Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
________________________________________________________ 
(Mark One)
☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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  ☒    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  ☒    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
 
☒
 
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  ☒
The number of shares of common stock outstanding at October 31, 2016 was 58,042,207.
 


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,
2016
 
December 31,
2015
ASSETS
 
(in thousands)
Cash and due from banks
 
$
180,839

 
$
166,929

Interest-earning deposits with banks
 
11,225

 
8,373

Total cash and cash equivalents
 
192,064

 
175,302

Securities available for sale at fair value (amortized cost of $2,324,721 and $2,157,610, respectively)
 
2,360,084

 
2,157,694

Federal Home Loan Bank stock at cost
 
12,640

 
12,722

Loans held for sale
 
3,361

 
4,509

Loans, net of unearned income of ($36,236) and ($42,373), respectively
 
6,259,757

 
5,815,027

Less: allowance for loan and lease losses
 
70,264

 
68,172

Loans, net
 
6,189,493

 
5,746,855

FDIC loss-sharing asset
 
3,592

 
6,568

Interest receivable
 
31,606

 
27,877

Premises and equipment, net
 
152,908

 
164,239

Other real estate owned
 
8,994

 
13,738

Goodwill
 
382,762

 
382,762

Other intangible assets, net
 
19,051

 
23,577

Other assets
 
230,199

 
235,854

Total assets
 
$
9,586,754

 
$
8,951,697

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
3,942,434

 
$
3,507,358

Interest-bearing
 
4,115,382

 
3,931,471

Total deposits
 
8,057,816

 
7,438,829

Federal Home Loan Bank advances
 
66,502

 
68,531

Securities sold under agreements to repurchase
 
69,189

 
99,699

Other liabilities
 
116,512

 
102,510

Total liabilities
 
8,310,019

 
7,709,569

Commitments and contingent liabilities (Note 10)
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
September 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
58,043

 
57,724

 
994,098

 
990,281

Retained earnings
 
263,915

 
255,925

Accumulated other comprehensive income (loss)
 
16,505

 
(6,295
)
Total shareholders’ equity
 
1,276,735

 
1,242,128

Total liabilities and shareholders’ equity
 
$
9,586,754

 
$
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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015 (1)
 
2016
 
2015 (1)
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
74,956

 
$
72,242

 
$
216,923

 
$
214,808

Taxable securities
 
8,988

 
7,472

 
25,834

 
22,258

Tax-exempt securities
 
2,799

 
2,920

 
8,397

 
8,972

Deposits in banks
 
15

 
31

 
81

 
84

Total interest income
 
86,758

 
82,665

 
251,235

 
246,122

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
823

 
756

 
2,352

 
2,244

Federal Home Loan Bank advances
 
229

 
78

 
594

 
391

Other borrowings
 
134

 
137

 
407

 
419

Total interest expense
 
1,186

 
971

 
3,353

 
3,054

Net Interest Income
 
85,572

 
81,694

 
247,882

 
243,068

Provision for loan and lease losses
 
1,866

 
2,831

 
10,760

 
6,242

Net interest income after provision for loan and lease losses
 
83,706

 
78,863

 
237,122

 
236,826

Noninterest Income
 
 
 
 
 
 
 
 
Deposit account and treasury management fees (1)
 
7,222

 
7,230

 
21,304

 
21,441

Card revenue (1)
 
6,114

 
5,849

 
17,817

 
16,914

Financial services and trust revenue (1)
 
2,746

 
3,316

 
8,347

 
9,657

Loan revenue (1)
 
2,949

 
3,200

 
8,013

 
8,125

Merchant processing revenue
 
2,352

 
2,422

 
6,726

 
6,802

Bank owned life insurance
 
1,073

 
1,086

 
3,459

 
3,370

Investment securities gains, net
 
572

 
236

 
1,174

 
1,300

Change in FDIC loss-sharing asset
 
(104
)
 
(1,635
)
 
(2,197
)
 
(2,979
)
Other (1)
 
242

 
795

 
1,109

 
2,098

Total noninterest income
 
23,166

 
22,499

 
65,752

 
66,728

Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
38,476

 
35,175

 
112,086

 
112,721

Occupancy
 
8,219

 
8,101

 
26,044

 
24,781

Merchant processing expense
 
1,161

 
1,090

 
3,312

 
3,146

Advertising and promotion
 
1,993

 
1,354

 
3,878

 
3,480

Data processing
 
4,275

 
3,796

 
12,350

 
13,022

Legal and professional fees
 
2,264

 
2,173

 
5,366

 
7,527

Taxes, licenses and fees
 
1,491

 
1,344

 
4,079

 
4,003

Regulatory premiums
 
776

 
1,084

 
2,985

 
3,626

Net cost (benefit) of operation of other real estate owned
 
(249
)
 
240

 
(61
)
 
(1,569
)
Amortization of intangibles
 
1,460

 
1,695

 
4,526

 
5,230

Other
 
7,398

 
8,015

 
21,563

 
23,305

Total noninterest expense
 
67,264

 
64,067

 
196,128

 
199,272

Income before income taxes
 
39,608

 
37,295

 
106,746

 
104,282

Income tax provision
 
12,124

 
11,515

 
32,598

 
32,195

Net Income
 
$
27,484

 
$
25,780

 
$
74,148

 
$
72,087

Earnings per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.47

 
$
0.45

 
$
1.28

 
$
1.25

Diluted
 
$
0.47

 
$
0.45

 
$
1.28

 
$
1.25

Dividends paid per common share
 
$
0.39

 
$
0.34

 
$
1.14

 
$
0.98

Weighted average number of common shares outstanding
 
57,215

 
57,051

 
57,173

 
57,007

Weighted average number of diluted common shares outstanding
 
57,225

 
57,064

 
57,183

 
57,021

__________
(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
 
 
September 30,
 
 
2016
 
2015
 
 
(in thousands)
Net income
 
$
27,484

 
$
25,780

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 $2,305 and ($5,765)
 
(4,049
)
 
10,126

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $208 and $85
 
(364
)
 
(151
)
Net unrealized gain (loss) from securities, net of reclassification adjustment
 
(4,413
)
 
9,975

Pension plan liability adjustment:
 
 
 
 
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($60) and ($35)
 
107

 
62

Pension plan liability adjustment, net
 
107

 
62

Other comprehensive income (loss)
 
(4,306
)
 
10,037

Total comprehensive income
 
$
23,178

 
$
35,817

 
 
Nine Months Ended
 
 
September 30,
 
 
2016
 
2015
 
 
(in thousands)
Net income
 
$
74,148

 
$
72,087

Other comprehensive income (loss), net of tax:
 
 
 
 
Unrealized gain (loss) from securities:
 
 
 
 
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($13,225) and ($4,647)
 
23,229

 
8,161

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $426 and $471
 
(748
)
 
(829
)
Net unrealized gain from securities, net of reclassification adjustment
 
22,481

 
7,332

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 ($182) and ($87)
 
319

 
153

Pension plan liability adjustment, net
 
319

 
(127
)
Other comprehensive income
 
22,800

 
7,205

Total comprehensive income
 
$
96,948

 
$
79,292

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
 
—

 
—

 
—

 
—

 
74,148

 
—

 
74,148

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
22,800

 
22,800

Issuance of common stock - stock option and other plans
 
—

 
—

 
47

 
1,304

 
—

 
—

 
1,304

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

 
—

 
310

 
3,626

 
—

 
—

 
3,626

Purchase and retirement of common stock
 
—

 
—

 
(38
)
 
(1,113
)
 
—

 
—

 
(1,113
)
Preferred dividends
 
—

 
—

 
—

 
—

 
(117
)
 
—

 
(117
)
Cash dividends paid on common stock
 
—

 
—

 
—

 
—

 
(66,041
)
 
—

 
(66,041
)
Balance at September 30, 2016
 
9

 
$
2,217

 
58,043

 
$
994,098

 
$
263,915

 
$
16,505

 
$
1,276,735

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


See accompanying Notes to unaudited Consolidated Financial Statements.

4
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
74,148

 
$
72,087

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses
 
10,760

 
6,242

Stock-based compensation expense
 
3,626

 
2,934

Depreciation, amortization and accretion
 
27,796

 
21,892

Investment securities gain, net
 
(1,174
)
 
(1,300
)
Net realized (gain) loss on sale of other assets
 
186

 
(241
)
Net realized (gain) loss on sale and valuation adjustments of other real estate owned (1)
 
101

 
(1,798
)
Originations of loans held for sale
 
(76,645
)
 
(57,249
)
Proceeds from sales of loans held for sale (1)
 
77,793

 
51,728

Net change in:
 
 
 
 
Interest receivable
 
(3,729
)
 
(2,684
)
Interest payable
 
(84
)
 
(136
)
Other assets
 
(7,714
)
 
(1,618
)
Other liabilities
 
13,416

 
11,012

Net cash provided by operating activities
 
118,480

 
100,869

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(450,914
)
 
(314,768
)
Purchases of:
 
 
 
 
Securities available for sale
 
(502,602
)
 
(218,734
)
Premises and equipment
 
(2,705
)
 
(7,351
)
Federal Home Loan Bank stock
 
(57,799
)
 
(7,360
)
Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
878

 
4,195

Sales of securities available for sale
 
120,800

 
82,776

Principal repayments and maturities of securities available for sale
 
199,677

 
204,322

Sales of premises and equipment and loans held for investment (1)
 
7,391

 
14,132

Redemption of Federal Home Loan Bank stock (1)
 
57,881

 
30,483

Sales of other real estate and other personal property owned
 
5,845

 
13,254

Payments to FDIC related to loss-sharing asset
 
(855
)
 
(1,472
)
Net cash used in investing activities
 
(622,403
)
 
(200,523
)
Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
619,162

 
390,083

Net decrease in sweep repurchase agreements
 
(30,510
)
 
(31,898
)
Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
1,347,000

 
1,467,000

Federal Reserve Bank borrowings
 
10

 
1,010

Exercise of stock options
 
1,304

 
1,194

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(1,349,000
)
 
(1,677,000
)
Repayment of Federal Reserve Bank borrowings
 
(10
)
 
(1,010
)
Common stock dividends
 
(66,041
)
 
(56,480
)
Preferred stock dividends
 
(117
)
 
(100
)
Repayment of other borrowings
 
—

 
(8,248
)
Purchase and retirement of common stock
 
(1,113
)
 
(879
)
Net cash provided by financing activities
 
520,685

 
83,672

Increase (decrease) in cash and cash equivalents
 
16,762

 
(15,982
)
Cash and cash equivalents at beginning of period
 
175,302

 
188,170

Cash and cash equivalents at end of period
 
$
192,064

 
$
172,188

 
 
 
 
 

5
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CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Columbia Banking System, Inc.
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015 (1)
 
 
(in thousands)
Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
3,437

 
$
3,190

Cash paid for income tax
 
$
20,825

 
$
19,054

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
1,202

 
$
8,751


(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 nine months ended September 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 August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU provide specific guidance on several statement of cash flow classification issues to reduce diversity in practice. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact that this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued 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.

7
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Early adoption is permitted. The Company is assessing the impact that this guidance will have on its consolidated financial statements.
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 will replace most existing revenue recognition guidance in GAAP when it becomes effective. 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)
September 30, 2016
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,498,158

 
$
17,148

 
$
(2,382
)
 
$
1,512,924

State and municipal securities
 
487,308

 
16,192

 
(382
)
 
503,118

U.S. government agency and government-sponsored enterprise securities
 
333,423

 
5,009

 
(140
)
 
338,292

U.S. government securities
 
548

 
—

 
—

 
548

Other securities
 
5,284

 
64

 
(146
)
 
5,202

Total
 
$
2,324,721

 
$
38,413

 
$
(3,050
)
 
$
2,360,084

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 $37.4 million and $10.6 million for the three months ended September 30, 2016 and 2015, respectively, and were $120.8 million and $82.8 million for the nine months ended September 30, 2016 and September 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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Gross realized gains
 
$
572

 
$
236

 
$
1,174

 
$
1,310

Gross realized losses
 
—

 
—

 
—

 
(10
)
Net realized gains
 
$
572

 
$
236

 
$
1,174

 
$
1,300

The scheduled contractual maturities of investment securities available for sale at September 30, 2016 are presented as follows:
 
 
September 30, 2016
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
28,765

 
$
28,874

Due after one year through five years
 
484,206

 
493,479

Due after five years through ten years
 
688,715

 
703,388

Due after ten years
 
1,117,751

 
1,129,141

Other securities with no stated maturity
 
5,284

 
5,202

Total investment securities available-for-sale
 
$
2,324,721

 
$
2,360,084

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, 2016
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
235,931

Federal Reserve Bank to secure borrowings
 
40,877

Other securities pledged
 
147,336

Total securities pledged as collateral
 
$
424,144


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 September 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)
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
176,508

 
$
(548
)
 
$
163,859

 
$
(1,834
)
 
$
340,367

 
$
(2,382
)
State and municipal securities
 
35,915

 
(337
)
 
3,489

 
(45
)
 
39,404

 
(382
)
U.S. government agency and government-sponsored enterprise securities
 
22,115

 
(140
)
 
—

 
—

 
22,115

 
(140
)
Other securities
 
—

 
—

 
2,810

 
(146
)
 
2,810

 
(146
)
Total
 
$
234,538

 
$
(1,025
)
 
$
170,158

 
$
(2,025
)
 
$
404,696

 
$
(3,050
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2016, there were 83 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 September 30, 2016.
At September 30, 2016, there were 35 state and municipal government securities in an unrealized loss position, of which five 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, 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 September 30, 2016.
At September 30, 2016, there were five U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, of which none 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 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, 2016.
At September 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 September 30, 2016 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.

10
Table of Contents

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.”
The following is an analysis of the loan portfolio by segment (net of unearned income):
 
 
September 30, 2016
 
December 31, 2015
 
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
 
(in thousands)
Commercial business
 
$
2,630,017

 
$
22,558

 
$
2,652,575

 
$
2,362,575

 
$
34,848

 
$
2,397,423

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
168,511

 
19,378

 
187,889

 
176,295

 
23,938

 
200,233

Commercial and multifamily residential
 
2,686,783

 
92,617

 
2,779,400

 
2,491,736

 
99,389

 
2,591,125

Total real estate
 
2,855,294

 
111,995

 
2,967,289

 
2,668,031

 
123,327

 
2,791,358

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
130,163

 
867

 
131,030

 
135,874

 
2,278

 
138,152

Commercial and multifamily residential
 
202,014

 
1,583

 
203,597

 
167,413

 
1,630

 
169,043

Total real estate construction
 
332,177

 
2,450

 
334,627

 
303,287

 
3,908

 
307,195

Consumer
 
325,741

 
15,761

 
341,502

 
342,601

 
18,823

 
361,424

Less: Net unearned income
 
(36,236
)
 
—

 
(36,236
)
 
(42,373
)
 
—

 
(42,373
)
Total loans, net of unearned income
 
6,106,993

 
152,764

 
6,259,757

 
5,634,121

 
180,906

 
5,815,027

Less: Allowance for loan and lease losses
 
(58,762
)
 
(11,502
)
 
(70,264
)
 
(54,446
)
 
(13,726
)
 
(68,172
)
Total loans, net
 
$
6,048,231

 
$
141,262

 
$
6,189,493

 
$
5,579,675

 
$
167,180

 
$
5,746,855

Loans held for sale
 
$
3,361

 
$
—

 
$
3,361

 
$
4,509

 
$
—

 
$
4,509

At September 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 $10.1 million at September 30, 2016 and $10.0 million at December 31, 2015. During the first nine months of 2016, there were $759 thousand in advances and $652 thousand in repayments.
At September 30, 2016 and December 31, 2015, $2.30 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 $50.0 million and $50.1 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at September 30, 2016 and December 31, 2015, respectively.

11
Table of Contents

The following is an analysis of nonaccrual loans as of September 30, 2016 and December 31, 2015:
 
 
September 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
 
$
9,466

 
$
19,689

 
$
9,395

 
$
15,688

Unsecured
 
36

 
216

 
42

 
256

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
579

 
1,303

 
820

 
1,866

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
934

 
922

 
349

 
332

Income property
 
1,957

 
2,177

 
2,843

 
3,124

Owner occupied
 
4,161

 
6,842

 
6,321

 
8,943

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

 
—

 
362

 
385

Residential construction
 
461

 
461

 
566

 
679

Consumer
 
3,772

 
4,042

 
766

 
990

Total
 
$
21,366

 
$
35,652

 
$
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 September 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
September 30, 2016
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,515,042

 
$
2,542

 
$
609

 
$
—

 
$
3,151

 
$
9,466

 
$
2,527,659

Unsecured
 
97,496

 
5

 
—

 
—

 
5

 
36

 
97,537

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
164,927

 
400

 
34

 
—

 
434

 
579

 
165,940

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
238,887

 
—

 
200

 
—

 
200

 
934

 
240,021

Income property
 
1,376,735

 
90

 
—

 
—

 
90

 
1,957

 
1,378,782

Owner occupied
 
1,043,376

 
58

 
—

 
—

 
58

 
4,161

 
1,047,595

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
11,933

 
119

 
—

 
—

 
119

 
—

 
12,052

Residential construction
 
116,327

 
213

 
305

 
—

 
518

 
461

 
117,306

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
89,373

 
—

 
—

 
—

 
—

 
—

 
89,373

Owner occupied
 
110,853

 
—

 
—

 
—

 
—

 
—

 
110,853

Consumer
 
314,581

 
649

 
873

 
—

 
1,522

 
3,772

 
319,875

Total
 
$
6,079,530

 
$
4,076

 
$
2,021

 
$
—

 
$
6,097

 
$
21,366

 
$
6,106,993

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 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
September 30, 2016
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,520,876

 
$
6,783

 
$
1,208

 
$
1,277

 
$
873

 
$
5,575

 
$
11,840

Unsecured
 
97,537

 
—

 
—

 
—

 
—

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
165,394

 
546

 
358

 
591

 
353

 
188

 
402

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
239,313

 
708

 
—

 
—

 
—

 
708

 
687

Income property
 
1,376,349

 
2,433

 
546

 
551

 
28

 
1,887

 
2,124

Owner occupied
 
1,043,849

 
3,746

 
—

 
—

 
—

 
3,746

 
6,340

Real estate construction: