Document

 
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, 2016.
¨
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 July 31, 2016 was 58,048,500.
 



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,
2016
 
December 31,
2015
ASSETS
 
(in thousands)
Cash and due from banks
 
$
167,172

 
$
166,929

Interest-earning deposits with banks
 
11,216

 
8,373

Total cash and cash equivalents
 
178,388

 
175,302

Securities available for sale at fair value (amortized cost of $2,237,264 and $2,157,610, respectively)
 
2,279,552

 
2,157,694

Federal Home Loan Bank stock at cost
 
18,161

 
12,722

Loans held for sale
 
7,649

 
4,509

Loans, net of unearned income of ($37,221) and ($42,373), respectively
 
6,107,143

 
5,815,027

Less: allowance for loan and lease losses
 
69,304

 
68,172

Loans, net
 
6,037,839

 
5,746,855

FDIC loss-sharing asset
 
4,266

 
6,568

Interest receivable
 
29,738

 
27,877

Premises and equipment, net
 
156,446

 
164,239

Other real estate owned
 
10,613

 
13,738

Goodwill
 
382,762

 
382,762

Other intangible assets, net
 
20,511

 
23,577

Other assets
 
227,726

 
235,854

Total assets
 
$
9,353,651

 
$
8,951,697

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
3,652,951

 
$
3,507,358

Interest-bearing
 
4,020,262

 
3,931,471

Total deposits
 
7,673,213

 
7,438,829

Federal Home Loan Bank advances
 
204,512

 
68,531

Securities sold under agreements to repurchase
 
89,218

 
99,699

Other liabilities
 
112,229

 
102,510

Total liabilities
 
8,079,172

 
7,709,569

Commitments and contingent liabilities (Note 10)
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
June 30,
2016
 
December 31,
2015
 
 
 
 
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

 
115,000

 
 
 
 
Issued and outstanding
58,025

 
57,724

 
992,343

 
990,281

Retained earnings
 
259,108

 
255,925

Accumulated other comprehensive income (loss)
 
20,811

 
(6,295
)
Total shareholders’ equity
 
1,274,479

 
1,242,128

Total liabilities and shareholders’ equity
 
$
9,353,651

 
$
8,951,697

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,
 
 
2016
 
2015 (1)
 
2016
 
2015 (1)
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
71,651

 
$
71,744

 
$
141,967

 
$
142,566

Taxable securities
 
8,829

 
7,260

 
16,846

 
14,786

Tax-exempt securities
 
2,795

 
3,010

 
5,598

 
6,052

Deposits in banks
 
28

 
26

 
66

 
53

Total interest income
 
83,303

 
82,040

 
164,477

 
163,457

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
787

 
740

 
1,529

 
1,488

Federal Home Loan Bank advances
 
241

 
154

 
365

 
313

Other borrowings
 
135

 
136

 
273

 
282

Total interest expense
 
1,163

 
1,030

 
2,167

 
2,083

Net Interest Income
 
82,140

 
81,010

 
162,310

 
161,374

Provision for loan and lease losses
 
3,640

 
2,202

 
8,894

 
3,411

Net interest income after provision for loan and lease losses
 
78,500

 
78,808

 
153,416

 
157,963

Noninterest Income
 
 
 
 
 
 
 
 
Deposit account and treasury management fees (1)
 
7,093

 
7,351

 
14,082

 
14,211

Card revenue (1)
 
6,051

 
5,702

 
11,703

 
11,065

Financial services and trust revenue (1)
 
2,780

 
3,217

 
5,601

 
6,341

Loan revenue (1)
 
2,802

 
2,322

 
5,064

 
4,925

Merchant processing revenue
 
2,272

 
2,340

 
4,374

 
4,380

Bank owned life insurance
 
1,270

 
1,206

 
2,386

 
2,284

Investment securities gains, net
 
229

 
343

 
602

 
1,064

Change in FDIC loss-sharing asset
 
(990
)
 
(1,494
)
 
(2,093
)
 
(1,344
)
Other (1)
 
433

 
475

 
867

 
1,303

Total noninterest income
 
21,940

 
21,462

 
42,586

 
44,229

Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
37,291

 
38,446

 
73,610

 
77,546

Occupancy
 
7,652

 
8,687

 
17,825

 
16,680

Merchant processing expense
 
1,118

 
1,079

 
2,151

 
2,056

Advertising and promotion
 
1,043

 
1,195

 
1,885

 
2,126

Data processing
 
3,929

 
4,242

 
8,075

 
9,226

Legal and professional fees
 
1,777

 
2,847

 
3,102

 
5,354

Taxes, licenses and fees
 
1,298

 
1,427

 
2,588

 
2,659

Regulatory premiums
 
1,068

 
1,321

 
2,209

 
2,542

Net cost (benefit) of operation of other real estate owned
 
84

 
(563
)
 
188

 
(1,809
)
Amortization of intangibles
 
1,483

 
1,718

 
3,066

 
3,535

Other
 
7,047

 
8,072

 
14,165

 
15,290

Total noninterest expense
 
63,790

 
68,471

 
128,864

 
135,205

Income before income taxes
 
36,650

 
31,799

 
67,138

 
66,987

Income tax provision
 
11,245

 
9,853

 
20,474

 
20,680

Net Income
 
$
25,405

 
$
21,946

 
$
46,664

 
$
46,307

Earnings per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.44

 
$
0.38

 
$
0.80

 
$
0.80

Diluted
 
$
0.44

 
$
0.38

 
$
0.80

 
$
0.80

Dividends paid per common share
 
$
0.37

 
$
0.34

 
$
0.75

 
$
0.64

Weighted average number of common shares outstanding
 
57,185

 
57,055

 
57,149

 
56,999

Weighted average number of diluted common shares outstanding
 
57,195

 
57,069

 
57,160

 
57,012

__________
(1) Reclassified to conform to the current period’s presentation. Reclassifications consisted of disaggregating fee revenue previously presented in ‘Service charges and other fees’ and certain revenue previously presented in ‘Other’ into the presentation above. The Company made these reclassifications to provide additional information about its sources of noninterest income. There was no change to total noninterest income as previously reported as a result of these reclassifications.

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,
 
 
2016
 
2015
 
 
(in thousands)
Net income
 
$
25,405

 
$
21,946

Other comprehensive income (loss), net of tax:
 
 
 
 
Unrealized gain (loss) from securities:
 
 
 
 
Net unrealized holding gain (loss) from available for sale securities arising during the period, net of tax of ($4,844) and $6,457
 
8,508

 
(11,341
)
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $83 and $124
 
(146
)
 
(219
)
Net unrealized gain (loss) from securities, net of reclassification adjustment
 
8,362

 
(11,560
)
Pension plan liability adjustment:
 
 
 
 
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($61) and ($35)
 
106

 
63

Pension plan liability adjustment, net
 
106

 
63

Other comprehensive income (loss)
 
8,468

 
(11,497
)
Total comprehensive income
 
$
33,873

 
$
10,449

 
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
 
 
(in thousands)
Net income
 
$
46,664

 
$
46,307

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 ($15,530) and $1,119
 
27,278

 
(1,965
)
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $218 and $386
 
(384
)
 
(678
)
Net unrealized gain (loss) from securities, net of reclassification adjustment
 
26,894

 
(2,643
)
Pension plan liability adjustment:
 
 
 
 
Net unrealized loss from unfunded defined benefit plan liability arising during the period, net of tax of $0 and $159
 

 
(280
)
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($122) and ($51)
 
212

 
91

Pension plan liability adjustment, net
 
212

 
(189
)
Other comprehensive income (loss)
 
27,106

 
(2,832
)
Total comprehensive income
 
$
73,770

 
$
43,475

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, 2016
 
9

 
$
2,217

 
57,724

 
$
990,281

 
$
255,925

 
$
(6,295
)
 
$
1,242,128

Net income
 

 

 

 

 
46,664

 

 
46,664

Other comprehensive income
 

 

 

 

 

 
27,106

 
27,106

Issuance of common stock - stock option and other plans
 

 

 
21

 
603

 

 

 
603

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

 

 
317

 
2,551

 

 

 
2,551

Purchase and retirement of common stock
 

 

 
(37
)
 
(1,092
)
 

 

 
(1,092
)
Preferred dividends
 

 

 

 

 
(77
)
 

 
(77
)
Cash dividends paid on common stock
 

 

 

 

 
(43,404
)
 

 
(43,404
)
Balance at June 30, 2016
 
9

 
$
2,217

 
58,025

 
$
992,343

 
$
259,108

 
$
20,811

 
$
1,274,479

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


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,
 
 
2016
 
2015 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
46,664

 
$
46,307

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses
 
8,894

 
3,411

Stock-based compensation expense
 
2,551

 
1,836

Depreciation, amortization and accretion
 
18,898

 
14,630

Investment securities gain, net
 
(602
)
 
(1,064
)
Net realized (gain) loss on sale of other assets
 
170

 
(289
)
Net realized (gain) loss on sale and valuation adjustments of other real estate owned (1)
 
160

 
(2,199
)
Originations of loans held for sale (1)
 
(46,705
)
 
(32,281
)
Proceeds from sales of loans held for sale (1)
 
43,565

 
29,177

Net change in:
 
 
 
 
Interest receivable
 
(1,861
)
 
319

Interest payable
 
(74
)
 
(105
)
Other assets
 
(7,818
)
 
1,579

Other liabilities
 
9,809

 
3,292

Net cash provided by operating activities
 
73,651

 
64,613

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(298,259
)
 
(175,260
)
Purchases of:
 
 
 
 
Securities available for sale
 
(296,920
)
 
(37,070
)
Premises and equipment
 
(1,199
)
 
(4,805
)
Federal Home Loan Bank stock
 
(42,400
)
 
(1,440
)
Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
668

 
4,009

Sales of securities available for sale
 
83,410

 
72,166

Principal repayments and maturities of securities available for sale
 
123,817

 
135,102

Sales of premises and equipment and loans held for investment (1)
 
4,631

 
7,869

Redemption of Federal Home Loan Bank stock (1)
 
36,961

 
23,002

Sales of other real estate and other personal property owned
 
3,276

 
11,553

Payments to FDIC related to loss-sharing asset
 
(625
)
 
(487
)
Net cash provided by (used in) investing activities
 
(386,640
)
 
34,639

Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
234,526

 
119,651

Net decrease in sweep repurchase agreements
 
(10,481
)
 
(12,850
)
Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
962,000

 
1,319,000

Federal Reserve Bank borrowings
 
10

 
1,010

Exercise of stock options
 
603

 
519

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(826,000
)
 
(1,490,000
)
Repayment of Federal Reserve Bank borrowings
 
(10
)
 
(1,010
)
Common stock dividends
 
(43,404
)
 
(36,851
)
Preferred stock dividends
 
(77
)
 
(66
)
Repayment of other borrowings
 

 
(8,248
)
Purchase and retirement of common stock
 
(1,092
)
 
(874
)
Net cash provided by (used in) financing activities
 
316,075

 
(109,719
)
Increase (decrease) in cash and cash equivalents
 
3,086

 
(10,467
)
Cash and cash equivalents at beginning of period
 
175,302

 
188,170

Cash and cash equivalents at end of period
 
$
178,388

 
$
177,703

 
 
 
 
 

5

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Columbia Banking System, Inc.
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2016
 
2015 (1)
 
 
(in thousands)
Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
2,241

 
$
2,188

Cash paid for income tax
 
$
11,130

 
$
7,281

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
311

 
$
7,836


(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.

6

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 Columbia Trust Company (“Columbia 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, 2016 are not necessarily indicative of results to be anticipated for the year ending December 31, 2016. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2015 Annual Report on Form 10-K.
Because of reclassifications, changes occurred in the manner in which certain comparative period noninterest income items were presented in the unaudited consolidated statements of income. Specifically, fee revenue previously presented as ‘Service charges and other fees’ and certain fee revenue previously presented as ‘Other’ were reclassified to conform to the current period presentation. The Company made these presentation changes to provide additional information about its sources of noninterest income. There was no change to total noninterest income as previously reported as a result of these reclassifications.
Significant Accounting Policies
The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2015 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2015 Form 10-K disclosure for the year ended December 31, 2015.
2.
Accounting Pronouncements Recently Issued
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. The amendments included in this ASU require an entity to reflect its current estimate of all expected credit losses for assets held at an amortized cost basis. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however, this ASU will require that credit losses be presented as an allowance rather than as a write-down. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and are required to be adopted through a modified retrospective approach, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is effective. The Company is assessing the impact that this guidance will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments included in this ASU simplify several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The amendments in ASU 2016-09 are effective for the first interim or annual period beginning after December 15, 2016. Early adoption is permitted. The Company is assessing the impact that this guidance will have on its consolidated financial statements but does not expect the impact to be material.
In February 2016, the FASB issued ASU 2016-02, Leases. The amendments included in this ASU create a new accounting model for both lessees and lessors. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The amendments in ASU 2016-02 must be adopted using the modified retrospective approach and will be effective for the first interim or annual period beginning after December 15, 2018. Early adoption is permitted. The Company is assessing the impact that this guidance will have on its consolidated financial statements.

7

Table of Contents

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-01 require all equity investments to be measured at fair value with changes in the fair value recognized through net income. The amendments in ASU 2016-01 also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments in ASU 2016-01 are effective for the first interim or annual period beginning after December 15, 2017. The Company is assessing the impact that this guidance will have on its consolidated financial statements but does not expect the impact to be material.
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, 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. In March, April and May 2016, the FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, respectively, to provide implementation guidance and practical expedients related to ASU 2014-09. The Company is assessing the impact that this guidance will have on its consolidated financial statements but does not expect the impact to be material.
3. 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, 2016
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,403,591

 
$
20,196

 
$
(2,101
)
 
$
1,421,686

State and municipal securities
 
500,618

 
17,913

 
(166
)
 
518,365

U.S. government agency and government-sponsored enterprise securities
 
327,223

 
6,520

 

 
333,743

U.S. government securities
 
548

 
1

 

 
549

Other securities
 
5,284

 
64

 
(139
)
 
5,209

Total
 
$
2,237,264

 
$
44,694

 
$
(2,406
)
 
$
2,279,552

December 31, 2015
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,296,955

 
$
4,525

 
$
(14,991
)
 
$
1,286,489

State and municipal securities
 
480,417

 
12,690

 
(938
)
 
492,169

U.S. government agency and government-sponsored enterprise securities
 
354,515

 
1,113

 
(1,846
)
 
353,782

U.S. government securities
 
20,439

 

 
(302
)
 
20,137

Other securities
 
5,284

 
24

 
(191
)
 
5,117

Total
 
$
2,157,610

 
$
18,352

 
$
(18,268
)
 
$
2,157,694


8

Table of Contents

Proceeds from sales of securities available for sale were $44.5 million and $14.9 million for the three months ended June 30, 2016 and 2015, respectively, and were $83.4 million and $72.2 million for the six months ended June 30, 2016 and June 30, 2015, 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,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Gross realized gains
 
$
229

 
$
343

 
$
602

 
$
1,073

Gross realized losses
 

 

 

 
(9
)
Net realized gains
 
$
229

 
$
343

 
$
602

 
$
1,064

The scheduled contractual maturities of investment securities available for sale at June 30, 2016 are presented as follows:
 
 
June 30, 2016
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
26,674

 
$
26,827

Due after one year through five years
 
462,009

 
471,463

Due after five years through ten years
 
698,729

 
716,521

Due after ten years
 
1,044,568

 
1,059,532

Other securities with no stated maturity
 
5,284

 
5,209

Total investment securities available-for-sale
 
$
2,237,264

 
$
2,279,552

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, 2016
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
396,321

Federal Reserve Bank to secure borrowings
 
44,079

Other securities pledged
 
154,109

Total securities pledged as collateral
 
$
594,509


9

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, 2016 and December 31, 2015:
 
 
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, 2016
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
51,222

 
$
(264
)
 
$
170,543

 
$
(1,837
)
 
$
221,765

 
$
(2,101
)
State and municipal securities
 
17,512

 
(126
)
 
6,077

 
(40
)
 
23,589

 
(166
)
Other securities
 

 

 
2,816

 
(139
)
 
2,816

 
(139
)
Total
 
$
68,734

 
$
(390
)
 
$
179,436

 
$
(2,016
)
 
$
248,170

 
$
(2,406
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
664,509

 
$
(7,610
)
 
$
214,325

 
$
(7,381
)
 
$
878,834

 
$
(14,991
)
State and municipal securities
 
48,261

 
(358
)
 
31,383

 
(580
)
 
79,644

 
(938
)
U.S. government agency and government-sponsored enterprise securities
 
193,400

 
(1,128
)
 
40,034

 
(718
)
 
233,434

 
(1,846
)
U.S. government securities
 
10,343

 
(136
)
 
9,794

 
(166
)
 
20,137

 
(302
)
Other securities
 
2,300

 
(15
)
 
2,780

 
(176
)
 
5,080

 
(191
)
Total
 
$
918,813

 
$
(9,247
)
 
$
298,316

 
$
(9,021
)
 
$
1,217,129

 
$
(18,268
)
At June 30, 2016, there were 66 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 46 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, 2016.
At June 30, 2016, there were 20 state and municipal government securities in an unrealized loss position, of which 10 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, 2016, 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, 2016.
At June 30, 2016, 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 June 30, 2016 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.
4. 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.”

10

Table of Contents

The following is an analysis of the loan portfolio by segment (net of unearned income):
 
 
June 30, 2016
 
December 31, 2015
 
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
 
(in thousands)
Commercial business
 
$
2,518,682

 
$
25,545

 
$
2,544,227

 
$
2,362,575

 
$
34,848

 
$
2,397,423

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
172,957

 
20,755

 
193,712

 
176,295

 
23,938

 
200,233

Commercial and multifamily residential
 
2,651,476

 
94,564

 
2,746,040

 
2,491,736

 
99,389

 
2,591,125

Total real estate
 
2,824,433

 
115,319

 
2,939,752

 
2,668,031

 
123,327

 
2,791,358

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
129,195

 
1,642

 
130,837

 
135,874

 
2,278

 
138,152

Commercial and multifamily residential
 
185,315

 
1,602

 
186,917

 
167,413

 
1,630

 
169,043

Total real estate construction
 
314,510

 
3,244

 
317,754

 
303,287

 
3,908

 
307,195

Consumer
 
325,632

 
16,999

 
342,631

 
342,601

 
18,823

 
361,424

Less: Net unearned income
 
(37,221
)
 

 
(37,221
)
 
(42,373
)
 

 
(42,373
)
Total loans, net of unearned income
 
5,946,036

 
161,107

 
6,107,143

 
5,634,121

 
180,906

 
5,815,027

Less: Allowance for loan and lease losses
 
(57,523
)
 
(11,781
)
 
(69,304
)
 
(54,446
)
 
(13,726
)
 
(68,172
)
Total loans, net
 
$
5,888,513

 
$
149,326

 
$
6,037,839

 
$
5,579,675

 
$
167,180

 
$
5,746,855

Loans held for sale
 
$
7,649

 
$

 
$
7,649

 
$
4,509

 
$

 
$
4,509

At June 30, 2016 and December 31, 2015, 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 $10.3 million at June 30, 2016 and $10.0 million at December 31, 2015. During the first six months of 2016, there were $718 thousand in advances and $397 thousand in repayments.
At June 30, 2016 and December 31, 2015, $2.24 billion and $2.22 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 $50.8 million and $50.1 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at June 30, 2016 and December 31, 2015, respectively.

11

Table of Contents

The following is an analysis of nonaccrual loans as of June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
December 31, 2015
 
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
Secured
 
$
9,478

 
$
18,488

 
$
9,395

 
$
15,688

Unsecured
 
70

 
300

 
42

 
256

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
957

 
2,006

 
820

 
1,866

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
1,135

 
1,123

 
349

 
332

Income property
 
880

 
1,010

 
2,843

 
3,124

Owner occupied
 
5,819

 
8,331

 
6,321

 
8,943

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

 

 
362

 
385

Residential construction
 
562

 
562

 
566

 
679

Consumer
 
4,014

 
4,251

 
766

 
990

Total
 
$
22,915

 
$
36,071

 
$
21,464

 
$
32,263


12

Table of Contents

Loans, excluding purchased credit impaired loans
The following is an aging of the recorded investment of the loan portfolio as of June 30, 2016 and December 31, 2015:
 
 
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, 2016
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,403,126

 
$
3,539

 
$
1,278

 
$

 
$
4,817

 
$
9,478

 
$
2,417,421

Unsecured
 
96,789

 
31

 

 

 
31

 
70

 
96,890

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
166,399

 
2,781

 
35

 

 
2,816

 
957

 
170,172

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
233,072

 

 

 

 

 
1,135

 
234,207

Income property
 
1,365,929

 
5,298

 

 

 
5,298

 
880

 
1,372,107

Owner occupied
 
1,017,728

 
525

 
374

 

 
899

 
5,819

 
1,024,446

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
10,708

 

 

 

 

 

 
10,708

Residential construction
 
117,302

 

 

 

 

 
562

 
117,864

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
78,867

 

 

 

 

 

 
78,867

Owner occupied
 
104,896

 

 

 

 

 

 
104,896

Consumer
 
311,792

 
893

 
1,759

 

 
2,652

 
4,014

 
318,458

Total
 
$
5,906,608

 
$
13,067

 
$
3,446

 
$

 
$
16,513

 
$
22,915

 
$
5,946,036

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2015
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,241,069

 
$
11,611

 
$
617

 
$

 
$
12,228

 
$
9,395

 
$
2,262,692

Unsecured
 
94,867

 
39

 

 

 
39

 
42

 
94,948

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
170,913

 
1,637

 
66

 

 
1,703

 
820

 
173,436

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
212,740

 
69

 

 

 
69

 
349

 
213,158

Income property
 
1,305,502

 
1,750

 
684

 

 
2,434

 
2,843

 
1,310,779

Owner occupied
 
939,396

 
599

 

 

 
599

 
6,321

 
946,316

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
14,388

 

 

 

 

 
362

 
14,750

Residential construction
 
119,809

 

 

 

 

 
566

 
120,375

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
83,634

 

 

 

 

 

 
83,634

Owner occupied
 
81,671

 

 

 

 

 

 
81,671

Consumer
 
328,219

 
2,597

 
780

 

 
3,377

 
766

 
332,362

Total
 
$
5,592,208

 
$
18,302

 
$
2,147

 
$

 
$
20,449

 
$
21,464

 
$
5,634,121



13

Table of Contents

The following is an analysis of impaired loans as of June 30, 2016 and December 31, 2015:
 
 
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
 
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
 
Impaired Loans With
Recorded Allowance
 
Impaired Loans Without
Recorded Allowance
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
June 30, 2016
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,410,385

 
$
7,036

 
$
3,320

 
$
6,570

 
$
2,486

 
$
3,716

 
$
5,337

Unsecured
 
96,890

 

 

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
169,484

 
688

 
89

 
108

 
1

 
599

 
1,011

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
233,499

 
708

 

 

 

 
708

 
687

Income property
 
1,370,662

 
1,445

 
636

 
687

 
100

 
809

 
918

Owner occupied
 
1,019,219

 
5,227

 

 

 

 
5,227

 
7,664

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
10,605

 
103