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 September 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 registrant as specified in its charter)
 ________________________________________________________ 
Washington
 
91-1422237
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1301 A Street
Tacoma, Washington
 
98402-2156
(Address of principal executive offices)
 
(Zip Code)
(253) 305-1900
(Issuer’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of common stock outstanding at October 31, 2015 was 57,730,550.
 



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


Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
(Unaudited)
 
 
 
 
 
 
September 30,
2015
 
December 31,
2014
ASSETS
 
(in thousands)
Cash and due from banks
 
$
149,610

 
$
171,221

Interest-earning deposits with banks
 
22,578

 
16,949

Total cash and cash equivalents
 
172,188

 
188,170

Securities available for sale at fair value (amortized cost of $2,004,728 and $2,087,069, respectively)
 
2,027,424

 
2,098,257

Federal Home Loan Bank stock at cost
 
10,242

 
33,365

Loans held for sale
 
6,637

 
1,116

Loans, net of unearned income of ($45,436) and ($59,374), respectively
 
5,746,511

 
5,445,378

Less: allowance for loan and lease losses
 
69,049

 
69,569

Loans, net
 
5,677,462

 
5,375,809

FDIC loss-sharing asset
 
8,146

 
15,174

Interest receivable
 
30,486

 
27,802

Premises and equipment, net
 
168,495

 
172,090

Other real estate owned
 
19,456

 
22,190

Goodwill
 
382,762

 
382,537

Other intangible assets, net
 
25,229

 
30,459

Other assets
 
227,457

 
231,877

Total assets
 
$
8,755,984

 
$
8,578,846

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
3,386,968

 
$
2,651,373

Interest-bearing
 
3,927,837

 
4,273,349

Total deposits
 
7,314,805

 
6,924,722

Federal Home Loan Bank advances
 
6,540

 
216,568

Securities sold under agreements to repurchase
 
73,182

 
105,080

Other borrowings
 

 
8,248

Other liabilities
 
107,321

 
96,053

Total liabilities
 
7,501,848

 
7,350,671

Commitments and contingent liabilities
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
September 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
57,729

 
57,437

 
989,088

 
985,839

Retained earnings
 
250,005

 
234,498

Accumulated other comprehensive income
 
12,826

 
5,621

Total shareholders’ equity
 
1,254,136

 
1,228,175

Total liabilities and shareholders’ equity
 
$
8,755,984

 
$
8,578,846

See accompanying Notes to unaudited Consolidated Financial Statements.

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Table of Contents

CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
72,242

 
$
65,903

 
$
214,808

 
$
198,448

Taxable securities
 
7,472

 
8,545

 
22,258

 
21,679

Tax-exempt securities
 
2,920

 
2,624

 
8,972

 
7,913

Deposits in banks
 
31

 
61

 
84

 
105

Total interest income
 
82,665

 
77,133

 
246,122

 
228,145

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
756

 
713

 
2,244

 
2,194

Federal Home Loan Bank advances
 
78

 
80

 
391

 
309

Other borrowings
 
137

 
120

 
419

 
358

Total interest expense
 
971

 
913

 
3,054

 
2,861

Net Interest Income
 
81,694

 
76,220

 
243,068

 
225,284

Provision for loan and lease losses
 
2,831

 
980

 
6,242

 
5,019

Net interest income after provision for loan and lease losses
 
78,863

 
75,240

 
236,826

 
220,265

Noninterest Income
 
 
 
 
 
 
 
 
Service charges and other fees
 
15,893

 
14,254

 
46,636

 
40,980

Merchant services fees
 
2,422

 
2,104

 
6,802

 
6,014

Investment securities gains, net
 
236

 
33

 
1,300

 
552

Bank owned life insurance
 
1,086

 
956

 
3,370

 
2,897

Change in FDIC loss-sharing asset
 
(1,635
)
 
(4,816
)
 
(2,979
)
 
(14,685
)
Other
 
4,497

 
3,399

 
11,599

 
8,807

Total noninterest income
 
22,499

 
15,930

 
66,728

 
44,565

Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
35,175

 
32,559

 
112,721

 
94,961

Occupancy
 
8,101

 
7,445

 
24,781

 
24,276

Merchant processing
 
1,090

 
1,080

 
3,146

 
3,058

Advertising and promotion
 
1,354

 
1,027

 
3,480

 
2,746

Data processing and communications
 
3,796

 
4,269

 
13,022

 
11,469

Legal and professional fees
 
2,173

 
2,905

 
7,527

 
7,377

Taxes, licenses and fees
 
1,344

 
1,156

 
4,003

 
3,387

Regulatory premiums
 
1,084

 
1,195

 
3,626

 
3,444

Net cost (benefit) of operation of other real estate owned
 
240

 
(1,256
)
 
(1,569
)
 
(1,207
)
Amortization of intangibles
 
1,695

 
1,456

 
5,230

 
4,516

Other
 
8,015

 
8,146

 
23,305

 
21,105

Total noninterest expense
 
64,067

 
59,982

 
199,272

 
175,132

Income before income taxes
 
37,295

 
31,188

 
104,282

 
89,698

Income tax provision
 
11,515

 
9,605

 
32,195

 
27,044

Net Income
 
$
25,780

 
$
21,583

 
$
72,087

 
$
62,654

Earnings per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.45

 
$
0.41

 
$
1.25

 
$
1.20

Diluted
 
$
0.45

 
$
0.41

 
$
1.25

 
$
1.18

Dividends paid per common share
 
$
0.34

 
$
0.28

 
$
0.98

 
$
0.64

Weighted average number of common shares outstanding
 
57,051

 
52,112

 
57,007

 
51,772

Weighted average number of diluted common shares outstanding
 
57,064

 
52,516

 
57,021

 
52,479

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
 
 
September 30,
 
 
2015
 
2014
 
 
(in thousands)
Net income
 
$
25,780

 
$
21,583

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 ($5,765) and $2,310
 
10,126

 
(4,057
)
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $85 and $12
 
(151
)
 
(21
)
Net unrealized gain (loss) from securities, net of reclassification adjustment
 
9,975

 
(4,078
)
Pension plan liability adjustment:
 
 
 
 
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($35) and ($13)
 
62

 
23

Pension plan liability adjustment, net
 
62

 
23

Other comprehensive income (loss)
 
10,037

 
(4,055
)
Total comprehensive income
 
$
35,817

 
$
17,528

 
 
Nine Months Ended
 
 
September 30,
 
 
2015
 
2014
 
 
(in thousands)
Net income
 
$
72,087

 
$
62,654

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 ($4,647) and ($6,731)
 
8,161

 
11,830

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $471 and $200
 
(829
)
 
(352
)
Net unrealized gain from securities, net of reclassification adjustment
 
7,332

 
11,478

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 ($87) and ($40)
 
153

 
71

Pension plan liability adjustment, net
 
(127
)
 
71

Other comprehensive income
 
7,205

 
11,549

Total comprehensive income
 
$
79,292

 
$
74,203

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
 
 
 
(in thousands)
Balance at January 1, 2015
 
9

 
$
2,217

 
57,437

 
$
985,839

 
$
234,498

 
$
5,621

 
$
1,228,175

Net income
 

 

 

 

 
72,087

 

 
72,087

Other comprehensive income
 

 

 

 

 

 
7,205

 
7,205

Issuance of common stock - stock option and other plans
 

 

 
46

 
1,194

 

 

 
1,194

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

 

 
277

 
2,934

 

 

 
2,934

Purchase and retirement of common stock
 

 

 
(31
)
 
(879
)
 

 

 
(879
)
Preferred dividends
 

 

 

 

 
(100
)
 

 
(100
)
Cash dividends paid on common stock
 

 

 

 

 
(56,480
)
 

 
(56,480
)
Balance at September 30, 2015
 
9

 
$
2,217

 
57,729

 
$
989,088

 
$
250,005

 
$
12,826

 
$
1,254,136

Balance at January 1, 2014
 
9

 
$
2,217

 
51,265

 
$
860,562

 
$
202,514

 
$
(12,044
)
 
$
1,053,249

Net income
 

 

 

 

 
62,654

 

 
62,654

Other comprehensive income
 

 

 

 

 

 
11,549

 
11,549

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
 

 

 
40

 
915

 

 

 
915

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

 

 
228

 
2,041

 

 

 
2,041

Purchase and retirement of common stock
 

 

 
(24
)
 
(605
)
 

 

 
(605
)
Preferred dividends
 

 

 

 

 
(66
)
 

 
(66
)
Cash dividends paid on common stock
 

 

 

 

 
(33,525
)
 

 
(33,525
)
Balance at September 30, 2014
 
9

 
$
2,217

 
52,649

 
$
862,912

 
$
231,577

 
$
(495
)
 
$
1,096,211


See accompanying Notes to unaudited Consolidated Financial Statements.

4

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CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2015
 
2014 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
72,087

 
$
62,654

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses
 
6,242

 
5,019

Stock-based compensation expense
 
2,934

 
2,041

Depreciation, amortization and accretion
 
21,892

 
21,956

Investment securities gain, net
 
(1,300
)
 
(552
)
Net realized (gain) loss on sale of other assets
 
(241
)
 
566

Net realized gain on sale and valuation adjustments of other real estate owned (1)
 
(1,798
)
 
(1,735
)
Net realized gain on sale of branches
 

 
(565
)
Originations of loans held for sale (1)
 
(57,249
)
 
(18,137
)
Proceeds from sales of loans held for sale (1)
 
52,983

 
18,424

Net gain on sale of loans held for sale (1)
 
(1,255
)
 
(501
)
Net change in:
 
 
 
 
Interest receivable
 
(2,684
)
 
(3,092
)
Interest payable
 
(136
)
 
(61
)
Other assets
 
(1,618
)
 
(5,567
)
Other liabilities
 
11,012

 
6,749

Net cash provided by operating activities
 
100,869

 
87,199

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(314,768
)
 
(310,185
)
Purchases of:
 
 
 
 
Securities available for sale
 
(218,734
)
 
(127,728
)
Premises and equipment
 
(7,351
)
 
(10,530
)
Federal Home Loan Bank stock
 
(7,360
)
 

Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
4,195

 
4,607

Sales of securities available for sale
 
82,776

 
55,834

Principal repayments and maturities of securities available for sale
 
204,322

 
134,882

Sales of premises and equipment, Federal Home Loan Bank stock and loans held for investment
 
44,615

 
1,470

Sales of other real estate and other personal property owned (1)
 
13,254

 
24,688

Payments to FDIC related to loss-sharing asset
 
(1,472
)
 
(3,384
)
Net cash paid in branch sale
 

 
(16,788
)
Net cash used in investing activities
 
(200,523
)
 
(247,134
)
Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
390,083

 
307,103

Net decrease in sweep repurchase agreements
 
(31,898
)
 

Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
1,467,000

 
1,308,000

Federal Reserve Bank borrowings
 
1,010

 
800

Exercise of stock options
 
1,194

 
915

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(1,677,000
)
 
(1,338,000
)
Repayment of Federal Reserve Bank borrowings
 
(1,010
)
 
(800
)
Common stock dividends
 
(56,480
)
 
(33,525
)
Preferred stock dividends
 
(100
)
 
(66
)
Repayment of other borrowings
 
(8,248
)
 

Purchase and retirement of common stock
 
(879
)
 
(605
)
Net cash provided by financing activities
 
83,672

 
243,822

Increase (decrease) in cash and cash equivalents
 
(15,982
)
 
83,887

Cash and cash equivalents at beginning of period
 
188,170

 
179,561

Cash and cash equivalents at end of period
 
$
172,188

 
$
263,448

 
 
 
 
 

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CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Columbia Banking System, Inc.
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2015
 
2014 (1)
 
 
(in thousands)
Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
3,190

 
$
2,922

Cash paid for income tax
 
$
19,054

 
$
11,230

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
8,751

 
$
8,930

__________
(1) Reclassified to conform to the current period’s presentation. There were no changes to cash flows from operating, investing or financing activities as a result of these reclassifications.

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 nine months ended September 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 nine month periods ended September 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, in August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year and permits 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.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. the amendments in ASU 2015-16 require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in ASU 2015-16 are effective for years beginning after December 15, 2015. Early adoption is permitted for reporting periods for which financial statements have not been issued. The Company adopted the amendments in ASU 2015-16 during the current quarter.
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 fair values as of the November 1, 2014 acquisition date. Initial accounting for deferred taxes was provisionally measured as of November 1, 2014. During the current quarter, the provisionally measured deferred taxes were finalized. The resulting adjustment was a decrease in other assets of $225 thousand

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and a corresponding increase in goodwill of $225 thousand. There was no impact to earnings as a result of these adjustments. These adjustments were recorded as current period adjustments pursuant to the Company’s early adoption of ASU 2015-16. The application of the acquisition method of accounting resulted in recognition of goodwill of $38.8 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 fair value of the net assets acquired. The goodwill is not deductible for income tax purposes.
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
 
35,128

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
 
93,125

Goodwill
 
$
38,810

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 September 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 nine month period ended September 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
 
 
Nine Months Ended September 30,
 
 
2014
 
 
(in thousands except per share)
Total revenues (net interest income plus noninterest income)
 
$
300,151

Net income
 
$
66,788

Earnings per share - basic
 
$
1.19

Earnings per share - diluted
 
$
1.18

In connection with the Intermountain acquisition, Columbia recognized $428 thousand and $9.0 million in acquisition-related expenses for the three and nine month periods ended September 30, 2015, respectively, and recognized $459 thousand in acquisition-related expenses for the three and nine month periods ended September 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 nine month period ended September 30, 2015, and $2.8 million and $4.4 million in acquisition-related expenses for the three and nine month periods ended September 30, 2014, respectively.
The following table shows the impact of the acquisition-related expenses related to the acquisition of Intermountain for the three and nine month periods ended September 30, 2015 to the various components of noninterest expense:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
$

 
$

 
$
3,308

 
$

Occupancy
 
181

 

 
1,484

 

Advertising and promotion
 
40

 
27

 
383

 
27

Data processing and communications
 
42

 

 
1,780

 

Legal and professional fees
 
71

 
388

 
1,089

 
388

Other
 
94

 
44

 
929

 
44

Total impact of acquisition-related costs to noninterest expense
 
$
428

 
$
459

 
$
8,973

 
$
459

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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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)
September 30, 2015
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,157,054

 
$
12,610

 
$
(5,132
)
 
$
1,164,532

State and municipal securities
 
476,650

 
13,574

 
(755
)
 
489,469

U.S. government agency and government-sponsored enterprise securities
 
345,309

 
2,922

 
(375
)
 
347,856

U.S. government securities
 
20,431

 
1

 
(32
)
 
20,400

Other securities
 
5,284

 
31

 
(148
)
 
5,167

Total
 
$
2,004,728

 
$
29,138

 
$
(6,442
)
 
$
2,027,424

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

Proceeds from sales of securities available-for-sale were $10.6 million and $25.1 million for the three months ended September 30, 2015 and 2014, respectively, and were $82.8 million and $55.8 million for the nine months ended September 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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Gross realized gains
 
$
236

 
$
33

 
$
1,310

 
$
552

Gross realized losses
 

 

 
(10
)
 

Net realized gains
 
$
236

 
$
33

 
$
1,300

 
$
552


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Table of Contents

The scheduled contractual maturities of investment securities available for sale at September 30, 2015 are presented as follows:
 
 
September 30, 2015
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
22,054

 
$
22,320

Due after one year through five years
 
418,087

 
421,722

Due after five years through ten years
 
543,698

 
553,422

Due after ten years
 
1,015,605

 
1,024,793

Other securities with no stated maturity
 
5,284

 
5,167

Total investment securities available-for-sale
 
$
2,004,728

 
$
2,027,424

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:
 
 
September 30, 2015
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
328,476

Federal Reserve Bank to secure borrowings
 
55,578

Other securities pledged
 
149,032

Total securities pledged as collateral
 
$
533,086

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 September 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)
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
124,092

 
$
(804
)
 
$
204,165

 
$
(4,328
)
 
$
328,257

 
$
(5,132
)
State and municipal securities
 
37,808

 
(161
)
 
29,960

 
(594
)
 
67,768

 
(755
)
U.S. government agency and government-sponsored enterprise securities
 
500

 
(1
)
 
54,892

 
(374
)
 
55,392

 
(375
)
U.S. government securities
 

 

 
9,925

 
(32
)
 
9,925

 
(32
)
Other securities
 

 

 
2,807

 
(148
)
 
2,807

 
(148
)
Total
 
$
162,400

 
$
(966
)
 
$
301,749

 
$
(5,476
)
 
$
464,149

 
$
(6,442
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)

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Table of Contents

At September 30, 2015, there were 75 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 38 were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2015.
At September 30, 2015, there were 57 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 September 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 September 30, 2015.
At September 30, 2015, there were six U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, five 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 September 30, 2015.
At September 30, 2015, there was one U.S. government security in an unrealized loss position which was 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 this investment falls within the yield curve and its individual characteristics. Because the Company does not currently intend to sell this security nor does the Company consider it more likely than not that it will be required to sell this security before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2015.
At September 30, 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 September 30, 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.”

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Table of Contents

The following is an analysis of the loan portfolio by major types of loans (net of unearned income):
 
 
September 30, 2015
 
December 31, 2014
 
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
 
(in thousands)
Commercial business
 
$
2,354,731

 
$
39,919

 
$
2,394,650

 
$
2,119,565

 
$
44,505

 
$
2,164,070

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
177,108

 
25,122

 
202,230

 
175,571

 
26,993

 
202,564

Commercial and multifamily residential
 
2,449,847

 
101,382

 
2,551,229

 
2,363,541

 
128,769

 
2,492,310

Total real estate
 
2,626,955

 
126,504

 
2,753,459

 
2,539,112

 
155,762

 
2,694,874

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
136,783

 
2,401

 
139,184

 
116,866

 
4,021

 
120,887

Commercial and multifamily residential
 
134,097

 
2,007

 
136,104

 
134,443

 
2,321

 
136,764

Total real estate construction
 
270,880

 
4,408

 
275,288

 
251,309

 
6,342

 
257,651

Consumer
 
348,315

 
20,235

 
368,550

 
364,182

 
23,975

 
388,157

Less: Net unearned income
 
(45,436
)
 

 
(45,436
)
 
(59,374
)
 

 
(59,374
)
Total loans, net of unearned income
 
5,555,445

 
191,066

 
5,746,511

 
5,214,794

 
230,584

 
5,445,378

Less: Allowance for loan and lease losses
 
(55,059
)
 
(13,990
)
 
(69,049
)
 
(53,233
)
 
(16,336
)
 
(69,569
)
Total loans, net
 
$
5,500,386

 
$
177,076

 
$
5,677,462

 
$
5,161,561

 
$
214,248

 
$
5,375,809

Loans held for sale
 
$
6,637

 
$

 
$
6,637

 
$
1,116

 
$

 
$
1,116

At September 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 September 30, 2015 and $13.2 million at December 31, 2014. During the first nine months of 2015, there were $6 thousand in advances and $3.1 million in repayments.
At September 30, 2015 and December 31, 2014, $2.17 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 $52.1 million and $46.0 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at September 30, 2015 and December 31, 2014, respectively.



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Table of Contents

The following is an analysis of nonaccrual loans as of September 30, 2015 and December 31, 2014:
 
 
September 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
 
$
9,512

 
$
15,560

 
$
16,552

 
$
21,453

Unsecured
 
638

 
732

 
247

 
269

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
2,012

 
3,430

 
2,822

 
5,680

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
700

 
786

 
821

 
1,113

Income property
 
1,923

 
1,997

 
3,200

 
5,521

Owner occupied
 
1,694

 
1,840

 
3,826

 
5,837

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
Land and acquisition
 
575

 
591

 
95

 
112

Residential construction
 
897

 
1,040

 
370

 
370

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Owner occupied
 
470

 
489

 
480

 
489

Consumer
 
659

 
902

 
2,939

 
3,930

Total
 
$
19,080

 
$
27,367

 
$
31,352

 
$
44,774


14

Table of Contents

Loans, excluding purchased credit impaired loans
The following is an aging of the recorded investment of the loan portfolio as of September 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
September 30, 2015
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,251,545

 
$
3,734

 
$
1,177

 
$

 
$
4,911

 
$
9,512

 
$
2,265,968

Unsecured
 
82,826

 
247

 
28

 

 
275

 
638

 
83,739

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
170,390

 
1,053

 
662

 

 
1,715

 
2,012

 
174,117

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
206,597

 
735

 
380

 

 
1,115

 
700

 
208,412

Income property
 
1,318,021

 
1,492

 
1,028

 

 
2,520

 
1,923

 
1,322,464

Owner occupied
 
894,172

 
204

 
244

 

 
448

 
1,694

 
896,314

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
13,960

 

 

 

 

 
575

 
14,535

Residential construction
 
120,410

 

 

 

 

 
897

 
121,307

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
63,182

 

 

 

 

 

 
63,182

Owner occupied
 
67,793

 
980

 

 

 
980

 
470

 
69,243

Consumer
 
333,275

 
2,167

 
63

 

 
2,230

 
659

 
336,164

Total
 
$
5,522,171

 
$
10,612

 
$
3,582

 
$

 
$
14,194

 
$
19,080

 
$
5,555,445

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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