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.
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 July 31, 2015 was 57,734,127.
 



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)
 
 
 
 
 
 
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.

1

Table of Contents

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.

2

Table of Contents

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.


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
 

 

 

 

 
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.

4

Table of Contents

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.

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 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.

6

Table of Contents

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.

7

Table of Contents

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.

8

Table of Contents

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


9

Table of Contents

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


10

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 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

11

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 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.


12

Table of Contents


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


13

Table of Contents

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