	39,743	52,939
Loans Receivable [Member] | Consumer [Member]
Schedule of loan receivables on the basis of impairment method
Total gross loans receivable, Ending Balance	41,968	44,892
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	31,194	27,497
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	481	555
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	1,859	1,683
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	12,789	10,440
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	14	51
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	726	385
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	2,596	2,051
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	163	139
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	6,800	7,257
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	967	973
Individually evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	839	811
Individually evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	460	466
Individually evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment		61
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	5,265	3,424
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	2,785	3,357
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	120	157
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	7	38
Individually evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Individually evaluated for impairment	3	125
Collectively evaluated for impairment [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	58,110	20,384
Collectively evaluated for impairment [Member] | Commercial and industrial [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	17,777	4,313
Collectively evaluated for impairment [Member] | Owner-occupied commercial real estate [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	19,314	7,924
Collectively evaluated for impairment [Member] | Non-owner occupied commercial real estate [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	13,566	3,456
Collectively evaluated for impairment [Member] | One-to-four family residential [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment
Collectively evaluated for impairment [Member] | Real estate construction and land development : one-to-four family residential [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment
Collectively evaluated for impairment [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	939
Collectively evaluated for impairment [Member] | Consumer [Member] | Purchased other non-covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	6,514	4,691
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	903,787	849,084
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	28,035	28,731
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	52,210	59,044
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	41,650	42,056
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	271,502	266,800
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	7,376	7,232
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	13,042	18,498
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Commercial and industrial [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	18,776	20,065
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	185,368	186,443
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	15,315	18,347
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	14,968	16,449
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Owner-occupied commercial real estate [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	6,264	5,148
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	330,209	258,578
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	2,463	384
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	16,207	12,644
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Non-owner occupied commercial real estate [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	6,518	6,590
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	38,764	38,037
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	846	857
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	3,630	3,704
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | One-to-four family residential [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	3,767	2,979
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	16,888	21,751
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	1,885	4,433
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : one-to-four family residential [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	551	513
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	34,449	48,718
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	1,570	864
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Originated Loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	26,607	28,757
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Purchased other covered loans [Member]
Schedule of loan receivables on the basis of impairment method
Collectively evaluated for impairment	2,035	1,911
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Purchased Impaired Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	2,478	3,316
Collectively evaluated for impairment [Member] | Loans Receivable [Member] | Consumer [Member] | Purchased Impaired Non-Covered Loans [Member]
Schedule of loan receivables on the basis of impairment method
Purchased impaired covered and non-covered loans collectively evaluated for impairment	$ 4,204	$ 5,897

XML

Stock-Based Compensation (Details 1) (Restricted and Unrestricted stock [Member], USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Restricted and Unrestricted stock [Member]
Schedule of restricted stock award activity
Shares, Nonvested, Beginning Balance	189,670	164,880
Weighted-Average Grant Date Fair Value, Nonvested, Beginning Balance	$ 14.86	$ 16.29
Shares, Granted	99,790	76,420
Weighted-Average Grant Date Fair Value, Granted	$ 14.26	$ 14.01
Shares, Vested	(84,346)	(45,688)
Weighted-Average Grant Date Fair Value, Vested	$ 15.62	$ 17.90
Shares, Forfeited	(964)	(3,496)
Weighted-Average Grant Date Fair Value, Forfeited	$ 15.52	$ 15.32
Shares, Nonvested, Ending Balance	204,150	192,116
Weighted-Average Grant Date Fair Value, Nonvested, Ending Balance	$ 14.25	$ 15.02

XML

Allowance for Loan Losses (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	$ 27,547	$ 30,795	$ 28,594	$ 30,915
Charge-offs	(702)	(1,972)	(2,726)	(3,563)
Recoveries	227	41	346	1,621
Provision for / (Reallocation of) loan losses	1,308	619	2,166	510
Balance at the end of period	28,380	29,483	28,380	29,483
Commercial and industrial [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	10,844	11,695	9,912	11,805
Charge-offs	(541)	(411)	(2,178)	(900)
Recoveries	35	29	145	1,457
Provision for / (Reallocation of) loan losses	1,840	(580)	4,299	(1,629)
Balance at the end of period	12,178	10,733	12,178	10,733
Owner-occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	3,841	3,668	4,021	2,979
Charge-offs		(1,000)		(1,000)
Recoveries	155	8	155	8
Provision for / (Reallocation of) loan losses	(271)	817	(451)	1,506
Balance at the end of period	3,725	3,493	3,725	3,493
Non-owner occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	5,275	4,424	5,369	4,394
Charge-offs		(292)		(292)
Recoveries				11
Provision for / (Reallocation of) loan losses	1,012	300	918	319
Balance at the end of period	6,287	4,432	6,287	4,432
One-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	1,206	857	1,221	794
Charge-offs		(76)	(52)	(118)
Recoveries
Provision for / (Reallocation of) loan losses	(108)	367	(71)	472
Balance at the end of period	1,098	1,148	1,098	1,148
Real estate construction and land development : one-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	2,655	4,039	3,131	4,823
Charge-offs		(104)		(475)
Recoveries				125
Provision for / (Reallocation of) loan losses	(448)	(115)	(924)	(653)
Balance at the end of period	2,207	3,820	2,207	3,820
Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	1,355	3,677	2,309	3,800
Charge-offs	(59)		(142)	(445)
Recoveries	32		32
Provision for / (Reallocation of) loan losses	(669)	(325)	(1,560)	(3)
Balance at the end of period	639	3,352	639	3,352
Consumer [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	1,495	1,460	1,761	1,410
Charge-offs	(102)	(89)	(354)	(333)
Recoveries	5	4	14	20
Provision for / (Reallocation of) loan losses	20	202	(3)	480
Balance at the end of period	1,418	1,577	1,418	1,577
Unallocated [Member]
Schedule of allowance for loan losses on the basis of impairment method
Balance at the beginning of period	896	975	870	910
Charge-offs
Recoveries
Provision for / (Reallocation of) loan losses	(68)	(47)	(42)	18
Balance at the end of period	828	928	828	928
Originated Loans [Member]
Schedule of allowance for loan losses on the basis of impairment method
Charge-offs	(662)	(1,961)	(2,489)	(3,295)
Recoveries	227	41	346	1,621
Individually evaluated for impairment	4,343		4,343		4,359
Collectively evaluated for impairment	13,479		13,479		14,766
Originated Loans [Member] | Commercial and industrial [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	1,878		1,878		858
Collectively evaluated for impairment	6,484		6,484		5,372
Originated Loans [Member] | Owner-occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	518		518		509
Collectively evaluated for impairment	1,736		1,736		2,054
Originated Loans [Member] | Non-owner occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	1,333		1,333		1,386
Collectively evaluated for impairment	2,403		2,403		2,375
Originated Loans [Member] | One-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	16		16		46
Collectively evaluated for impairment	569		569		591
Originated Loans [Member] | Real estate construction and land development : one-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	591		591		792
Collectively evaluated for impairment	448		448		1,339
Originated Loans [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment					658
Collectively evaluated for impairment	534		534		1,527
Originated Loans [Member] | Consumer [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	7		7		110
Collectively evaluated for impairment	477		477		638
Originated Loans [Member] | Unallocated [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment	828		828		870
Purchased other covered loans [Member]
Schedule of allowance for loan losses on the basis of impairment method
Charge-offs	(40)		(40)	(33)
Individually evaluated for impairment	40		40		81
Collectively evaluated for impairment	146		146		94
Purchased other covered loans [Member] | Commercial and industrial [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	1		1		4
Collectively evaluated for impairment	53		53		38
Purchased other covered loans [Member] | Owner-occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment	32		32		29
Purchased other covered loans [Member] | Non-owner occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment	8		8
Purchased other covered loans [Member] | One-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	39		39		44
Collectively evaluated for impairment	5		5		23
Purchased other covered loans [Member] | Real estate construction and land development : one-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased other covered loans [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment
Purchased other covered loans [Member] | Consumer [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment					33
Collectively evaluated for impairment	48		48		4
Purchased other covered loans [Member] | Unallocated [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased other non-covered loans [Member]
Schedule of allowance for loan losses on the basis of impairment method
Charge-offs		(11)	(197)	(235)
Individually evaluated for impairment	248		248		220
Collectively evaluated for impairment	154		154		105
Purchased other non-covered loans [Member] | Commercial and industrial [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	232		232		10
Collectively evaluated for impairment	33		33		30
Purchased other non-covered loans [Member] | Owner-occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment					7
Collectively evaluated for impairment	36		36		40
Purchased other non-covered loans [Member] | Non-owner occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	13		13		18
Collectively evaluated for impairment	11		11		16
Purchased other non-covered loans [Member] | One-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment					61
Collectively evaluated for impairment					5
Purchased other non-covered loans [Member] | Real estate construction and land development : one-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased other non-covered loans [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	0		0
Collectively evaluated for impairment
Purchased other non-covered loans [Member] | Consumer [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment	3		3		124
Collectively evaluated for impairment	74		74		14
Purchased other non-covered loans [Member] | Unallocated [Member]
Schedule of allowance for loan losses on the basis of impairment method
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased Impaired Covered Loans [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	5,583		5,583		4,177
Purchased Impaired Covered Loans [Member] | Commercial and industrial [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	1,132		1,132		1,034
Purchased Impaired Covered Loans [Member] | Owner-occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	1,043		1,043		989
Purchased Impaired Covered Loans [Member] | Non-owner occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	2,147		2,147		1,164
Purchased Impaired Covered Loans [Member] | One-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	246		246		210
Purchased Impaired Covered Loans [Member] | Real estate construction and land development : one-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	859		859		639
Purchased Impaired Covered Loans [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	0		0
Purchased Impaired Covered Loans [Member] | Consumer [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	156		156		141
Purchased Impaired Covered Loans [Member] | Unallocated [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment
Purchased Impaired Non-Covered Loans [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	4,387		4,387		4,792
Purchased Impaired Non-Covered Loans [Member] | Commercial and industrial [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	2,365		2,365		2,566
Purchased Impaired Non-Covered Loans [Member] | Owner-occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	360		360		393
Purchased Impaired Non-Covered Loans [Member] | Non-owner occupied commercial real estate [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	372		372		410
Purchased Impaired Non-Covered Loans [Member] | One-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	223		223		241
Purchased Impaired Non-Covered Loans [Member] | Real estate construction and land development : one-to-four family residential [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	309		309		361
Purchased Impaired Non-Covered Loans [Member] | Real estate construction and land development : five or more family residential and commercial properties [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	105		105		124
Purchased Impaired Non-Covered Loans [Member] | Consumer [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment	653		653		697
Purchased Impaired Non-Covered Loans [Member] | Unallocated [Member]
Schedule of allowance for loan losses on the basis of impairment method
Collectively evaluated for impairment

XML

Loans Receivable (Details 3) (Originated Loans Receivable [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	$ 877,587	$ 823,451
Loans receivable, OAEM	15,317	13,413
Loans receivable, Substandard	40,952	38,756
Loans receivable, Doubtful	1,125	961
Gross loans receivable	934,981	876,581
Real estate construction and land development [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	47,432	65,164
Loans receivable, OAEM	4,476	1,795
Loans receivable, Substandard	7,479	10,291
Gross loans receivable	59,387	77,250
Commercial business [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	765,156	692,300
Loans receivable, OAEM	10,569	10,698
Loans receivable, Substandard	32,414	27,620
Loans receivable, Doubtful	1,125	951
Gross loans receivable	809,264	731,569
Consumer [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	26,560	28,748
Loans receivable, OAEM
Loans receivable, Substandard	167	156
Loans receivable, Doubtful		10
Gross loans receivable	26,727	28,914
Commercial and industrial [Member] | Commercial business [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	260,627	254,593
Loans receivable, OAEM	3,001	3,908
Loans receivable, Substandard	19,538	18,157
Loans receivable, Doubtful	1,125	582
Gross loans receivable	284,291	277,240
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	179,149	181,630
Loans receivable, OAEM	3,010	2,658
Loans receivable, Substandard	5,805	4,206
Gross loans receivable	187,964	188,494
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	325,380	256,077
Loans receivable, OAEM	4,558	4,132
Loans receivable, Substandard	7,071	5,257
Loans receivable, Doubtful		369
Gross loans receivable	337,009	265,835
One-to-four family residential [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	38,439	37,239
Loans receivable, OAEM	272	920
Loans receivable, Substandard	892	689
Gross loans receivable	39,603	38,848
One-to-four family residential [Member] | Real estate construction and land development [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	12,982	16,446
Loans receivable, OAEM	4,476	1,795
Loans receivable, Substandard	4,695	6,934
Gross loans receivable	22,153	25,175
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Schedule of balances of loans receivable - originated loans
Loans receivable, Pass	34,450	48,718
Loans receivable, Substandard	2,784	3,357
Gross loans receivable	$ 37,234	$ 52,075

XML

Stockholders' Equity (Details 1) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Schedule of dividends activity
Cash Dividend per share	$ 0.08	$ 0.28	$ 0.16	$ 0.34
Dividends Activity One [Member]
Schedule of dividends activity
Declared			Jan. 30, 2013
Cash Dividend per share			$ 0.08
Record Date			Feb. 08, 2013
Paid or Payable			Feb. 22, 2013
Dividends Activity Two [Member]
Schedule of dividends activity
Declared			Apr. 24, 2013
Cash Dividend per share			$ 0.08
Record Date			May 10, 2013
Paid or Payable			May 24, 2013
Dividends Activity Three [Member]
Schedule of dividends activity
Declared			Jul. 23, 2013
Cash Dividend per share			$ 0.18
Record Date			Aug. 06, 2013
Paid or Payable			Aug. 15, 2013

XML

Business Combination (Tables)

6 Months Ended

Jun. 30, 2013

Business Combination [Abstract]

Summary of the fair value of the assets acquired and liabilities assumed

A statement of the fair value of the assets acquired and liabilities assumed in the NCB Acquisition was as follows:

	Northwest Commercial Bank January 9, 2013
	(In thousands)
Assets
Cash on hand and in banks	$	2,463
Interest earning deposits		1,252
Investment securities available for sale		2,753
Purchased non-covered loans receivable		51,509
Other real estate owned		2,279
Premises and equipment		214
FHLB stock		88
Accrued interest receivable		232
Core deposit intangible		156
Prepaid expenses and other assets		1,175
Deferred income taxes, net		2,873
Total assets acquired	$	64,994
Liabilities
Deposits	$	60,442
Accrued expenses and other liabilities		1,186
Total liabilities assumed		61,628
Net assets acquired	$	3,366

Summary of the net assets purchased and the estimated fair value adjustments

A summary of the net assets purchased and the estimated fair value adjustments and resulting bargain purchase gain recognized from the NCB Acquisition was as follows:

	Northwest Commercial Bank January 9, 2013
	(In thousands)
Cost basis of net assets on acquisition date	$	6,113
Cash consideration paid		(2,967	)
Fair value adjustments:
Interest earning deposits		7
Investment securities		(2	)
Purchased non-covered loans, net		(3,299	)
Other real estate owned		(1,301	)
Premises and equipment		(69	)
Core deposit intangible		156
Prepaid expenses and other assets		(479	)
Deferred income tax, net		2,873
Certificates of deposit		(11	)
Accrued expenses and other liabilities		(622	)
Bargain purchase gain recognized from the acquisition	$	399

Net interest income and noninterest income for the acquired business

	Northwest Commercial Bank
	Three Months Ended June 30, 2013			January 10, 2013 to June 30, 2013
	(In thousands)
Interest income: Interest and fees on loans (1)	$	595		$	1,160
Interest income: Interest and fees on loan (2)		366			1,462
Interest expense: Deposits		(81	)		(157	)
Provision for loan losses on purchased loans:		(250	)		(250	)
Noninterest income:		35			473
Noninterest expense:		(196	)		(1,224	)
Net effect, pre-tax	$	469		$	1,464

(1) Includes the contractual interest income on the purchased other loans.

(2) Includes the accretion of the purchased impaired loans and the amortization of the discount on the purchased other loans.

XML

Condensed Consolidated Statements of Comprehensive Income (Parenthetical) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Condensed Consolidated Statements of Comprehensive Income [Abstract]
Change in fair value of securities available for sale, tax	$ (1,049)	$ 194	$ (1,232)	$ 17
Other-than-temporary impairment on securities held to maturity, tax	0	(13)	0	(13)
Accretion of other-than-temporary impairment on securities held to maturity, tax	$ 12	$ 14	$ 19	$ 28

XML

Condensed Consolidated Statement of Stockholders' Equity (Parenthetical) (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2013
Dividends declared per common share:	$ 0.16
Retained earnings
Dividends declared per common share:	$ 0.16

XML

Business Combination

6 Months Ended

Jun. 30, 2013

Business Combination [Abstract]

Business Combination

(2) Business Combination

On September 14, 2012, the Company announced that it had entered into a definitive agreement along with its wholly-owned bank subsidiary, Heritage Bank, to acquire NCB headquartered in Lakewood, Washington. NCB was a full service commercial bank that operated two branch locations in Lakewood and Auburn, Washington. Prior to the closing of the transaction, NCB redeemed its outstanding preferred stock of approximately $2.0 million issued to the U.S. Department of Treasury in connection with its participation in the Troubled Asset Relief Program Capital Purchase Plan. The NCB Acquisition was completed on January 9, 2013, and NCB was merged into Heritage Bank. After the NCB Acquisition, the NCB Lakewood branch was consolidated into one of Heritage Bank’s full service banking offices in Lakewood, Washington.

In connection with the NCB Acquisition, the Company paid a cash consideration of $3.0 million, or $5.50 per NCB share, to NCB shareholders on January 9, 2013. In addition, per the merger agreement, the NCB shareholders had the ability to potentially receive an additional cash payment based on an earn-out structure from the sale of an NCB asset included in “other real estate owned.” This contingent payment was factored into the liabilities assumed as of the January 9, 2013 acquisition date. This asset was sold during the three months ended June 30, 2013, and the proceeds from the sale in the amount of $491,000 were paid to the NCB shareholders subsequent to June 30, 2013. The payment of these proceeds did not impact the recorded bargain purchase gain on bank acquisition.

The acquisition of the net assets constitutes a business acquisition as defined by FASB Accounting Standards Codification (“ASC”) 805, Business Combinations. The Business Combinations topic 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. Accordingly, the estimated fair values of the acquired assets, including the identifiable intangible assets, and the assumed liabilities in the acquisition were measured and recorded as of the acquisition date.

A statement of the fair value of the assets acquired and liabilities assumed in the NCB Acquisition was as follows:

	Northwest Commercial Bank January 9, 2013
	(In thousands)
Assets
Cash on hand and in banks	$	2,463
Interest earning deposits		1,252
Investment securities available for sale		2,753
Purchased non-covered loans receivable		51,509
Other real estate owned		2,279
Premises and equipment		214
FHLB stock		88
Accrued interest receivable		232
Core deposit intangible		156
Prepaid expenses and other assets		1,175
Deferred income taxes, net		2,873
Total assets acquired	$	64,994
Liabilities
Deposits	$	60,442
Accrued expenses and other liabilities		1,186
Total liabilities assumed		61,628
Net assets acquired	$	3,366

The cost basis of net assets transferred to Heritage Bank was $6.1 million. A bargain purchase gain on bank acquisition of $399,000 was recognized by the Company in the Condensed Consolidated Statement of Income for the six months ended June 30, 2013. A summary of the net assets purchased and the estimated fair value adjustments and resulting bargain purchase gain recognized from the NCB Acquisition was as follows:

	Northwest Commercial Bank January 9, 2013
	(In thousands)
Cost basis of net assets on acquisition date	$	6,113
Cash consideration paid		(2,967	)
Fair value adjustments:
Interest earning deposits		7
Investment securities		(2	)
Purchased non-covered loans, net		(3,299	)
Other real estate owned		(1,301	)
Premises and equipment		(69	)
Core deposit intangible		156
Prepaid expenses and other assets		(479	)
Deferred income tax, net		2,873
Certificates of deposit		(11	)
Accrued expenses and other liabilities		(622	)
Bargain purchase gain recognized from the acquisition	$	399

The bargain purchase gain on bank acquisition represents the excess of the estimated fair value of the net assets acquired and liabilities assumed over the value of the consideration paid. The bargain purchase gain was influenced significantly by the net deferred tax asset acquired in the NCB Acquisition. NCB had significant net operating losses and as a result of its estimate of whether or not it was more likely than not that the net deferred tax asset would be realized, had recorded a full valuation allowance on the net deferred tax asset. The Company, however, has reviewed the net deferred tax asset and determined it is more likely than not that the net deferred tax asset would be realized by the Company.

The operating results of the Company for the three and six months ended June 30, 2013 include the operating results produced by the net assets acquired from the NCB Acquisition since the January 9, 2013 acquisition date. The Company has considered the requirement of FASB ASC 805 related to the contribution of the NCB Acquisition to the Company’s results of operations. The table below presents only the significant results for the acquired business from the acquisition date.

	Northwest Commercial Bank
	Three Months Ended June 30, 2013			January 10, 2013 to June 30, 2013
	(In thousands)
Interest income: Interest and fees on loans (1)	$	595		$	1,160
Interest income: Interest and fees on loan (2)		366			1,462
Interest expense: Deposits		(81	)		(157	)
Provision for loan losses on purchased loans:		(250	)		(250	)
Noninterest income:		35			473
Noninterest expense:		(196	)		(1,224	)
Net effect, pre-tax	$	469		$	1,464

(1) Includes the contractual interest income on the purchased other loans.

(2) Includes the accretion of the purchased impaired loans and the amortization of the discount on the purchased other loans.

The Company also considered the pro forma requirements of FASB ASC 805 and deemed it not necessary to provide pro forma financial statements as required under the standard as the NCB Acquisition was not material to the Company. The Company believes that the historical NCB operating results are not significant to be meaningful to the Company’s results of operations.

There were no acquisitions completed by the Company during the year ended December 31, 2012.

XML

Stock-Based Compensation (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Stock-Based Compensation (Textual) [Abstract]
Proceeds from exercise of stock options			$ 37,000	$ 11,000
Stock Based Compensation (Additional Textual) [Abstract]
Shares remain available for future issuances under stock-based compensation plans	110,162		110,162
Intrinsic value of options exercised			9,000	2,000
Restricted stock awards issued, net of forfeitures			1,200,000	632,000
Employee Stock Option [Member]
Stock-Based Compensation (Textual) [Abstract]
Share based compensation	21,000	18,000	42,000	60,000
Tax benefit	0	0	0	1,000
Weighted average period			10 months 24 days
Unrecognized compensation expense related to non-vested stock option	58,000		58,000
Proceeds from exercise of stock options			37,000	11,000
Restricted Stock Awards [Member]
Stock-Based Compensation (Textual) [Abstract]
Vested ratably			4 years
Restricted Stock Awards [Member] | Minimum [Member]
Stock-Based Compensation (Textual) [Abstract]
Vested ratably			5 years
Restricted and Unrestricted stock [Member]
Stock-Based Compensation (Textual) [Abstract]
Share based compensation	471,000	362,000	722,000	557,000
Tax benefit	165,000	127,000	253,000	195,000
Weighted average period			2 years 8 months 12 days
Unrecognized compensation expense related to non-vested stock option	$ 2,300,000		$ 2,300,000
Option One [Member] | Employee Stock Option [Member]
Stock-Based Compensation (Textual) [Abstract]
Vested ratably			3 years
Expired ratably			5 years
Option Two [Member] | Employee Stock Option [Member]
Stock-Based Compensation (Textual) [Abstract]
Vested ratably			4 years
Expired ratably			10 years

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income	$ 5,575	$ 7,364
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,572	1,868
Changes in net deferred loan fees, net of amortization	397	36
Provision for loan losses	2,166	510
Net change in accrued interest receivable, prepaid expenses and other assets, accrued expenses and other liabilities	(378)	(3,621)
Recognition of compensation related to ESOP shares and share based payment	722	620
Stock option compensation expense	42	60
Tax provision realized from stock options exercised, share based payment and dividends on unallocated ESOP shares	(68)	44
Amortization of intangible assets	229	214
Deferred income tax	222	217
Bargain purchase gain on bank acquisition	(399)
Impairment loss on investment of securities	26	60
Origination of loans held for sale	(6,784)	(7,568)
Gain on sale of loans	(142)	(116)
Proceeds from sale of loans	8,602	8,338
Valuation adjustment on other real estate owned	(22)	483
(Gain) loss on other real estate owned, net	(232)	2
Loss on sale of premises and equipment, net		2
Net cash provided by operating activities	12,528	8,513
Cash flows from investing activities:
Loans originated, net of principal payments	(39,426)	(4,012)
Maturities of investment securities available for sale	31,369	25,989
Maturities of investment securities held to maturity	784	1,037
Purchase of investment securities available for sale	(32,508)	(32,113)
Purchase of investment securities held to maturity	(3,733)
Purchase of premises and equipment	(3,451)	(1,215)
Proceeds from sales of other real estate owned	4,666	891
Proceeds from redemption of FHLB stock	101
Net cash received from acquisitions	748
Net cash used in investing activities	(41,450)	(9,423)
Cash flows from financing activities:
Net increase (decrease) in deposits	18,118	(22,698)
Common stock cash dividends paid	(2,422)	(2,157)
Net increase (decrease) in securities sold under agreement to repurchase	339	(9,435)
Proceeds from exercise of stock options	37	11
Tax provision realized from stock options exercised, share based payment and dividends on unallocated ESOP shares	68	(44)
Repurchase of common stock	(182)	(5,270)
Net cash provided by (used in) financing activities	15,958	(39,593)
Net decrease in cash and cash equivalents	(12,964)	(40,503)
Cash and cash equivalents at beginning of period	107,086	123,759
Cash and cash equivalents at end of period	94,122	83,256
Supplemental disclosures of cash flow information:
Cash paid for interest	1,874	2,531
Cash paid for income taxes	3,074	7,372
Seller-financed sale of other real estate owned	250
Loans transferred to other real estate owned	513	5,526
Assets acquired (liabilities assumed) in acquisitions:
Investment securities available for sale	2,753
Purchased non-covered loans receivable	51,509
Other real estate owned	2,279
Premise and equipment	214
FHLB stock	88
Accrued interest receivable	232
Prepaid expenses and other assets	1,175
Deferred income taxes, net	2,873
Core deposit intangible	156
Deposits	(60,442)
Accrued expenses and other liabilities	$ (1,186)

XML

Loans Receivable (Details 1) (Purchased Covered Loans Receivable [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	$ 80,726	$ 88,330
Allowance for loan losses	(5,769)	(4,352)
Purchased covered loans receivable, net	74,957	83,978
Real estate construction and land development [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	1,885	4,433
Commercial business [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	69,385	73,605
Consumer [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	4,520	5,265
Commercial and industrial [Member] | Commercial business [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	20,432	25,781
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	30,283	34,796
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	18,670	13,028
One-to-four family residential [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	4,936	5,027
One-to-four family residential [Member] | Real estate construction and land development [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross	1,885	4,433
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Schedule of purchase covered loans receivable
Purchased covered loans receivable, gross

XML

FDIC Indemnification Asset (Tables)

6 Months Ended

Jun. 30, 2013

FDIC Indemnification Asset [Abstract]

Schedule of FDIC indemnification asset

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	5,353		$	8,921		$	7,100		$	10,350
Cash payments received or receivable from the FDIC		(881	)		(692	)		(2,361	)		(1,920	)
FDIC share of additional estimated losses		523			450			611			766
Net amortization		(242	)		(467	)		(597	)		(984	)
Balance at the end of period	$	4,753		$	8,212		$	4,753		$	8,212

XML

Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Schedule of stock option activity

The following tables summarize the stock option activity for the six months ended June 30, 2013 and 2012.

	June 30, 2013
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2012		300,658		$	17.48
Granted		—			—
Exercised		(3,300	)		11.35
Forfeited or expired		(71,682	)		22.56
Outstanding at June 30, 2013		225,676		$	15.96		3.7 years	$	240
Vested and expected to vest at June 30, 2013		225,600		$	15.96		3.7 years	$	240
Exercisable at June 30, 2013		206,944		$	16.07		3.4 years	$	240

	June 30, 2012
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011		417,123		$	18.33
Granted		—			—
Exercised		(1,000	)		11.35
Forfeited or expired		(99,057	)		21.63
Outstanding at June 30, 2012		317,066		$	17.32		3.8 years	$	292
Vested and expected to vest at June 30, 2012		316,549		$	17.33		3.8 years	$	292
Exercisable at June 30, 2012		272,090		$	17.74		3.2 years	$	292

Schedule of restricted stock award activity

The following tables summarize the restricted and unrestricted stock award activity for the six months ended June 30, 2013 and 2012.

	June 30, 2013
	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2012		189,670		$	14.86
Granted		99,790			14.26
Vested		(84,346	)		15.62
Forfeited		(964	)		15.52
Nonvested at June 30, 2013		204,150		$	14.25

	June 30, 2012
	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2011		164,880		$	16.29
Granted		76,420			14.01
Vested		(45,688	)		17.90
Forfeited		(3,496	)		15.32
Nonvested at June 30, 2012		192,116		$	15.02

XML

Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Schedule of stock option activity
Shares, Outstanding, Beginning Balance	300,658	417,123
Weighted-Average Exercise Price, Outstanding, Beginning Balance	$ 17.48	$ 18.33
Shares, Granted
Weighted-Average Exercise Price, Granted
Shares, Exercised	(3,300)	(1,000)
Weighted-Average Exercise Price, Exercised	$ 11.35	$ 11.35
Shares, Forfeited or expired	(71,682)	(99,057)
Weighted-Average Exercise Price, Forfeited or expired	$ 22.56	$ 21.63
Shares, Outstanding, Ending Balance	225,676	317,066
Weighted-Average Exercise Price, Outstanding, Ending Balance	$ 15.96	$ 17.32
Weighted-Average Remaining Contractual Term, Outstanding	3 years 8 months 12 days	3 years 9 months 18 days
Aggregate Intrinsic Value, Outstanding	$ 240	$ 292
Shares, Vested and expected to vest	225,600	316,549
Weighted-Average Exercise Price, Vested and expected to vest	$ 15.96	$ 17.33
Weighted-Average Remaining Contractual Term, Vested and expected to vest	3 years 8 months 12 days	3 years 9 months 18 days
Aggregate Intrinsic Value, Vested and expected to vest	240	292
Shares, Exercisable	206,944	272,090
Weighted-Average Exercise Price, Exercisable	$ 16.07	$ 17.74
Weighted-Average Remaining Contractual Term, Exercisable	3 years 4 months 24 days	3 years 2 months 12 days
Aggregate Intrinsic Value, Exercisable	$ 240	$ 292

XML

Business Combination (Details 1) (USD $)	Jun. 30, 2013	Jan. 09, 2013
Summary of the net assets purchased and the estimated fair value adjustments
Cash consideration paid		$ (3,000,000)
Northwest Commercial Bank [Member]
Summary of the net assets purchased and the estimated fair value adjustments
Cost basis of net assets on acquisition date	6,100,000	6,113,000
Cash consideration paid		(2,967,000)
Fair value adjustments:
Interest earning deposits		7,000
Investment securities		(2,000)
Purchased non-covered loans, net		(3,299,000)
Other real estate owned		(1,301,000)
Premises and equipment		(69,000)
Core deposit intangible		156,000
Prepaid expenses and other assets		(479,000)
Deferred income tax, net		2,873,000
Certificates of deposit		(11,000)
Accrued expenses and other liabilities		(622,000)
Bargain purchase gain recognized from the acquisition	$ 399,000	$ 399,000

XML

Stockholders' Equity (Details Textual) (USD $)	3 Months Ended		6 Months Ended		1 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Aug. 30, 2012 Tenth Stock Repurchase Plan [Member]	Jun. 30, 2013 Tenth Stock Repurchase Plan [Member]	Jun. 30, 2013 Tenth Stock Repurchase Plan [Member]	Jun. 30, 2013 Restricted Stock [Member]	Jun. 30, 2013 Restricted Stock [Member]
Stockholders Equity (Textual) [Abstract]
Outstanding share percent					5.00%
Outstanding					757,000
Repurchased shares, total						0	0
Repurchased shares, total							52,900
Stock repurchase average share price						$ 13.88	$ 13.88
Shares repurchased at an average price								4,539	12,319
Withholding taxes average price per share								$ 14.22	$ 14.82
Stockholder's Equity (Additional Textual) [Abstract]
Anti-dilutive securities excluded from computation	167,147	239,321	187,196	272,491

XML

Loans Receivable (Details 15) (Troubled Debt Restructured Loans [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Contract	Jun. 30, 2012 Contract	Jun. 30, 2013 Contract	Jun. 30, 2012 Contract
Troubled debt restructurings on financing receivables
Number of Contracts			45	26
Purchased Other Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	3	1	3	2
Outstanding Principal Balance	$ 157	$ 542	$ 157	$ 560
Consumer [Member] | Purchased Other Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	1		1
Outstanding Principal Balance	3		3
Commercial business [Member] | Purchased Other Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	2	1	2	2
Outstanding Principal Balance	154	542	154	560
Commercial and industrial [Member] | Purchased Other Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	1		1	1
Outstanding Principal Balance	125		125	18
Owner-occupied commercial real estate [Member] | Purchased Other Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	1		1
Outstanding Principal Balance	29		29
Non-owner occupied commercial real estate [Member] | Purchased Other Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts		1		1
Outstanding Principal Balance		$ 542		$ 542

XML

Loans Receivable (Details 10) (Impaired Originated Loans [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	$ 30,713	$ 31,842	$ 29,641	$ 33,608
Commercial business [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	22,423	21,230	21,531	21,111
Real estate construction and land development [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	7,157	9,258	7,032	11,275
Consumer [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	83	189	108	168
Commercial and industrial [Member] | Commercial business [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	13,032	12,044	12,168	11,455
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	2,524	1,780	2,366	1,976
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	6,867	7,406	6,997	7,680
One-to-four family residential [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	1,050	1,165	970	1,054
One-to-four family residential [Member] | Real estate construction and land development [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	4,133	4,606	3,897	4,908
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Average recorded investment on impaired originated loans
Average Recorded Investment on Impaired Loans	$ 3,024	$ 4,652	$ 3,135	$ 6,367

XML

Loans Receivable (Details 5) (Originated Loans [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	$ 11,746	$ 12,458
Real estate construction and land development [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	4,964	6,420
Commercial business [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	6,079	5,492
Consumer [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	120	157
Commercial and industrial [Member] | Commercial business [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	4,947	4,560
One-to-four family residential [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	583	389
One-to-four family residential [Member] | Real estate construction and land development [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	2,179	3,063
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	1,132	563
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans		369
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Schedule of nonaccrual loan receivable segregated by segment
Gross originated nonaccrual loans	$ 2,785	$ 3,357

XML

Condensed Consolidated Statements of Financial Condition (Parenthetical) (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Condensed Consolidated Statements of Financial Condition [Abstract]
Investment securities held to maturity, fair value	$ 13,546	$ 11,010
Allowance for loan losses, purchased covered loans receivable	5,769	4,352
Purchased non-covered loans receivable	4,789	5,117
Other real estate owned, covered by FDIC loss share	$ 316	$ 260
Preferred stock, par value
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, no par value
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	15,207,784	15,117,980
Common stock, shares outstanding	15,207,784	15,117,980

XML

FDIC Indemnification Asset

6 Months Ended

Jun. 30, 2013

FDIC Indemnification Asset [Abstract]

FDIC Indemnification Asset

(5) FDIC Indemnification Asset

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	5,353		$	8,921		$	7,100		$	10,350
Cash payments received or receivable from the FDIC		(881	)		(692	)		(2,361	)		(1,920	)
FDIC share of additional estimated losses		523			450			611			766
Net amortization		(242	)		(467	)		(597	)		(984	)
Balance at the end of period	$	4,753		$	8,212		$	4,753		$	8,212

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Condensed Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 2,690	$ 3,194	$ 5,575	$ 7,364
Change in fair value of securities available for sale, net of tax of $(1,049), $194, $(1,232), and $17	(1,947)	360	(2,289)	33
Other-than-temporary impairment on securities held to maturity, net of tax of $0, $(13), $0 and $(13)		(25)		(25)
Accretion of other-than-temporary impairment in securities held to maturity, net of tax of $12, $14, $19 and $28	22	26	36	52
Other comprehensive (loss) income	(1,925)	361	(2,253)	60
Comprehensive income	$ 765	$ 3,555	$ 3,322	$ 7,424

XML

Loans Receivable (Details Textual) (USD $)	3 Months Ended	6 Months Ended	12 Months Ended					6 Months Ended				6 Months Ended
	Jun. 30, 2013 Segment Loan	Jun. 30, 2013 Loan	Dec. 31, 2012 Loan	Jun. 30, 2013 Purchased Covered Loans Receivable [Member]	Dec. 31, 2012 Purchased Covered Loans Receivable [Member]	Jun. 30, 2013 Purchased Non Covered Loans Receivable [Member]	Dec. 31, 2012 Purchased Non Covered Loans Receivable [Member]	Jun. 30, 2013 One-to-four family residential [Member]	Jun. 30, 2013 Northwest Commercial Bank [Member]	Jan. 09, 2013 Northwest Commercial Bank [Member]	Jun. 30, 2013 Northwest Commercial Bank [Member] Purchased Non Covered Loans Receivable [Member]	Jun. 30, 2013 Minimum [Member] One-to-four family residential [Member]	Jun. 30, 2013 Maximum [Member] One-to-four family residential [Member]
Loans Receivable (Textual) [Abstract]
Maximum percent of appraised value or underlying collateral mortgage residential loans								80.00%
Loan term												15 years	30 years
Recorded investment of purchased impaired loans				$ 52,200,000	$ 59,000,000	$ 41,700,000	$ 42,000,000				$ 4,700,000
Investment balance of loans- Other				28,500,000	29,300,000	60,000,000	22,100,000				40,200,000
Investment balance of loans not covered under FDIC				4,300,000	3,500,000
Estimated fair value of the purchased non-covered loans										51,500,000
NCB Acquisition Date		Jan. 09, 2013							Jan. 09, 2013
Loans Receivable (Additional Textual) [Abstract]
Number of loan segments	4
Maximum percentage consumer loans		80.00%
Subsequent advances on loans receivable	$ 9,000,000	$ 9,000,000	$ 6,900,000
Percentage of concentrations of loans in any industry		10.00%	10.00%
Concentration of loans greater than 10%	0	0	0
Loss based on historical experience and current market trends		0.00%

XML

Condensed Consolidated Statements of Financial Condition (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash on hand and in banks	$ 31,062	$ 37,180
Interest earning deposits	63,060	69,906
Cash and cash equivalents	94,122	107,086
Investment securities available for sale	143,155	144,293
Investment securities held to maturity (fair value of $13,546 and $11,010)	13,078	10,099
Loans held for sale		1,676
Originated loans receivable, net	932,488	874,485
Less: Allowance for loan losses	(17,822)	(19,125)
Originated loans receivable, net of allowance for loan losses	914,666	855,360
Purchased covered loans receivable, net of allowance for loan losses of ($5,769 and $4,352)	74,957	83,978
Purchased non-covered loans receivable, net of allowance for loan losses of ($4,789 and $5,117)	96,830	59,006
Total loans receivable, net	1,086,453	998,344
Federal Deposit Insurance Corporation ("FDIC") indemnification asset	4,753	7,100
Other real estate owned ($316 and $260 covered by FDIC loss share, respectively)	3,796	5,666
Premises and equipment, net	27,356	24,755
Federal Home Loan Bank ("FHLB") stock, at cost	5,482	5,495
Accrued interest receivable	4,822	4,821
Prepaid expenses and other assets	10,910	8,288
Deferred income taxes, net	17,683	13,819
Other intangible assets, net	1,013	1,086
Goodwill	13,012	13,012
Total assets	1,425,635	1,345,540
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	1,196,531	1,117,971
Securities sold under agreement to repurchase	16,360	16,021
Accrued expenses and other liabilities	12,219	12,610
Total liabilities	1,225,110	1,146,602
Stockholders' equity:
Preferred stock, no par value, 2,500,000 shares authorized; no shares issued and outstanding at June 30, 2013 and December 31, 2012
Common stock, no par value, 50,000,000 shares authorized; 15,207,784 and 15,117,980 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	122,519	121,832
Retained earnings	78,515	75,362
Accumulated other comprehensive (loss) income, net	(509)	1,744
Total stockholders' equity	200,525	198,938
Total liabilities and stockholders' equity	$ 1,425,635	$ 1,345,540

XML

Loans Receivable (Details 11) (Purchased Other Loans [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance	$ 898	$ 767
Recorded Investment With Specific Valuation Allowance	1,442	1,471
Total Recorded Investment	2,340	2,238
Unpaid Contractual Principal Balance	2,264	2,157
Related Specific Valuation Allowance	288	301
Commercial business [Member]
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance	891	767
Recorded Investment With Specific Valuation Allowance	979	781
Total Recorded Investment	1,870	1,548
Unpaid Contractual Principal Balance	1,822	1,495
Related Specific Valuation Allowance	246	39
Consumer [Member]
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance	7
Recorded Investment With Specific Valuation Allowance	3	163
Total Recorded Investment	10	163
Unpaid Contractual Principal Balance	11	173
Related Specific Valuation Allowance	3	157
Commercial and industrial [Member] | Commercial business [Member]
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance	291	330
Recorded Investment With Specific Valuation Allowance	449	106
Total Recorded Investment	740	436
Unpaid Contractual Principal Balance	739	434
Related Specific Valuation Allowance	233	14
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance	163
Recorded Investment With Specific Valuation Allowance		139
Total Recorded Investment	163	139
Unpaid Contractual Principal Balance	159	135
Related Specific Valuation Allowance		7
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance	437	437
Recorded Investment With Specific Valuation Allowance	530	536
Total Recorded Investment	967	973
Unpaid Contractual Principal Balance	924	926
Related Specific Valuation Allowance	13	18
One-to-four family residential [Member]
Schedule of Purchased other impaired loans
Recorded Investment With No Specific Valuation Allowance
Recorded Investment With Specific Valuation Allowance	460	527
Total Recorded Investment	460	527
Unpaid Contractual Principal Balance	431	489
Related Specific Valuation Allowance	$ 39	$ 105

XML

Investment Securities (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	$ 76,607	$ 77,352
Fair Value	77,500	80,250
Washington and Oregon State to secure public deposits [Member]
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	58,024	53,642
Fair Value	59,132	56,300
Federal Reserve Bank and FHLB to secure borrowing arrangements [Member]
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost		6,231
Fair Value		6,245
Repurchase agreements [Member]
Scheduled of amortized cost and fair value of securities pledged as collateral
Amortized Cost	18,583	17,479
Fair Value	$ 18,368	$ 17,705

XML

Investment Securities (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Schedule of maturities of investment securities
Available for Sale Securities, Due in one year or less, Amortized Cost	$ 1,192
Available for Sale Securities, Due in one year or less, Fair Value	1,198
Available for Sale Securities, Due after one year through three years, Amortized Cost	1,105
Available for Sale Securities, Due after one year through three years, Fair Value	1,120
Available for Sale Securities, Due after three years through five years, Amortized Cost	5,039
Available for Sale Securities, Due after three years through five years, Fair Value	5,156
Available for Sale Securities, Due after five years through ten years, Amortized Cost	44,157
Available for Sale Securities, Due after five years through ten years, Fair Value	44,219
Available for Sale Securities, Due after ten years, Amortized Cost	92,041
Available for Sale Securities, Due after ten years, Fair Value	91,462
Available For Sale Securities, Totals, Amortized Cost	143,534
Available For Sale Securities, Totals, Fair Value	143,155
Held to Maturity Securities, Due in one year or less, Amortized Cost	220
Held to Maturity Securities, Due in one year or less, Fair Value	222
Held to Maturity Securities, Due after one year through three years, Amortized Cost	1,028
Held to Maturity Securities, Due after one year through three years, Fair Value	1,075
Held to Maturity Securities, Due after three years through five years, Amortized Cost	289
Held to Maturity Securities, Due after three years through five years, Fair Value	303
Held to Maturity Securities, Due after five years through ten years, Amortized Cost	2,958
Held to Maturity Securities, Due after five years through ten years, Fair Value	3,235
Held to Maturity Securities, Due after ten years, Amortized Cost	8,583
Held to Maturity Securities, Due after ten years, Fair Value	8,711
Held to Maturity Securities, Totals, Amortized Cost	13,078
Held to Maturity Securities, Totals, Fair Value	$ 13,546

XML

Other Real Estate Owned (Tables)

6 Months Ended

Jun. 30, 2013

Other Real Estate Owned [Abstract]

Changes in other real estate owned

Changes in other real estate owned during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	5,263		$	8,349		$	5,666		$	4,484
Additions		513			1,217			513			5,526
Additions from acquisitions		—			—			2,279			—
Proceeds from dispositions		(1,955	)		(790	)		(4,916	)		(891	)
Gain (loss) on sales		60			10			232			(2	)
Valuation adjustment		(85	)		(152	)		22			(483	)
Balance at the end of period	$	3,796		$	8,634		$	3,796		$	8,634

XML

Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

(14) Subsequent Event

On March 11, 2013, the Company announced that it had entered into a merger agreement with Valley Community Bancshares, Inc. (“Valley”) pursuant to which Valley will be merged with and into the Company and immediately thereafter Valley’s wholly-owned bank subsidiary, Valley Bank, will be merged with Heritage Bank. The Board of Directors and shareholders of Valley unanimously approved the acquisition. The Company received all required regulatory approvals for the acquisition, which was completed on July 15, 2013. Pursuant to the terms of the merger agreement, the shareholders of Valley common stock received $19.50 per share in cash and 1.3611 shares of Heritage common stock per Valley share. The merger consideration for Valley consisted of cash and stock, with $22.0 million paid in cash by the Company and 1,533,433 shares of the Company’s common stock being issued.

The operating results of the Company for the three and six months ended June 30, 2013 do not include the operating results related to the Valley acquired assets and assumed liabilities as the Valley Acquisition was not completed until July 15, 2013. As of June 30, 2013, Valley Bank had $233.2 million in total assets, $123.0 million in total loans and $203.2 million in total deposits. It is not practical to present financial information related to the assets acquired and liabilities assumed from Valley at this time because the fair value information has not been finalized.

For the three and six months ended June 30, 2013, the Company incurred $223,000 and $346,000, respectively, of costs related to the Valley Acquisition.

XML

Loans Receivable (Details 4) (Purchased Other Loans [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	$ 79,826	$ 45,341
Loans receivable, OAEM	4,291	4,173
Loans receivable, Substandard	4,368	1,807
Loans receivable, Doubtful		32
Gross loans receivable	88,485	51,353
One-to-four family residential [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	760	770
Loans receivable, OAEM	546	553
Loans receivable, Substandard		61
Gross loans receivable	1,306	1,384
Real estate construction and land development [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	939
Loans receivable, OAEM
Loans receivable, Substandard
Loans receivable, Doubtful
Gross loans receivable	939
Real estate construction and land development [Member] | One-to-four family residential [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass
Loans receivable, OAEM
Loans receivable, Substandard
Loans receivable, Doubtful
Gross loans receivable
Real estate construction and land development [Member] | Five or more family residential and commercial properties [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	939
Loans receivable, OAEM
Loans receivable, Substandard
Loans receivable, Doubtful
Gross loans receivable	939
Commercial business [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	70,031	38,186
Loans receivable, OAEM	3,562	3,618
Loans receivable, Substandard	4,088	1,400
Gross loans receivable	77,681	43,204
Commercial business [Member] | Commercial and industrial [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	23,834	11,393
Loans receivable, OAEM	498	496
Loans receivable, Substandard	1,561	92
Gross loans receivable	25,893	11,981
Commercial business [Member] | Owner-occupied commercial real estate [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	31,774	23,685
Loans receivable, OAEM	2,341	2,390
Loans receivable, Substandard	677	335
Gross loans receivable	34,792	26,410
Commercial business [Member] | Non-owner occupied commercial real estate [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	14,423	3,108
Loans receivable, OAEM	723	732
Loans receivable, Substandard	1,850	973
Gross loans receivable	16,996	4,813
Consumer [Member]
Schedule of Loans Receivable by Credit Quality Indicator
Loans receivable, Pass	8,096	6,385
Loans receivable, OAEM	183	2
Loans receivable, Substandard	280	346
Loans receivable, Doubtful		32
Gross loans receivable	$ 8,559	$ 6,765

XML

Investment Securities (Details 3) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011
Schedule of other-than-temporary impairment losses investment securities
Life-to-Date Gross Other-Than-Temporary Impairments	$ 2,591,000	$ 2,533,000	$ 2,591,000	$ 2,533,000	$ 2,565,000	$ 2,435,000
Life-to-Date Gross Other-Than-Temporary Impairments, Subsequent impairments	24,000	62,000	26,000	98,000
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income	1,152,000	1,138,000	1,152,000	1,138,000	1,152,000	1,100,000
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income, Subsequent impairments		25,000		25,000
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings	1,439,000	1,395,000	1,439,000	1,395,000	1,413,000	1,335,000
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings, Subsequent impairments	24,000	24,000	26,000	60,000
Subsequent Impairments [Member]
Schedule of other-than-temporary impairment losses investment securities
Life-to-Date Gross Other-Than-Temporary Impairments, Subsequent impairments			26,000	98,000
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income, Subsequent impairments				38,000
Life-to-Date Net Other-Than-Temporary Impairments Included in Earnings, Subsequent impairments			$ 26,000	$ 60,000

XML

Loans Receivable (Details 14) (Troubled Debt Restructured Loans [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Contract	Jun. 30, 2012 Contract	Jun. 30, 2013 Contract	Jun. 30, 2012 Contract
Troubled debt restructurings on financing receivables
Number of Contracts			45	26
Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	34	14	45	26
Outstanding Principal Balance	$ 7,508	$ 2,305	$ 10,340	$ 4,715
Commercial business [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	8	13	18	23
Outstanding Principal Balance	1,598	2,083	4,174	4,138
Real estate construction and land development [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	25		25	3
Outstanding Principal Balance	5,870		5,870	577
Consumer [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	1		1
Outstanding Principal Balance	40		40
Commercial and industrial [Member] | Commercial business [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	8	13	18	22
Outstanding Principal Balance	1,598	2,083	4,174	3,940
Owner-occupied commercial real estate [Member] | Commercial business [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts				1
Outstanding Principal Balance				198
One-to-four family residential [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts			1
Outstanding Principal Balance			256
One-to-four family residential [Member] | Real estate construction and land development [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	24	1	24	3
Outstanding Principal Balance	3,086	222	3,086	577
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member] | Originated Loans [Member]
Troubled debt restructurings on financing receivables
Number of Contracts	1		1
Outstanding Principal Balance	$ 2,784		$ 2,784

XML

FDIC Indemnification Asset (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Schedule of FDIC indemnification asset
Beginning at the beginning of period	$ 5,353	$ 8,921	$ 7,100	$ 10,350
Cash payments received or receivable from the FDIC	(881)	(692)	(2,361)	(1,920)
FDIC share of additional estimated losses	523	450	611	766
Net amortization	(242)	(467)	(597)	(984)
Balance at the end of period	$ 4,753	$ 8,212	$ 4,753	$ 8,212

XML

Business Combination (Details Textual) (USD $)	6 Months Ended		12 Months Ended
	Jun. 30, 2013 Branch	Jun. 30, 2012	Dec. 31, 2012 Acquisitions	Mar. 31, 2013	Jan. 09, 2013
Business Combination (Textual) [Abstract]
Amount of bargain purchase gain recognized	$ 399,000
Number of acquisitions during period			0
Business Combination (Additional Textual) [Abstract]
NCB Acquisition Date	Jan. 09, 2013
Number of branches acquired	2
Cash consideration paid					3,000,000
Cash consideration per share				$ 19.50	$ 5.50
Northwest Commercial Bank [Member]
Business Combination (Textual) [Abstract]
Redemption of preferred stock outstanding					2,000,000
Cost basis of net assets transferred	6,100,000				6,113,000
Amount of bargain purchase gain recognized	399,000				399,000
Proceeds from sales of other real estate owned	491,000
Business Combination (Additional Textual) [Abstract]
NCB Acquisition Date	Jan. 09, 2013
Cash consideration paid					$ 2,967,000

XML

Description of Business and Basis of Presentation (Details)	6 Months Ended
	Jun. 30, 2013 Branch
Valley Bank [Member]
Business Description and Basis of Presentation (Textual) [Abstract]
Number of branches operating	8
Heritage Bank [Member]
Business Description and Basis of Presentation (Textual) [Abstract]
Number of branches operating	42
Cowlitz Bank [Member]
Business Description and Basis of Presentation (Textual) [Abstract]
Number of branches operating	9
Pierce Bank [Member]
Business Description and Basis of Presentation (Textual) [Abstract]
Number of branches operating	1
Northwest Commercial Bank [Member]
Business Description and Basis of Presentation (Textual) [Abstract]
Number of branches operating	2

XML

Business Combination (Details) (Northwest Commercial Bank [Member], USD $) In Thousands, unless otherwise specified	Jan. 09, 2013
Northwest Commercial Bank [Member]
Assets
Cash on hand and in banks	$ 2,463
Interest earning deposits	1,252
Investment securities available for sale	2,753
Purchased non-covered loans receivable	51,509
Other real estate owned	2,279
Premises and equipment	214
FHLB stock	88
Accrued interest receivable	232
Core deposit intangible	156
Prepaid expenses and other assets	1,175
Deferred income taxes, net	2,873
Total assets acquired	64,994
Liabilities
Deposits	60,442
Accrued expenses and other liabilities	1,186
Total liabilities assumed	61,628
Net assets acquired	$ 3,366

XML

Allowance for Loan Losses

6 Months Ended

Jun. 30, 2013

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

(4) Allowance for Loan Losses

The allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan portfolio. A summary of the changes in the originated loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	17,912		$	22,563		$	19,125		$	22,317
Charge-offs		(662	)		(1,961	)		(2,489	)		(3,295	)
Recoveries of loans previously charged-off		227			41			346			1,621
Provision for loan losses		345			200			840			200
Balance at the end of period	$	17,822		$	20,843		$	17,822		$	20,843

A summary of the changes in the purchased covered loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	4,710		$	4,111		$	4,352		$	3,963
Charge-offs		(40	)		—			(40	)		(33	)
Provision (recapture) for loan losses		1,099			(138	)		1,457			43
Balance at the end of period	$	5,769		$	3,973		$	5,769		$	3,973

A summary of the changes in the purchased noncovered loans’ allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	4,925		$	4,121		$	5,117		$	4,635
Charge-offs		—			(11	)		(197	)		(235	)
Provision (recapture) for loan losses		(136	)		557			(131	)		267
Balance at the end of period	$	4,789		$	4,667		$	4,789		$	4,667

The purchased loans acquired in the Cowlitz, Pierce and NCB Acquisitions are subject to the Company’s internal and external 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 without regard to the FDIC loss-sharing agreement for the covered loan balances. The portion of the estimated loss reimbursable from the FDIC is recorded in noninterest income and increases the FDIC indemnification asset.

The following table details activity in the allowance for loan losses disaggregated on the basis of the Company’s impairment method as of and for the three and six months ended June 30, 2013:

	Commercial and industrial			Owner- occupied commercial real estate			Non-owner occupied commercial real estate		One-to-four family residential			Real estate construction and land development: one-to-four family residential			Real estate construction and land development: five or more family residential and commercial properties			Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses for the three months ended June 30, 2013:
March 31, 2013	$	10,844		$	3,841		$	5,275	$	1,206		$	2,655		$	1,335		$	1,495		$	896		$	27,547
Charge-offs		(541	)		—			—		—			—			(59	)		(102	)		—			(702	)
Recoveries		35			155			—		—			—			32			5			—			227
Provision for / (Reallocation of) loan losses		1,840			(271	)		1,012		(108	)		(448	)		(669	)		20			(68	)		1,308
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380
Allowance for loan losses for the six months ended June 30, 2013:
December 31, 2012	$	9,912		$	4,021		$	5,369	$	1,221		$	3,131		$	2,309		$	1,761		$	870		$	28,594
Charge-offs		(2,178	)		—			—		(52	)		—			(142	)		(354	)		—			(2,726	)
Recoveries		145			155			—		—			—			32			14			—			346
Provisions for / (Reallocation of) loan losses		4,299			(451	)		918		(71	)		(924	)		(1,560	)		(3	)		(42	)		2,166
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380
Allowance for loan losses as of June 30, 2013 allocated to:
Originated loans individually evaluated for impairment	$	1,878		$	518		$	1,333	$	16		$	591		$	—		$	7		$	—		$	4,343
Originated loans collectively evaluated for impairment		6,484			1,736			2,403		569			448			534			477			828			13,479
Purchased other covered loans individually evaluated for impairment		1			—			—		39			—			—			—			—			40
Purchased other covered loans collectively evaluated for impairment		53			32			8		5			—			—			48			—			146
Purchased other non-covered loans individually evaluated for impairment		232			—			13		—			—			—			3			—			248
Purchased other non-covered loans collectively evaluated for impairment		33			36			11		—			—			—			74			—			154
Purchased impaired covered loans collectively evaluated for impairment		1,132			1,043			2,147		246			859			—			156			—			5,583
Purchased impaired non-covered loans collectively evaluated for impairment		2,365			360			372		223			309			105			653			—			4,387
June 30, 2013	$	12,178		$	3,725		$	6,287	$	1,098		$	2,207		$	639		$	1,418		$	828		$	28,380

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, 2013:

	Commercial and industrial		Owner- occupied commercial real estate		Non-owner occupied commercial real estate		One-to-four family residential		Real estate construction and land development: one-to-four family residential		Real estate construction and land development: five or more family residential and commercial properties		Consumer		Total
	(In thousands)
Originated loans individually evaluated for impairment	$	12,789	$	2,596	$	6,800	$	839	$	5,265	$	2,785	$	120	$	31,194
Originated loans collectively evaluated for impairment		271,502		185,368		330,209		38,764		16,888		34,449		26,607		903,787
Purchased other covered loans individually evaluated for impairment		14		—		—		460		—		—		7		481
Purchased other covered loans collectively evaluated for impairment		7,376		15,315		2,463		846		—		—		2,035		28,035
Purchased other non-covered loans individually evaluated for impairment		726		163		967		—		—		—		3		1,859
Purchased other non-covered loans collectively evaluated for impairment		17,777		19,314		13,566		—		—		939		6,514		58,110
Purchased impaired covered loans collectively evaluated for impairment		13,042		14,968		16,207		3,630		1,885		—		2,478		52,210
Purchased impaired non-covered loans collectively evaluated for impairment		18,776		6,264		6,518		3,767		551		1,570		4,204		41,650
Total gross loans receivable as of June 30, 2013	$	342,002	$	243,988	$	376,730	$	48,306	$	24,589	$	39,743	$	41,968	$	1,117,326

The following table details the balance in the allowance for loan losses disaggregated on the basis of the Company’s impairment method for the three and six months ended June 30, 2012 and as of December 31, 2012:

	Commercial and industrial			Owner- occupied commercial real estate			Non-owner occupied commercial real estate			One-to-four family residential			Real estate construction and land development: one-to-four family residential			Real estate construction and land development: five or more family residential and commercial properties			Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses for the three months ended June 30, 2012:
March 31, 2012	$	11,695		$	3,668		$	4,424		$	857		$	4,039		$	3,677		$	1,460		$	975		$	30,795
Charge-offs		(411	)		(1,000	)		(292	)		(76	)		(104	)		—			(89	)		—			(1,972	)
Recoveries		29			8			—			—			—			—			4			—			41
Provision for / (Reallocation of) loan losses		(580	)		817			300			367			(115	)		(325	)		202			(47	)		619
June 30, 2012	$	10,733		$	3,493		$	4,432		$	1,148		$	3,820		$	3,352		$	1,577		$	928		$	29,483
Allowance for loan losses for the six months ended June 30, 2012:
December 31, 2011	$	11,805		$	2,979		$	4,394		$	794		$	4,823		$	3,800		$	1,410		$	910		$	30,915
Charge-offs		(900	)		(1,000	)		(292	)		(118	)		(475	)		(445	)		(333	)		—			(3,563	)
Recoveries		1,457			8			11			—			125			—			20			—			1,621
Provision for / (Reallocation of) loan losses		(1,629	)		1,506			319			472			(653	)		(3	)		480			18			510
June 30, 2012	$	10,733		$	3,493		$	4,432		$	1,148		$	3,820		$	3,352		$	1,577		$	928		$	29,483
Allowance for loan losses as of December 31, 2012 allocated to:
Originated loans individually evaluated for impairment	$	858		$	509		$	1,386		$	46		$	792		$	658		$	110		$	—		$	4,359
Originated loans collectively evaluated for impairment		5,372			2,054			2,375			591			1,339			1,527			638			870			14,766
Purchased other covered loans individually evaluated for impairment		4			—			—			44			—			—			33			—			81
Purchased other covered loans collectively evaluated for impairment		38			29			—			23			—			—			4			—			94
Purchased other non-covered loans individually evaluated for impairment		10			7			18			61			—			—			124			—			220
Purchased other non-covered loans collectively evaluated for impairment		30			40			16			5			—			—			14			—			105
Purchased impaired covered loans collectively evaluated for impairment		1,034			989			1,164			210			639			—			141			—			4,177
Purchased impaired non-covered loans collectively evaluated for impairment		2,566			393			410			241			361			124			697			—			4,792
December 31, 2012	$	9,912		$	4,021		$	5,369		$	1,221		$	3,131		$	2,309		$	1,761		$	870		$	28,594

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, 2012:

	Commercial and industrial		Owner- occupied commercial real estate		Non-owner occupied commercial real estate		One-to-four family residential		Real estate construction and land development: one-to-four family residential		Real estate construction and land development: five or more family residential and commercial properties		Consumer		Total
	(In thousands)
Originated loans individually evaluated for impairment	$	10,440	$	2,051	$	7,257	$	811	$	3,424	$	3,357	$	157	$	27,497
Originated loans collectively evaluated for impairment		266,800		186,443		258,578		38,037		21,751		48,718		28,757		849,084
Purchased other covered loans individually evaluated for impairment		51		—		—		466		—		—		38		555
Purchased other covered loans collectively evaluated for impairment		7,232		18,347		384		857		—		—		1,911		28,731
Purchased other non-covered loans individually evaluated for impairment		385		139		973		61		—		—		125		1,683
Purchased other non-covered loans collectively evaluated for impairment		4,313		7,924		3,456		—		—		—		4,691		20,384
Purchased impaired covered loans collectively evaluated for impairment		18,498		16,449		12,644		3,704		4,433		—		3,316		59,044
Purchased impaired non-covered loans collectively evaluated for impairment		20,065		5,148		6,590		2,979		513		864		5,897		42,056
Total gross loans receivable as of December 31, 2012	$	327,784	$	236,501	$	289,882	$	46,915	$	30,121	$	52,939	$	44,892	$	1,029,034

XML

Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Schedule of changes in allowance for loan losses
Balance at the beginning of period			$ 19,125
Charge-offs	(702)	(1,972)	(2,726)	(3,563)
Recoveries of loans previously charged -off	227	41	346	1,621
Provision for loan losses	345	200	840	200
Provision (recapture) for loan losses	963	419	1,326	310
Balance at the end of period	17,822		17,822
Originated Loans [Member]
Schedule of changes in allowance for loan losses
Balance at the beginning of period	17,912	22,563	19,125	22,317
Charge-offs	(662)	(1,961)	(2,489)	(3,295)
Recoveries of loans previously charged -off	227	41	346	1,621
Provision for loan losses	345	200	840	200
Balance at the end of period	17,822	20,843	17,822	20,843
Purchased covered [Member]
Schedule of changes in allowance for loan losses
Balance at the beginning of period	4,710	4,111	4,352	3,963
Charge-offs	(40)		(40)	(33)
Provision (recapture) for loan losses	1,099	(138)	1,457	43
Balance at the end of period	5,769	3,973	5,769	3,973
Purchased Noncovered [Member]
Schedule of changes in allowance for loan losses
Balance at the beginning of period	4,925	4,121	5,117	4,635
Charge-offs		(11)	(197)	(235)
Provision (recapture) for loan losses	(136)	557	(131)	267
Balance at the end of period	$ 4,789	$ 4,667	$ 4,789	$ 4,667

XML

Accumulated Other Comprehensive (Loss) Income (Tables)

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive (Loss) Income [Abstract]

Changes in accumulated other comprehensive (loss) income ("AOCI") by component

The changes in accumulated other comprehensive (loss) income (“AOCI”) by component, during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Changes in fair value of available for sale securities (1)			Accretion of other- than- temporary impairment on held to maturity securities (1)			Total			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	$	1,700		$	(284	)	$	1,416		$	2,042		$	(298	)	$	1,744
Other comprehensive (loss) income before reclassification		(1,947	)		22			(1,925	)		(2,289	)		36			(2,253	)
Amounts reclassified from AOCI		—			—			—			—			—			—
Net current period other comprehensive (loss) income		(1,947	)		22			(1,925	)		(2,289	)		36			(2,253	)
Balance of AOCI at the end of period	$	(247	)	$	(262	)	$	(509	)	$	(247	)	$	(262	)	$	(509	)

	Three Months Ended June 30, 2012										Six Months Ended June 30, 2012
	Changes in fair value of available for sale securities (1)		Accretion of other- than- temporary impairment on held to maturity securities (1)			Other-than- temporary impairments on securities held to maturity (1)			Total		Changes in fair value of available for sale securities (1)		Accretion of other- than- temporary impairment on held to maturity securities (1)			Other-than- temporary impairments on securities held to maturity (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	1,778	$	(343	)	$	—		$	1,435	$	2,105	$	(369	)	$	—		$	1,736
Other comprehensive (loss) income before reclassification		360		26			(25	)		361		33		52			(25	)		60
Amounts reclassified from AOCI		—		—			—			—		—		—			—			—
Net current period other comprehensive (loss) income		360		26			(25	)		361		33		52			(25	)		60
Balance of AOCI at the end of period	$	2,138	$	(317	)	$	(25	)	$	1,796	$	2,138	$	(317	)	$	(25	)	$	1,796

(1) All amounts are net of tax.

XML

Loans Receivable (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of purchase non-covered loans receivable
Allowance for loan losses	$ (4,789)	$ (5,117)
Purchased non-covered loans receivable, net	96,830	59,006
Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	101,619	64,123
Allowance for loan losses	(4,789)	(5,117)
Purchased non-covered loans receivable, net	96,830	59,006
Real estate construction and land development [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	3,060	1,377
Commercial business [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	84,071	48,993
Consumer [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	10,721	10,713
Commercial and industrial [Member] | Commercial business [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	37,279	24,763
Owner-occupied commercial real estate [Member] | Commercial business [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	25,741	13,211
Non-owner occupied commercial real estate [Member] | Commercial business [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	21,051	11,019
One-to-four family residential [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	3,767	3,040
One-to-four family residential [Member] | Real estate construction and land development [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	551	513
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member] | Purchased Non Covered Loans Receivable [Member]
Schedule of purchase non-covered loans receivable
Purchased non-covered loans receivable gross	$ 2,509	$ 864

XML

Accumulated Other Comprehensive (Loss) Income

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive (Loss) Income [Abstract]

Accumulated Other Comprehensive (Loss) Income

(7) Accumulated Other Comprehensive (Loss) Income

The changes in accumulated other comprehensive (loss) income (“AOCI”) by component, during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Changes in fair value of available for sale securities (1)			Accretion of other- than- temporary impairment on held to maturity securities (1)			Total			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	$	1,700		$	(284	)	$	1,416		$	2,042		$	(298	)	$	1,744
Other comprehensive (loss) income before reclassification		(1,947	)		22			(1,925	)		(2,289	)		36			(2,253	)
Amounts reclassified from AOCI		—			—			—			—			—			—
Net current period other comprehensive (loss) income		(1,947	)		22			(1,925	)		(2,289	)		36			(2,253	)
Balance of AOCI at the end of period	$	(247	)	$	(262	)	$	(509	)	$	(247	)	$	(262	)	$	(509	)

	Three Months Ended June 30, 2012										Six Months Ended June 30, 2012
	Changes in fair value of available for sale securities (1)		Accretion of other- than- temporary impairment on held to maturity securities (1)			Other-than- temporary impairments on securities held to maturity (1)			Total		Changes in fair value of available for sale securities (1)		Accretion of other- than- temporary impairment on held to maturity securities (1)			Other-than- temporary impairments on securities held to maturity (1)			Total
	(In thousands)
Balance of AOCI at the beginning of period	$	1,778	$	(343	)	$	—		$	1,435	$	2,105	$	(369	)	$	—		$	1,736
Other comprehensive (loss) income before reclassification		360		26			(25	)		361		33		52			(25	)		60
Amounts reclassified from AOCI		—		—			—			—		—		—			—			—
Net current period other comprehensive (loss) income		360		26			(25	)		361		33		52			(25	)		60
Balance of AOCI at the end of period	$	2,138	$	(317	)	$	(25	)	$	1,796	$	2,138	$	(317	)	$	(25	)	$	1,796

(1) All amounts are net of tax.

XML

Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Schedule of securities available for sale
Available for Sale Securities, Amortized Cost	$ 143,534	$ 141,151
Available for Sale Securities, Gross Unrealized Gains	1,895	3,555
Available-for-sale Securities, Gross Unrealized Losses	(2,274)	(413)
Available-for-sale Securities	143,155	144,293
Held to maturity securities carrying value	13,078	10,099
Held to Maturity Securities, Gross Unrealized Gains	711	966
Held-to-maturity Securities, Gross Unrealized Losses	(243)	(55)
Held-to-maturity Securities, Fair Value	13,546	11,010
U.S. Treasury and U.S. Government-sponsored agencies [Member]
Schedule of securities available for sale
Available for Sale Securities, Amortized Cost	1,119	11,016
Available for Sale Securities, Gross Unrealized Gains		19
Available-for-sale Securities, Gross Unrealized Losses	(28)
Available-for-sale Securities	1,091	11,035
Held to maturity securities carrying value	1,710	1,740
Held to Maturity Securities, Gross Unrealized Gains	206	284
Held-to-maturity Securities, Gross Unrealized Losses
Held-to-maturity Securities, Fair Value	1,916	2,024
Municipal securities [Member]
Schedule of securities available for sale
Available for Sale Securities, Amortized Cost	52,961	45,537
Available for Sale Securities, Gross Unrealized Gains	911	1,943
Available-for-sale Securities, Gross Unrealized Losses	(1,472)	(120)
Available-for-sale Securities	52,400	47,360
Held to maturity securities carrying value	4,086	2,946
Held to Maturity Securities, Gross Unrealized Gains	141	212
Held-to-maturity Securities, Gross Unrealized Losses	(69)
Held-to-maturity Securities, Fair Value	4,158	3,158
U.S. Government-sponsored agencies [Member]
Schedule of securities available for sale
Available for Sale Securities, Amortized Cost	89,454	84,598
Available for Sale Securities, Gross Unrealized Gains	984	1,593
Available-for-sale Securities, Gross Unrealized Losses	(774)	(293)
Available-for-sale Securities	89,664	85,898
Held to maturity securities carrying value	6,173	4,245
Held to Maturity Securities, Gross Unrealized Gains	186	277
Held-to-maturity Securities, Gross Unrealized Losses	(153)
Held-to-maturity Securities, Fair Value	6,206	4,522
Private residential collateralized mortgage obligations [Member]
Schedule of securities available for sale
Held to maturity securities carrying value	1,109	1,168
Held to Maturity Securities, Gross Unrealized Gains	178	193
Held-to-maturity Securities, Gross Unrealized Losses	(21)	(55)
Held-to-maturity Securities, Fair Value	$ 1,266	$ 1,306

XML

Loans Receivable

6 Months Ended

Jun. 30, 2013

Loans Receivable [Abstract]

Loans Receivable

(3) Loans Receivable

The Company originates loans in the ordinary course of business. These loans are identified as “originated” loans. Disclosures related to the Company’s recorded investment in originated loans receivable generally exclude accrued interest receivable and net deferred loan origination fees and costs because they are insignificant. The Company has also acquired loans through FDIC-assisted and open bank transactions. Loans acquired in a business acquisition are designated as “purchased” loans. The Company refers to the purchased loans subject to the FDIC shared-loss agreements as “covered” loans, and those loans without shared-loss agreements are referred to as “non-covered” 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 ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans are identified as “purchased impaired” 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. These loans are identified as “purchased other” loans.

(a) Loan Origination/Risk Management

The Company originates loans in one of the four segments of the total loan portfolio: commercial business, real estate construction and land development, one-to-four family residential, 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 external 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 portfolio segment is as follows:

Commercial Business:

There are three significant classes of loans in the commercial portfolio segment, including 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.

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.

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 a variable rate 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 regards 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 sensitive to interest rate changes, governmental 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 this segment of 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 the consumer loans are relatively small amounts spread across many individual borrowers which minimizes the credit risk. Additionally, trend reports are reviewed by management on a regular basis.

Originated loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	284,291		$	277,240
Owner-occupied commercial real estate		187,964			188,494
Non-owner occupied commercial real estate		337,009			265,835
Total commercial business		809,264			731,569
One-to-four family residential		39,603			38,848
Real estate construction and land development:
One-to-four family residential		22,153			25,175
Five or more family residential and commercial properties		37,234			52,075
Total real estate construction and land development		59,387			77,250
Consumer		26,727			28,914
Gross originated loans receivable		934,981			876,581
Net deferred loan fees		(2,493	)		(2,096	)
Originated loans receivable, net		932,488			874,485
Allowance for loan losses		(17,822	)		(19,125	)
Originated loans receivable, net of allowance for loan losses	$	914,666		$	855,360

The recorded investment of purchased covered loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	20,432		$	25,781
Owner-occupied commercial real estate		30,283			34,796
Non-owner occupied commercial real estate		18,670			13,028
Total commercial business		69,385			73,605
One-to-four family residential		4,936			5,027
Real estate construction and land development:
One-to-four family residential		1,885			4,433
Five or more family residential and commercial properties		—			—
Total real estate construction and land development		1,885			4,433
Consumer		4,520			5,265
Gross purchased covered loans receivable		80,726			88,330
Allowance for loan losses		(5,769	)		(4,352	)
Purchased covered loans receivable, net	$	74,957		$	83,978

The June 30, 2013 and December 31, 2012 gross recorded investment balance of purchased impaired covered loans accounted for under FASB ASC 310-30 was $52.2 million and $59.0 million, respectively. The gross recorded investment balance of purchased other covered loans was $28.5 million and $29.3 million at June 30, 2013 and December 31, 2012, respectively. At June 30, 2013 and December 31, 2012, the recorded investment balance of purchased covered loans which are no longer covered under the FDIC loss-sharing agreements was $4.3 million and $3.5 million, respectively.

Funds advanced on the purchased covered loans subsequent to acquisition, referred to as “subsequent advances,” are included in the purchased covered loan balances as these subsequent advances are covered under the loss-sharing agreements. These subsequent advances are not accounted for under FASB ASC 310-30. The total balance of subsequent advances on the purchased covered loans was $9.0 million and $6.9 million as of June 30, 2013 and December 31, 2012, respectively.

The recorded investment of purchased non-covered loans receivable at June 30, 2013 and December 31, 2012 consisted of the following portfolio segments and classes:

	June 30, 2013			December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	37,279		$	24,763
Owner-occupied commercial real estate		25,741			13,211
Non-owner occupied commercial real estate		21,051			11,019
Total commercial business		84,071			48,993
One-to-four family residential		3,767			3,040
Real estate construction and land development:
One-to-four family residential		551			513
Five or more family residential and commercial properties		2,509			864
Total real estate construction and land development		3,060			1,377
Consumer		10,721			10,713
Gross purchased non-covered loans receivable		101,619			64,123
Allowance for loan losses		(4,789	)		(5,117	)
Purchased non-covered loans receivable, net	$	96,830		$	59,006

The loans purchased in the NCB Acquisition on January 9, 2013 are included in the purchased non-covered loans receivable balances shown above as of June 30, 2013. The estimated fair value of the purchased non-covered loans totaled $51.5 million at the NCB Acquisition date. The gross recorded investment balance of the NCB purchased impaired loans and the NCB purchased other loans was $4.7 million and $40.2 million at June 30, 2013, respectively.

The June 30, 2013 and December 31, 2012 gross recorded investment balance of purchased impaired non-covered loans accounted for under FASB ASC 310-30 was $41.7 million and $42.0 million, respectively. The recorded investment balance of purchased other non-covered loans was $60.0 million and $22.1 million at June 30, 2013 and December 31, 2012, respectively.

(b) Concentrations of Credit

Most of the Company’s lending activity occurs within Washington State, and to a lesser extent Oregon State. The Company’s primary market areas include Thurston, Pierce, King, Mason, Cowlitz and Clark counties in Washington and Multnomah County in Oregon, as well as other contiguous markets. The majority of the Company’s loan portfolio consists of commercial and industrial, non-owner occupied commercial real estate, and owner occupied commercial real estate. As of June 30, 2013 and December 31, 2012, 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 9, and a “W”. A description of the general characteristics of the risk grades is as follows:

• Grades 0 to 5: These grades are considered “pass grade” and includes 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 “W”: This grade is considered “pass grade” and includes loans on management’s “watch list” and 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 6: 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 7: This grade includes “Substandard” loans in accordance with regulatory guidelines, for 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 8: 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.

• Grade 9: 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.

Loan grades for all commercial business loans and real estate construction and land development loans are established at the origination of the loan. One-to-four family residential loans and consumer loans (“non-commercial loans”) are not graded as a 0 to 9 at origination date as these loans are determined to be “pass graded” loans. These non-commercial loans may subsequently require a 0-9 risk grade if the credit department has evaluated the credit and determined it necessary to classify the loan. 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 inherent losses in the portfolios, but to a lesser extent than the other loan grades. These pass graded loans may also have a zero percent loss based on historical experience and current market trends. 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 originated loans receivable by credit quality indicator as of June 30, 2013 and December 31, 2012.

	June 30, 2013
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	260,627	$	3,001	$	19,538	$	1,125	$	284,291
Owner-occupied commercial real estate		179,149		3,010		5,805		—		187,964
Non-owner occupied commercial real estate		325,380		4,558		7,071		—		337,009
Total commercial business		765,156		10,569		32,414		1,125		809,264
One-to-four family residential		38,439		272		892		—		39,603
Real estate construction and land development:
One-to-four family residential		12,982		4,476		4,695		—		22,153
Five or more family residential and commercial properties		34,450		—		2,784		—		37,234
Total real estate construction and land development		47,432		4,476		7,479		—		59,387
Consumer		26,560		—		167		—		26,727
Gross originated loans	$	877,587	$	15,317	$	40,952	$	1,125	$	934,981

	December 31, 2012
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	254,593	$	3,908	$	18,157	$	582	$	277,240
Owner-occupied commercial real estate		181,630		2,658		4,206		—		188,494
Non-owner occupied commercial real estate		256,077		4,132		5,257		369		265,835
Total commercial business		692,300		10,698		27,620		951		731,569
One-to-four family residential		37,239		920		689		—		38,848
Real estate construction and land development:
One-to-four family residential		16,446		1,795		6,934		—		25,175
Five or more family residential and commercial properties		48,718		—		3,357		—		52,075
Total real estate construction and land development		65,164		1,795		10,291		—		77,250
Consumer		28,748		—		156		10		28,914
Gross originated loans	$	823,451	$	13,413	$	38,756	$	961	$	876,581

The tables above include $31.2 million and $27.5 million of originated impaired loans as of June 30, 2013 and December 31, 2012, respectively, as detailed in the impaired loans section below. These impaired loans have been individually reviewed for probable losses and have a specific valuation allowance, as necessary. The tables above also include potential problem loans. Potential problem loans are those loans 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. Potential problem originated loans as of June 30, 2013 and December 31, 2012 were $29.2 million and $28.3 million, respectively. The balance of potential problem originated loans guaranteed by a governmental agency was $2.0 million and $3.2 million as of June 30, 2013 and December 31, 2012, respectively. This guarantee reduces the Company’s credit exposure.

The following tables present the recorded invested balance of the purchased other loans receivable by credit quality indicator as of June 30, 2013 and December 31, 2012.

	June 30, 2013
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	23,834	$	498	$	1,561	$	—	$	25,893
Owner-occupied commercial real estate		31,774		2,341		677		—		34,792
Non-owner occupied commercial real estate		14,423		723		1,850		—		16,996
Total commercial business		70,031		3,562		4,088		—		77,681
One-to-four family residential		760		546		—		—		1,306
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—
Five or more family residential and commercial properties		939		—		—		—		939
Total real estate construction and land development		939		—		—		—		939
Consumer		8,096		183		280		—		8,559
Gross purchased other loans	$	79,826	$	4,291	$	4,368	$	—	$	88,485

	December 31, 2012
	Pass		OAEM		Substandard		Doubtful		Total
	(In thousands)
Commercial business:
Commercial and industrial	$	11,393	$	496	$	92	$	—	$	11,981
Owner-occupied commercial real estate		23,685		2,390		335		—		26,410
Non-owner occupied commercial real estate		3,108		732		973		—		4,813
Total commercial business		38,186		3,618		1,400		—		43,204
One-to-four family residential		770		553		61		—		1,384
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		—		—
Total real estate construction and land development		—		—		—		—		—
Consumer		6,385		2		346		32		6,765
Gross purchased other loans	$	45,341	$	4,173	$	1,807	$	32	$	51,353

The tables above include $2.3 million and $2.2 million of purchased other impaired loans as of June 30, 2013 and December 31, 2012, respectively, as detailed in the impaired loans section below. These purchased other impaired loans have been individually reviewed for potential losses and have a specific valuation allowance, as necessary.

(d) Nonaccrual loans

Originated nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2013 and December 31, 2012:

	June 30, 2013(1)		December 31, 2012(1)
	(In thousands)
Commercial business:
Commercial and industrial	$	4,947	$	4,560
Owner-occupied commercial real estate		1,132		563
Non-owner occupied commercial real estate		—		369
Total commercial business		6,079		5,492
One-to-four family residential		583		389
Real estate construction and land development:
One-to-four family residential		2,179		3,063
Five or more family residential and commercial properties		2,785		3,357
Total real estate construction and land development		4,964		6,420
Consumer		120		157
Gross originated nonaccrual loans	$	11,746	$	12,458

(1) $2.0 million and $1.2 million of nonaccrual originated loans were guaranteed by governmental agencies at June 30, 2013 and December 31, 2012, respectively.

The recorded investment balance of purchased other nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2013 and December 31, 2012:

	June 30, 2013(1)		December 31, 2012(1)
	(In thousands)
Commercial business:
Commercial and industrial	$	223	$	—
Owner-occupied commercial real estate		134		139
Non-owner occupied commercial real estate		437		437
Total commercial business		794		576
One-to-four family residential		—		61
Consumer		10		163
Gross purchased other nonaccrual loans	$	804	$	800

(1) $7,000 and $39,000 of purchased other nonaccrual loans were covered by the FDIC shared-loss agreements at June 30, 2013 and December 31, 2012, respectively.

(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 originated past due loans, segregated by segments and classes of loans, as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	809	$	3,102	$	3,911	$	280,380	$	284,291	$	—
Owner-occupied commercial real estate		340		1,042		1,382		186,582		187,964		—
Non-owner occupied commercial real estate		43		—		43		336,966		337,009		—
Total commercial business		1,192		4,144		5,336		803,928		809,264		—
One-to-four family residential		359		225		584		39,019		39,603		—
Real estate construction and land development:
One-to-four family residential		305		2,179		2,484		19,669		22,153		—
Five or more family residential and commercial properties		—		—		—		37,234		37,234		—
Total real estate construction and land development		305		2,179		2,484		56,903		59,387		—
Consumer		175		80		255		26,472		26,727		—
Gross originated loans	$	2,031	$	6,628	$	8,659	$	926,322	$	934,981	$	—

	December 31, 2012
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	2,768	$	2,014	$	4,782	$	272,458	$	277,240	$	25
Owner-occupied commercial real estate		920		112		1,032		187,462		188,494		—
Non-owner occupied commercial real estate		92		369		461		265,374		265,835		—
Total commercial business		3,780		2,495		6,275		725,294		731,569		25
One-to-four family residential		239		375		614		38,234		38,848		—
Real estate construction and land development:
One-to-four family residential		847		3,242		4,089		21,086		25,175		179
Five or more family residential and commercial properties		—		3,018		3,018		49,057		52,075		—
Total real estate construction and land development		847		6,260		7,107		70,143		77,250		179
Consumer		68		146		214		28,700		28,914		10
Gross originated loans	$	4,934	$	9,276	$	14,210	$	862,371	$	876,581	$	214

The balances of purchased other past due loans, segregated by segments and classes of loans, as of June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	222	$	—	$	222	$	25,671	$	25,893	$	—
Owner-occupied commercial real estate		134		265		399		34,393		34,792		265
Non-owner occupied commercial real estate		882		437		1,319		15,677		16,996		—
Total commercial business		1,238		702		1,940		75,741		77,681		265
One-to-four family residential		—		—		—		1,306		1,306		—
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		939		939		—
Total real estate construction and land development		—		—		—		939		939		—
Consumer		530		—		530		8,029		8,559		—
Gross purchased other loans	$	1,768	$	702	$	2,470	$	86,015	$	88,485	$	265

	December 31, 2012
	30-89 Days		90 Days or Greater		Total Past Due		Current		Total		90 Days or More and  Still Accruing
	(In thousands)
Commercial business:
Commercial and industrial	$	—	$	—	$	—	$	11,981	$	11,981	$	—
Owner-occupied commercial real estate		662		—		662		25,748		26,410		—
Non-owner occupied commercial real estate		—		437		437		4,376		4,813		—
Total commercial business		662		437		1,099		42,105		43,204		—
One-to-four family residential		—		61		61		1,323		1,384		—
Real estate construction and land development:
One-to-four family residential		—		—		—		—		—		—
Five or more family residential and commercial properties		—		—		—		—		—		—
Total real estate construction and land development		—		—		—		—		—		—
Consumer		75		216		291		6,474		6,765		135
Gross purchased other loans	$	737	$	714	$	1,451	$	49,902	$	51,353	$	135

(f) Impaired loans

Originated impaired loans (including restructured loans) at June 30, 2013 and December 31, 2012 are set forth in the following tables.

	June 30, 2013
	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	$	7,742	$	5,047	$	12,789	$	14,600	$	1,878
Owner-occupied commercial real estate		1,182		1,414		2,596		2,643		518
Non-owner occupied commercial real estate		2,627		4,173		6,800		6,800		1,333
Total commercial business		11,551		10,634		22,185		24,043		3,729
One-to-four family residential		480		359		839		851		16
Real estate construction and land development:
One-to-four family residential		1,434		3,831		5,265		6,438		591
Five or more family residential and commercial properties		2,785		—		2,785		2,785		—
Total real estate construction and land development		4,219		3,831		8,050		9,223		591
Consumer		80		40		120		120		7
Gross originated loans	$	16,330	$	14,864	$	31,194	$	34,237	$	4,343

	December 31, 2012
	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	$	7,797	$	2,643	$	10,440	$	10,741	$	858
Owner-occupied commercial real estate		633		1,418		2,051		2,134		509
Non-owner occupied commercial real estate		3,031		4,226		7,257		7,257		1,386
Total commercial business		11,461		8,287		19,748		20,132		2,753
One-to-four family residential		422		389		811		811		46
Real estate construction and land development:
One-to-four family residential		700		2,724		3,424		4,597		792
Five or more family residential and commercial properties		—		3,357		3,357		3,397		658
Total real estate construction and land development		700		6,081		6,781		7,994		1,450
Consumer		47		110		157		157		110
Gross originated loans	$	12,630	$	14,867	$	27,497	$	29,094	$	4,359

The Company had governmental guarantees of $3.3 million and $1.9 million related to the impaired originated loan balances at June 30, 2013 and December 31, 2012, respectively.

The average recorded investment of originated impaired loans (including restructured loans) for the three and six months ended June 30, 2013 and 2012 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Commercial business:
Commercial and industrial	$	13,032	$	12,044	$	12,168	$	11,455
Owner-occupied commercial real estate		2,524		1,780		2,366		1,976
Non-owner occupied commercial real estate		6,867		7,406		6,997		7,680
Total commercial business		22,423		21,230		21,531		21,111
One-to-four family residential		1,050		1,165		970		1,054
Real estate construction and land development:
One-to-four family residential		4,133		4,606		3,897		4,908
Five or more family residential and commercial properties		3,024		4,652		3,135		6,367
Total real estate construction and land development		7,157		9,258		7,032		11,275
Consumer		83		189		108		168
Gross impaired originated loans	$	30,713	$	31,842	$	29,641	$	33,608

Purchased other loans become impaired when classified as nonaccrual or when modification resulted in a troubled debt restructure. Purchased other impaired loans (including restructured loans) at June 30, 2013 and December 31, 2012 are set forth in the following tables.

	June 30, 2013
	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	$	291	$	449	$	740	$	739	$	233
Owner-occupied commercial real estate		163		—		163		159		—
Non-owner occupied commercial real estate		437		530		967		924		13
Total commercial business		891		979		1,870		1,822		246
One-to-four family residential		—		460		460		431		39
Consumer		7		3		10		11		3
Gross purchased other impaired loans	$	898	$	1,442	$	2,340	$	2,264	$	288

	December 31, 2012
	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	$	330	$	106	$	436	$	434	$	14
Owner-occupied commercial real estate		—		139		139		135		7
Non-owner occupied commercial real estate		437		536		973		926		18
Total commercial business		767		781		1,548		1,495		39
One-to-four family residential		—		527		527		489		105
Consumer		—		163		163		173		157
Gross purchased other impaired loans	$	767	$	1,471	$	2,238	$	2,157	$	301

The average recorded investment of purchased other impaired loans (including restructured loans) for three and six months ended June 30, 2013 and 2012 are set forth in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Commercial business:
Commercial and industrial	$	589	$	19	$	538	$	12
Owner-occupied commercial real estate		150		72		146		48
Non-owner occupied commercial real estate		968		708		970		472
Total commercial business		1,707		799		1,654		532
One-to-four family residential		461		—		483		—
Consumer		25		409		71		438
Gross impaired purchased other loans	$	2,193	$	1,208	$	2,208	$	970

For the three and six months ended June 30, 2013 and 2012 no interest income was recognized subsequent to a loan’s classification as impaired.

(g) Troubled Debt Restructured Loans

A troubled debt restructured loan (“TDR”) 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 or nonaccrual status.

The recorded investment balance and related allowance for loan losses of accruing and non-accruing TDRs as of June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013				December 31, 2012
	Accruing TDRs		Non-Accruing TDRs		Accruing TDRs		Non-Accruing TDRs
	(In thousands)
Originated TDRs	$	19,448	$	6,715	$	15,039	$	9,311
Allowance for loan losses on originated TDRs		3,632		518		2,131		1,994
Purchased other TDRs		1,535		10		1,437		7
Allowance for loan losses on purchased other TDRs		96		3		76		2

The unfunded commitment to borrowers related to originated TDRs was $3.9 million and $1.5 million as of June 30, 2013 and December 31, 2012, respectively. There were no unfunded commitments to borrowers related to the purchased other TDRs as of June 30, 2013 and December 31, 2012.

Originated loans that were modified as TDRs during the three and six months ended June 30, 2013 and 2012 are set forth in the following tables:

	Three Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		8	$	1,598		13	$	2,083
Total commercial business		8		1,598		13		2,083
Real estate construction and land development:
One-to-four family residential		24		3,086		1		222
Five or more family residential and commercial properties		1		2,784		—		—
Total real estate construction and land development		25		5,870		—		—
Consumer		1		40		—		—
Total originated TDRs		34	$	7,508		14	$	2,305

	Six Months Ended June 30,
	2013				2012
	Number of Contracts (2)		Outstanding Principal Balance (1)(2)		Number of Contracts (2)		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		18	$	4,174		22	$	3,940
Owner-occupied commercial real estate		—		—		1		198
Total commercial business		18		4,174		23		4,138
One-to-four family residential		1		256		—		—
Real estate construction and land development:
One-to-four family residential		24		3,086		3		577
Five or more family residential and commercial properties		1		2,784		—		—
Total real estate construction and land development		25		5,870		3		577
Consumer		1		40		—		—
Total originated TDRs		45	$	10,340		26	$	4,715

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end dates as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2013 and 2012.

(2) Includes subsequent payments after modifications and reflects the balance as of the end of the period. The Bank’s initial recorded investments in the loans did not change as a result of the modifications as the Bank did not forgive any principal or interest balance as part of the modifications.

Of the 45 loans modified during the six months ended June 30, 2013, eight loans with a total outstanding principal balance of $4.5 million were previously reported as TDRs as of December 31, 2012. Of the 26 loans modified during the six months ended June 30, 2012, nine loans with a total outstanding principal balance of $1.9 million were previously reported as TDRs as of December 31, 2011. 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 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 TDR and adjusted, as necessary, in the current periods based on more recent information.

Purchased other loans that were modified as TDRs during the three and six months ended June 30, 2013 and 2012 are set forth in the following tables:

	Three Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		1	$	125		—	$	—
Owner occupied commercial real estate		1		29		—		—
Non-owner occupied commercial real estate		—		—		1		542
Total commercial business		2		154		1		542
Consumer		1		3		—		—
Total originated TDRs		3	$	157		1	$	542

	Six Months Ended June 30,
	2013				2012
	Number of Contracts		Outstanding Principal Balance (1)(2)		Number of Contracts		Outstanding Principal Balance (1)(2)
	(Dollars in thousands)
Commercial business:
Commercial and industrial		1	$	125		1	$	18
Owner occupied commercial real estate		1		29		—		—
Non-owner occupied commercial real estate		—		—		1		542
Total commercial business		2		154		2		560
Consumer		1		3		—		—
Total originated TDRs		3	$	157		2	$	560

(1) Number of contracts and outstanding principal balance represent loans which have balances as of period end dates as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2013 and 2012.

(2) Includes subsequent payments after modifications and reflects the balance as of the end of the period. The Bank’s initial recorded investments in the loans did not change as a result of the modifications as the Bank did not forgive any principal or interest balance as part of the modifications.

The majority of the Bank’s TDRs are a result of granting extensions to troubled credits which have already been adversely classified. We grant 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. 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 loans were interest-only with a balloon payment at maturity. If the interest rate is not adjusted and the terms are consistent with market, 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 TDRs using the same guidance as used for other impaired loans.

There were no originated or purchased other TDRs that had been modified during the previous twelve months ended that subsequently defaulted during the three and six months ended June 30, 2013 and 2012.

(h) Purchased Impaired Loans

As indicated above, the Company purchased impaired loans from the Cowlitz, Pierce and NCB Acquisitions which are accounted for under FASB ASC 310-30.

The following tables reflect the outstanding balance at June 30, 2013 and December 31, 2012 of the purchased impaired loans by acquisition:

	Cowlitz Bank
	June 30, 2013		December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	15,736	$	21,624
Owner-occupied commercial real estate		15,556		17,157
Non-owner occupied commercial real estate		14,817		12,908
Total commercial business		46,109		51,689
One-to-four family residential		4,107		4,262
Real estate construction and land development:
One-to-four family residential		1,678		6,122
Five or more family residential and commercial properties		—		—
Total real estate construction and land development		1,678		6,122
Consumer		2,613		3,533
Gross purchased impaired covered loans	$	54,507	$	65,606

The total balance of subsequent advances on the purchased impaired covered loans was $5.5 million and $3.8 million as of June 30, 2013 and December 31, 2012, respectively. The Bank has the option to modify certain purchased covered loans which may terminate the FDIC shared-loss coverage on those modified loans. At June 30, 2013 and December 31, 2012, the recorded investment balance of purchased impaired covered loans which are no longer covered under the FDIC shared-loss agreements was $1.6 million and $1.7 million, 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 properly adjusted to reflect the change in the loan status.

	Pierce Commercial Bank
	June 30, 2013		December 31, 2012
	(In thousands)
Commercial business:
Commercial and industrial	$	19,945	$	21,953
Owner-occupied commercial real estate		5,315		5,748
Non-owner occupied commercial real estate		5,525		7,802
Total commercial business		30,785		35,503
One-to-four family residential		4,108		3,303
Real estate construction and land development:
One-to-four family residential		2,841		3,375
Five or more family residential and commercial properties		712		820
Total real estate construction and land development		3,553		4,195
Consumer		2,602		4,393
Gross purchased impaired non-covered loans	$	41,048	$	47,394

	Northwest Commercial Bank
	June 30, 2013 (1)
	(In thousands)
Commercial business:
Commercial and industrial	$	1,624
Owner-occupied commercial real estate		1,890
Non-owner occupied commercial real estate		2,049
Total commercial business		5,563
One-to-four family residential		—
Real estate construction and land development:
One-to-four family residential		—
Five or more family residential and commercial properties		700
Total real estate construction and land development		700
Consumer		84
Gross purchased impaired non-covered loans	$	6,347

(1) The NCB Acquisition was completed on January 9, 2013

On the January 9, 2013 acquisition date, the amount by which the undiscounted expected cash flows of the purchased impaired 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 purchased impaired loan.

The following table summarizes the accretable yield on the purchased impaired loans resulting from the Cowlitz, Pierce and NCB Acquisitions for the three and six months ended June 30, 2013 and 2012. As the NCB Acquisition was completed on January 9, 2013, there are no balances for the three or six months ended June 30, 2012.

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Cowlitz Bank			Pierce Commercial Bank			NCB			Cowlitz Bank			Pierce Commercial Bank			NCB
	(In thousands)
Balance at the beginning of period (1)	$	14,108		$	8,920		$	684		$	14,286		$	7,352		$	745
Accretion		(1,109	)		(1,051	)		(29	)		(2,463	)		(2,333	)		(90	)
Disposal and other		(443	)		(760	)		(16	)		502			2,062			(16	)
Change in accretable yield		713			615			—			944			643			—
Balance at the end of period	$	13,269		$	7,724		$	639		$	13,269		$	7,724		$	639

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Cowlitz Bank			Pierce Commercial Bank			Cowlitz Bank			Pierce Commercial Bank
	(In thousands)
Balance at the beginning of period	$	17,824		$	12,548		$	19,912		$	14,638
Accretion		(1,743	)		(1,585	)		(3,659	)		(3,156	)
Disposals and other		(147	)		(225	)		(386	)		(744	)
Change in accretable yield		630			1,077			697			1,077
Balance at the end of period	$	16,564		$	11,815		$	16,564		$	11,815

(1) For the NCB Acquisition, the balance at the beginning of the period represents the balance acquired at January 9, 2013. The contractual cash flows were $8.5 million and the expected cash flows were $5.6 million, resulting in a non-accretable difference of $2.9 million. As the fair value of these purchased impaired loans at the January 9, 2013 NCB Acquisition date was $4.9 million, this provides an accretable yield of $745,000.

XML

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Total	Common Stock	Retained earnings	Accumulated other comprehensive income (loss), net
Beginning balance at Dec. 31, 2012	$ 198,938	$ 121,832	$ 75,362	$ 1,744
Beginning balance, shares at Dec. 31, 2012		15,118,000
Restricted and unrestricted stock awards issued, net of forfeitures
Restricted and unrestricted stock awards issued, net of forfeitures, shares		99,000
Stock option compensation expense	42	42
Exercise of stock options (including excess tax benefits from nonqualified stock options)	37	37
Exercise of stock options (including excess tax benefits from nonqualified stock options), shares	3,300	3,000
Restricted stock compensation expense	722	722
Excess tax benefits from restricted stock	68	68
Common stock repurchased and retired	(182)	(182)
Common stock repurchased and retired, shares		(12,000)
Net income	5,575		5,575
Other comprehensive loss, net of tax	(2,253)			(2,253)
Cash dividends declared on common stock ($0.16 per share)	(2,422)		(2,422)
Ending balance at Jun. 30, 2013	$ 200,525	$ 122,519	$ 78,515	$ (509)
Ending balance, shares at Jun. 30, 2013		15,208,000

XML

Loans Receivable (Details 12) (Impaired Purchased Other Loans [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	$ 2,193	$ 1,208	$ 2,208	$ 970
Commercial business [Member]
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	1,707	799	1,654	532
Consumer [Member]
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	25	409	71	438
Commercial and industrial [Member] | Commercial business [Member]
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	589	19	538	12
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	150	72	146	48
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	968	708	970	472
One-to-four family residential [Member]
Average recorded investment impaired purchased other financing receivable
Average Recorded Investment on Impaired Loans	$ 461		$ 483

XML

Loans Receivable (Details 7) (Originated Loans Receivable [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	$ 2,031	$ 4,934
90 Days or Greater	6,628	9,276
Total Past Due	8,659	14,210
Current	926,322	862,371
Gross loans receivable	934,981	876,581
90 Days or More and Still Accruing		214
Commercial business [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	1,192	3,780
90 Days or Greater	4,144	2,495
Total Past Due	5,336	6,275
Current	803,928	725,294
Gross loans receivable	809,264	731,569
90 Days or More and Still Accruing		25
Real estate construction and land development [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	305	847
90 Days or Greater	2,179	6,260
Total Past Due	2,484	7,107
Current	56,903	70,143
Gross loans receivable	59,387	77,250
90 Days or More and Still Accruing		179
Consumer [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	175	68
90 Days or Greater	80	146
Total Past Due	255	214
Current	26,472	28,700
Gross loans receivable	26,727	28,914
90 Days or More and Still Accruing		10
Commercial and industrial [Member] | Commercial business [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	809	2,768
90 Days or Greater	3,102	2,014
Total Past Due	3,911	4,782
Current	280,380	272,458
Gross loans receivable	284,291	277,240
90 Days or More and Still Accruing		25
One-to-four family residential [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	359	239
90 Days or Greater	225	375
Total Past Due	584	614
Current	39,019	38,234
Gross loans receivable	39,603	38,848
90 Days or More and Still Accruing
One-to-four family residential [Member] | Real estate construction and land development [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	305	847
90 Days or Greater	2,179	3,242
Total Past Due	2,484	4,089
Current	19,669	21,086
Gross loans receivable	22,153	25,175
90 Days or More and Still Accruing		179
Owner-occupied commercial real estate [Member] | Commercial business [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	340	920
90 Days or Greater	1,042	112
Total Past Due	1,382	1,032
Current	186,582	187,462
Gross loans receivable	187,964	188,494
90 Days or More and Still Accruing
Non-owner occupied commercial real estate [Member] | Commercial business [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days	43	92
90 Days or Greater		369
Total Past Due	43	461
Current	336,966	265,374
Gross loans receivable	337,009	265,835
90 Days or More and Still Accruing
Five or more family residential and commercial properties [Member] | Real estate construction and land development [Member]
Schedule of balances of originated past due loans segregated by segments and classes of loans
30-89 Days
90 Days or Greater		3,018
Total Past Due		3,018
Current	37,234	49,057
Gross loans receivable	37,234	52,075
90 Days or More and Still Accruing

XML

Goodwill (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Goodwill (Textual) [Abstract]
Goodwill impairment charges	$ 0	$ 0	$ 0	$ 0

XML

Investment Securities (Tables)

6 Months Ended

Jun. 30, 2013

Investment Securities [Abstract]

Schedule of securities available for sale

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

Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2013
U.S. Treasury and U.S. Government-sponsored agencies	$	1,119	$	—	$	(28	)	$	1,091
Municipal securities		52,961		911		(1,472	)		52,400
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		89,454		984		(774	)		89,664
Total	$	143,534	$	1,895	$	(2,274	)	$	143,155
December 31, 2012
U.S. Treasury and U.S. Government-sponsored agencies	$	11,016	$	19	$	—		$	11,035
Municipal securities		45,537		1,943		(120	)		47,360
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government agencies		84,598		1,593		(293	)		85,898
Total	$	141,151	$	3,555	$	(413	)	$	144,293

Schedule of securities held to maturity

Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2013
U.S. Treasury and U.S. Government-sponsored agencies	$	1,710	$	206	$	—		$	1,916
Municipal securities		4,086		141		(69	)		4,158
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		6,173		186		(153	)		6,206
Private residential collateralized mortgage obligations		1,109		178		(21	)		1,266
Total	$	13,078	$	711	$	(243	)	$	13,546
December 31, 2012
U.S. Treasury and U.S. Government-sponsored agencies	$	1,740	$	284	$	—		$	2,024
Municipal securities		2,946		212		—			3,158
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		4,245		277		—			4,522
Private residential collateralized mortgage obligations		1,168		193		(55	)		1,306
Total	$	10,099	$	966	$	(55	)	$	11,010

Schedule of maturities of investment securities

	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	1,192	$	1,198	$	220	$	222
Due after one year through three years		1,105		1,120		1,028		1,075
Due after three years through five years		5,039		5,156		289		303
Due after five years through ten years		44,157		44,219		2,958		3,235
Due after ten years		92,041		91,462		8,583		8,711
Total	$	143,534	$	143,155	$	13,078	$	13,546

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, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	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	$	1,091	$	(28	)	$	—	$	—		$	1,091	$	(28	)
Municipal securities		24,218		(1,472	)		—		—			24,218		(1,472	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		29,964		(733	)		3,641		(41	)		33,605		(774	)
Total	$	55,273	$	(2,233	)	$	3,641	$	(41	)	$	58,914	$	(2,274	)

	December 31, 2012
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Municipal securities	$	7,843	$	(120	)	$	—	$	—		$	7,843	$	(120	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		31,197		(248	)		3,779		(45	)		34,976		(293	)
Total	$	39,040	$	(368	)	$	3,779	$	(45	)	$	42,819	$	(413	)

Schedule of fair value and unrealized losses of held to maturity investment securities

Held to maturity investment securities with unrealized losses as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Municipal securities	$	1,081	$	(69	)	$	—	$	—		$	1,081	$	(69	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		2,413		(153	)		—		—			2,413		(153	)
Private residential collateralized mortgage obligations		171		(4	)		159		(17	)		330		(21	)
Total	$	3,665	$	(226	)	$	159	$	(17	)	$	3,824	$	(243	)

	December 31, 2012
	Less than 12 Months				12 Months or Longer					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Mortgage backed securities and collateralized mortgage obligations-residential:
Private residential collateralized mortgage obligations	$	—	$	—	$	317	$	(55	)	$	317	$	(55	)
Total	$	—	$	—	$	317	$	(55	)	$	317	$	(55	)

Schedule of other-than-temporary impairment losses investment securities

The following table summarizes activity for the six months ended June 30, 2013 and 2012 related to the amount of other-than-temporary impairments related to credit losses on held to maturity securities:

	Life-to-Date Gross  Other- Than-Temporary Impairments		Life-to-Date Other-Than- Temporary Impairments Included in Other Comprehensive (Loss) Income		Life-to-Date Net Other- Than- Temporary Impairments Included in Earnings
	(In thousands)
December 31, 2011	$	2,435	$	1,100	$	1,335
Subsequent impairments		98		38		60
June 30, 2012	$	2,533	$	1,138	$	1,395
December 31, 2012	$	2,565	$	1,152	$	1,413
Subsequent impairments		26		—		26
June 30, 2013	$	2,591	$	1,152	$	1,439

Schedule of residential collateralized mortgage obligation securities

Details of private residential collateralized mortgage obligation securities received from the redemption-in-kind election as of June 30, 2013 were as follows:

															Current Ratings
Type of Security	Par Value		Amortized Cost		Fair Value (2)		Aggregate Unrealized Gain (Loss)		Year-to- date Change in Unrealized Gain		Year-to- date Impairment Charge		Life-to- date Impairment Charge (1)		AAA		AA			A			BBB			Below Investment Grade
	(Dollars in thousands)
Alt-A	$	771	$	272	$	278	$	6	$	18	$	21	$	675		—		—			—			1	%		99	%
Prime		1,343		837		988		151		2		5		764		—		5	%		2	%		5	%		88	%
Totals	$	2,114	$	1,109	$	1,266	$	157	$	20	$	26	$	1,439		—		3	%		2	%		4	%		91	%

(1) Life-to-date impairment charge represents impairment charges recognized in earnings subsequent to redemption of the Fund.

(2) Level two valuation assumptions were used to determine the fair value of held to maturity securities in the Fund.

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, 2013 and December 31, 2012:

	June 30, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Washington and Oregon state to secure public deposits	$	58,024	$	59,132	$	53,642	$	56,300
Federal Reserve Bank and FHLB to secure borrowing arrangements		—		—		6,231		6,245
Repurchase agreements		18,583		18,368		17,479		17,705
Total	$	76,607	$	77,500	$	77,352	$	80,250

XML

Federal Home Loan Bank Stock (Details Textual) (USD $)	12 Months Ended		6 Months Ended
	Dec. 31, 2012	Jun. 30, 2013	Jun. 30, 2013 Investment in Federal Home Loan Bank Stock [Member]	Dec. 31, 2012 Investment in Federal Home Loan Bank Stock [Member]
FHLB Advances and Stock (Textual) [Abstract]
Minimum amount of investment in FHLB stock			$ 500,000
Percentage of residential mortgage loans for minimum FHLB Stock Investment			0.50%
Percentage of outstanding balance of mortgage loans sold to FHLB for minimum FHLB stock investment			5.00%
Minimum amount of investment in FHLB stock based on applicable company loans at period end			1,300,000	1,200,000
FHLB Advances and Stock (Additional Textual) [Abstract]
Federal home loan bank stock repurchase in excess of capital stock per quarter value	25,000,000
Federal Home Loan Bank ("FHLB") stock, at cost	$ 5,495,000	$ 5,482,000
FHLB per share value	$ 100

XML

Subsequent Events (Details) (USD $)	6 Months Ended				1 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jan. 09, 2013	Dec. 31, 2012	Mar. 31, 2013 Valley Bank [Member]	Jun. 30, 2013 Valley Bank [Member]	Jun. 30, 2013 Valley Bank [Member]
Subsequent Events (Textual) [Abstract]
Definitive agreement, cash consideration, per share		$ 19.50	$ 5.50
Definitive agreement, shares					1.3611
Cash portion for merger consideration					$ 22,000,000
Merger Related Stock Portion					1,533,433
Total purchase price consideration paid						223,000	346,000
Business acquisition date of execution of agreement							Mar. 11, 2013
Business acquisition effective date	Jan. 09, 2013						Jul. 15, 2013
Total assets	1,425,635,000			1,345,540,000		233,200,000	233,200,000
Total loans	1,086,453,000			998,344,000		123,000,000	123,000,000
Total deposits	$ 1,196,531,000			$ 1,117,971,000		$ 203,200,000	$ 203,200,000

XML

Other Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Changes in other real estate owned
Balance at the beginning of period	$ 5,263	$ 8,349	$ 5,666	$ 4,484
Additions	513	1,217	513	5,526
Additions from acquisitions			2,279
Proceeds from dispositions	(1,955)	(790)	(4,916)	(891)
Gain (loss) on sales	60	10	232	(2)
Valuation adjustment	(85)	(152)	22	(483)
Balance at the end of period	$ 3,796	$ 8,634	$ 3,796	$ 8,634

XML

Loans Receivable (Details Textual 1) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Loans Receivable (Additional Textual) [Abstract]
Impaired loans individually reviewed for potential losses	$ 31,200,000		$ 31,200,000		$ 27,500,000
Interest income recognized on impaired loans	0	0	0	0
Originated Loans Receivable [Member]
Loans Receivable (Textual) [Abstract]
Potential problem loans receivable	29,200,000		29,200,000		28,300,000
Government guaranteed potential problem loans	2,000,000		2,000,000		3,200,000
Nonaccrual originated loans guaranteed by governmental agencies	2,000,000		2,000,000		1,200,000
Impaired Originated Loans Receivable [Member]
Loans Receivable (Textual) [Abstract]
Government guarantee of originated impaired loans	3,300,000		3,300,000		1,900,000
Purchased Non Accrual Loans Receivable [Member]
Loans Receivable (Textual) [Abstract]
Other nonaccrual loans	7,000		7,000		39,000
Impaired Purchased Other [Member]
Loans Receivable (Textual) [Abstract]
Purchased other impaired loans	$ 2,300,000		$ 2,300,000		$ 2,200,000

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair value measurements of assets on a recurring basis
Investment securities available for sale	$ 143,155	$ 144,293
Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Total	143,155	144,293
U.S. Treasury and U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	1,091	11,035
Municipal securities [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	52,400	47,360
U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	89,664	85,898
Fair Value, Inputs, Level 1 [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Total
Fair Value, Inputs, Level 1 [Member] | U.S. Treasury and U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 1 [Member] | Municipal securities [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 1 [Member] | U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 2 [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	143,155	144,293
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Total	143,155	144,293
Fair Value, Inputs, Level 2 [Member] | U.S. Treasury and U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	1,091	11,035
Fair Value, Inputs, Level 2 [Member] | Municipal securities [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	52,400	47,360
Fair Value, Inputs, Level 2 [Member] | U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale	89,664	85,898
Fair Value, Inputs, Level 3 [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Total
Fair Value, Inputs, Level 3 [Member] | U.S. Treasury and U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 3 [Member] | Municipal securities [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale
Fair Value, Inputs, Level 3 [Member] | U.S. Government-sponsored agencies [Member] | Fair Value, Measurements, Recurring Basis [Member]
Fair value measurements of assets on a recurring basis
Investment securities available for sale

XML

Investment Securities

6 Months Ended

Jun. 30, 2013

Investment Securities [Abstract]

Investment Securities

(10) 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 our 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 and losses, and fair values of investment securities at the dates indicated were as follows:

Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2013
U.S. Treasury and U.S. Government-sponsored agencies	$	1,119	$	—	$	(28	)	$	1,091
Municipal securities		52,961		911		(1,472	)		52,400
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		89,454		984		(774	)		89,664
Total	$	143,534	$	1,895	$	(2,274	)	$	143,155
December 31, 2012
U.S. Treasury and U.S. Government-sponsored agencies	$	11,016	$	19	$	—		$	11,035
Municipal securities		45,537		1,943		(120	)		47,360
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government agencies		84,598		1,593		(293	)		85,898
Total	$	141,151	$	3,555	$	(413	)	$	144,293

Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2013
U.S. Treasury and U.S. Government-sponsored agencies	$	1,710	$	206	$	—		$	1,916
Municipal securities		4,086		141		(69	)		4,158
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		6,173		186		(153	)		6,206
Private residential collateralized mortgage obligations		1,109		178		(21	)		1,266
Total	$	13,078	$	711	$	(243	)	$	13,546
December 31, 2012
U.S. Treasury and U.S. Government-sponsored agencies	$	1,740	$	284	$	—		$	2,024
Municipal securities		2,946		212		—			3,158
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		4,245		277		—			4,522
Private residential collateralized mortgage obligations		1,168		193		(55	)		1,306
Total	$	10,099	$	966	$	(55	)	$	11,010

There were no securities classified as trading at June 30, 2013 or December 31, 2012.

The amortized cost and fair value of securities at June 30, 2013, 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	$	1,192	$	1,198	$	220	$	222
Due after one year through three years		1,105		1,120		1,028		1,075
Due after three years through five years		5,039		5,156		289		303
Due after five years through ten years		44,157		44,219		2,958		3,235
Due after ten years		92,041		91,462		8,583		8,711
Total	$	143,534	$	143,155	$	13,078	$	13,546

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

Available for sale investment securities with unrealized losses as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	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	$	1,091	$	(28	)	$	—	$	—		$	1,091	$	(28	)
Municipal securities		24,218		(1,472	)		—		—			24,218		(1,472	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		29,964		(733	)		3,641		(41	)		33,605		(774	)
Total	$	55,273	$	(2,233	)	$	3,641	$	(41	)	$	58,914	$	(2,274	)

	December 31, 2012
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Municipal securities	$	7,843	$	(120	)	$	—	$	—		$	7,843	$	(120	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		31,197		(248	)		3,779		(45	)		34,976		(293	)
Total	$	39,040	$	(368	)	$	3,779	$	(45	)	$	42,819	$	(413	)

Held to maturity investment securities with unrealized losses as of June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Municipal securities	$	1,081	$	(69	)	$	—	$	—		$	1,081	$	(69	)
Mortgage backed securities and collateralized mortgage obligations-residential:
U.S. Government-sponsored agencies		2,413		(153	)		—		—			2,413		(153	)
Private residential collateralized mortgage obligations		171		(4	)		159		(17	)		330		(21	)
Total	$	3,665	$	(226	)	$	159	$	(17	)	$	3,824	$	(243	)

	December 31, 2012
	Less than 12 Months				12 Months or Longer					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Mortgage backed securities and collateralized mortgage obligations-residential:
Private residential collateralized mortgage obligations	$	—	$	—	$	317	$	(55	)	$	317	$	(55	)
Total	$	—	$	—	$	317	$	(55	)	$	317	$	(55	)

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 unusually large spreads in the market for mortgage-related products. The fair value of the mortgage backed securities and the collateralized mortgage obligations 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.

For the private residential collateralized mortgage obligations, the Company estimated expected future cash flows of the securities by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination 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. For the six months ended June 30, 2013, there were six private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. For the six months ended June 30, 2012, there were three private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. The Company did not record losses through other comprehensive income (loss) for the three and six months ended June 30, 2013 as all unrealized losses totaling $24,000 and $26,000 for the three and six months ended June 30, 2013, respectively, were deemed to be credit related. The Company recorded $38,000 in impairments not related to credit losses through other comprehensive income (loss) for both the three and six months ended June 30, 2012. The Company recorded $24,000 and $60,000 in losses through earnings for the three and six months ended June 30, 2012, respectively, due to credit losses. The average discount interest rates used in the valuations of the present value as of June 30, 2013 and 2012 were 6.43% and 7.75%, respectively, and the average prepayment rates as of both June 30, 2013 and 2012 was 6.0%.

The following table summarizes activity for the six months ended June 30, 2013 and 2012 related to the amount of other-than-temporary impairments related to credit losses on held to maturity securities:

	Life-to-Date Gross  Other- Than-Temporary Impairments		Life-to-Date Other-Than- Temporary Impairments Included in Other Comprehensive (Loss) Income		Life-to-Date Net Other- Than- Temporary Impairments Included in Earnings
	(In thousands)
December 31, 2011	$	2,435	$	1,100	$	1,335
Subsequent impairments		98		38		60
June 30, 2012	$	2,533	$	1,138	$	1,395
December 31, 2012	$	2,565	$	1,152	$	1,413
Subsequent impairments		26		—		26
June 30, 2013	$	2,591	$	1,152	$	1,439

(c) Redemption-in-Kind

In May 2008, the Board of Trustees of the AMF Ultra Short Mortgage Fund (“Fund”) decided to activate the Fund’s redemption-in-kind provision because of the uncertainty in the mortgage backed securities market. Exiting participants in the Fund were allowed to redeem and receive up to $250,000 in cash per quarter or receive 100% of their investment in “like-kind” securities equal to their proportional ownership in the Fund. The Company elected to receive the like-kind securities. Details of private residential collateralized mortgage obligation securities received from the redemption-in-kind election as of June 30, 2013 were as follows:

															Current Ratings
Type of Security	Par Value		Amortized Cost		Fair Value (2)		Aggregate Unrealized Gain (Loss)		Year-to- date Change in Unrealized Gain		Year-to- date Impairment Charge		Life-to- date Impairment Charge (1)		AAA		AA			A			BBB			Below Investment Grade
	(Dollars in thousands)
Alt-A	$	771	$	272	$	278	$	6	$	18	$	21	$	675		—		—			—			1	%		99	%
Prime		1,343		837		988		151		2		5		764		—		5	%		2	%		5	%		88	%
Totals	$	2,114	$	1,109	$	1,266	$	157	$	20	$	26	$	1,439		—		3	%		2	%		4	%		91	%

(1) Life-to-date impairment charge represents impairment charges recognized in earnings subsequent to redemption of the Fund.

(2) Level two valuation assumptions were used to determine the fair value of held to maturity securities in the Fund.

(d) 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, 2013 and December 31, 2012:

	June 30, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Washington and Oregon state to secure public deposits	$	58,024	$	59,132	$	53,642	$	56,300
Federal Reserve Bank and FHLB to secure borrowing arrangements		—		—		6,231		6,245
Repurchase agreements		18,583		18,368		17,479		17,705
Total	$	76,607	$	77,500	$	77,352	$	80,250

XML

Other Real Estate Owned

6 Months Ended

Jun. 30, 2013

Other Real Estate Owned [Abstract]

Other Real Estate Owned

(6) Other Real Estate Owned

Changes in other real estate owned during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Balance at the beginning of period	$	5,263		$	8,349		$	5,666		$	4,484
Additions		513			1,217			513			5,526
Additions from acquisitions		—			—			2,279			—
Proceeds from dispositions		(1,955	)		(790	)		(4,916	)		(891	)
Gain (loss) on sales		60			10			232			(2	)
Valuation adjustment		(85	)		(152	)		22			(483	)
Balance at the end of period	$	3,796		$	8,634		$	3,796		$	8,634

XML

Stockholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net income:
Net income	$ 2,690	$ 3,194	$ 5,575	$ 7,364
Less: Dividends and undistributed earnings allocated to participating securities	(36)	(40)	(74)	(91)
Net income allocated to common shareholders	$ 2,654	$ 3,154	$ 5,501	$ 7,273
Basic:
Weighted average common shares outstanding	15,151,743	15,292,477	15,140,406	15,378,994
Less: Restricted stock awards	(171,542)	(168,326)	(179,104)	(169,573)
Total basic weighted average common shares outstanding	14,980,201	15,124,151	14,961,302	15,209,421
Diluted:
Basic weighted average common shares outstanding	14,980,201	15,124,151	14,961,302	15,209,421
Incremental shares from stock options	11,941	14,553	12,440	14,544
Total diluted weighted average common shares outstanding	14,992,142	15,138,704	14,973,742	15,223,965

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

(13) 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 or quoted prices in markets that are not active.

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, 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 value 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 (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 using the lower of cost or fair value. Fair values are 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 table summarizes the balances of assets measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012.

	June 30, 2013
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	1,091	$	—	$	1,091	$	—
Municipal securities		52,400		—		52,400		—
Mortgage backed securities and collateralized mortgage obligations—residential:
U.S Government-sponsored agencies		89,664		—		89,664		—
Total	$	143,155	$	—	$	143,155	$	—

	December 31, 2012
	Total		Level 1		Level 2		Level 3
	(In thousands)
Investment securities available for sale:
U.S. Treasury and U.S. Government-sponsored agencies	$	11,035	$	—	$	11,035	$	—
Municipal securities		47,360		—		47,360		—
Mortgage backed securities and collateralized mortgage obligations—residential
U.S Government-sponsored agencies		85,898		—		85,898		—
Total	$	144,293	$	—	$	144,293	$	—

There were no transfers between Level 1 and Level 2 during the three or six months ended June 30, 2013 or 2012.

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, 2013 and December 31, 2012 and the net losses (gains) recorded in earnings during the three and six months ended June 30, 2013 and 2012.

	Basis (1)		Fair Value at June 30, 2013
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings During the Three Months Ended June 30, 2013			Net Losses (Gains) Recorded in Earnings During the Six Months Ended June 30, 2013
	(In thousands)
Impaired originated loans:
Commercial business	$	10,634	$	6,905	$	—	$	—	$	6,905	$	684		$	1,484
One-to-four family residential		359		343		—		—		343		(2	)		(16	)
Real estate construction and land development		3,831		3,240		—		—		3,240		(70	)		(145	)
Consumer		40		33		—		—		33		7			7
Total impaired originated loans		14,864		10,521		—		—		10,521		619			1,330
Purchased other impaired loans:
Commercial business		979		733		—		—		733		219			214
One-to-four family residential		459		421		—		—		421		(3	)		(5	)
Consumer		3		—		—		—		—		3			3
Total purchased other impaired loans		1,441		1,154		—		—		1,154		219			212
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations—residential:
Private residential collateralized mortgage obligations		37		12		—		12		—		24			26
Other real estate owned		1,432		1,130		—		—		1,130		—			—
Total	$	17,774	$	12,817	$	—	$	12	$	12,805	$	862		$	1,568

	Basis (1)		Fair Value at December 31, 2012
			Total		Level 1		Level 2		Level 3		Net Losses (Gains) Recorded in Earnings During the Three Months Ended June 30, 2012			Net Losses (Gains) Recorded in Earnings During the Six Months Ended June 30, 2012
	(In thousands)
Impaired originated loans:
Commercial business	$	11,781	$	9,028	$	—	$	—	$	9,028	$	524		$	616
One-to-four family residential		811		764		—		—		764		102			(4	)
Real estate construction and land development		6,077		4,628		—		—		4,628		(44	)		377
Consumer		109		—		—		—		—		100			100
Total impaired originated loans		18,778		14,420		—		—		14,420		682			1,089
Purchased other impaired loans:
Commercial business		781		742		—		—		742		23			23
One-to-four family residential		527		422		—		—		422		—			—
Consumer		163		6		—		—		6		(2	)		(2	)
Total purchased other impaired loans		1,471		1,170		—		—		1,170		21			21
Investment securities held to maturity:
Mortgage back securities and collateralized mortgage obligations – residential:
Private residential collateralized mortgage obligations		117		113		—		113		—		24			60
Other real estate owned		3,042		2,391		—		—		2,391		—			324
Total	$	23,408	$	18,094	$	—	$	113	$	17,981	$	727		$	1,494

(1) Basis represents the unpaid principal balance of impaired originated and purchased other impaired loans, amortized cost of investment securities held to maturity, and carrying value at ownership date of other real estate owned.

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, 2013 and December 31, 2012.

	June 30, 2013
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired originated loans	$	10,521	Market approach	Adjustment for differences between the comparable sales	0.2%-100.0% (15.2%)
Purchased other impaired loans	$	1,154	Market approach	Adjustment for differences between the comparable sales	2.4%-100% (20.0%)
Other real estate owned	$	1,130	Market approach	Adjustment for differences between the comparable sales	18.1%-45.0% (21.1%)

	December 31, 2012
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired originated loans	$	14,420	Market approach	Adjustment for differences between the comparable sales	1.1%-100.0% (21.7%)
Purchased other impaired loans	$	1,170	Market approach	Adjustment for differences between the comparable sales	4.3%-42.9% (4.8%)
Other real estate owned	$	2,391	Market approach	Adjustment for differences between the comparable sales	16.2%-31.0% (20.1%)

(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, 2013
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	31,062	$	31,062	$	31,062	$	—	$	—
Interest earning deposits		63,060		63,060		63,060		—		—
Investment securities available for sale		143,155		143,155		—		143,155		—
Investment securities held to maturity		13,078		13,546		—		13,546		—
FHLB stock		5,482		N/A		N/A		—		—
Loans receivable, net of allowance		1,086,453		1,090,459		—		—		1,090,459
Accrued interest receivable		4,822		4,822		5		774		4,043
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts, savings accounts		910,800		910,800		910,800		—		—
Certificate of deposit accounts		285,731		288,869		—		288,869		—
Total deposits	$	1,196,531	$	1,199,669	$	910,800	$	288,869	$	—
Securities sold under agreement to repurchase	$	16,360	$	16,360	$	16,360	$	—	$	—
Accrued interest payable	$	98	$	98	$	15	$	83	$	—

	December 31, 2012
	Carrying Value		Fair Value Measurements Using:
			Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	37,180	$	37,180	$	37,180	$	—	$	—
Interest earning deposits		69,906		69,906		69,906		—		—
Investment securities available for sale		144,293		144,293		—		144,293		—
Investment securities held to maturity		10,099		11,010		—		11,010		—
FHLB stock		5,495		N/A		N/A		—		—
Loans held for sale		1,676		1,676		—		—		1,676
Loans receivable, net of allowance		998,344		1,012,880		—		—		1,012,880
Accrued interest receivable		4,821		4,821		6		717		4,098
Financial Liabilities:
Deposits:
Noninterest deposits, NOW accounts, money market accounts, savings accounts		829,044		829,044		829,044		—		—
Certificate of deposit accounts		288,927		290,484		—		290,484		—
Total deposits	$	1,117,971	$	1,119,528	$	829,044	$	290,484	$	—
Securities sold under agreement to repurchase	$	16,021	$	16,021	$	16,021	$	—	$	—
Accrued interest payable	$	106	$	106	$	19	$	87	$	—

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

Cash on Hand and in Banks and Interest Earning Deposits:

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

FHLB Stock:

FHLB of Seattle 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.

Loans Receivable and Loans Held for Sale:

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 produces 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 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, repricing 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).

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.

XML

Federal Home Loan Bank Stock

6 Months Ended

Jun. 30, 2013

Federal Home Loan Bank Stock [Abstract]

Federal Home Loan Bank Stock

(11) Federal Home Loan Bank Stock

The Bank is required to maintain an investment in the stock of the FHLB of Seattle in an amount equal to the greater of $500,000 or 0.50% of residential mortgage loans and pass-through securities or an advance requirement to be confirmed on the date of the advance and 5.0% of the outstanding balance of mortgage loans sold to the FHLB of Seattle. At June 30, 2013 and December 31, 2012, the Bank was required to maintain an investment in the stock of FHLB of Seattle of at least $1.3 million and $1.2 million, respectively. The Bank maintained $5.5 million in FHLB stock at both June 30, 2013 and December 31, 2012. The stock has no contractual maturity and amounts in excess of the required minimum for FHLB membership may be redeemed at par subject to certain restrictions.

The Company evaluated its investment in FHLB of Seattle stock for other-than-temporary impairment, consistent with its accounting policy. Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment, the liquidity position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle to address its regulatory situation and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the par value, the Company did not recognize an other-than-temporary impairment loss on its FHLB of Seattle stock. Further, during the year ended December 31, 2012, the Federal Housing Finance Agency (“Finance Agency”) granted the FHLB of Seattle authority to repurchase up to $25 million of excess capital stock per quarter at par ($100 per share), provided they receive a non-objection for each quarter’s repurchase from the Finance Agency. Even though the Company did not recognize an other-than-temporary impairment loss on its FHLB of Seattle stock during the six months ended June 30, 2013 or 2012, further deterioration in the FHLB of Seattle’s financial position may result in future impairment losses.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 19, 2013
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, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		16,742,667

XML

Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified							3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2013 Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2012 Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member] Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 1 [Member] Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member] One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 1 [Member] One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member] Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 1 [Member] Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member] Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 1 [Member] Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 1 [Member] Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 1 [Member] Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 2 [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 2 [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member] Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 2 [Member] Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member] One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 2 [Member] One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member] Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member] Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 2 [Member] Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 2 [Member] Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 2 [Member] Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member] Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 3 [Member] Commercial business [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member] One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 3 [Member] One-to-four family residential [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member] Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 3 [Member] Real estate construction and land development [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member] Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 3 [Member] Consumer [Member] Fair Value, Measurements, Nonrecurring [Member]	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member] Private residential collateralized mortgage obligations [Member] Fair Value, Measurements, Nonrecurring [Member]
Fair value measurements of assets on a nonrecurring basis
Total impaired originated loans, Basis							$ 14,864		$ 14,864		$ 18,778	$ 10,634		$ 10,634		$ 11,781	$ 359		$ 359		$ 811	$ 3,831		$ 3,831		$ 6,077	$ 40		$ 40		$ 109
Total impaired originated loans, Total							10,521		10,521		14,420	6,905		6,905		9,028	343		343		764	3,240		3,240		4,628	33		33																																			10,521	14,420	6,905	9,028	343	764	3,240	4,628	33
Total impaired originated loans, Net Losses (Gains) Recorded in Earnings							619	682	1,330	1,089		684	524	1,484	616		(2)	102	(16)	(4)		(70)	(44)	(145)	377		7	100	7	100
Total purchase impaired originated loans, Basis							1,441		1,441		1,471	979		979		781	459		459		527						3		3		163
Total purchase impaired originated loans, Total							1,154		1,154		1,170	733		733		742	421		421		422										6																																	1,154	1,170	733	742	421	422				6
Total purchase impaired originated loans, Net Losses (Gains) Recorded in Earnings							219	21	212	21		219	23	214	23		(3)		(5)								3	(2)	3	(2)
Private residential collateralized mortgage obligations, Basis																																37		37		117
Private residential collateralized mortgage obligations, Net Losses (Gains) Recorded in Earnings																																24	24	26	60
Investment securities held to maturity, fair value	13,546		11,010																													12		12		113														13,546	11,010										12	113
Other real estate owned	3,796	5,263	5,666	8,634	8,349	4,484	1,432		1,432		3,042
Other real estate owned, Total							1,130		1,130		2,391																																																					1,130	2,391
Other real estate owned, Net Losses (Gains) Recorded in Earnings										324
Total, Basis							17,774		17,774		23,408
Total							12,817		12,817		18,094																																									12	113											12,805	17,981
Total, Net Losses (Gains) Recorded in Earnings							$ 862	$ 727	$ 1,568	$ 1,494

XML

Goodwill

6 Months Ended

Jun. 30, 2013

Goodwill [Abstract]

Goodwill

(12) Goodwill

The Company’s goodwill represents the excess of the purchase price over the fair value of net assets acquired in the purchases of North Pacific Bank in 1998 and Western Washington Bancorp in 2006. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit).

At June 30, 2013, 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 six months ended June 30, 2013. The Company did not record goodwill impairment charges for the three or six months ended June 30, 2013 or 2012. Even though there was no goodwill impairment at June 30, 2013, 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 Condensed Consolidated Financial Statements.

XML

Loans Receivable (Details Textual 3) (USD $)	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Northwest Commercial Bank [Member]	Jan. 09, 2013 Northwest Commercial Bank [Member]	Jun. 30, 2013 Purchased covered loans [Member]	Dec. 31, 2012 Purchased covered loans [Member]
Loans Receivable (Textual) [Abstract]
Subsequent advances on purchased impaired covered loans					$ 5,500,000	$ 3,800,000
Contractual cash flows			8,500,000
Expected cash flows			5,600,000
Non-accretable difference amount			2,900,000
Purchased impaired loans				4,900,000
Accretable yield				745,000
Loans Receivable (Additional Textual) [Abstract]
Investment balance of loans	$ 1,600,000	$ 1,700,000

XML

Loans Receivable (Details Textual 2) (USD $)	3 Months Ended		6 Months Ended			3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Loan	Jun. 30, 2012	Dec. 31, 2012	Mar. 31, 2012 Commercial and industrial [Member] Loan	Jun. 30, 2013 Commercial and industrial [Member]	Jun. 30, 2013 Troubled Debt Restructured Loans [Member] Loan	Jun. 30, 2012 Troubled Debt Restructured Loans [Member] Loan	Dec. 31, 2012 Troubled Debt Restructured Loans [Member] Loan	Dec. 31, 2011 Troubled Debt Restructured Loans [Member] Loan
Loans Receivable (Textual) [Abstract]
Financing receivable modification, number of contracts								45	26
Financing receivables pre-modification, Number of contract										8	9
Financing receivables modifications with prior TDR status balance										$ 4,500,000	$ 1,900,000
Number of purchased other loans modified as Troubled Debt Restructuring			0			0
Purchased other loan modified as TDR							0
Loans Receivable (Additional Textual) [Abstract]
Unfunded commitment to borrowers related to originated TDR	3,900,000		3,900,000		1,500,000
Unfunded commitments to borrowers related to the purchased other TDR	0		0		0
Originated or purchased other TDRs	$ 0	$ 0	$ 0	$ 0

XML

Fair Value Measurements (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Impaired originated loans [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Fair value	$ 10,521	$ 14,420
Valuation Technique(s)	Market approach	Market approach
Unobservable Input(s)	Adjustment for differences between the comparable sales	Adjustment for differences between the comparable sales
Impaired originated loans [Member] | Minimum [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	0.20%	1.10%
Impaired originated loans [Member] | Maximum [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	100.00%	100.00%
Impaired originated loans [Member] | Weighted Average [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	(15.20%)	(21.70%)
Other real estate [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Fair value	1,130	2,391
Valuation Technique(s)	Market approach	Market approach
Unobservable Input(s)	Adjustment for differences between the comparable sales	Adjustment for differences between the comparable sales
Other real estate [Member] | Minimum [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	18.10%	16.20%
Other real estate [Member] | Maximum [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	45.00%	31.00%
Other real estate [Member] | Weighted Average [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	(21.10%)	(20.10%)
Purchased other impaired loan [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Fair value	$ 1,154	$ 1,170
Valuation Technique(s)	Market approach	Market approach
Unobservable Input(s)	Adjustment for differences between the comparable sales	Adjustment for differences between the comparable sales
Purchased other impaired loan [Member] | Minimum [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	2.40%	4.30%
Purchased other impaired loan [Member] | Maximum [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	100.00%	42.90%
Purchased other impaired loan [Member] | Weighted Average [Member]
Fair value measurements for financial instruments measured at fair value on a non-recurring basis
Range (Weighted Average)	(20.00%)	(4.80%)