COLB 03.31.14 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 March 31, 2014.
¨
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 April 30, 2014 was 52,599,634.
 

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)
 
 
 
 
 
 
March 31,
2014
 
December 31,
2013
ASSETS
 
(in thousands)
Cash and due from banks
 
$
191,706

 
$
165,030

Interest-earning deposits with banks
 
45,083

 
14,531

Total cash and cash equivalents
 
236,789

 
179,561

Securities available for sale at fair value (amortized cost of $1,644,805 and $1,680,491, respectively)
 
1,639,370

 
1,664,111

Federal Home Loan Bank stock at cost
 
32,224

 
32,529

Loans held for sale
 
—

 
735

Loans, excluding covered loans, net of unearned income of ($62,724) and ($68,282), respectively
 
4,297,076

 
4,219,451

Less: allowance for loan and lease losses
 
50,442

 
52,280

Loans, excluding covered loans, net
 
4,246,634

 
4,167,171

Covered loans, net of allowance for loan losses of ($20,129) and ($20,174), respectively
 
260,158

 
277,671

Total loans, net
 
4,506,792

 
4,444,842

FDIC loss-sharing asset
 
36,837

 
39,846

Interest receivable
 
23,600

 
22,206

Premises and equipment, net
 
156,836

 
154,732

Other real estate owned ($14,712 and $12,093 covered by FDIC loss-share, respectively)
 
30,552

 
35,927

Goodwill
 
343,952

 
343,952

Other intangible assets, net
 
24,273

 
25,852

Other assets
 
205,828

 
217,289

Total assets
 
$
7,237,053

 
$
7,161,582

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
2,225,212

 
$
2,171,703

Interest-bearing
 
3,819,204

 
3,787,772

Total deposits
 
6,044,416

 
5,959,475

Federal Home Loan Bank advances
 
6,597

 
36,606

Securities sold under agreements to repurchase
 
25,000

 
25,000

Other liabilities
 
86,549

 
87,252

Total liabilities
 
6,162,562

 
6,108,333

Commitments and contingent liabilities
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
March 31,
2014
 
December 31,
2013
 
 
 
 
Preferred stock (no par value)
 
 
 
 
 
 
 
Authorized shares
2,000

 
2,000

 
 
 
 
Issued and outstanding
9

 
9

 
2,217

 
2,217

Common stock (no par value)
 
 
 
 
 
 
 
Authorized shares
63,033

 
63,033

 
 
 
 
Issued and outstanding
52,600

 
51,265

 
861,125

 
860,562

Retained earnings
 
216,192

 
202,514

Accumulated other comprehensive loss
 
(5,043
)
 
(12,044
)
Total shareholders’ equity
 
1,074,491

 
1,053,249

Total liabilities and shareholders’ equity
 
$
7,237,053

 
$
7,161,582

See accompanying Notes to unaudited Consolidated Financial Statements.

1
Table of Contents

CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
Loans
 
$
65,541

 
$
48,028

Taxable securities
 
6,752

 
4,234

Tax-exempt securities
 
2,618

 
2,298

Federal funds sold and deposits in banks
 
14

 
201

Total interest income
 
74,925

 
54,761

Interest Expense
 
 
 
 
Deposits
 
752

 
1,089

Federal Home Loan Bank advances
 
114

 
71

Other borrowings
 
119

 
119

Total interest expense
 
985

 
1,279

Net Interest Income
 
73,940

 
53,482

Recapture of provision for loan and lease losses
 
(500
)
 
(1,000
)
Provision for losses on covered loans
 
2,422

 
980

Net interest income after provision (recapture) for loan and lease losses
 
72,018

 
53,502

Noninterest Income
 
 
 
 
Service charges and other fees
 
12,936

 
7,594

Merchant services fees
 
1,870

 
1,851

Investment securities gains, net
 
223

 
370

Bank owned life insurance
 
965

 
698

Change in FDIC loss-sharing asset
 
(4,819
)
 
(10,483
)
Other
 
2,833

 
1,628

Total noninterest income
 
14,008

 
1,658

Noninterest Expense
 
 
 
 
Compensation and employee benefits
 
31,338

 
21,653

Occupancy
 
8,244

 
4,753

Merchant processing
 
980

 
857

Advertising and promotion
 
769

 
870

Data processing and communications
 
3,520

 
2,580

Legal and professional fees
 
2,169

 
2,050

Taxes, licenses and fees
 
1,180

 
1,387

Regulatory premiums
 
1,176

 
857

Net cost (benefit) of operation of other real estate owned
 
146

 
(2,501
)
Amortization of intangibles
 
1,580

 
1,029

Other
 
6,284

 
4,514

Total noninterest expense
 
57,386

 
38,049

Income before income taxes
 
28,640

 
17,111

Income tax provision
 
8,796

 
4,935

Net Income
 
$
19,844

 
$
12,176

Earnings per common share
 
 
 
 
Basic
 
$
0.38

 
$
0.31

Diluted
 
$
0.37

 
$
0.31

Dividends paid per common share
 
$
0.12

 
$
0.10

Weighted average number of common shares outstanding
 
51,097

 
39,348

Weighted average number of diluted common shares outstanding
 
52,433

 
39,351



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
 
 
March 31,
 
 
2014
 
2013
 
 
(in thousands)
Net income as reported
 
$
19,844

 
$
12,176

Other comprehensive income (loss), net of tax:
 
 
 
 
Unrealized gain (loss) from securities:
 
 
 
 
Net unrealized holding gain (loss) from available for sale securities arising during the period, net of tax of ($4,049) and $1,357
 
7,119

 
(2,493
)
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $81 and $130
 
(142
)
 
(240
)
Net unrealized gain (loss) from securities, net of reclassification adjustment
 
6,977

 
(2,733
)
Pension plan liability adjustment:
 
 
 
 
Net unrealized loss from unfunded defined benefit plan liability arising during the period, net of tax of $0 and $412
 
—

 
(757
)
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($13) and ($32)
 
24

 
60

Pension plan liability adjustment, net
 
24

 
(697
)
Other comprehensive income (loss)
 
7,001

 
(3,430
)
Total comprehensive income
 
$
26,845

 
$
8,746

 
See accompanying Notes to unaudited Consolidated Financial Statements.


3
Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia Banking System, Inc.
(Unaudited)
 
  
 
Preferred Stock
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
 
 
Number of
Shares
 
Amount
 
Number of
Shares
 
Amount
 
 
 
(in thousands)
Balance at January 1, 2013
 
—

 
$
—

 
39,686

 
$
581,471

 
$
162,388

 
$
20,149

 
$
764,008

Net income
 
—

 
—

 
—

 
—

 
12,176

 
—

 
12,176

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(3,430
)
 
(3,430
)
Issuance of common stock - stock option and other plans
 
—

 
—

 
18

 
326

 
—

 
—

 
326

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

 
—

 
140

 
551

 
—

 
—

 
551

Cash dividends paid on common stock
 
—

 
—

 
—

 
—

 
(3,971
)
 
—

 
(3,971
)
Balance at March 31, 2013
 
—

 
$
—

 
39,844

 
$
582,348

 
$
170,593

 
$
16,719

 
$
769,660

Balance at January 1, 2014
 
9

 
$
2,217

 
51,265

 
$
860,562

 
$
202,514

 
$
(12,044
)
 
$
1,053,249

Net income
 
—

 
—

 
—

 
—

 
19,844

 
—

 
19,844

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
7,001

 
7,001

Issuance of common stock - cashless exercise of warrants
 
—

 
—

 
1,140

 
—

 
—

 
—

 
—

Issuance of common stock - stock option and other plans
 
—

 
—

 
19

 
405

 
—

 
—

 
405

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

 
—

 
197

 
680

 
—

 
—

 
680

Purchase and retirement of common stock
 
—

 
—

 
(21
)
 
(522
)
 
—

 
—

 
(522
)
Preferred dividends
 
—

 
—

 
—

 
—

 
(12
)
 
—

 
(12
)
Cash dividends paid on common stock
 
—

 
—

 
—

 
—

 
(6,154
)
 
—

 
(6,154
)
Balance at March 31, 2014
 
9

 
$
2,217

 
52,600

 
$
861,125

 
$
216,192

 
$
(5,043
)
 
$
1,074,491


See accompanying Notes to unaudited Consolidated Financial Statements.

4
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2014
 
2013 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net Income
 
$
19,844

 
$
12,176

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision (recapture) for loan and lease losses on noncovered and covered loans
 
1,922

 
(20
)
Stock-based compensation expense
 
680

 
551

Depreciation, amortization and accretion
 
8,972

 
13,015

Investment securities gain, net
 
(223
)
 
(370
)
Net realized (gain) loss on sale of other assets
 
8

 
(80
)
Net realized gain on sale of other real estate owned
 
(1,659
)
 
(2,787
)
Write-down on other real estate owned
 
1,580

 
158

Net change in:
 
 
 
 
Loans held for sale
 
735

 
1,675

Interest receivable
 
(1,394
)
 
(2,053
)
Interest payable
 
(13
)
 
(40
)
Other assets
 
5,714

 
3,192

Other liabilities
 
(649
)
 
(11,739
)
Net cash provided by operating activities
 
35,517

 
13,678

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(64,065
)
 
(71,815
)
Purchases of:
 
 
 
 
Securities available for sale
 
(10,787
)
 
(84,673
)
Premises and equipment
 
(4,930
)
 
(3,624
)
Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
539

 
3,692

Sales of securities available for sale
 
6,441

 
3,023

Principal repayments and maturities of securities available for sale
 
36,530

 
64,758

Sales of other assets
 
337

 
287

Sales of covered other real estate owned
 
3,103

 
6,438

Sales of other real estate and other personal property owned
 
8,102

 
2,019

Payments to FDIC related to loss-sharing asset
 
(2,217
)
 
(573
)
Net cash used in investing activities
 
(26,947
)
 
(80,468
)
Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
84,941

 
4,454

Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
587,000

 
100

Federal Reserve Bank borrowings
 
50

 
50

Exercise of stock options
 
405

 
326

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(617,000
)
 
(100
)
Repayment of Federal Reserve Bank borrowings
 
(50
)
 
(50
)
Common stock dividends
 
(6,154
)
 
(3,971
)
Preferred stock dividends
 
(12
)
 
—

Purchase and retirement of common stock
 
(522
)
 
—

Net cash provided by financing activities
 
48,658

 
809

Increase (Decrease) in cash and cash equivalents
 
57,228

 
(65,981
)
Cash and cash equivalents at beginning of period
 
179,561

 
513,926

Cash and cash equivalents at end of period
 
$
236,789

 
$
447,945

Supplemental Information:
 
 
 
 
Cash paid during the year for:
 
 
 
 
Cash paid for interest
 
$
999

 
$
1,319

Cash paid for income tax
 
$
10

 
$
5,500

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
5,751

 
$
4,114

__________
(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 subsidiaries, including its wholly owned banking subsidiary Columbia Bank (the “Bank”) and West Coast Trust. All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of results to be anticipated for the year ending December 31, 2014. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2013 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 2013 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2013 Form 10-K disclosure for the year ended December 31, 2013.
2.
Accounting Pronouncements Recently Issued
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. The Company is assessing the impact of the new guidance on its consolidated financial statements.
In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. The Update clarifies when a creditor would be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that all or a portion of the loan would be derecognized and the real estate property recognized. Under the guidance, a consumer loan collateralized by residential real estate should be reclassified to other real estate owned when (1) the creditor obtains legal title to the residential property or (2) the borrower conveys all interest in the property to the creditor to satisfy the loan by completing a deed in lieu of foreclosure or similar agreement. In addition, an entity is required to disclose the amount of residential real estate meeting the conditions above, and the recorded investment in consumer mortgage loans secured by residential real estate that are in the process of foreclosure. ASU 2014-04 is effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2014. Adoption of the new guidance is not expected to have a significant impact on the Company's consolidated financial statements.
In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The Update provides guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. Under the proportional amortization method, the cost of the investment is amortized each reporting period in proportion to the tax credits received. Under the new guidance, classification of the amortization would change from noninterest expense to income tax expense. ASU 2014-01 is effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2014. The guidance is to be applied retrospectively to all periods presented. The Company is assessing the impact of the new guidance on its consolidated financial statements.
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The Update clarifies when it is appropriate for an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This new guidance was adopted on January 1, 2014 and did not have an impact on the Company's consolidated financial statements.

6
Table of Contents

3.
Business Combinations
On April 1, 2013, the Company completed its acquisition of West Coast Bancorp ("West Coast"). The Company paid $540.8 million in total consideration to acquire 100% of the voting equity interests of West Coast. The primary reason for the acquisition was to expand the Company's geographic footprint consistent with its ongoing growth strategy. The fair value of the net assets acquired totaled $312.4 million, including $1.88 billion of deposits, $1.41 billion of loans and $15.3 million of other intangible assets. Goodwill of $228.4 million was recorded as part of the acquisition. The goodwill is not deductible for income tax purposes. In connection with the West Coast acquisition, Columbia recognized $966 thousand and $723 thousand of acquisition-related expenses for the three month periods ended March 31, 2014 and 2013, respectively.
See Note 2, Business Combinations, in Item 8 of our 2013 Form 10-K for additional details related to the West Coast acquisition.
4.
Securities
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
(in thousands)
March 31, 2014
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
919,299

 
$
10,339

 
$
(17,340
)
 
$
912,298

State and municipal securities
 
363,983

 
12,472

 
(2,775
)
 
373,680

U.S. government agency and government-sponsored enterprise securities
 
335,151

 
477

 
(7,642
)
 
327,986

U.S. government securities
 
21,088

 
1

 
(786
)
 
20,303

Other securities
 
5,284

 
25

 
(206
)
 
5,103

Total
 
$
1,644,805

 
$
23,314

 
$
(28,749
)
 
$
1,639,370

December 31, 2013
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
961,442

 
$
10,640

 
$
(23,674
)
 
$
948,408

State and municipal securities
 
357,013

 
11,450

 
(3,993
)
 
364,470

U.S. government agency and government-sponsored enterprise securities
 
335,671

 
434

 
(10,066
)
 
326,039

U.S. government securities
 
21,081

 
—

 
(967
)
 
20,114

Other securities
 
5,284

 
27

 
(231
)
 
5,080

Total
 
$
1,680,491

 
$
22,551

 
$
(38,931
)
 
$
1,664,111

The scheduled contractual maturities of investment securities available for sale at March 31, 2014 are presented as follows:
 
 
March 31, 2014
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
23,252

 
$
23,415

Due after one year through five years
 
337,507

 
336,477

Due after five years through ten years
 
434,217

 
431,506

Due after ten years
 
844,545

 
842,869

Other securities with no stated maturity
 
5,284

 
5,103

Total investment securities available-for-sale
 
$
1,644,805

 
$
1,639,370


7
Table of Contents

The following table summarizes, as of March 31, 2014, 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)
Washington and Oregon State to secure public deposits
 
$
278,061

Federal Reserve Bank to secure borrowings
 
42,631

Other securities pledged
 
43,038

Total securities pledged as collateral
 
$
363,730

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands)
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
399,830

 
$
(7,290
)
 
$
112,690

 
$
(10,050
)
 
$
512,520

 
$
(17,340
)
State and municipal securities
 
88,065

 
(1,791
)
 
17,748

 
(984
)
 
105,813

 
(2,775
)
U.S. government agency and government-sponsored enterprise securities
 
251,196

 
(6,026
)
 
28,810

 
(1,616
)
 
280,006

 
(7,642
)
U.S. government securities
 
19,253

 
(786
)
 
—

 
—

 
19,253

 
(786
)
Other securities
 
2,270

 
(45
)
 
2,795

 
(161
)
 
5,065

 
(206
)
Total
 
$
760,614

 
$
(15,938
)
 
$
162,043

 
$
(12,811
)
 
$
922,657

 
$
(28,749
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
492,921

 
$
(10,991
)
 
$
121,303

 
$
(12,684
)
 
$
614,224

 
$
(23,675
)
State and municipal securities
 
112,400

 
(3,069
)
 
13,815

 
(923
)
 
126,215

 
(3,992
)
U.S. government agency and government-sponsored enterprise securities
 
260,001

 
(8,063
)
 
28,447

 
(2,003
)
 
288,448

 
(10,066
)
U.S. government securities
 
20,114

 
(967
)
 
—

 
—

 
20,114

 
(967
)
Other securities
 
2,257

 
(58
)
 
2,783

 
(173
)
 
5,040

 
(231
)
Total
 
$
887,693

 
$
(23,148
)
 
$
166,348

 
$
(15,783
)
 
$
1,054,041

 
$
(38,931
)
At March 31, 2014, there were 70 U.S. government agency and government-sponsored enterprise mortgage-backed securities & collateralized mortgage obligations securities in an unrealized loss position, of which ten 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 March 31, 2014.
At March 31, 2014, there were 113 state and municipal government securities in an unrealized loss position, of which 13 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 March 31, 2014, none of the rated obligations of state and local government entities held by the Company had a below investment grade credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which

8
Table of Contents

may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2014.
At March 31, 2014, there were 29 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, three of which were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2014.
At March 31, 2014, there were three U.S. government securities in an unrealized loss position, none of which were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2014.
At March 31, 2014, there were two other securities in an unrealized loss position, of which one security, a mortgage-backed securities fund, was in a continuous unrealized loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates and the additional risk premium investors are demanding for investment securities with these characteristics. The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2014 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.
5.
Noncovered Loans
Noncovered loans include loans originated through our branch network and loan departments as well as acquired loans that are not subject to FDIC loss-sharing agreements.
The following is an analysis of the noncovered loan portfolio by major types of loans (net of unearned income):
 
 
March 31,
2014
 
December 31,
2013
Noncovered loans:
 
(in thousands)
Commercial business
 
$
1,601,676

 
$
1,561,782

Real estate:
 
 
 
 
One-to-four family residential
 
105,141

 
108,317

Commercial and multifamily residential
 
2,113,609

 
2,080,075

Total real estate
 
2,218,750

 
2,188,392

Real estate construction:
 
 
 
 
One-to-four family residential
 
57,310

 
54,155

Commercial and multifamily residential
 
130,809

 
126,390

Total real estate construction
 
188,119

 
180,545

Consumer
 
351,255

 
357,014

Less: Net unearned income
 
(62,724
)
 
(68,282
)
Total noncovered loans, net of unearned income
 
4,297,076

 
4,219,451

Less: Allowance for loan and lease losses
 
(50,442
)
 
(52,280
)
Total noncovered loans, net
 
$
4,246,634

 
$
4,167,171

Loans held for sale
 
$
—

 
$
735

At March 31, 2014 and December 31, 2013, the Company had no material foreign activities. Substantially all of the Company’s loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington and Oregon.
The Company has granted loans to executive 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 $14.1 million at March 31, 2014 and $14.2 million at December 31, 2013. During the first three months of 2014, advances on related party loans totaled $595 thousand and repayments totaled $633 thousand.

9
Table of Contents

At March 31, 2014 and December 31, 2013, $1.09 billion and $1.08 billion of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank borrowings and additional borrowing capacity. The Company has also pledged $82.1 million and $45.2 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at March 31, 2014 and December 31, 2013, respectively.
The following is an analysis of noncovered, nonaccrual loans as of March 31, 2014 and December 31, 2013:
 
 
March 31, 2014
 
December 31, 2013
 
 
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
 
$
14,255

 
$
20,481

 
$
12,433

 
$
19,186

Unsecured
 
286

 
316

 
176

 
202

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
2,900

 
5,112

 
2,667

 
4,678

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
775

 
1,101

 
442

 
783

Income property
 
5,038

 
6,118

 
4,267

 
5,383

Owner occupied
 
5,237

 
7,397

 
6,334

 
7,486

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
Land and acquisition
 
2,494

 
5,469

 
3,246

 
6,601

Residential construction
 
532

 
2,001

 
459

 
1,928

Consumer
 
4,880

 
6,804

 
3,991

 
6,187

Total
 
$
36,397

 
$
54,799

 
$
34,015

 
$
52,434


10
Table of Contents

 The following is an aging of the recorded investment of the noncovered loan portfolio as of March 31, 2014 and December 31, 2013:
 
 
 
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
March 31, 2014
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,502,131

 
$
2,526

 
$
5,448

 
$
—

 
$
7,974

 
$
14,255

 
$
1,524,360

Unsecured
 
71,514

 
247

 
116

 
—

 
363

 
286

 
72,163

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
97,365

 
2,589

 
—

 
—

 
2,589

 
2,900

 
102,854

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
143,854

 
666

 
—

 
—

 
666

 
775

 
145,295

Income property
 
1,175,538

 
5,951

 
455

 
—

 
6,406

 
5,038

 
1,186,982

Owner occupied
 
746,749

 
1,138

 
132

 
—

 
1,270

 
5,237

 
753,256

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
9,922

 
1,164

 
—

 
—

 
1,164

 
2,494

 
13,580

Residential construction
 
42,699

 
102

 
—

 
—

 
102

 
532

 
43,333

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
90,698

 
—

 
—

 
—

 
—

 
—

 
90,698

Owner occupied
 
39,388

 
—

 
—

 
—

 
—

 
—

 
39,388

Consumer
 
319,391

 
772

 
124

 
—

 
896

 
4,880

 
325,167

Total
 
$
4,239,249

 
$
15,155

 
$
6,275

 
$
—

 
$
21,430

 
$
36,397

 
$
4,297,076

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2013
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,457,820

 
$
12,713

 
$
681

 
$
—

 
$
13,394

 
$
12,433

 
$
1,483,647

Unsecured
 
72,255

 
156

 
17

 
—

 
173

 
176

 
72,604

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
100,591

 
1,993

 
641

 
—

 
2,634

 
2,667

 
105,892

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
142,034

 
—

 
358

 
—

 
358

 
442

 
142,834

Income property
 
1,138,732

 
144

 
3,289

 
—

 
3,433

 
4,267

 
1,146,432

Owner occupied
 
749,561

 
4,714

 
—

 
—

 
4,714

 
6,334

 
760,609

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
8,225

 
199

 
—

 
—

 
199

 
3,246

 
11,670

Residential construction
 
41,533

 
—

 
—

 
—

 
—

 
459

 
41,992

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
86,521

 
—

 
—

 
—

 
—

 
—

 
86,521

Owner occupied
 
38,916

 
—

 
—

 
—

 
—

 
—

 
38,916

Consumer
 
322,685

 
835

 
823

 
—

 
1,658

 
3,991

 
328,334

Total
 
$
4,158,873

 
$
20,754

 
$
5,809

 
$
—

 
$
26,563

 
$
34,015

 
$
4,219,451


11
Table of Contents

The following is an analysis of impaired loans as of March 31, 2014 and December 31, 2013: 
 
 
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
 
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
 
Impaired Loans With
Recorded Allowance
 
Impaired Loans Without
Recorded Allowance
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
March 31, 2014
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,516,983

 
$
7,377

 
$
3,202

 
$
3,235

 
$
1,521

 
$
4,175

 
$
4,715

Unsecured
 
72,136

 
27

 
27

 
27

 
27

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
100,762

 
2,092

 
437

 
476

 
133

 
1,655

 
2,812

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
145,188

 
107

 
—

 
—

 
—

 
107

 
398

Income property
 
1,180,523

 
6,459

 
—

 
—

 
—

 
6,459

 
8,968

Owner occupied
 
743,984

 
9,272

 
593

 
592

 
38

 
8,679

 
13,042

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
12,386

 
1,194

 
113

 
112

 
71

 
1,081

 
1,456

Residential construction
 
43,333

 
—

 
—

 
—

 
—

 
—

 
—

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
90,698

 
—

 
—

 
—

 
—

 
—

 
—

Owner occupied
 
39,388

 
—

 
—

 
—

 
—

 
—

 
—

Consumer
 
325,008

 
159

 
21

 
26

 
3

 
138

 
204

Total
 
$
4,270,389

 
$
26,687

 
$
4,393

 
$
4,468

 
$
1,793

 
$
22,294

 
$
31,595

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
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, 2013
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,478,560

 
$
5,087

 
$
2,866

 
$
2,885

 
$
343

 
$
2,221

 
$
2,560

Unsecured
 
72,569

 
35

 
35

 
35

 
35

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
104,272

 
1,620

 
442

 
479

 
138

 
1,178

 
2,119

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
142,719

 
115

 
—

 
—

 
—

 
115

 
398

Income property
 
1,140,019

 
6,413

 
918

 
933

 
26

 
5,495

 
7,885

Owner occupied
 
749,601

 
11,008

 
3,802

 
3,817

 
1,073

 
7,206

 
10,464

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
9,726

 
1,944

 
113

 
113

 
71

 
1,831

 
2,587

Residential construction
 
41,992

 
—

 
—

 
—

 
—

 
—

 
—

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
86,521

 
—

 
—

 
—

 
—

 
—

 
—

Owner occupied
 
38,916

 
—

 
—

 
—

 
—

 
—

 
—

Consumer
 
328,167

 
167

 
23

 
27

 
4

 
144

 
210

Total
 
$
4,193,062

 
$
26,389

 
$
8,199

 
$
8,289

 
$
1,690

 
$
18,190

 
$
26,223


12
Table of Contents

The following table provides additional information on impaired loans for the three month periods indicated.
 
 
Three Months Ended March 31,
 
 
2014
 
2013
 
 
Average Recorded
Investment
Impaired Loans 
 
Interest Recognized
on
Impair