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 March 31, 2018.
☐
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
(Registrant’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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
☒
 
Accelerated filer
 
☐
 
 
 
 
 
 
 
Non-accelerated filer
 
☐
(Do not check if a smaller reporting company)
Smaller reporting company
 
☐
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes ☐  No  ☒
The number of shares of common stock outstanding at April 30, 2018 was 73,238,908.
 


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)
 
 
 
 
 
March 31,
2018
 
December 31,
2017
ASSETS
 
(in thousands)
Cash and due from banks
 
$
206,532

 
$
244,615

Interest-earning deposits with banks
 
87,124

 
97,918

Total cash and cash equivalents
 
293,656

 
342,533

Debt securities available for sale at fair value
 
2,624,045

 
2,737,751

Equity securities at fair value
 
5,000

 
5,080

Federal Home Loan Bank stock at cost
 
11,640

 
10,440

Loans held for sale
 
4,312

 
5,766

Loans, net of unearned income
 
8,339,631

 
8,358,657

Less: allowance for loan and lease losses
 
79,827

 
75,646

Loans, net
 
8,259,804

 
8,283,011

Interest receivable
 
41,795

 
40,881

Premises and equipment, net
 
168,366

 
169,490

Other real estate owned
 
11,507

 
13,298

Goodwill
 
765,842

 
765,842

Other intangible assets, net
 
54,985

 
58,173

Other assets
 
289,684

 
284,621

Total assets
 
$
12,530,636

 
$
12,716,886

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
4,927,226

 
$
5,081,901

Interest-bearing
 
5,468,297

 
5,450,184

Total deposits
 
10,395,523

 
10,532,085

Federal Home Loan Bank advances
 
41,564

 
11,579

Securities sold under agreements to repurchase
 
24,247

 
79,059

Subordinated debentures
 
35,601

 
35,647

Junior subordinated debentures
 
—

 
8,248

Other liabilities
 
85,778

 
100,346

Total liabilities
 
10,582,713

 
10,766,964

Commitments and contingent liabilities (Note 12)
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in thousands)
 
 
 
 
Common stock (no par value)
 
 
 
 
 
 
 
Authorized shares
115,000

 
115,000

 
 
 
 
Issued and outstanding
73,240

 
73,020

 
1,634,916

 
1,634,705

Retained earnings
 
361,140

 
337,442

Accumulated other comprehensive loss
 
(48,133
)
 
(22,225
)
Total shareholders’ equity
 
1,947,923

 
1,949,922

Total liabilities and shareholders’ equity
 
$
12,530,636

 
$
12,716,886


 

See accompanying Notes to unaudited Consolidated Financial Statements.

1
Table of Contents

CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
Loans
 
$
103,027

 
$
74,120

Taxable securities
 
12,708

 
10,986

Tax-exempt securities
 
3,064

 
2,691

Deposits in banks
 
345

 
19

Total interest income
 
119,144

 
87,816

Interest Expense
 
 
 
 
Deposits
 
2,509

 
787

Federal Home Loan Bank advances
 
570

 
225

Subordinated debentures
 
468

 
—

Other borrowings
 
116

 
129

Total interest expense
 
3,663

 
1,141

Net Interest Income
 
115,481

 
86,675

Provision for loan and lease losses
 
5,852

 
2,775

Net interest income after provision for loan and lease losses
 
109,629

 
83,900

Noninterest Income
 
 
 
 
Deposit account and treasury management fees
 
8,740

 
7,287

Card revenue
 
5,813

 
5,723

Financial services and trust revenue
 
2,730

 
2,839

Loan revenue
 
3,186

 
3,593

Merchant processing revenue
 
—

 
2,019

Bank owned life insurance
 
1,426

 
1,280

Investment securities gains, net
 
22

 
—

Change in FDIC loss-sharing asset
 
—

 
(274
)
Other
 
1,226

 
2,392

Total noninterest income
 
23,143

 
24,859

Noninterest Expense
 
 
 
 
Compensation and employee benefits
 
50,570

 
40,825

Occupancy
 
10,121

 
7,191

Merchant processing expense
 
—

 
1,049

Advertising and promotion
 
1,429

 
817

Data processing
 
5,270

 
4,208

Legal and professional fees
 
3,237

 
3,369

Taxes, licenses and fees
 
1,425

 
1,241

Regulatory premiums
 
937

 
776

Net cost of operation of other real estate owned
 
1

 
152

Amortization of intangibles
 
3,188

 
1,349

Other
 
9,809

 
8,009

Total noninterest expense
 
85,987

 
68,986

Income before income taxes
 
46,785

 
39,773

Income tax provision
 
6,815

 
10,574

Net Income
 
$
39,970

 
$
29,199

Earnings per common share
 
 
 
 
Basic
 
$
0.55

 
$
0.50

Diluted
 
$
0.55

 
$
0.50

Dividends paid per common share
 
$
0.22

 
$
0.22

Weighted average number of common shares outstanding
 
72,300

 
57,388

Weighted average number of diluted common shares outstanding
 
72,305

 
57,394


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
 
 
March 31,
 
 
2018
 
2017
 
 
(in thousands)
Net income
 
$
39,970

 
$
29,199

Other comprehensive income (loss), net of tax:
 
 
 
 
Unrealized gain (loss) from securities:
 
 
 
 
Net unrealized holding gain (loss) from available for sale debt securities arising during the period, net of tax of $7,891 and ($968)
 
(26,048
)
 
1,702

Reclassification adjustment of net gain from sale of available for sale debt securities included in income, net of tax of $24 and $0
 
(78
)
 
—

Net unrealized gain (loss) from securities, net of reclassification adjustment
 
(26,126
)
 
1,702

Pension plan liability adjustment:
 
 
 
 
Reduction in unfunded defined benefit plan liability during the period, net of tax of $0 and ($2,622)
 
—

 
4,604

Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($19) and ($49)
 
61

 
87

Pension plan liability adjustment, net
 
61

 
4,691

Other comprehensive income (loss)
 
(26,065
)
 
6,393

Total comprehensive income
 
$
13,905

 
$
35,592

 
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, 2018
 
—

 
$
—

 
73,020

 
$
1,634,705

 
$
337,442

 
$
(22,225
)
 
$
1,949,922

Adjustment to opening retained earnings pursuant to adoption of ASU 2016-01
 
—

 
—

 
—

 
—

 
(203
)
 
157

 
(46
)
Net income
 
—

 
—

 
—

 
—

 
39,970

 
—

 
39,970

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(26,065
)
 
(26,065
)
Issuance of common stock - stock option and other plans
 
—

 
—

 
17

 
719

 
—

 
—

 
719

Activity in deferred compensation plan
 
—

 
—

 
—

 
3

 
—

 
—

 
3

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

 
—

 
263

 
2,064

 
—

 
—

 
2,064

Purchase and retirement of common stock
 
—

 
—

 
(60
)
 
(2,575
)
 
—

 
—

 
(2,575
)
Cash dividends paid on common stock
 
—

 
—

 
—

 
—

 
(16,069
)
 
—

 
(16,069
)
Balance at March 31, 2018
 
—

 
$
—

 
73,240

 
$
1,634,916

 
$
361,140

 
$
(48,133
)
 
$
1,947,923

Balance at January 1, 2017
 
9

 
$
2,217

 
58,042

 
$
995,837

 
$
271,957

 
$
(18,999
)
 
$
1,251,012

Adjustment to opening retained earnings pursuant to adoption of ASU 2016-09
 
—

 
—

 
—

 
184

 
(117
)
 
—

 
67

Net income
 
—

 
—

 
—

 
—

 
29,199

 
—

 
29,199

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
6,393

 
6,393

Issuance of common stock - stock option and other plans
 
—

 
—

 
28

 
1,145

 
—

 
—

 
1,145

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

 
—

 
207

 
2,358

 
—

 
—

 
2,358

Preferred stock conversion to common stock
 
(9
)
 
(2,217
)
 
102

 
2,217

 
—

 
—

 
—

Purchase and retirement of common stock
 
—

 
—

 
(50
)
 
(2,039
)
 
—

 
—

 
(2,039
)
Cash dividends paid on common stock
 
—

 
—

 
—

 
—

 
(12,792
)
 
—

 
(12,792
)
Balance at March 31, 2017
 
—

 
$
—

 
58,329

 
$
999,702

 
$
288,247

 
$
(12,606
)
 
$
1,275,343


See accompanying Notes to unaudited Consolidated Financial Statements.

4
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
39,970

 
$
29,199

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses
 
5,852

 
2,775

Stock-based compensation expense
 
2,064

 
2,358

Depreciation, amortization and accretion
 
7,618

 
6,074

Investment securities gains, net
 
(22
)
 
—

Net realized (gain) loss on sale of premises and equipment, loans held for investment and other assets
 
(630
)
 
55

Net realized loss on sale and valuation adjustments of other real estate owned
 
135

 
204

Gain on bank owned life insurance death benefit
 
—

 
(1,514
)
Originations of loans held for sale
 
(27,553
)
 
(31,295
)
Proceeds from sales of loans held for sale
 
29,007

 
33,896

Net change in:
 
 
 
 
Interest receivable
 
(914
)
 
(1,271
)
Interest payable
 
452

 
(9
)
Other assets
 
2,530

 
(650
)
Other liabilities
 
(15,014
)
 
(3,841
)
Net cash provided by operating activities
 
43,495

 
35,981

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
17,688

 
(21,936
)
Purchases of:
 
 
 
 
Debt securities available for sale
 
(27,497
)
 
(108,958
)
Premises and equipment
 
(2,099
)
 
(336
)
Federal Home Loan Bank stock
 
(45,080
)
 
(31,400
)
Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
—

 
26

Sales of debt securities available for sale
 
19,761

 
—

Principal repayments and maturities of debt securities available for sale
 
82,643

 
55,369

Sales of premises and equipment and loans held for investment
 
3,721

 
6,893

Redemption of Federal Home Loan Bank stock
 
43,880

 
31,040

Sales of other real estate and other personal property owned
 
2,062

 
1,275

Payments to FDIC related to loss-sharing asset
 
—

 
(210
)
Net cash provided by (used in) investing activities
 
95,079

 
(68,237
)
Cash Flows From Financing Activities
 
 
 
 
Net (decrease) increase in deposits
 
(136,466
)
 
29,433

Net decrease in sweep repurchase agreements
 
(54,812
)
 
(33,908
)
Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
1,127,000

 
785,000

Exercise of stock options
 
719

 
1,145

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(1,097,000
)
 
(776,000
)
Common stock dividends
 
(16,069
)
 
(12,792
)
Repayment of junior subordinated debentures
 
(8,248
)
 
—

Purchase and retirement of common stock
 
(2,575
)
 
(2,039
)
Net cash used in financing activities
 
(187,451
)
 
(9,161
)
Decrease in cash and cash equivalents
 
(48,877
)
 
(41,417
)
Cash and cash equivalents at beginning of period
 
342,533

 
224,238

Cash and cash equivalents at end of period
 
$
293,656

 
$
182,821

 
 
 
 
 

5
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
 
 
(in thousands)
Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
3,211

 
$
1,150

Cash paid for income tax
 
$
24

 
$
—

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
406

 
$
—




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, Significant Accounting Policies and Recent Developments
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 three months ended March 31, 2018 are not necessarily indicative of results to be anticipated for the year ending December 31, 2018. The accompanying interim unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2017 Annual Report on Form 10-K.
Significant Accounting Policies
The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2017 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2017 Form 10-K disclosure for the year ended December 31, 2017.
Reclassifications
Certain amounts reported in prior periods may have been reclassified in the Consolidated Financial Statements to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.
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. The Company has reclassified items in the Statement of Cash Flows for the three months ended March 31, 2017 to conform with its current presentation based on its adoption of ASU 2016-15.
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 will 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.
Currently, the Company cannot reasonably estimate the impact that adoption of ASU 2016-13 will have on its Consolidated Financial Statements; however, the impact may be significant. That assessment is based upon the fact that, unlike the incurred loss models in existing GAAP, the current expected credit loss (“CECL”) model in ASU 2016-13 does not specify a threshold for the recognition of an impairment allowance. Rather, the Company will recognize an impairment allowance equal to its estimate of lifetime expected credit losses, adjusted for prepayments, for in-scope financial instruments as of the end of the reporting period. Accordingly, the impairment allowance measured under the CECL model could increase significantly from the impairment allowance measured under the Company’s existing incurred loss model. Significant CECL implementation matters to be addressed by the Company include selecting loss estimation methodologies, identifying, sourcing and storing data, addressing data gaps, defining a reasonable and supportable forecast period, selecting historical loss information which will be reverted to, documenting the CECL estimation process, assessing the impact to internal controls over financial reporting, capital planning and seeking process approval from audit and regulatory stakeholders.

7
Table of Contents

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, initially measured as the present value of future lease payments, and corresponding right-of-use assets for all leases with lease terms greater than 12 months. This model differs from the current lease accounting model, which does not require such lease liabilities and corresponding right-of-use assets to be recorded for operating leases. 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. During 2017, the Company selected a third-party lease accounting application to assist in the implementation of this new guidance. Significant implementation matters to be addressed by the Company include assessing the impact to our internal controls over financial reporting and documenting the new lease accounting process. We do not expect a material impact to our Consolidated Statement of Income as a result of this ASU. See Note 18, “Commitments and Contingent Liabilities” to our 2017 Form 10-K, for more information regarding the minimum future payments related to our operating leases.
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 adopted the amendments of ASU 2016-01 effective January 1, 2018 and recorded a cumulative effect adjustment of $203 thousand to retained earnings related to the unrealized holding losses on equity securities with readily determinable fair value included in accumulated other comprehensive loss. The Company also added a separate line item on the Consolidated Balance Sheet for equity securities at fair value and reclassified amounts previously included in securities available for sale at fair value to conform to current period presentation. In addition, as required by the ASU, the fair value disclosure for loans is computed using an exit price notion and deposits with no stated maturity are no longer included in the fair value disclosures in Note 15.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. The guidance requires that revenue from contracts with customers be recognized when transfer of control over goods or services is passed to customers in the amount of consideration expected to be received. Subsequent Accounting Standard Updates have been issued clarifying the original pronouncement (ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20). The majority of the Company’s revenue is comprised of interest income from financial assets, which is specifically outside the scope of ASU 2014-09.
On January 1, 2018, we adopted the accounting guidance in ASU 2014-09 and all the related amendments (“Topic 606”) using the modified retrospective method for all contracts that have not been completed (i.e. open contracts). Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. There was no cumulative effect adjustment as of January 1, 2018, and there were no material changes to the timing or amount of revenue recognized for the three months ended March 31, 2018; however, additional disclosures were incorporated in the footnotes upon adoption. See Note 17, “Revenue from Contracts with Customers,” for more information.
3.
Business Combinations
On November 1, 2017, the Company completed its acquisition of Pacific Continental Corporation (“Pacific Continental”) and its wholly-owned banking subsidiary Pacific Continental Bank. The Company acquired 100% of the equity interests of Pacific Continental. The primary reasons for the acquisition were to expand in the Eugene, Oregon market and improve branch network efficiencies in the Seattle and Portland markets.
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, 2017 acquisition date. Initial accounting for deferred taxes was incomplete as of March 31, 2018. The deferred taxes currently recognized in the financial statements have been determined provisionally as the final Pacific Continental tax return has not yet been completed. The application of the acquisition method of accounting resulted in the recognition of goodwill of $383.1 million and a core deposit intangible of $46.9 million, or 2.34% 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.

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Table of Contents

The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed:
 
 
November 1, 2017
 
 
(in thousands)
Merger consideration
 
 
 
$
637,103

Identifiable net assets acquired, at fair value
 
 
 
 
Assets acquired
 
 
 
 
Cash and cash equivalents
 
$
81,190

 
 
Investment securities
 
449,291

 
 
Federal Home Loan Bank stock
 
7,084

 
 
Loans
 
1,873,987

 
 
Interest receivable
 
7,827

 
 
Premises and equipment
 
27,343

 
 
Other real estate owned
 
10,279

 
 
Core deposit intangible
 
46,875

 
 
Other assets
 
50,638

 
 
   Total assets acquired
 
 
 
2,554,514

Liabilities assumed
 
 
 
 
Deposits
 
(2,118,982
)
 
 
Federal Home Loan Bank advances
 
(101,127
)
 
 
Subordinated debentures
 
(35,678
)
 
 
Junior subordinated debentures
 
(14,434
)
 
 
Securities sold under agreements to repurchase
 
(1,617
)
 
 
Other liabilities
 
(28,653
)
 
 
Total liabilities assumed
 
 
 
(2,300,491
)
Total fair value of identifiable net assets, at fair value
 
 
 
254,023

Goodwill
 
 
 
$
383,080

See Note 8, “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, 2018 to March 31, 2018. Disclosure of the amount of Pacific Continental’s revenue and net income (excluding integration costs) included in Columbia’s Consolidated Statements of Income is impracticable due to the integration of the operations and accounting for this acquisition.

9
Table of Contents

For illustrative purposes only, the following table presents certain unaudited pro forma information for the three months ended March 31, 2017. This unaudited estimated pro forma financial information was calculated as if Pacific Continental had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of Pacific Continental with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. 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
 
 
Three Months Ended March 31,
 
 
2017

 
(in thousands except per share)
Total revenues (net interest income plus noninterest income)
 
$
139,363

Net income
 
$
37,147

Earnings per share - basic
 
$
0.52

Earnings per share - diluted
 
$
0.52

The following table shows the impact of the acquisition-related expenses related to the acquisition of Pacific Continental for the periods indicated to the various components of noninterest expense:
 
 
Three Months Ended March 31,
 
 
2018
 
2017

 
(in thousands)
Noninterest Expense
 
 
 
 
Compensation and employee benefits
 
$
1,556

 
$
—

Occupancy
 
1,004

 
1

Advertising and promotion
 
512

 
6

Data processing
 
287

 
—

Legal and professional fees
 
574

 
1,311

Other
 
332

 
46

Total impact of acquisition-related costs to noninterest expense
 
$
4,265

 
$
1,364

As a result of the acquisition of Pacific Continental, we have consolidated assets exceeding $10 billion and we will be subject to the interchange fee cap imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act beginning July 1, 2018. We currently anticipate a pre-tax annual impact of approximately $10 million because we will no longer qualify for the small issuer exemption.

10
Table of Contents

4.
Securities
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of debt securities available for sale:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
(in thousands)
March 31, 2018
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,693,149

 
$
698

 
$
(48,629
)
 
$
1,645,218

State and municipal securities
 
588,218

 
3,467

 
(8,937
)
 
582,748

U.S. government agency and government-sponsored enterprise securities
 
402,036

 
43

 
(6,247
)
 
395,832

U.S. government securities
 
251

 
—

 
(4
)
 
247

Total
 
$
2,683,654

 
$
4,208

 
$
(63,817
)
 
$
2,624,045

December 31, 2017
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,752,236

 
$
1,815

 
$
(27,326
)
 
$
1,726,725

State and municipal securities
 
593,940

 
6,023

 
(3,959
)
 
596,004

U.S. government agency and government-sponsored enterprise securities
 
416,894

 
642

 
(2,762
)
 
414,774

U.S. government securities
 
251

 
—

 
(3
)
 
248

Total
 
$
2,763,321

 
$
8,480

 
$
(34,050
)
 
$
2,737,751


The following table provides the proceeds and gross realized gains and losses on sales of debt securities available for sale as well as other securities gains and losses for the periods indicated:
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
 
 
(in thousands)
Proceeds from sales of debt securities available for sale
 
$
19,761

 
$
—

 
 
 
 
 
Gross realized gains from sales of debt securities available for sale
 
$
148

 
$
—

Gross realized losses from sales of debt securities available for sale
 
(46
)
 
—

Other securities losses, net (1)
 
(80
)
 
—

Investment securities gains, net
 
$
22

 
$
—

__________
(1) Other securities losses, net includes net unrealized loss activity associated with equity securities. There were no sales of equity securities during the periods presented.
The scheduled contractual maturities of debt securities available for sale at March 31, 2018 are presented as follows:
 
 
March 31, 2018
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
161,538

 
$
161,314

Due after one year through five years
 
635,254

 
626,693

Due after five years through ten years
 
756,950

 
737,927

Due after ten years
 
1,129,912

 
1,098,111

Total debt securities available for sale
 
$
2,683,654

 
$
2,624,045


11
Table of Contents

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:
 
 
March 31, 2018
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
246,950

Federal Reserve Bank to secure borrowings
 
52,754

Other securities pledged
 
102,363

Total securities pledged as collateral
 
$
402,067

The following table shows the gross unrealized losses and fair value of the Company’s debt securities available for sale 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 March 31, 2018 and December 31, 2017:
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands)
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
921,993

 
$
(19,073
)
 
$
681,577

 
$
(29,556
)
 
$
1,603,570

 
$
(48,629
)
State and municipal securities
 
315,392

 
(4,972
)
 
76,452

 
(3,965
)
 
391,844

 
(8,937
)
U.S. government agency and government-sponsored enterprise securities
 
251,626

 
(3,969
)
 
140,455

 
(2,278
)
 
392,081

 
(6,247
)
U.S. government securities
 
247

 
(4
)
 
—

 
—

 
247

 
(4
)
Total
 
$
1,489,258

 
$
(28,018
)
 
$
898,484

 
$
(35,799
)
 
$
2,387,742

 
$
(63,817
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
816,678

 
$
(6,710
)
 
$
717,211

 
$
(20,616
)
 
$
1,533,889

 
$
(27,326
)
State and municipal securities
 
220,019

 
(1,723
)
 
75,172

 
(2,236
)
 
295,191

 
(3,959
)
U.S. government agency and government-sponsored enterprise securities
 
184,046

 
(1,006
)
 
155,983

 
(1,756
)
 
340,029

 
(2,762
)
U.S. government securities
 
249

 
(3
)
 
—

 
—

 
249

 
(3
)
Total
 
$
1,220,992

 
$
(9,442
)
 
$
948,366

 
$
(24,608
)
 
$
2,169,358

 
$
(34,050
)
At March 31, 2018, there were 446 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 117 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 March 31, 2018.
At March 31, 2018, there were 406 state and municipal government securities in an unrealized loss position, of which 71 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 March 31, 2018, 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 March 31, 2018.

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Table of Contents

At March 31, 2018, there were 50 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, of which 16 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 March 31, 2018.
At March 31, 2018, there was one U.S. government security in an unrealized loss position, which was not 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 March 31, 2018.
5.
Loans
The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments are referred to collectively as loans, excluding purchased credit impaired loans. Purchased loans for which there was, at acquisition date, evidence of credit deterioration since their origination and it was probable that we would be unable to collect all contractually required payments are referred to as purchased credit impaired loans, or “PCI loans.”
The following is an analysis of the loan portfolio by segment (net of unearned income):
 
 
March 31, 2018
 
December 31, 2017
 
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
 
(in thousands)
Commercial business
 
$
3,402,162

 
$
13,536

 
$
3,415,698

 
$
3,377,324

 
$
12,628

 
$
3,389,952

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
182,302

 
10,684

 
192,986

 
188,396

 
12,395

 
200,791

Commercial and multifamily residential
 
3,776,709

 
73,446

 
3,850,155

 
3,825,739

 
75,594

 
3,901,333

Total real estate
 
3,959,011

 
84,130

 
4,043,141

 
4,014,135

 
87,989

 
4,102,124

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
208,441

 
171

 
208,612

 
200,518

 
177

 
200,695

Commercial and multifamily residential
 
385,339

 
611

 
385,950

 
371,931

 
607

 
372,538

Total real estate construction
 
593,780

 
782

 
594,562

 
572,449

 
784

 
573,233

Consumer
 
323,631

 
10,851

 
334,482

 
334,190

 
11,269

 
345,459

Less: Net unearned income
 
(48,252
)
 
—

 
(48,252
)
 
(52,111
)
 
—

 
(52,111
)
Total loans, net of unearned income
 
8,230,332

 
109,299

 
8,339,631

 
8,245,987

 
112,670

 
8,358,657

Less: Allowance for loan and lease losses
 
(74,162
)
 
(5,665
)
 
(79,827
)
 
(68,739
)
 
(6,907
)
 
(75,646
)
Total loans, net
 
$
8,156,170

 
$
103,634

 
$
8,259,804

 
$
8,177,248

 
$
105,763

 
$
8,283,011

Loans held for sale
 
$
4,312

 
$
—

 
$
4,312

 
$
5,766

 
$
—

 
$
5,766

At March 31, 2018 and December 31, 2017, 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.

13
Table of Contents

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 $9.9 million and $10.0 million at March 31, 2018 and December 31, 2017, respectively. During the first three months of 2018, there were no advances and $86 thousand in repayments.
At March 31, 2018 and December 31, 2017, $2.28 billion and $2.25 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 $72.5 million and $70.2 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at March 31, 2018 and December 31, 2017, respectively.
The following is an analysis of nonaccrual loans as of March 31, 2018 and December 31, 2017:
 
 
March 31, 2018
 
December 31, 2017
 
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
Secured
 
$
57,504

 
$
69,056

 
$
45,410

 
$
56,865

Unsecured
 
115

 
115

 
50

 
49

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
1,054

 
1,426

 
785

 
1,182

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
3,192

 
3,201

 
2,628

 
2,623

Income property
 
3,980

 
4,264

 
4,284

 
5,410

Owner occupied
 
7,367

 
7,621

 
7,029

 
7,270

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

 
—

 
25

 
26

Residential construction
 
1,210

 
1,210

 
1,829

 
1,828

Consumer
 
4,042

 
4,378

 
4,149

 
4,633

Total
 
$
78,464

 
$
91,271

 
$
66,189

 
$
79,886


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 March 31, 2018 and December 31, 2017:
 
 
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
March 31, 2018
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
3,189,473

 
$
16,410

 
$
2,872

 
$
—

 
$
19,282

 
$
57,504

 
$
3,266,259

Unsecured
 
119,863

 
50

 
51

 
—

 
101

 
115

 
120,079

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
179,174

 
340

 
—

 
—

 
340

 
1,054

 
180,568

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
283,973

 
2,299

 
—

 
—

 
2,299

 
3,192

 
289,464

Income property
 
1,867,450

 
1,929

 
815

 
—

 
2,744

 
3,980

 
1,874,174

Owner occupied
 
1,570,051

 
10,751

 
2,772

 
—

 
13,523

 
7,367

 
1,590,941

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
5,937

 
318

 
285

 
—

 
603

 
—

 
6,540

Residential construction
 
199,756

 
112

 
—

 
—

 
112

 
1,210

 
201,078

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
295,067

 
11,070

 
—

 
—

 
11,070

 
—

 
306,137

Owner occupied
 
73,016

 
—

 
—

 
—

 
—

 
—

 
73,016

Consumer
 
316,557

 
1,229

 
248

 
—

 
1,477

 
4,042

 
322,076

Total
 
$
8,100,317

 
$
44,508

 
$
7,043

 
$
—

 
$
51,551

 
$
78,464

 
$
8,230,332

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2017
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
3,185,321

 
$
2,530

 
$
2,400

 
$
—

 
$
4,930

 
$
45,410

 
$
3,235,661

Unsecured
 
123,524

 
100

 
501

 
—

 
601

 
50

 
124,175

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
184,256

 
1,111

 
402

 
—

 
1,513

 
785

 
186,554

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
292,680

 
92

 
—

 
581

 
673

 
2,628

 
295,981

Income property
 
1,898,655

 
2,426

 
971

 
—

 
3,397

 
4,284

 
1,906,336

Owner occupied
 
1,590,004

 
2,485

 
468

 
—

 
2,953

 
7,029

 
1,599,986

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
9,882

 
—

 
—

 
—

 
—

 
25

 
9,907

Residential construction
 
187,862

 
—

 
—

 
—

 
—

 
1,829

 
189,691

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
293,028

 
—

 
—

 
—

 
—

 
—

 
293,028

Owner occupied
 
72,443

 
—

 
—

 
—

 
—

 
—

 
72,443

Consumer
 
325,928

 
1,446

 
702

 
—

 
2,148

 
4,149

 
332,225

Total
 
$
8,163,583

 
$
10,190

 
$
5,444

 
$
581

 
$
16,215

 
$
66,189

 
$
8,245,987


15
Table of Contents

The following is an analysis of impaired loans as of March 31, 2018 and December 31, 2017:
 
 
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
March 31, 2018
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
3,221,659

 
$
44,600

 
$
13,836

 
$
18,931

 
$
5,657

 
$
30,764

 
$
33,785

Unsecured
 
120,056

 
23

 
23

 
23

 
2

 
—

 
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
179,700

 
868

 
428

 
715

 
22

 
440

 
1,017

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
286,613

 
2,851

 
—

 
—

 
—

 
2,851

 
2,860

Income property
 
1,870,614

 
3,560

 
—

 
—

 
—

 
3,560

 
3,623

Owner occupied
 
1,582,385

 
8,556

 
3,399

 
4,821

 
5

 
5,157

 
5,269

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
6,540

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
199,868

 
1,210

 
—

 
—

 
—

 
1,210

 
1,210

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
306,137

 
—

 
—