COLB 09.30.12 Pub.10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012.
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number 0-20288
 ________________________________________________________ 
COLUMBIA BANKING SYSTEM, INC.
(Exact name of issuer as specified in its charter)
 ________________________________________________________ 
Washington
 
91-1422237
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1301 “A” Street
Tacoma, Washington
 
98402-2156
(Address of principal executive offices)
 
(Zip Code)
(253) 305-1900
(Issuer’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of common stock outstanding at October 31, 2012 was 39,687,880.
 

Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
PART I — FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II — OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
i

Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
(Unaudited)
 
 
 
 
 
 
September 30,
2012
 
December 31,
2011
ASSETS
 
(in thousands)
Cash and due from banks
 
$
98,979

 
$
91,364

Interest-earning deposits with banks
 
463,613

 
202,925

Total cash and cash equivalents
 
562,592

 
294,289

Securities available for sale at fair value (amortized cost of $898,434 and $987,560, respectively)
 
943,624

 
1,028,110

Federal Home Loan Bank stock at cost
 
22,017

 
22,215

Loans held for sale
 
3,600

 
2,148

Loans, excluding covered loans, net of unearned income of ($11,523) and ($16,217), respectively
 
2,476,844

 
2,348,371

Less: allowance for loan and lease losses
 
51,527

 
53,041

Loans, excluding covered loans, net
 
2,425,317

 
2,295,330

Covered loans, net of allowance for loan losses of ($29,157) and ($4,944), respectively
 
429,286

 
531,929

Total loans, net
 
2,854,603

 
2,827,259

FDIC loss-sharing asset
 
111,677

 
175,071

Interest receivable
 
16,587

 
15,287

Premises and equipment, net
 
115,506

 
107,899

Other real estate owned ($16,511 and $28,126 covered by FDIC loss-share, respectively)
 
27,386

 
51,019

Goodwill
 
115,554

 
115,554

Core deposit intangible, net
 
16,803

 
20,166

Other assets
 
113,100

 
126,928

Total assets
 
$
4,903,049

 
$
4,785,945

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
1,270,321

 
$
1,156,610

Interest-bearing
 
2,668,534

 
2,658,919

Total deposits
 
3,938,855

 
3,815,529

Federal Home Loan Bank advances
 
113,080

 
119,009

Securities sold under agreements to repurchase
 
25,000

 
25,000

Other liabilities
 
64,137

 
67,069

Total liabilities
 
4,141,072

 
4,026,607

Commitments and contingent liabilities
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
September 30,
2012
 
December 31,
2011
 
 
 
 
Common stock (no par value)
 
 
 
 
 
 
 
Authorized shares
63,033

 
63,033

 
 
 
 
Issued and outstanding
39,689

 
39,506

 
581,001

 
579,136

Retained earnings
 
152,498

 
155,069

Accumulated other comprehensive income
 
28,478

 
25,133

Total shareholders’ equity
 
761,977

 
759,338

Total liabilities and shareholders’ equity
 
$
4,903,049

 
$
4,785,945

See accompanying Notes to unaudited Consolidated Financial Statements.


1
Table of Contents

CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
52,600

 
$
59,655

 
$
168,875

 
$
151,446

Taxable securities
 
4,218

 
6,037

 
14,414

 
16,701

Tax-exempt securities
 
2,422

 
2,500

 
7,442

 
7,483

Federal funds sold and deposits in banks
 
229

 
240

 
564

 
722

Total interest income
 
59,469

 
68,432

 
191,295

 
176,352

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
1,339

 
2,642

 
4,679

 
8,569

Federal Home Loan Bank advances
 
745

 
807

 
2,229

 
2,215

Long-term obligations
 
—

 
75

 
—

 
579

Other borrowings
 
120

 
120

 
358

 
377

Total interest expense
 
2,204

 
3,644

 
7,266

 
11,740

Net Interest Income
 
57,265

 
64,788

 
184,029

 
164,612

Provision for loan and lease losses
 
2,875

 
500

 
11,125

 
2,650

Provision (recapture) for losses on covered loans
 
(3,992
)
 
433

 
23,381

 
2,312

Net interest income after provision for loan and lease losses
 
58,382

 
63,855

 
149,523

 
159,650

Noninterest Income (Loss)
 
 
 
 
 
 
 
 
Service charges and other fees
 
7,609

 
6,991

 
22,222

 
19,746

Gain on bank acquisitions, net of tax
 
—

 
1,830

 
—

 
1,830

Merchant services fees
 
2,054

 
1,952

 
6,167

 
5,393

Gain on sale of investment securities, net
 
—

 
—

 
62

 
—

Bank owned life insurance
 
747

 
523

 
2,177

 
1,556

Change in FDIC loss-sharing asset
 
(12,951
)
 
(10,855
)
 
(14,787
)
 
(32,048
)
Other
 
1,630

 
1,755

 
4,650

 
3,842

Total noninterest income (loss)
 
(911
)
 
2,196

 
20,491

 
319

Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
21,523

 
21,392

 
64,484

 
59,772

Occupancy
 
4,886

 
4,815

 
15,310

 
13,600

Merchant processing
 
921

 
976

 
2,724

 
2,764

Advertising and promotion
 
1,341

 
1,137

 
3,342

 
3,050

Data processing and communications
 
2,499

 
2,195

 
7,263

 
6,032

Legal and professional fees
 
2,783

 
1,957

 
6,221

 
4,868

Taxes, licenses and fees
 
1,124

 
1,211

 
3,594

 
2,983

Regulatory premiums
 
775

 
574

 
2,560

 
3,553

Net benefit of operation of other real estate owned
 
(1,069
)
 
(195
)
 
(536
)
 
(423
)
Amortization of intangibles
 
1,093

 
1,177

 
3,362

 
3,116

FDIC clawback liability
 
334

 
1,146

 
100

 
3,294

Other
 
4,726

 
3,550

 
16,689

 
11,836

Total noninterest expense
 
40,936

 
39,935

 
125,113

 
114,445

Income before income taxes
 
16,535

 
26,116

 
44,901

 
45,524

Income tax provision
 
4,655

 
7,244

 
12,220

 
12,241

Net Income
 
$
11,880

 
$
18,872

 
$
32,681

 
$
33,283

Earnings per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.30

 
$
0.48

 
$
0.82

 
$
0.84

Diluted
 
$
0.30

 
$
0.48

 
$
0.82

 
$
0.84

Dividends paid per common share
 
$
0.30

 
$
0.06

 
$
0.89

 
$
0.14

Weighted average number of common shares outstanding
 
39,289

 
39,131

 
39,248

 
39,092

Weighted average number of diluted common shares outstanding
 
39,291

 
39,192

 
39,251

 
39,167


See accompanying Notes to unaudited Consolidated Financial Statements.


2
Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
 
Three Months Ended
 
 
September 30,
 
 
2012
 
2011
 
 
(in thousands)
Net income as reported
 
$
11,880

 
$
18,872

Unrealized gain from securities:
 
 
 
 
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($1,432) and ($2,808)
 
2,631

 
4,988

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $0 and $0
 
—

 
—

Net unrealized gain from securities, net of reclassification adjustment
 
2,631

 
4,988

Pension plan liability adjustment:
 
 
 
 
Net unrealized gain from unfunded defined benefit plan liability arising during the period, net of tax of $0 and $0
 
—

 
—

Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($7) and ($8)
 
13

 
14

Pension plan liability adjustment, net
 
13

 
14

Total comprehensive income
 
$
14,524

 
$
23,874

 
 
Nine Months Ended
 
 
September 30,
 
 
2012
 
2011
 
 
(in thousands)
Net income as reported
 
$
32,681

 
$
33,283

Unrealized gain from securities:
 
 
 
 
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($1,345) and ($7,733)
 
3,355

 
13,768

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $23 and $0
 
(39
)
 
—

Net unrealized gain from securities, net of reclassification adjustment
 
3,316

 
13,768

Cash flow hedging instruments:
 
 
 
 
Reclassification adjustment of net gain included in income, net of tax of $0 and $79
 
—

 
(143
)
Net change in cash flow hedging instruments
 
—

 
(143
)
Pension plan liability adjustment:
 
 
 
 
Net unrealized gain from unfunded defined benefit plan liability arising during the period, net of tax of $0 and $154
 
—

 
(260
)
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($31) and ($23)
 
29

 
41

Pension plan liability adjustment, net
 
29

 
(219
)
Total comprehensive income
 
$
36,026

 
$
46,689


See accompanying Notes to unaudited Consolidated Financial Statements.


3
Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia Banking System, Inc.
(Unaudited)
 
  
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Shareholders’
Equity
 
 
Number of
Shares
 
Amount
 
 
 
(in thousands)
Balance at January 1, 2011
 
39,338

 
$
576,905

 
$
117,692

 
$
12,281

 
$
706,878

Net income
 
—

 
—

 
33,283

 
—

 
33,283

Other comprehensive income
 
—

 
—

 
—

 
13,406

 
13,406

Issuance of common stock - stock option and other plans
 
47

 
792

 
—

 
—

 
792

Issuance of common stock - restricted stock awards, net of canceled awards
 
119

 
1,163

 
—

 
—

 
1,163

Purchase and retirement of common stock
 
(2
)
 
(32
)
 
—

 
—

 
(32
)
Cash dividends paid on common stock
 
—

 
—

 
(5,524
)
 
—

 
(5,524
)
Balance at September 30, 2011
 
39,502

 
$
578,828

 
$
145,451

 
$
25,687

 
$
749,966

Balance at January 1, 2012
 
39,506

 
$
579,136

 
$
155,069

 
$
25,133

 
$
759,338

Net income
 
—

 
—

 
32,681

 
—

 
32,681

Other comprehensive income
 
—

 
—

 
—

 
3,345

 
3,345

Issuance of common stock - stock option and other plans
 
40

 
713

 
—

 
—

 
713

Issuance of common stock - restricted stock awards, net of canceled awards
 
143

 
1,152

 
—

 
—

 
1,152

Cash dividends paid on common stock
 
—

 
—

 
(35,252
)
 
—

 
(35,252
)
Balance at September 30, 2012
 
39,689

 
$
581,001

 
$
152,498

 
$
28,478

 
$
761,977

















See accompanying Notes to unaudited Consolidated Financial Statements.

4
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2012
 
2011 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net Income
 
$
32,681

 
$
33,283

Adjustments to reconcile net income to net cash provided by operating activities
 

 

Provision for loan and lease losses and losses on covered loans
 
34,506

 
4,962

Stock-based compensation expense
 
1,152

 
1,163

Depreciation, amortization and accretion
 
45,873

 
35,168

Net realized gain on FDIC-assisted bank acquisitions
 
—

 
(1,830
)
Net realized gain on sale of securities
 
(62
)
 
—

Net realized gain on sale of other assets
 
(35
)
 
(13
)
Net realized gain on sale of other real estate owned
 
(8,604
)
 
(7,069
)
Gain on termination of cash flow hedging instruments
 
—

 
(222
)
Write-down on other real estate owned
 
7,001

 
5,392

Net change in:
 

 

Loans held for sale
 
(1,452
)
 
(1,814
)
Interest receivable
 
(1,300
)
 
(3,384
)
Interest payable
 
(374
)
 
(226
)
Other assets
 
(5,223
)
 
3,186

Other liabilities
 
(3,881
)
 
1,608

Net cash provided by operating activities
 
100,282

 
70,204

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(72,180
)
 
(69,420
)
Purchases of:
 

 

Securities available for sale
 
(87,346
)
 
(294,678
)
Premises and equipment
 
(12,404
)
 
(10,619
)
Proceeds from:
 

 

FDIC reimbursement on loss-sharing asset
 
49,194

 
51,000

Sales of securities available for sale
 
3,845

 
—

Principal repayments and maturities of securities available for sale
 
163,584

 
101,071

Disposal of premises and equipment
 
25

 
59

Sales of covered other real estate owned
 
25,202

 
14,604

Sales of other real estate and other personal property owned
 
15,069

 
10,234

Capital improvements on other real estate properties
 
(11
)
 
(726
)
Decrease in Small Business Administration secured borrowings
 
—

 
(642
)
Net cash acquired in business combinations
 
—

 
247,792

Net cash provided by investing activities
 
84,978

 
48,675

Cash Flows From Financing Activities
 
 
 
 
Net increase (decrease) in deposits
 
123,326

 
(215,701
)
Proceeds from:
 

 

Federal Home Loan Bank advances
 
—

 
100

Federal Reserve Bank borrowings
 
—

 
100

Exercise of stock options
 
713

 
792

Payment for:
 

 

Repayment of Federal Home Loan Bank advances
 
(5,744
)
 
(39,447
)
Repayment of Federal Reserve Bank borrowings
 
—

 
(100
)
Common stock dividends
 
(35,252
)
 
(5,524
)
Purchase and retirement of common stock
 
—

 
(32
)
Net decrease in other borrowings
 
—

 
(25,735
)
Net cash provided by (used in) financing activities
 
83,043

 
(285,547
)
Increase (Decrease) in cash and cash equivalents
 
268,303

 
(166,668
)
Cash and cash equivalents at beginning of period
 
294,289

 
514,130

Cash and cash equivalents at end of period
 
$
562,592

 
$
347,462

Supplemental Information:
 
 
 
 
Cash paid during the year for:
 
 
 
 
Cash paid for interest
 
$
7,640

 
$
11,967

Cash paid for income tax
 
$
9,605

 
$
12,870

Non-cash investing activities
 

 

Assets acquired in FDIC-assisted acquisitions (excluding cash and cash equivalents)
 
$
—

 
$
485,870

Liabilities assumed in FDIC-assisted acquisitions
 
$
—

 
$
731,832

Loans transferred to other real estate owned
 
$
15,024

 
$
16,505

(1) Reclassified to conform to the current period’s presentation.
See accompanying Notes to unaudited Consolidated Financial Statements.

5
Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
1.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of the Company, and its wholly owned banking subsidiary Columbia Bank (the “Bank”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of results to be anticipated for the year ending December 31, 2012. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2011 Annual Report on Form 10-K.
Significant Accounting Policies
The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2011 Annual Report on Form 10-K. Other than as discussed below, there have not been any changes in our significant accounting policies compared to those contained in our 2011 Form 10-K disclosure for the year ended December 31, 2011.
2.
Accounting Pronouncements Recently Issued
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”) (Topic 820). ASU 2011-04 developed common requirements between GAAP and IFRS for measuring fair value and for disclosing information about fair value measurements. The Company adopted this ASU during the first quarter of 2012 with no impact on the Company's financial condition or results of operations.
In October 2012, the FASB issued ASU 2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. ASU 2012-06 clarifies that when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and there is a subsequent change in the amount of cash flows expected to be collected on the indemnified asset, the reporting entity should subsequently measure the indemnification asset on the same basis as the underlying loans by taking into account the contractual limitations of the Loss-Sharing Agreement ("LSA"). For amortization of changes in value, the reporting entity should use the term of the LSA if it is shorter than the term of the acquired loans. ASU 2012-06 is effective for interim and annual periods beginning after December 15, 2012. Early adoption is permitted. The Company is evaluating the impact this ASU will have on its financial condition and results of operations.

6
Table of Contents

3.
Securities
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
(in thousands)
September 30, 2012
 

 

 

 

U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
544,106

 
$
19,525

 
$
(423
)
 
$
563,208

State and municipal securities
 
258,130

 
24,388

 
(18
)
 
282,500

U.S. government agency and government-sponsored enterprise securities
 
92,888

 
1,618

 
—

 
94,506

Other securities
 
3,310

 
125

 
(25
)
 
3,410

Total
 
$
898,434

 
$
45,656

 
$
(466
)
 
$
943,624

December 31, 2011
 

 

 

 

U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
678,631

 
$
19,323

 
$
(2,000
)
 
$
695,954

State and municipal securities
 
263,075

 
22,746

 
(58
)
 
285,763

U.S. government agency and government-sponsored enterprise securities
 
42,558

 
505

 
—

 
43,063

Other securities
 
3,296

 
64

 
(30
)
 
3,330

Total
 
$
987,560

 
$
42,638

 
$
(2,088
)
 
$
1,028,110

The scheduled contractual maturities of investment securities available for sale at September 30, 2012 are presented as follows:
 
 
September 30, 2012
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
23,144

 
$
26,360

Due after one year through five years
 
138,171

 
142,207

Due after five years through ten years
 
152,525

 
160,307

Due after ten years
 
581,285

 
611,341

Other securities with no stated maturity
 
3,309

 
3,409

Total investment securities available-for-sale
 
$
898,434

 
$
943,624

The following table summarizes, as of September 30, 2012, the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:
 
 
Carrying Amount
 
 
(in thousands)
To Washington and Oregon State to secure public deposits
 
$
249,626

To Federal Reserve Bank to secure borrowings
 
51,487

Other securities pledged
 
46,994

Total securities pledged as collateral
 
$
348,107


7
Table of Contents

The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2012 and December 31, 2011:  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands)
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
33,377

 
$
(272
)
 
$
18,445

 
$
(151
)
 
$
51,822

 
(423
)
State and municipal securities
 
636

 
(4
)
 
424

 
(14
)
 
1,060

 
(18
)
Other securities
 
—

 
—

 
975

 
(25
)
 
975

 
(25
)
Total
 
$
34,013

 
$
(276
)
 
$
19,844

 
$
(190
)
 
$
53,857

 
$
(466
)
 
 
 
 
 
 
 
 
 
 

 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
238,875

 
$
(1,999
)
 
$
196

 
$
(1
)
 
$
239,071

 
$
(2,000
)
State and municipal securities
 
3,820

 
(24
)
 
950

 
(34
)
 
4,770

 
(58
)
Other securities
 
—

 
—

 
970

 
(30
)
 
970

 
(30
)
Total
 
$
242,695

 
$
(2,023
)
 
$
2,116

 
$
(65
)
 
$
244,811

 
$
(2,088
)
At September 30, 2012, there were 18 U.S. government agency and government-sponsored enterprise mortgage-backed securities & collateralized mortgage obligations securities in an unrealized loss position, of which nine were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2012.
At September 30, 2012, there were three state and municipal government securities in an unrealized loss position, of which two were in a continuous loss position for 12 months or more. The unrealized losses on state and municipal securities were caused by interest rate changes or widening of market spreads subsequent to the purchase of the individual securities. Management monitors published credit ratings of these securities for adverse changes. As of September 30, 2012, none of the rated obligations of state and local government entities held by the Company had an adverse credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2012.
At September 30, 2012, there was one other security, a mortgage-backed securities fund in a continuous unrealized loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates and the additional risk premium investors are demanding for investment securities with these characteristics. The Company does not consider this investment to be other-than-temporarily impaired at September 30, 2012 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.

8
Table of Contents

Securities Deemed to be Other-Than-Temporarily Impaired
During 2011, the Company determined that one of its state and municipal securities with a par amount of $3.0 million was other-than-temporarily impaired due to it maturing during the period without repaying the principal amount. The Company determined that the entire amount of the other-than-temporary impairment was credit-related as the present value of the expected future cash flows for the defaulted security was zero. The credit-related other-than-temporary impairment of $3.0 million was recorded in the consolidated statements of income for the year ended December 31, 2011. The Company continues to hold this security at September 30, 2012. Based on information available at September 30, 2012, the the fair value of this security has been increased to the original par amount as the Company was notified that there would be a full repayment. The increase in fair value was recorded to accumulated other comprehensive income in the consolidated balance sheet. Subsequent to quarter end, on October 1, 2012, the Company received full payment on this municipal bond, including accrued interest.
4.
Noncovered Loans
Noncovered loans include loans originated through our branch network and loan departments as well as acquired loans that are not subject to FDIC loss-sharing agreements.
The following is an analysis of the noncovered loan portfolio by major types of loans (net of unearned income):
 
 
September 30,
2012
 
December 31,
2011
Noncovered loans:
 
(in thousands)
Commercial business
 
$
1,142,737

 
$
1,031,721

Real estate:
 
 
 
 
One-to-four family residential
 
47,656

 
64,491

Commercial and multifamily residential
 
1,035,356

 
998,165

Total real estate
 
1,083,012

 
1,062,656

Real estate construction:
 
 
 
 
One-to-four family residential
 
50,381

 
50,208

Commercial and multifamily residential
 
51,466

 
36,768

Total real estate construction
 
101,847

 
86,976

Consumer
 
160,771

 
183,235

Less: Net unearned income
 
(11,523
)
 
(16,217
)
Total noncovered loans, net of unearned income
 
2,476,844

 
2,348,371

Less: Allowance for loan and lease losses
 
(51,527
)
 
(53,041
)
Total noncovered loans, net
 
$
2,425,317

 
$
2,295,330

Loans held for sale
 
$
3,600

 
$
2,148

At September 30, 2012 and December 31, 2011, the Company had no material foreign activities. Substantially all of the Company’s loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington and Oregon.
The Company and its banking subsidiary have granted loans to officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans was $13.5 million and $9.0 million at September 30, 2012 and December 31, 2011, respectively. During the first nine months of 2012, advances on related party loans were $6.9 million and repayments totaled $2.4 million.
At September 30, 2012 and December 31, 2011, $441.6 million and $462.0 million of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank borrowings. The Company has also pledged $61.7 million and $351.3 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at September 30, 2012 and December 31, 2011, respectively.

9
Table of Contents

The following is an analysis of noncovered, nonaccrual loans as of September 30, 2012 and December 31, 2011:
 
 
September 30, 2012
 
December 31, 2011
 
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
Noncovered loans:
 
(in thousands)
Commercial business
 
 
 
 
 
 
 
 
Secured
 
$
12,455

 
$
21,683

 
$
10,124

 
$
16,820

Unsecured
 
109

 
109

 
119

 
719

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
2,220

 
2,617

 
2,696

 
3,011

Commercial & multifamily residential
 
 
 
 
 
 
 
 
Commercial land
 
3,647

 
7,581

 
3,739

 
7,230

Income property multifamily
 
6,628

 
9,233

 
6,775

 
9,265

Owner occupied
 
9,184

 
12,598

 
8,971

 
10,932

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
Land and acquisition
 
3,332

 
7,360

 
7,799

 
16,703

Residential construction
 
2,027

 
2,648

 
2,986

 
5,316

Commercial & multifamily residential
 
 
 
 
 
 
 
 
Income property multifamily
 
—

 
—

 
7,067

 
14,912

Consumer
 
1,987

 
2,279

 
3,207

 
3,960

Total
 
$
41,589

 
$
66,108

 
$
53,483

 
$
88,868


10
Table of Contents

 The following is an aging of the recorded investment of the noncovered loan portfolio as of September 30, 2012 and December 31, 2011:
 
 
 
Current
Loans
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
Greater
than 90
Days Past
Due
 
Total
Past Due
 
Nonaccrual
Loans
 
Total Loans
September 30, 2012
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,079,237

 
$
4,735

 
$
572

 
$
—

 
$
5,307

 
$
12,455

 
$
1,096,999

Unsecured
 
41,414

 
58

 
485

 
—

 
543

 
109

 
42,066

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
45,173

 
31

 
401

 
—

 
432

 
2,220

 
47,825

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
39,729

 
93

 
420

 
—

 
513

 
3,647

 
43,889

Income property multifamily
 
576,969

 
2,281

 
—

 
—

 
2,281

 
6,628

 
585,878

Owner occupied
 
388,011

 
1,124

 
—

 
—

 
1,124

 
9,184

 
398,319

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
14,139

 
386

 
1,225

 
—

 
1,611

 
3,332

 
19,082

Residential construction
 
27,390

 
118

 
1,395

 
—

 
1,513

 
2,027

 
30,930

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property multifamily
 
27,027

 
—

 
—

 
—

 
—

 
—

 
27,027

Owner occupied
 
23,974

 
—

 
—

 
—

 
—

 
—

 
23,974

Consumer
 
157,901

 
848

 
119

 
—

 
967

 
1,987

 
160,855

Total
 
$
2,420,964

 
$
9,674

 
$
4,617

 
$
—

 
$
14,291

 
$
41,589

 
$
2,476,844

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
Loans
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
Greater
than 90
Days Past
Due
 
Total
Past Due
 
Nonaccrual
Loans
 
Total Loans
December 31, 2011
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
966,563

 
$
1,741

 
$
2,989

 
$
—

 
$
4,730

 
$
10,124

 
$
981,417

Unsecured
 
46,880

 
407

 
—

 
—

 
407

 
119

 
47,406

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
60,764

 
603

 
—

 
—

 
603

 
2,696

 
64,063

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
46,161

 
781

 
—

 
—

 
781

 
3,739

 
50,681

Income property multifamily
 
524,225

 
2,872

 
121

 
—

 
2,993

 
6,775

 
533,993

Owner occupied
 
394,691

 
829

 
298

 
—

 
1,127

 
8,971

 
404,789

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
17,249

 
153

 
—

 
—

 
153

 
7,799

 
25,201

Residential construction
 
19,555

 
1,390

 
—

 
—

 
1,390

 
2,986

 
23,931

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property multifamily
 
13,810

 
—

 
—

 
—

 
—

 
7,067

 
20,877

Owner occupied
 
12,790

 
—

 
—

 
—

 
—

 
—

 
12,790

Consumer
 
179,753

 
141

 
122

 
—

 
263

 
3,207

 
183,223

Total
 
$
2,282,441

 
$
8,917

 
$
3,530

 
$
—

 
$
12,447

 
$
53,483

 
$
2,348,371


11
Table of Contents

The following is an analysis of impaired loans as of September 30, 2012 and December 31, 2011: 
 
 
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
 
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
 
Impaired Loans With
Recorded Allowance
 
Impaired Loans Without
Recorded Allowance
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
September 30, 2012
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,088,513

 
$
8,486

 
$
1,498

 
$
2,086

 
$
315

 
$
6,988

 
$
12,330

Unsecured
 
41,966

 
100

 
100

 
100

 
100

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
45,849

 
1,976

 
353

 
366

 
69

 
1,623

 
1,832

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
40,824

 
3,065

 
205

 
214

 
1

 
2,860

 
6,470

Income property multifamily
 
579,603

 
6,275

 
—

 
—

 
—

 
6,275

 
8,574

Owner occupied
 
384,110

 
14,209

 
1,559

 
1,657

 
245

 
12,650

 
18,162

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
16,263

 
2,819

 
—

 
—

 
—

 
2,819

 
4,813

Residential construction
 
28,101

 
2,829

 
—

 
—

 
—

 
2,829

 
3,444

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property multifamily
 
27,027

 
—

 
—

 
—

 
—

 
—

 
—

Owner occupied
 
23,974

 
—

 
—

 
—

 
—

 
—

 
—

Consumer
 
159,812

 
1,043

 
—

 
—

 
—

 
1,043

 
1,049

Total
 
$
2,436,042

 
$
40,802

 
$
3,715

 
$
4,423

 
$
730

 
$
37,087

 
$
56,674

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
 
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
 
Impaired Loans With
Recorded Allowance
 
Impaired Loans Without
Recorded Allowance
 
 
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
December 31, 2011
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
972,531

 
$
8,886

 
$
2,926

 
$
2,927

 
$
954

 
$
5,960

 
$
12,109

Unsecured
 
47,309

 
97

 
97

 
97

 
97

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
61,584

 
2,479

 
582

 
590

 
96

 
1,897

 
2,136

Commercial & multifamily residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
46,882

 
3,799

 
—

 
—

 
—

 
3,799

 
6,773

Income property multifamily
 
527,362

 
6,631

 
687

 
759

 
63

 
5,944

 
7,700

Owner occupied
 
390,225

 
14,564

 
274

 
274

 
185

 
14,290

 
18,524

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential