Edgar Filing: COLUMBIA BANKING SYSTEM INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

COLB 06.30.15 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 June 30, 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.

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 July 31, 2015 was 57,734,127.

TABLE OF CONTENTS



		Page
	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets - June 30, 2015 and December 31, 2014	1

	Consolidated Statements of Income - three and six months ended June 30, 2015 and 2014	2

	Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2015 and 2014	3

	Consolidated Statements of Changes in Shareholders’ Equity - six months ended June 30, 2015 and 2014	4

	Consolidated Statements of Cash Flows - six months ended June 30, 2015 and 2014	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60

Item 4.	Controls and Procedures	60

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	61

Item 1A.	Risk Factors	61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3.	Defaults Upon Senior Securities	61

Item 4.	Mine Safety Disclosures	61

Item 5.	Other Information	61

Item 6.	Exhibits	62

	Signatures	63

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)



			June 30, 2015		December 31, 2014
ASSETS			(in thousands)
Cash and due from banks			$	172,139	$	171,221
Interest-earning deposits with banks			5,564		16,949
Total cash and cash equivalents			177,703		188,170
Securities available for sale at fair value (amortized cost of $1,907,403 and $2,087,069, respectively)			1,914,445		2,098,257
Federal Home Loan Bank stock at cost			11,803		33,365
Loans held for sale			4,220		1,116
Loans, net of unearned income of ($49,359) and ($59,374), respectively			5,611,897		5,445,378
Less: allowance for loan and lease losses			69,257		69,569
Loans, net			5,542,640		5,375,809
FDIC loss-sharing asset			9,344		15,174
Interest receivable			27,483		27,802
Premises and equipment, net			170,380		172,090
Other real estate owned			20,617		22,190
Goodwill			382,537		382,537
Other intangible assets, net			26,924		30,459
Other assets			229,923		231,877
Total assets			$	8,518,019	$	8,578,846
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing			$	3,207,538	$	2,651,373
Interest-bearing			3,836,835		4,273,349
Total deposits			7,044,373		6,924,722
Federal Home Loan Bank advances			45,549		216,568
Securities sold under agreements to repurchase			92,230		105,080
Other borrowings			—		8,248
Other liabilities			99,653		96,053
Total liabilities			7,281,805		7,350,671
Commitments and contingent liabilities
Shareholders’ equity:
	June 30, 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	115,000	63,033
Issued and outstanding	57,709	57,437	987,320		985,839
Retained earnings			243,888		234,498
Accumulated other comprehensive income			2,789		5,621
Total shareholders’ equity			1,236,214		1,228,175
Total liabilities and shareholders’ equity			$	8,518,019	$	8,578,846

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME

Columbia Banking System, Inc.

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
	(in thousands except per share amounts)
Interest Income
Loans	$	71,744		$	67,004		$	142,566		$	132,545
Taxable securities	7,260			6,382			14,786			13,134
Tax-exempt securities	3,010			2,671			6,052			5,289
Deposits in banks	26			30			53			44
Total interest income	82,040			76,087			163,457			151,012
Interest Expense
Deposits	740			729			1,488			1,481
Federal Home Loan Bank advances	154			115			313			229
Other borrowings	136			119			282			238
Total interest expense	1,030			963			2,083			1,948
Net Interest Income	81,010			75,124			161,374			149,064
Provision for loan and lease losses	2,202			2,117			3,411			4,039
Net interest income after provision for loan and lease losses	78,808			73,007			157,963			145,025
Noninterest Income
Service charges and other fees	15,874			13,790			30,743			26,726
Merchant services fees	2,340			2,040			4,380			3,910
Investment securities gains, net	343			296			1,064			519
Bank owned life insurance	1,206			976			2,284			1,941
Change in FDIC loss-sharing asset	(1,494		)	(5,050		)	(1,344		)	(9,869		)
Other	3,193			2,575			7,102			5,408
Total noninterest income	21,462			14,627			44,229			28,635
Noninterest Expense
Compensation and employee benefits	38,446			31,064			77,546			62,402
Occupancy	8,687			8,587			16,680			16,831
Merchant processing	1,079			998			2,056			1,978
Advertising and promotion	1,195			950			2,126			1,719
Data processing and communications	4,242			3,680			9,226			7,200
Legal and professional fees	2,847			2,303			5,354			4,472
Taxes, licenses and fees	1,427			1,051			2,659			2,231
Regulatory premiums	1,321			1,073			2,542			2,249
Net cost (benefit) of operation of other real estate owned	(563		)	(97		)	(1,809		)	49
Amortization of intangibles	1,718			1,480			3,535			3,060
Other	8,072			6,675			15,290			12,959
Total noninterest expense	68,471			57,764			135,205			115,150
Income before income taxes	31,799			29,870			66,987			58,510
Income tax provision	9,853			8,643			20,680			17,439
Net Income	$	21,946		$	21,227		$	46,307		$	41,071
Earnings per common share
Basic	$	0.38		$	0.40		$	0.80		$	0.79
Diluted	$	0.38		$	0.40		$	0.80		$	0.77
Dividends paid per common share	$	0.34		$	0.24		$	0.64		$	0.36
Weighted average number of common shares outstanding	57,055			52,088			56,999			51,600
Weighted average number of diluted common shares outstanding	57,069			52,494			57,012			52,463

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Columbia Banking System, Inc.

(Unaudited)



	Three Months Ended
	June 30,
	2015			2014
	(in thousands)
Net income as reported	$	21,946		$	21,227
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 $6,457 and ($4,992)	(11,341		)	8,768
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $124 and $107	(219		)	(189		)
Net unrealized gain (loss) from securities, net of reclassification adjustment	(11,560		)	8,579
Pension plan liability adjustment:
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($35) and ($13)	63			24
Pension plan liability adjustment, net	63			24
Other comprehensive income (loss)	(11,497		)	8,603
Total comprehensive income	$	10,449		$	29,830



	Six Months Ended
	June 30,
	2015			2014
	(in thousands)
Net income as reported	$	46,307		$	41,071
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 $1,119 and ($9,041)	(1,965		)	15,887
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $386 and $188	(678		)	(331		)
Net unrealized gain (loss) from securities, net of reclassification adjustment	(2,643		)	15,556
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 ($51) and ($26)	91			48
Pension plan liability adjustment, net	(189		)	48
Other comprehensive income (loss)	(2,832		)	15,604
Total comprehensive income	$	43,475		$	56,675

See accompanying Notes to unaudited Consolidated Financial Statements.

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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			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	(in thousands)
Balance at January 1, 2015	9	$	2,217	57,437		$	985,839		$	234,498		$	5,621		$	1,228,175
Net income	—	—		—		—			46,307			—			46,307
Other comprehensive loss	—	—		—		—			—			(2,832		)	(2,832		)
Issuance of common stock - stock option and other plans	—	—		21		519			—			—			519
Issuance of common stock - restricted stock awards, net of canceled awards	—	—		282		1,836			—			—			1,836
Purchase and retirement of common stock	—	—		(31	)	(874		)	—			—			(874		)
Preferred dividends	—	—		—		—			(66		)	—			(66		)
Cash dividends paid on common stock	—	—		—		—			(36,851		)	—			(36,851		)
Balance at June 30, 2015	9	$	2,217	57,709		$	987,320		$	243,888		$	2,789		$	1,236,214
Balance at January 1, 2014	9	$	2,217	51,265		$	860,562		$	202,514		$	(12,044	)	$	1,053,249
Net income	—	—		—		—			41,071			—			41,071
Other comprehensive income	—	—		—		—			—			15,604			15,604
Issuance of common stock - cashless exercise of warrants	—	—		1,140		—			—			—			—
Activity in deferred compensation plan	—	—		—		(1		)	—			—			(1		)
Issuance of common stock - stock option and other plans	—	—		21		425			—			—			425
Issuance of common stock - restricted stock awards, net of canceled awards	—	—		233		1,224			—			—			1,224
Purchase and retirement of common stock	—	—		(24	)	(601		)	—			—			(601		)
Preferred dividends	—	—		—		—			(37		)	—			(37		)
Cash dividends paid on common stock	—	—		—		—			(18,783		)	—			(18,783		)
Balance at June 30, 2014	9	$	2,217	52,635		$	861,609		$	224,765		$	3,560		$	1,092,151

See accompanying Notes to unaudited Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Columbia Banking System, Inc.

(Unaudited)



	Six Months Ended June 30,
	2015			2014 (1)
	(in thousands)
Cash Flows From Operating Activities
Net Income	$	46,307		$	41,071
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan and lease losses	3,411			4,039
Stock-based compensation expense	1,836			1,224
Depreciation, amortization and accretion	14,630			17,057
Investment securities gain, net	(1,064		)	(519		)
Net realized (gain) loss on sale of other assets	(289		)	453
Net realized gain on sale of other real estate owned	(2,992		)	(2,972		)
Write-down on other real estate owned	793			2,554
Net change in:
Loans held for sale	(3,104		)	(15		)
Interest receivable	319			23
Interest payable	(105		)	(20		)
Other assets	1,579			3,062
Other liabilities	3,292			(2,589		)
Net cash provided by operating activities	64,613			63,368
Cash Flows From Investing Activities
Loans originated and acquired, net of principal collected	(175,260		)	(201,162		)
Purchases of:
Securities available for sale	(37,070		)	(22,804		)
Premises and equipment	(4,805		)	(8,383		)
Federal Home Loan Bank stock	(1,440		)	—
Proceeds from:
FDIC reimbursement on loss-sharing asset	4,009			3,982
Sales of securities available for sale	72,166			30,704
Principal repayments and maturities of securities available for sale	135,102			83,788
Sales of premises and equipment, Federal Home Loan Bank stock and loans held for investment	30,871			1,095
Sales of other real estate and other personal property owned (1)	11,553			15,932
Payments to FDIC related to loss-sharing asset	(487		)	(2,217		)
Net cash provided by (used in) investing activities	34,639			(99,065		)
Cash Flows From Financing Activities
Net increase in deposits	119,651			25,594
Net decrease in sweep repurchase agreements	(12,850		)	—
Proceeds from:
Federal Home Loan Bank advances	1,319,000			1,168,000
Federal Reserve Bank borrowings	1,010			50
Exercise of stock options	519			425
Payments for:
Repayment of Federal Home Loan Bank advances	(1,490,000		)	(1,094,000		)
Repayment of Federal Reserve Bank borrowings	(1,010		)	(50		)
Common stock dividends	(36,851		)	(18,783		)
Preferred stock dividends	(66		)	(37		)
Repayment of other borrowings	(8,248		)	—
Purchase and retirement of common stock	(874		)	(601		)
Net cash provided by (used in) financing activities	(109,719		)	80,598
Increase (decrease) in cash and cash equivalents	(10,467		)	44,901
Cash and cash equivalents at beginning of period	188,170			179,561
Cash and cash equivalents at end of period	$	177,703		$	224,462
Supplemental Information:
Cash paid during the period for:
Cash paid for interest	$	2,188		$	1,968
Cash paid for income tax	$	7,281		$	8,200
Non-cash investing and financing activities
Loans transferred to other real estate owned	$	7,836		$	7,841

__________

(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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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 six months ended June 30, 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.

Our results of operations for the three and six month periods ended June 30, 2015 include the acquisition of Intermountain Community Bancorp (“Intermountain”) for the entire period. However, the results of operations for the prior year periods 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 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 was to be effective for interim and annual periods beginning after December 15, 2016. However, on July 9, 2015, the FASB voted to approve a one year delay of the effective date and to permit companies to voluntarily adopt the new standard as of the original effective date. 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.


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 June 30, 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 application of the acquisition method of accounting resulted in recognition of goodwill of $38.6 million and a core deposit intangible of $10.9 million, or 1.75% of core deposits. The goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The goodwill is not deductible for income tax purposes.

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The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed:



	November 1, 2014
	(in thousands)

Purchase price as of November 1, 2014	$	131,935
Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Cash and cash equivalents	$	47,283
Investment securities	299,458
Federal Home Loan Bank stock	2,124
Acquired loans	502,595
Interest receivable	4,656
Premises and equipment	20,696
Other real estate owned	2,752
Core deposit intangible	10,900
Other assets	35,353
Deposits	(736,795		)
Other borrowings	(22,904		)
Securities sold under agreements to repurchase	(59,043		)
Other liabilities	(13,725		)
Total fair value of identifiable net assets	93,350
Goodwill	$	38,585

See Note 9, Goodwill and Other Intangible Assets, for further discussion of the accounting for goodwill and other intangible assets.

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 June 30, 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.

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For illustrative purposes only, the following table presents certain unaudited pro forma information for the six month period ended June 30, 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
	Six Months Ended June 30,
	2014
	(in thousands except per share)
Total revenues (net interest income plus noninterest income)	$	197,723
Net income	$	43,719
Earnings per share - basic	$	0.78
Earnings per share - diluted	$	0.77

In connection with the Intermountain acquisition, Columbia recognized $5.6 million and $8.5 million in acquisition-related expenses for the three and six month periods ended June 30, 2015, respectively, and recognized no acquisition-related expenses for the three and six month periods ended June 30, 2014. In addition, related to the acquisition of West Coast Bancorp (“West Coast”) which was completed on April 1, 2013, Columbia recognized $72 thousand in acquisition-related expenses for the six month period ended June 30, 2015, and $672 thousand and $1.6 million in acquisition-related expenses for the three and six month periods ended June 30, 2014, respectively.

The following table shows the impact of the acquisition-related expenses related to the acquisition of Intermountain for the three and six month periods ended June 30, 2015 to the various components of noninterest expense:



	Three Months Ended June 30,		Six Months Ended June 30,
	2015		2015
	(in thousands)
Noninterest Expense
Compensation and employee benefits	$	3,035	$	3,308
Occupancy	804		1,303
Advertising and promotion	247		343
Data processing and communications	180		1,738
Legal and professional fees	633		1,018
Other	744		835
Total impact of acquisition-related costs to noninterest expense	$	5,643	$	8,545

See Note 2, Business Combinations, in Item 8 of our 2014 Form 10-K for additional details related to the Intermountain acquisition.

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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)
June 30, 2015
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	1,042,134	$	8,427	$	(9,482	)	$	1,041,079
State and municipal securities	479,847		11,184		(2,000		)	489,031
U.S. government agency and government-sponsored enterprise securities	359,714		1,195		(1,884		)	359,025
U.S. government securities	20,424		—		(262		)	20,162
Other securities	5,284		23		(159		)	5,148
Total	$	1,907,403	$	20,829	$	(13,787	)	$	1,914,445
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

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Proceeds from sales of securities available-for-sale were $14.9 million and $24.3 million for the three months ended June 30, 2015 and 2014, respectively, and were $72.2 million and $30.7 million for the six months ended June 30, 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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015			2014
	(in thousands)
Gross realized gains	$	343	$	296	$	1,073		$	519
Gross realized losses	—		—		(9		)	—
Net realized gains	$	343	$	296	$	1,064		$	519

The scheduled contractual maturities of investment securities available for sale at June 30, 2015 are presented as follows:



	June 30, 2015
	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	20,112	$	20,399
Due after one year through five years	391,397		392,321
Due after five years through ten years	535,833		539,403
Due after ten years	954,777		957,174
Other securities with no stated maturity	5,284		5,148
Total investment securities available-for-sale	$	1,907,403	$	1,914,445

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:



	June 30, 2015
	(in thousands)
Washington and Oregon State to secure public deposits	$	331,431
Federal Reserve Bank to secure borrowings	55,508
Other securities pledged	149,327
Total securities pledged as collateral	$	536,266

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The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 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)
June 30, 2015
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	290,497	$	(2,468	)	$	200,514	$	(7,014	)	$	491,011	$	(9,482	)
State and municipal securities	123,367		(1,020		)	29,701		(980		)	153,068		(2,000		)
U.S. government agency and government-sponsored enterprise securities	128,033		(418		)	100,277		(1,466		)	228,310		(1,884		)
U.S. government securities	—		—			19,613		(262		)	19,613		(262		)
Other securities	2,304		(11		)	2,807		(148		)	5,111		(159		)
Total	$	544,201	$	(3,917	)	$	352,912	$	(9,870	)	$	897,113	$	(13,787	)

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 June 30, 2015, there were 108 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 35 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 June 30, 2015.

At June 30, 2015, there were 123 state and municipal government securities in an unrealized loss position, of which 28 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 June 30, 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 June 30, 2015.

At June 30, 2015, there were 20 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, eight 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 June 30, 2015.

At June 30, 2015, there were two U.S. government securities in an unrealized loss position, both 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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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 June 30, 2015.

At June 30, 2015, there were two other securities in an unrealized loss position, of which one 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 these investments to be other-than-temporarily impaired at June 30, 2015 as it has the intent and ability to hold the investments 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):



	June 30, 2015									December 31, 2014
	Loans, excluding PCI loans			PCI Loans			Total			Loans, excluding PCI loans			PCI Loans			Total
	(in thousands)
Commercial business	$	2,255,468		$	41,221		$	2,296,689		$	2,119,565		$	44,505		$	2,164,070
Real estate:
One-to-four family residential	181,849			25,740			207,589			175,571			26,993			202,564
Commercial and multifamily residential	2,406,594			108,578			2,515,172			2,363,541			128,769			2,492,310
Total real estate	2,588,443			134,318			2,722,761			2,539,112			155,762			2,694,874
Real estate construction:
One-to-four family residential	127,311			2,882			130,193			116,866			4,021			120,887
Commercial and multifamily residential	129,302			2,020			131,322			134,443			2,321			136,764
Total real estate construction	256,613			4,902			261,515			251,309			6,342			257,651
Consumer	358,365			21,926			380,291			364,182			23,975			388,157
Less: Net unearned income	(49,359		)	—			(49,359		)	(59,374		)	—			(59,374		)
Total loans, net of unearned income	5,409,530			202,367			5,611,897			5,214,794			230,584			5,445,378
Less: Allowance for loan and lease losses	(53,083		)	(16,174		)	(69,257		)	(53,233		)	(16,336		)	(69,569		)
Total loans, net	$	5,356,447		$	186,193		$	5,542,640		$	5,161,561		$	214,248		$	5,375,809
Loans held for sale	$	4,220		$	—		$	4,220		$	1,116		$	—		$	1,116

At June 30, 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 $10.1 million at June 30, 2015 and $13.2 million at December 31, 2014. During the first six months of 2015, there were $7 thousand in advances and $3.1 million in repayments.

At June 30, 2015 and December 31, 2014, $1.22 billion and $1.08 billion of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank of Des Moines (“FHLB”) borrowings and additional borrowing capacity. The Company has also pledged $47.5 million and $46.0 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at June 30, 2015 and December 31, 2014, respectively.

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The following is an analysis of nonaccrual loans as of June 30, 2015 and December 31, 2014:



	June 30, 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	$	13,018	$	17,139	$	16,552	$	21,453
Unsecured	521		673		247		269
Real estate:
One-to-four family residential	4,193		5,985		2,822		5,680
Commercial & multifamily residential:
Commercial land	1,561		1,704		821		1,113
Income property	1,276		1,331		3,200		5,521
Owner occupied	972		1,131		3,826		5,837
Real estate construction:
One-to-four family residential:
Land and acquisition	862		866		95		112
Residential construction	1,075		1,222		370		370
Commercial & multifamily residential:
Owner occupied	469		489		480		489
Consumer	1,799		2,176		2,939		3,930
Total	$	25,746	$	32,716	$	31,352	$	44,774

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Loans, excluding purchased credit impaired loans

The following is an aging of the recorded investment of the loan portfolio as of June 30, 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
June 30, 2015	(in thousands)
Commercial business:
Secured	$	2,149,972	$	3,847	$	1,589	$	—	$	5,436	$	13,018	$	2,168,426
Unsecured	81,433		270		—		—		270		521		82,224
Real estate:
One-to-four family residential	172,268		2,024		128		—		2,152		4,193		178,613
Commercial & multifamily residential:
Commercial land	206,558		1,154		—		—		1,154		1,561		209,273
Income property	1,310,441		1,756		415		—		2,171		1,276		1,313,888
Owner occupied	857,764		589		276		—		865		972		859,601
Real estate construction:
One-to-four family residential:
Land and acquisition	15,955		—		—		—		—		862		16,817
Residential construction	107,279		758		—		—		758		1,075		109,112
Commercial & multifamily residential:
Income property	64,557		—		—		—		—		—		64,557
Owner occupied	61,572		981		—		—		981		469		63,022
Consumer	341,606		444		148		—		592		1,799		343,997
Total	$	5,369,405	$	11,823	$	2,556	$	—	$	14,379	$	25,746	$	5,409,530

	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