10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 2016 was 58,004,075.
 



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,
2016
 
December 31,
2015
ASSETS
 
(in thousands)
Cash and due from banks
 
$
150,683

 
$
166,929

Interest-earning deposits with banks
 
38,248

 
8,373

Total cash and cash equivalents
 
188,931

 
175,302

Securities available for sale at fair value (amortized cost of $2,156,999 and $2,157,610, respectively)
 
2,186,166

 
2,157,694

Federal Home Loan Bank stock at cost
 
10,241

 
12,722

Loans held for sale
 
3,681

 
4,509

Loans, net of unearned income of ($39,410) and ($42,373), respectively
 
5,877,283

 
5,815,027

Less: allowance for loan and lease losses
 
69,264

 
68,172

Loans, net
 
5,808,019

 
5,746,855

FDIC loss-sharing asset
 
5,954

 
6,568

Interest receivable
 
29,304

 
27,877

Premises and equipment, net
 
158,101

 
164,239

Other real estate owned
 
12,427

 
13,738

Goodwill
 
382,762

 
382,762

Other intangible assets, net
 
21,994

 
23,577

Other assets
 
228,352

 
235,854

Total assets
 
$
9,035,932

 
$
8,951,697

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
3,553,468

 
$
3,507,358

Interest-bearing
 
4,043,481

 
3,931,471

Total deposits
 
7,596,949

 
7,438,829

Federal Home Loan Bank advances
 
6,521

 
68,531

Securities sold under agreements to repurchase
 
73,839

 
99,699

Other liabilities
 
97,835

 
102,510

Total liabilities
 
7,775,144

 
7,709,569

Commitments and contingent liabilities (Note 10)
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
March 31,
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
58,008

 
57,724

 
991,026

 
990,281

Retained earnings
 
255,202

 
255,925

Accumulated other comprehensive income (loss)
 
12,343

 
(6,295
)
Total shareholders’ equity
 
1,260,788

 
1,242,128

Total liabilities and shareholders’ equity
 
$
9,035,932

 
$
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
 
 
March 31,
 
 
2016
 
2015 (1)
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
Loans
 
$
70,316

 
$
70,822

Taxable securities
 
8,017

 
7,526

Tax-exempt securities
 
2,803

 
3,042

Deposits in banks
 
38

 
27

Total interest income
 
81,174

 
81,417

Interest Expense
 
 
 
 
Deposits
 
742

 
748

Federal Home Loan Bank advances
 
124

 
159

Other borrowings
 
138

 
146

Total interest expense
 
1,004

 
1,053

Net Interest Income
 
80,170

 
80,364

Provision for loan and lease losses
 
5,254

 
1,209

Net interest income after provision for loan and lease losses
 
74,916

 
79,155

Noninterest Income
 
 
 
 
Deposit account and treasury management fees (1)
 
6,989

 
6,860

Card revenue (1)
 
5,652

 
5,363

Financial services and trust revenue (1)
 
2,821

 
3,124

Loan revenue (1)
 
2,262

 
2,603

Merchant processing revenue
 
2,102

 
2,040

Bank owned life insurance
 
1,116

 
1,078

Investment securities gains, net
 
373

 
721

Change in FDIC loss-sharing asset
 
(1,103
)
 
150

Other (1)
 
434

 
828

Total noninterest income
 
20,646

 
22,767

Noninterest Expense
 
 
 
 
Compensation and employee benefits
 
36,319

 
39,100

Occupancy
 
10,173

 
7,993

Merchant processing expense
 
1,033

 
977

Advertising and promotion
 
842

 
931

Data processing
 
4,146

 
4,984

Legal and professional fees
 
1,325

 
2,507

Taxes, licenses and fees
 
1,290

 
1,232

Regulatory premiums
 
1,141

 
1,221

Net cost (benefit) of operation of other real estate owned
 
104

 
(1,246
)
Amortization of intangibles
 
1,583

 
1,817

Other
 
7,118

 
7,218

Total noninterest expense
 
65,074

 
66,734

Income before income taxes
 
30,488

 
35,188

Income tax provision
 
9,229

 
10,827

Net Income
 
$
21,259

 
$
24,361

Earnings per common share
 
 
 
 
Basic
 
$
0.37

 
$
0.42

Diluted
 
$
0.37

 
$
0.42

Dividends paid per common share
 
$
0.38

 
$
0.30

Weighted average number of common shares outstanding
 
57,114

 
56,965

Weighted average number of diluted common shares outstanding
 
57,125

 
56,978

__________
(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
 
 
March 31,
 
 
2016
 
2015
 
 
(in thousands)
Net income
 
$
21,259

 
$
24,361

Other comprehensive income (loss), net of tax:
 
 
 
 
Unrealized gain from securities:
 
 
 
 
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($10,686) and ($5,338)
 
18,770

 
9,376

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $135 and $262
 
(238
)
 
(459
)
Net unrealized gain from securities, net of reclassification adjustment
 
18,532

 
8,917

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 ($61) and ($16)
 
106

 
28

Pension plan liability adjustment, net
 
106

 
(252
)
Other comprehensive income
 
18,638

 
8,665

Total comprehensive income
 
$
39,897

 
$
33,026

 
 
 
 
 
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
 

 

 

 

 
21,259

 

 
21,259

Other comprehensive income
 

 

 

 

 

 
18,638

 
18,638

Issuance of common stock - stock option and other plans
 

 

 
20

 
598

 

 

 
598

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

 

 
299

 
1,180

 

 

 
1,180

Purchase and retirement of common stock
 

 

 
(35
)
 
(1,033
)
 

 

 
(1,033
)
Preferred dividends
 

 

 

 

 
(39
)
 

 
(39
)
Cash dividends paid on common stock
 

 

 

 

 
(21,943
)
 

 
(21,943
)
Balance at March 31, 2016
 
9

 
$
2,217

 
58,008

 
$
991,026

 
$
255,202

 
$
12,343

 
$
1,260,788

Balance at January 1, 2015
 
9

 
$
2,217

 
57,437

 
$
985,839

 
$
234,498

 
$
5,621

 
$
1,228,175

Net income
 

 

 

 

 
24,361

 

 
24,361

Other comprehensive income
 

 

 

 

 

 
8,665

 
8,665

Issuance of common stock - stock option and other plans
 

 

 
17

 
428

 

 

 
428

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

 

 
273

 
862

 

 

 
862

Purchase and retirement of common stock
 

 

 
(28
)
 
(781
)
 

 

 
(781
)
Preferred dividends
 

 

 

 

 
(31
)
 

 
(31
)
Cash dividends paid on common stock
 

 

 

 

 
(17,236
)
 

 
(17,236
)
Balance at March 31, 2015
 
9

 
$
2,217

 
57,699

 
$
986,348

 
$
241,592

 
$
14,286

 
$
1,244,443


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,
 
 
2016
 
2015 (1)
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
21,259

 
$
24,361

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses
 
5,254

 
1,209

Stock-based compensation expense
 
1,180

 
862

Depreciation, amortization and accretion
 
10,798

 
7,735

Investment securities gain, net
 
(373
)
 
(721
)
Net realized (gain) loss on sale of other assets
 
106

 
(306
)
Net realized (gain) loss on sale and valuation adjustments of other real estate owned (1)
 
90

 
(1,539
)
Originations of loans held for sale (1)
 
(19,174
)
 
(14,890
)
Proceeds from sales of loans held for sale (1)
 
20,002

 
12,461

Net change in:
 
 
 
 
Interest receivable
 
(1,427
)
 
(1,286
)
Interest payable
 
(55
)
 
(79
)
Other assets
 
(3,731
)
 
(4,531
)
Other liabilities
 
(4,619
)
 
3,680

Net cash provided by operating activities
 
29,310

 
26,956

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(64,056
)
 
(12,443
)
Purchases of:
 
 
 
 
Securities available for sale
 
(95,686
)
 
(11,362
)
Premises and equipment
 
(445
)
 
(4,032
)
Federal Home Loan Bank stock
 
(10,520
)
 

Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
258

 
1,138

Sales of securities available for sale
 
38,876

 
57,243

Principal repayments and maturities of securities available for sale
 
52,422

 
54,451

Sales of premises and equipment and loans held for investment
 
1,911

 
7,384

Redemption of Federal Home Loan Bank stock (1)
 
13,001

 
361

Sales of other real estate and other personal property owned (1)
 
1,326

 
5,067

Payments to FDIC related to loss-sharing asset
 
(611
)
 
(479
)
Net cash provided by (used in) investing activities
 
(63,524
)
 
97,328

Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
158,120

 
150,243

Net decrease in sweep repurchase agreements
 
(25,860
)
 
(8,228
)
Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
165,000

 
624,000

Exercise of stock options
 
598

 
428

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(227,000
)
 
(804,000
)
Common stock dividends
 
(21,943
)
 
(17,236
)
Preferred stock dividends
 
(39
)
 
(31
)
Repayment of other borrowings
 

 
(8,248
)
Purchase and retirement of common stock
 
(1,033
)
 
(781
)
Net cash provided by (used in) financing activities
 
47,843

 
(63,853
)
Increase in cash and cash equivalents
 
13,629

 
60,431

Cash and cash equivalents at beginning of period
 
175,302

 
188,170

Cash and cash equivalents at end of period
 
$
188,931

 
$
248,601

 
 
 
 
 
Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
1,059

 
$
1,132

Cash paid for income tax
 
$
6,350

 
$
13

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
105

 
$
4,692


(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.

5

Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
1.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of Columbia Banking System, Inc. (“we”, “our”, “Columbia” or the “Company”) and its subsidiaries, including its wholly owned banking subsidiary Columbia State Bank (“Columbia Bank” or the “Bank”) and 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, 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 March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 as well as whether to early adopt this ASU.
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.
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.

6

Table of Contents

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 2016, the FASB issued ASU 2016-08 and ASU 2016-10 to provide implementation guidance for 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)
March 31, 2016
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,319,714

 
$
14,247

 
$
(3,861
)
 
$
1,330,100

State and municipal securities
 
477,544

 
14,257

 
(414
)
 
491,387

U.S. government agency and government-sponsored enterprise securities
 
353,910

 
5,031

 

 
358,941

U.S. government securities
 
547

 

 

 
547

Other securities
 
5,284

 
53

 
(146
)
 
5,191

Total
 
$
2,156,999

 
$
33,588

 
$
(4,421
)
 
$
2,186,166

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

Proceeds from sales of securities available for sale were $38.9 million and $57.2 million for the three months ended March 31, 2016 and 2015, respectively. The following table provides the gross realized gains and losses on the sales of securities for the periods indicated:
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
 
(in thousands)
Gross realized gains
 
$
373

 
$
730

Gross realized losses
 

 
(9
)
Net realized gains
 
$
373

 
$
721


7

Table of Contents

The scheduled contractual maturities of investment securities available for sale at March 31, 2016 are presented as follows:
 
 
March 31, 2016
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
39,056

 
$
39,243

Due after one year through five years
 
435,423

 
440,733

Due after five years through ten years
 
711,190

 
723,977

Due after ten years
 
966,046

 
977,022

Other securities with no stated maturity
 
5,284

 
5,191

Total investment securities available-for-sale
 
$
2,156,999

 
$
2,186,166

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, 2016
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
339,424

Federal Reserve Bank to secure borrowings
 
48,879

Other securities pledged
 
156,551

Total securities pledged as collateral
 
$
544,854

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 March 31, 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)
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
95,313

 
$
(533
)
 
$
190,975

 
$
(3,328
)
 
$
286,288

 
$
(3,861
)
State and municipal securities
 
25,702

 
(125
)
 
19,010

 
(289
)
 
44,712

 
(414
)
U.S. government agency and government-sponsored enterprise securities
 
4,063

 

 
500

 

 
4,563

 

Other securities
 

 

 
2,810

 
(146
)
 
2,810

 
(146
)
Total
 
$
125,078

 
$
(658
)
 
$
213,295

 
$
(3,763
)
 
$
338,373

 
$
(4,421
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)

8

Table of Contents

At March 31, 2016, there were 74 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 45 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, 2016.
At March 31, 2016, there were 40 state and municipal government securities in an unrealized loss position, of which 20 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, 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 March 31, 2016.
At March 31, 2016, there were two U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, of which one 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 March 31, 2016.
At March 31, 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 March 31, 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.”

9

Table of Contents

The following is an analysis of the loan portfolio by segment (net of unearned income):
 
 
March 31, 2016
 
December 31, 2015
 
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
Loans, excluding PCI loans
 
PCI Loans
 
Total
 
 
(in thousands)
Commercial business
 
$
2,401,193

 
$
34,474

 
$
2,435,667

 
$
2,362,575

 
$
34,848

 
$
2,397,423

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
175,050

 
22,720

 
197,770

 
176,295

 
23,938

 
200,233

Commercial and multifamily residential
 
2,520,352

 
93,979

 
2,614,331

 
2,491,736

 
99,389

 
2,591,125

Total real estate
 
2,695,402

 
116,699

 
2,812,101

 
2,668,031

 
123,327

 
2,791,358

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
133,447

 
2,163

 
135,610

 
135,874

 
2,278

 
138,152

Commercial and multifamily residential
 
183,548

 
1,618

 
185,166

 
167,413

 
1,630

 
169,043

Total real estate construction
 
316,995

 
3,781

 
320,776

 
303,287

 
3,908

 
307,195

Consumer
 
329,902

 
18,247

 
348,149

 
342,601

 
18,823

 
361,424

Less: Net unearned income
 
(39,410
)
 

 
(39,410
)
 
(42,373
)
 

 
(42,373
)
Total loans, net of unearned income
 
5,704,082

 
173,201

 
5,877,283

 
5,634,121

 
180,906

 
5,815,027

Less: Allowance for loan and lease losses
 
(56,200
)
 
(13,064
)
 
(69,264
)
 
(54,446
)
 
(13,726
)
 
(68,172
)
Total loans, net
 
$
5,647,882

 
$
160,137

 
$
5,808,019

 
$
5,579,675

 
$
167,180

 
$
5,746,855

Loans held for sale
 
$
3,681

 
$

 
$
3,681

 
$
4,509

 
$

 
$
4,509

At March 31, 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 $9.9 million at March 31, 2016 and $10.0 million at December 31, 2015. During the first three months of 2016, there were $55 thousand in advances and $96 thousand in repayments.
At March 31, 2016 and December 31, 2015, $2.21 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 $50.2 million and $50.1 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at March 31, 2016 and December 31, 2015, respectively.

10

Table of Contents

The following is an analysis of nonaccrual loans as of March 31, 2016 and December 31, 2015:
 
 
March 31, 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
 
$
22,452

 
$
31,039

 
$
9,395

 
$
15,688

Unsecured
 
107

 
331

 
42

 
256

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
730

 
1,702

 
820

 
1,866

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
238

 
247

 
349

 
332

Income property
 
2,897

 
3,185

 
2,843

 
3,124

Owner occupied
 
4,982

 
7,473

 
6,321

 
8,943

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
Land and acquisition
 
205

 
231

 
362

 
385

Residential construction
 
563

 
563

 
566

 
679

Consumer
 
4,717

 
4,985

 
766

 
990

Total
 
$
36,891

 
$
49,756

 
$
21,464

 
$
32,263


11

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, 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
March 31, 2016
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,277,121

 
$
4,148

 
$
311

 
$

 
$
4,459

 
$
22,452

 
$
2,304,032

Unsecured
 
91,785

 
684

 

 

 
684

 
107

 
92,576

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
170,846

 
686

 
62

 

 
748

 
730

 
172,324

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
218,925

 

 

 

 

 
238

 
219,163

Income property
 
1,321,566

 

 

 

 

 
2,897

 
1,324,463

Owner occupied
 
946,635

 
4,577

 

 

 
4,577

 
4,982

 
956,194

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
12,915

 

 

 

 

 
205

 
13,120

Residential construction
 
119,125

 

 

 

 

 
563

 
119,688

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
86,584

 

 

 

 

 

 
86,584

Owner occupied
 
94,743

 

 

 

 

 

 
94,743

Consumer
 
314,197

 
1,541

 
740

 

 
2,281

 
4,717

 
321,195

Total
 
$
5,654,442

 
$
11,636

 
$
1,113

 
$

 
$
12,749

 
$
36,891

 
$
5,704,082

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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



12

Table of Contents

The following is an analysis of impaired loans as of March 31, 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
March 31, 2016
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,285,351

 
$
18,681

 
$
11,861

 
$
11,996

 
$
2,500

 
$
6,820

 
$
12,314

Unsecured
 
92,576

 

 

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
171,660

 
664

 

 

 

 
664

 
1,093

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
219,163

 

 

 

 

 

 

Income property
 
1,322,410

 
2,053

 

 

 

 
2,053

 
2,257

Owner occupied
 
951,216

 
4,978

 

 

 

 
4,978

 
7,390

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
12,810

 
310

 

 

 

 
310

 
334

Residential construction
 
119,126

 
562

 

 

 

 
562

 
562

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
86,584

 

 

 

 

 

 

Owner occupied
 
94,743

 

 

 

 

 

 

Consumer
 
319,628

 
1,567

 
15

 
15

 
15

 
1,552

 
1,634

Total
 
$
5,675,267

 
$
28,815

 
$
11,876

 
$
12,011

 
$
2,515

 
$
16,939

 
$
25,584

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
December 31, 2015
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
2,257,168

 
$
5,524

 
$
690

 
$
718

 
$
321

 
$
4,834

 
$
6,455

Unsecured
 
94,948

 

 

 

 

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
172,150

 
1,286

 
314

 
339

 
314

 
972

 
1,397

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
213,158

 

 

 

 

 

 

Income property
 
1,308,673

 
2,106

 

 

 

 
2,106

 
2,311

Owner occupied
 
940,261

 
6,055

 

 

 

 
6,055

 
8,528

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
14,283

 
467

 

 

 

 
467