COLB 03.31.15 Pub.10-Q

 
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, 2015.
¨
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, 2015 was 57,692,047.
 


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,
2015
 
December 31,
2014
ASSETS
 
(in thousands)
Cash and due from banks
 
$
177,026

 
$
171,221

Interest-earning deposits with banks
 
71,575

 
16,949

Total cash and cash equivalents
 
248,601

 
188,170

Securities available for sale at fair value (amortized cost of $1,981,977 and $2,087,069, respectively)
 
2,007,159

 
2,098,257

Federal Home Loan Bank stock at cost
 
33,004

 
33,365

Loans held for sale
 
3,545

 
1,116

Loans, net of unearned income of ($53,867) and ($59,374), respectively
 
5,450,895

 
5,445,378

Less: allowance for loan and lease losses
 
70,234

 
69,569

Loans, net
 
5,380,661

 
5,375,809

FDIC loss-sharing asset
 
14,644

 
15,174

Interest receivable
 
29,088

 
27,802

Premises and equipment, net
 
172,958

 
172,090

Other real estate owned
 
23,299

 
22,190

Goodwill
 
382,537

 
382,537

Other intangible assets, net
 
28,642

 
30,459

Other assets
 
228,764

 
231,877

Total assets
 
$
8,552,902

 
$
8,578,846

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
3,260,376

 
$
2,651,373

Interest-bearing
 
3,814,589

 
4,273,349

Total deposits
 
7,074,965

 
6,924,722

Federal Home Loan Bank advances
 
36,559

 
216,568

Securities sold under agreements to repurchase
 
96,852

 
105,080

Other borrowings
 
—

 
8,248

Other liabilities
 
100,083

 
96,053

Total liabilities
 
7,308,459

 
7,350,671

Commitments and contingent liabilities
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
March 31,
2015
 
December 31,
2014
 
 
 
 
Preferred stock (no par value)
(in thousands)
 
 
 
 
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
57,699

 
57,437

 
986,348

 
985,839

Retained earnings
 
241,592

 
234,498

Accumulated other comprehensive income
 
14,286

 
5,621

Total shareholders’ equity
 
1,244,443

 
1,228,175

Total liabilities and shareholders’ equity
 
$
8,552,902

 
$
8,578,846

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,
 
 
2015
 
2014
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
Loans
 
$
70,822

 
$
65,541

Taxable securities
 
7,526

 
6,752

Tax-exempt securities
 
3,042

 
2,618

Deposits in banks
 
27

 
14

Total interest income
 
81,417

 
74,925

Interest Expense
 
 
 
 
Deposits
 
748

 
752

Federal Home Loan Bank advances
 
159

 
114

Other borrowings
 
146

 
119

Total interest expense
 
1,053

 
985

Net Interest Income
 
80,364

 
73,940

Provision for loan and lease losses
 
1,209

 
1,922

Net interest income after provision for loan and lease losses
 
79,155

 
72,018

Noninterest Income
 
 
 
 
Service charges and other fees
 
14,869

 
12,936

Merchant services fees
 
2,040

 
1,870

Investment securities gains, net
 
721

 
223

Bank owned life insurance
 
1,078

 
965

Change in FDIC loss-sharing asset
 
150

 
(4,819
)
Other
 
3,909

 
2,833

Total noninterest income
 
22,767

 
14,008

Noninterest Expense
 
 
 
 
Compensation and employee benefits
 
39,100

 
31,338

Occupancy
 
7,993

 
8,244

Merchant processing
 
977

 
980

Advertising and promotion
 
931

 
769

Data processing and communications
 
4,984

 
3,520

Legal and professional fees
 
2,507

 
2,169

Taxes, licenses and fees
 
1,232

 
1,180

Regulatory premiums
 
1,221

 
1,176

Net cost (benefit) of operation of other real estate owned
 
(1,246
)
 
146

Amortization of intangibles
 
1,817

 
1,580

Other
 
7,218

 
6,284

Total noninterest expense
 
66,734

 
57,386

Income before income taxes
 
35,188

 
28,640

Income tax provision
 
10,827

 
8,796

Net Income
 
$
24,361

 
$
19,844

Earnings per common share
 
 
 
 
Basic
 
$
0.42

 
$
0.38

Diluted
 
$
0.42

 
$
0.37

Dividends paid per common share
 
$
0.30

 
$
0.12

Weighted average number of common shares outstanding
 
56,965

 
51,097

Weighted average number of diluted common shares outstanding
 
56,978

 
52,433

See accompanying Notes to unaudited Consolidated Financial Statements.

2
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
 
 
(in thousands)
Net income as reported
 
$
24,361

 
$
19,844

Other comprehensive income, net of tax:
 
 
 
 
Unrealized gain from securities:
 
 
 
 
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($5,338) and ($4,049)
 
9,376

 
7,119

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $262 and $81
 
(459
)
 
(142
)
Net unrealized gain from securities, net of reclassification adjustment
 
8,917

 
6,977

Pension plan liability adjustment:
 
 
 
 
Net unrealized loss from unfunded defined benefit plan liability arising during the period, net of tax of $159 and $0
 
(280
)
 
—

Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($16) and ($13)
 
28

 
24

Pension plan liability adjustment, net
 
(252
)
 
24

Other comprehensive income
 
8,665

 
7,001

Total comprehensive income
 
$
33,026

 
$
26,845

 
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, 2015
 
9

 
$
2,217

 
57,437

 
$
985,839

 
$
234,498

 
$
5,621

 
$
1,228,175

Net income
 
—

 
—

 
—

 
—

 
24,361

 
—

 
24,361

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
8,665

 
8,665

Issuance of common stock - stock option and other plans
 
—

 
—

 
17

 
428

 
—

 
—

 
428

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

 
—

 
273

 
862

 
—

 
—

 
862

Purchase and retirement of common stock
 
—

 
—

 
(28
)
 
(781
)
 
—

 
—

 
(781
)
Preferred dividends
 
—

 
—

 
—

 
—

 
(31
)
 
—

 
(31
)
Cash dividends paid on common stock
 
—

 
—

 
—

 
—

 
(17,236
)
 
—

 
(17,236
)
Balance at March 31, 2015
 
9

 
$
2,217

 
57,699

 
$
986,348

 
$
241,592

 
$
14,286

 
$
1,244,443

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,
 
 
2015
 
2014 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net Income
 
$
24,361

 
$
19,844

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses
 
1,209

 
1,922

Stock-based compensation expense
 
862

 
680

Depreciation, amortization and accretion
 
7,735

 
8,972

Investment securities gain, net
 
(721
)
 
(223
)
Net realized (gain) loss on sale of other assets
 
(306
)
 
8

Net realized gain on sale of other real estate owned
 
(1,736
)
 
(1,659
)
Write-down on other real estate owned
 
197

 
1,580

Net change in:
 
 
 
 
Loans held for sale
 
(2,429
)
 
735

Interest receivable
 
(1,286
)
 
(1,394
)
Interest payable
 
(79
)
 
(13
)
Other assets
 
(4,531
)
 
5,714

Other liabilities
 
3,680

 
(649
)
Net cash provided by operating activities
 
26,956

 
35,517

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(12,443
)
 
(64,065
)
Purchases of:
 
 
 
 
Securities available for sale
 
(11,362
)
 
(10,787
)
Premises and equipment
 
(4,032
)
 
(4,930
)
Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
1,138

 
539

Sales of securities available for sale
 
57,243

 
6,441

Principal repayments and maturities of securities available for sale
 
54,451

 
36,530

Sales of loans held for investments and other assets
 
7,745

 
337

Sales of other real estate and other personal property owned (1)
 
5,067

 
11,205

Payments to FDIC related to loss-sharing asset
 
(479
)
 
(2,217
)
Net cash provided by (used in) investing activities
 
97,328

 
(26,947
)
Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
150,243

 
84,941

Net decrease in sweep repurchase agreements
 
(8,228
)
 
—

Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
624,000

 
587,000

Federal Reserve Bank borrowings
 
—

 
50

Exercise of stock options
 
428

 
405

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(804,000
)
 
(617,000
)
Repayment of Federal Reserve Bank borrowings
 
—

 
(50
)
Common stock dividends
 
(17,236
)
 
(6,154
)
Preferred stock dividends
 
(31
)
 
(12
)
Repayment of other borrowings
 
(8,248
)
 
—

Purchase and retirement of common stock
 
(781
)
 
(522
)
Net cash provided by (used in) financing activities
 
(63,853
)
 
48,658

Increase in cash and cash equivalents
 
60,431

 
57,228

Cash and cash equivalents at beginning of period
 
188,170

 
179,561

Cash and cash equivalents at end of period
 
$
248,601

 
$
236,789

Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
1,132

 
$
999

Cash paid for income tax
 
$
13

 
$
10

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
4,692

 
$
5,751

__________
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to removing the separate line item for “Sales of covered other real estate owned” and including the prior period activity in the line item for sales of other real estate and other personal property owned.
See accompanying Notes to unaudited Consolidated Financial Statements.

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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 Columbia Banking System, Inc. (“we”, “our”, “Columbia” or the “Company”) and its subsidiaries, including its wholly owned banking subsidiary Columbia State Bank (“Columbia Bank” or the “Bank”) and West Coast Trust Company, Inc. (“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, 2015 are not necessarily indicative of results to be anticipated for the year ending December 31, 2015. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2014 Annual Report on Form 10-K.
Due to the timing of the acquisition of Intermountain Community Bancorp (“Intermountain”) on November 1, 2014, our results of operations for the three month period ended March 31, 2015 include the acquisition for the entire three month period, however the prior year period’s results of operations do not include the acquisition. See Note 3, Business Combinations, for further information regarding this acquisition.
Significant Accounting Policies
The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2014 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2014 Form 10-K disclosure for the year ended December 31, 2014.
2.
Accounting Pronouncements Recently Issued
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The Update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The Update changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with accounting for other repurchase agreements. Additionally, the amendment requires new disclosures on transfers accounted for as sales in transactions that are economically similar to repurchase agreements and requires increased transparency on collateral pledged in secured borrowings. The amendments in this update will be effective for the first interim or annual period beginning after December 31, 2014, with the exception of the collateral disclosures which will be effective for interim periods beginning after March 15, 2015. Early application is not permitted. The Company does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2016. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.

6
Table of Contents

3.
Business Combinations
On November 1, 2014, the Company completed its acquisition of Intermountain. The Company paid $131.9 million in total consideration to acquire 100% of the equity interests of Intermountain. The primary reason for the acquisition was to expand the Company’s geographic footprint into the state of Idaho, consistent with its ongoing growth strategy.
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the November 1, 2014 acquisition date. Initial accounting for deferred taxes was incomplete as of March 31, 2015. The amount currently recognized in the financial statements has been determined provisionally as the final Intermountain Community Bancorp tax return has not yet been completed. The fair value of the net assets acquired totaled $93.4 million, including $736.8 million of deposits, $502.6 million of loans and $10.9 million of other intangible assets. Goodwill of $38.6 million was recorded as part of the acquisition. The goodwill is not deductible for income tax purposes.
The operating results of the Company reported herein include the operating results produced by the acquired assets and assumed liabilities for the period January 1, 2015 to March 31, 2015. Disclosure of the amount of Intermountain’s revenue and net income (excluding integration costs) included in Columbia’s consolidated income statement is impracticable due to the integration of the operations and accounting for this acquisition.
For illustrative purposes only, the following table presents certain unaudited pro forma information for the three month period ended March 31, 2014. This unaudited pro forma information was calculated as if Intermountain had been acquired as of the beginning of the year prior to the date of acquisition. The unaudited pro forma information combines the historical results of Intermountain with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective period. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. In particular, no adjustments have been made to eliminate the impact of other-than-temporary impairment losses and losses recognized on the sale of securities that may not have been necessary had the investment securities been recorded at fair value as of the beginning of the year prior to the date of acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, Columbia expects to achieve further operating cost savings and other business synergies, including revenue growth, as a result of the acquisition which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented.
 
 
Unaudited Pro Forma
 
 
Three Months Ended March 31,
 
 
2014
 
 
(in thousands except per share)
Total revenues (net interest income plus noninterest income)
 
$
97,488

Net income
 
$
21,078

Earnings per share - basic
 
$
0.38

Earnings per share - diluted
 
$
0.37

In connection with the Intermountain acquisition, Columbia recognized $2.9 million in acquisition-related expenses for the three month period ended March 31, 2015 and recognized no acquisition-related expenses for the three month period ended March 31, 2014. In addition, related to the acquisition of West Coast Bancorp (“West Coast”) which was completed on April 1, 2013, Columbia recognized $72 thousand and $966 thousand in acquisition-related expenses for the three month periods ended March 31, 2015 and 2014, respectively.

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The following table shows the impact of the acquisition-related expenses related to the acquisition of Intermountain for the three months ended March 31, 2015 to the various components of noninterest expense:
 
 
Three Months Ended March 31,
 
 
2015
 
 
(in thousands)
Noninterest Expense
 
 
Compensation and employee benefits
 
$
273

Occupancy
 
499

Advertising and promotion
 
96

Data processing and communications
 
1,558

Legal and professional fees
 
385

Other
 
91

Total impact of acquisition-related costs to noninterest expense
 
$
2,902

See Note 2, Business Combinations, in Item 8 of our 2014 Form 10-K for additional details related to the Intermountain 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, 2015
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,093,576

 
$
13,765

 
$
(4,641
)
 
$
1,102,700

State and municipal securities
 
486,969

 
15,434

 
(732
)
 
501,671

U.S. government agency and government-sponsored enterprise securities
 
375,230

 
2,551

 
(983
)
 
376,798

U.S. government securities
 
20,918

 
—

 
(140
)
 
20,778

Other securities
 
5,284

 
40

 
(112
)
 
5,212

Total
 
$
1,981,977

 
$
31,790

 
$
(6,608
)
 
$
2,007,159

December 31, 2014
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,160,378

 
$
10,219

 
$
(8,210
)
 
$
1,162,387

State and municipal securities
 
483,578

 
14,432

 
(1,526
)
 
496,484

U.S. government agency and government-sponsored enterprise securities
 
416,919

 
856

 
(4,069
)
 
413,706

U.S. government securities
 
20,910

 
—

 
(411
)
 
20,499

Other securities
 
5,284

 
20

 
(123
)
 
5,181

Total
 
$
2,087,069

 
$
25,527

 
$
(14,339
)
 
$
2,098,257


8
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Proceeds from sales of securities available-for-sale were $57.2 million and $6.4 million for the three months ended March 31, 2015 and 2014, respectively. The following table provides the gross realized gains and losses on the sales of securities for the periods indicated:
 
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
 
 
(in thousands)
Gross realized gains
 
$
730

 
$
223

Gross realized losses
 
(9
)
 
—

Net realized gains
 
$
721

 
$
223

The scheduled contractual maturities of investment securities available for sale at March 31, 2015 are presented as follows:
 
 
March 31, 2015
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
15,480

 
$
15,601

Due after one year through five years
 
404,752

 
406,989

Due after five years through ten years
 
526,230

 
534,584

Due after ten years
 
1,030,231

 
1,044,773

Other securities with no stated maturity
 
5,284

 
5,212

Total investment securities available-for-sale
 
$
1,981,977

 
$
2,007,159

The following table summarizes the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:
 
 
March 31, 2015
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
323,771

Federal Reserve Bank to secure borrowings
 
36,945

Other securities pledged
 
156,385

Total securities pledged as collateral
 
$
517,101


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Table of Contents

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, 2015 and December 31, 2014:
 
 
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, 2015
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
94,304

 
$
(634
)
 
$
213,050

 
$
(4,007
)
 
$
307,354

 
$
(4,641
)
State and municipal securities
 
45,809

 
(227
)
 
31,597

 
(505
)
 
77,406

 
(732
)
U.S. government agency and government-sponsored enterprise securities
 
999

 
(1
)
 
178,013

 
(982
)
 
179,012

 
(983
)
U.S. government securities
 
1,050

 
(1
)
 
19,728

 
(139
)
 
20,778

 
(140
)
Other securities
 
—

 
—

 
2,843

 
(112
)
 
2,843

 
(112
)
Total
 
$
142,162

 
$
(863
)
 
$
445,231

 
$
(5,745
)
 
$
587,393

 
$
(6,608
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
258,825

 
$
(1,287
)
 
$
279,015

 
$
(6,924
)
 
$
537,840

 
$
(8,211
)
State and municipal securities
 
71,026

 
(543
)
 
44,148

 
(982
)
 
115,174

 
(1,525
)
U.S. government agency and government-sponsored enterprise securities
 
105,250

 
(518
)
 
216,221

 
(3,551
)
 
321,471

 
(4,069
)
U.S. government securities
 
—

 
—

 
19,450

 
(411
)
 
19,450

 
(411
)
Other securities
 
2,313

 
(2
)
 
2,834

 
(121
)
 
5,147

 
(123
)
Total
 
$
437,414

 
$
(2,350
)
 
$
561,668

 
$
(11,989
)
 
$
999,082

 
$
(14,339
)
At March 31, 2015, there were 77 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 34 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, 2015.
At March 31, 2015, there were 66 state and municipal government securities in an unrealized loss position, of which 32 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, 2015, none of the rated obligations of state and local government entities held by the Company had a below investment grade credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2015.
At March 31, 2015, there were 18 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, 14 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 upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2015.
At March 31, 2015, there were four U.S. government securities in an unrealized loss position, two 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

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Table of Contents

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, 2015.
At March 31, 2015, there was one other security in an unrealized loss position, which 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, 2015 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.
5.
Loans
The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments are referred to collectively as loans, excluding purchased credit impaired loans. Purchased loans for which there was, at acquisition date, evidence of credit deterioration since their origination and it was probable that we would be unable to collect all contractually required payments are referred to as purchased credit impaired loans, or “PCI loans.”
The following is an analysis of the loan portfolio by major types of loans (net of unearned income):
 
 
March 31, 2015
 
December 31, 2014
 
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
 
(in thousands)
Commercial business
 
$
2,139,873

 
$
46,335

 
$
2,186,208

 
$
2,119,565

 
$
44,505

 
$
2,164,070

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
173,739

 
26,601

 
200,340

 
175,571

 
26,993

 
202,564

Commercial and multifamily residential
 
2,374,454

 
118,230

 
2,492,684

 
2,363,541

 
128,769

 
2,492,310

Total real estate
 
2,548,193

 
144,831

 
2,693,024

 
2,539,112

 
155,762

 
2,694,874

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
124,017

 
3,797

 
127,814

 
116,866

 
4,021

 
120,887

Commercial and multifamily residential
 
119,880

 
2,238

 
122,118

 
134,443

 
2,321

 
136,764

Total real estate construction
 
243,897

 
6,035

 
249,932

 
251,309

 
6,342

 
257,651

Consumer
 
352,960

 
22,638

 
375,598

 
364,182

 
23,975

 
388,157

Less: Net unearned income
 
(53,867
)
 
—

 
(53,867
)
 
(59,374
)
 
—

 
(59,374
)
Total loans, net of unearned income
 
5,231,056

 
219,839

 
5,450,895

 
5,214,794

 
230,584

 
5,445,378

Less: Allowance for loan and lease losses
 
(53,703
)
 
(16,531
)
 
(70,234
)
 
(53,233
)
 
(16,336
)
 
(69,569
)
Total loans, net
 
$
5,177,353

 
$
203,308

 
$
5,380,661

 
$
5,161,561

 
$
214,248

 
$
5,375,809

Loans held for sale
 
$
3,545

 
$
—

 
$
3,545

 
$
1,116

 
$
—

 
$
1,116

At March 31, 2015 and December 31, 2014, 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, Oregon and Idaho.
The Company has made 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 $12.7 million at March 31, 2015 and $13.2 million at December 31, 2014. During the first three months of 2015, there were no advances and repayments totaled $430 thousand.
At March 31, 2015 and December 31, 2014, $1.30 billion and $1.08 billion of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank of Seattle (“FHLB”) borrowings and additional borrowing capacity. The Company has also pledged $47.0 million and $46.0 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at March 31, 2015 and December 31, 2014, respectively.



11
Table of Contents

The following is an analysis of nonaccrual loans as of March 31, 2015 and December 31, 2014:
 
 
March 31, 2015
 
December 31, 2014
 
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
Secured
 
$
17,240

 
$
20,573

 
$
16,552

 
$
21,453

Unsecured
 
189

 
211

 
247

 
269

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
4,429

 
6,109

 
2,822

 
5,680

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
1,616

 
1,560

 
821

 
1,113

Income property
 
887

 
887

 
3,200

 
5,521

Owner occupied
 
1,995

 
2,036

 
3,826

 
5,837

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
Land and acquisition
 
871

 
871

 
95

 
112

Residential construction
 
1,263

 
1,263

 
370

 
370

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Owner occupied
 
470

 
489

 
480

 
489

Consumer
 
2,868

 
3,799

 
2,939

 
3,930

Total
 
$
31,828

 
$
37,798

 
$
31,352

 
$
44,774


12
Table of Contents

Loans, excluding purchased credit impaired loans
The following is an aging of the recorded investment of the loan portfolio as of March 31, 2015 and December 31, 2014:
 
 
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, 2015
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,024,277

 
$
11,910

 
$
1,874

 
$
58

 
$
13,842

 
$
17,240

 
$
2,055,359

Unsecured
 
78,351

 
492

 
120

 
67

 
679

 
189

 
79,219

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
164,962

 
771

 
124

 
21

 
916

 
4,429

 
170,307

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
186,904

 
4,303

 
355

 
264

 
4,922

 
1,616

 
193,442

Income property
 
1,305,595

 
2,502

 
560

 
—

 
3,062

 
887

 
1,309,544

Owner occupied
 
841,551

 
2,206

 
435

 
—

 
2,641

 
1,995

 
846,187

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
15,860

 
67

 
—

 
—

 
67

 
871

 
16,798

Residential construction
 
104,378

 
—

 
—

 
4

 
4

 
1,263

 
105,645

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
62,958

 
—

 
—

 
—

 
—

 
—

 
62,958

Owner occupied
 
54,969

 
—

 
—

 
—

 
—

 
470

 
55,439

Consumer
 
331,566

 
1,509

 
193

 
22

 
1,724

 
2,868

 
336,158

Total
 
$
5,171,371

 
$
23,760

 
$
3,661

 
$
436

 
$
27,857

 
$
31,828

 
$
5,231,056

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2014
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,004,418

 
$
5,137

 
$
6,149

 
$
1,372

 
$
12,658

 
$
16,552

 
$
2,033,628

Unsecured
 
79,661

 
185

 
—

 
—

 
185

 
247

 
80,093

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
167,197

 
1,700

 
45

 
—

 
1,745

 
2,822

 
171,764

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
187,470

 
1,454

 
34

 
—

 
1,488

 
821

 
189,779

Income property
 
1,294,982

 
3,031

 
786

 
—

 
3,817

 
3,200

 
1,301,999

Owner occupied
 
839,689

 
937

 
289

 
—

 
1,226

 
3,826

 
844,741

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
15,462

 
953

 
—

 
—

 
953

 
95

 
16,510

Residential construction
 
97,821

 
326

 
—

 
4

 
330

 
370

 
98,521

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
73,783

 
—

 
—

 
—

 
—

 
—

 
73,783

Owner occupied
 
57,470

 
—

 
994

 
—

 
994

 
480

 
58,944

Consumer
 
341,032

 
933

 
118

 
10

 
1,061

 
2,939

 
345,032

Total
 
$
5,158,985

 
$
14,656

 
$
8,415

 
$
1,386

 
$
24,457

 
$
31,352

 
$
5,214,794



13
Table of Contents

The following is an analysis of impaired loans as of March 31, 2015 and December 31, 2014: 
 
 
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, 2015
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,044,486

 
$
10,873

 
$
96

 
$
96

 
$
24

 
$
10,777

 
$
12,986

Unsecured
 
79,219

 
—

 
—

 
—

 
—

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
166,129

 
4,178

 
420

 
461

 
115

 
3,758

 
4,220

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
192,972

 
470

 
—

 
—

 
—

 
470

 
470

Income property
 
1,307,556

 
1,988

 
—

 
—

 
—

 
1,988

 
2,355

Owner occupied
 
839,157

 
7,030

 
578

 
578

 
24

 
6,452

 
8,944

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
15,818

 
980

 
109

 
108

 
67

 
871

 
871

Residential construction
 
104,752

 
893

 
—

 
—

 
—

 
893

 
893

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
62,958

 
—

 
—

 
—

 
—

 
—

 
—

Owner occupied
 
55,439

 
—

 
—

 
—

 
—

 
—

 
—

Consumer
 
335,474

 
684

 
—

 
—

 
—

 
684

 
895

Total
 
$
5,203,960

 
$
27,096

 
$
1,203

 
$
1,243

 
$
230

 
$
25,893

 
$
31,634

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2014
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,023,104

 
$
10,524

 
$
99

 
$
99

 
$
25

 
$
10,425

 
$
12,410

Unsecured
 
80,091

 
2

 
2

 
2

 
2

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential