COLB 09.30.14 Pub.10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014.
¨
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 issuer as specified in its charter)
 ________________________________________________________ 
Washington
 
91-1422237
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1301 “A” Street
Tacoma, Washington
 
98402-2156
(Address of principal executive offices)
 
(Zip Code)
(253) 305-1900
(Issuer’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of common stock outstanding at October 31, 2014 was 53,229,819.
 



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,
2014
 
December 31,
2013
ASSETS
 
(in thousands)
Cash and due from banks
 
$
157,817

 
$
165,030

Interest-earning deposits with banks
 
105,631

 
14,531

Total cash and cash equivalents
 
263,448

 
179,561

Securities available for sale at fair value (amortized cost of $1,609,784 and $1,680,491, respectively)
 
1,611,411

 
1,664,111

Federal Home Loan Bank stock at cost
 
31,592

 
32,529

Loans held for sale
 
949

 
735

Loans, excluding covered loans, net of unearned income of ($53,076) and ($68,282), respectively
 
4,579,178

 
4,219,451

Less: allowance for loan and lease losses
 
49,938

 
52,280

Loans, excluding covered loans, net
 
4,529,240

 
4,167,171

Covered loans, net of allowance for loan losses of ($17,933) and ($20,174), respectively
 
225,911

 
277,671

Total loans, net
 
4,755,151

 
4,444,842

FDIC loss-sharing asset
 
23,492

 
39,846

Interest receivable
 
25,294

 
22,206

Premises and equipment, net
 
152,311

 
154,732

Other real estate owned ($11,589 and $12,093 covered by FDIC loss-share, respectively)
 
21,904

 
35,927

Goodwill
 
343,952

 
343,952

Other intangible assets, net
 
21,336

 
25,852

Other assets
 
215,241

 
217,289

Total assets
 
$
7,466,081

 
$
7,161,582

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
2,352,210

 
$
2,171,703

Interest-bearing
 
3,892,191

 
3,787,772

Total deposits
 
6,244,401

 
5,959,475

Federal Home Loan Bank advances
 
6,578

 
36,606

Securities sold under agreements to repurchase
 
25,000

 
25,000

Other liabilities
 
93,891

 
87,252

Total liabilities
 
6,369,870

 
6,108,333

Commitments and contingent liabilities
 

 

Shareholders’ equity:
 
 
 
 
 
 
 
 
September 30,
2014
 
December 31,
2013
 
 
 
 
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
63,033

 
63,033

 
 
 
 
Issued and outstanding
52,649

 
51,265

 
862,912

 
860,562

Retained earnings
 
231,577

 
202,514

Accumulated other comprehensive loss
 
(495
)
 
(12,044
)
Total shareholders’ equity
 
1,096,211

 
1,053,249

Total liabilities and shareholders’ equity
 
$
7,466,081

 
$
7,161,582

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,
 
 
2014
 
2013 (1)
 
2014
 
2013 (1)
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
 
 
 
 
Loans
 
$
65,903

 
$
74,125

 
$
198,448

 
$
196,990

Taxable securities
 
8,545

 
4,935

 
21,679

 
14,059

Tax-exempt securities
 
2,624

 
2,483

 
7,913

 
7,289

Deposits in banks
 
61

 
56

 
105

 
290

Total interest income
 
77,133

 
81,599

 
228,145

 
218,628

Interest Expense
 
 
 
 
 
 
 
 
Deposits
 
713

 
929

 
2,194

 
3,072

Federal Home Loan Bank advances
 
80

 
135

 
309

 
(493
)
Prepayment charge on Federal Home Loan Bank advances
 

 

 

 
1,548

Other borrowings
 
120

 
120

 
358

 
615

Total interest expense
 
913

 
1,184

 
2,861

 
4,742

Net Interest Income
 
76,220

 
80,415

 
225,284

 
213,886

Provision for loan and lease losses
 
1,500

 
4,260

 
1,600

 
5,260

Provision (recapture) for losses on covered loans, net
 
(520
)
 
(947
)
 
3,419

 
(1,679
)
Net interest income after provision (recapture) for loan and lease losses
 
75,240

 
77,102

 
220,265

 
210,305

Noninterest Income
 
 
 
 
 
 
 
 
Service charges and other fees
 
14,254

 
13,357

 
40,980

 
34,511

Merchant services fees
 
2,104

 
2,070

 
6,014

 
5,934

Investment securities gains, net
 
33

 

 
552

 
462

Bank owned life insurance
 
956

 
904

 
2,897

 
2,610

Change in FDIC loss-sharing asset
 
(4,816
)
 
(11,826
)
 
(14,685
)
 
(35,446
)
Other
 
3,399

 
3,117

 
8,807

 
8,017

Total noninterest income
 
15,930

 
7,622

 
44,565

 
16,088

Noninterest Expense
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
32,559

 
33,287

 
94,961

 
90,597

Occupancy
 
7,445

 
9,264

 
24,276

 
21,560

Merchant processing
 
1,080

 
951

 
3,058

 
2,660

Advertising and promotion
 
1,027

 
1,165

 
2,746

 
3,195

Data processing and communications
 
4,269

 
4,285

 
11,469

 
10,503

Legal and professional fees
 
2,905

 
2,421

 
7,377

 
9,975

Taxes, licenses and fees
 
1,156

 
1,446

 
3,387

 
4,037

Regulatory premiums
 
1,195

 
1,372

 
3,444

 
3,406

Net benefit of operation of other real estate owned
 
(1,256
)
 
(777
)
 
(1,207
)
 
(6,106
)
Amortization of intangibles
 
1,456

 
1,666

 
4,516

 
4,388

Other (1)
 
8,146

 
9,634

 
21,105

 
23,052

Total noninterest expense
 
59,982

 
64,714

 
175,132

 
167,267

Income before income taxes
 
31,188

 
20,010

 
89,698

 
59,126

Income tax provision
 
9,605

 
6,734

 
27,044

 
19,083

Net Income
 
$
21,583

 
$
13,276

 
$
62,654

 
$
40,043

Earnings per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.41

 
$
0.26

 
$
1.20

 
$
0.84

Diluted
 
$
0.41

 
$
0.25

 
$
1.18

 
$
0.83

Dividends paid per common share
 
$
0.28

 
$
0.10

 
$
0.64

 
$
0.30

Weighted average number of common shares outstanding
 
52,112

 
50,834

 
51,772

 
47,032

Weighted average number of diluted common shares outstanding
 
52,516

 
52,297

 
52,479

 
47,947

__________
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to removing the separate line item for FDIC clawback liability expense within noninterest expense and including the prior period activity in the line item for other noninterest expense.

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,
 
 
2014
 
2013
 
 
(in thousands)
Net income as reported
 
$
21,583

 
$
13,276

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 $2,310 and ($3,235)
 
(4,057
)
 
5,943

Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $12 and $0
 
(21
)
 

Net unrealized gain (loss) from securities, net of reclassification adjustment
 
(4,078
)
 
5,943

Pension plan liability adjustment:
 
 
 
 
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($13) and ($33)
 
23

 
59

Pension plan liability adjustment, net
 
23

 
59

Other comprehensive income (loss)
 
(4,055
)
 
6,002

Total comprehensive income
 
$
17,528

 
$
19,278

 
 
Nine Months Ended
 
 
September 30,
 
 
2014
 
2013
 
 
(in thousands)
Net income as reported
 
$
62,654

 
$
40,043

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 ($6,731) and $12,238
 
11,830

 
(22,480
)
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $200 and $163
 
(352
)
 
(299
)
Net unrealized gain (loss) from securities, net of reclassification adjustment
 
11,478

 
(22,779
)
Pension plan liability adjustment:
 
 
 
 
Net unrealized loss from unfunded defined benefit plan liability arising during the period, net of tax of $0 and $412
 

 
(756
)
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($40) and ($98)
 
71

 
178

Pension plan liability adjustment, net
 
71

 
(578
)
Other comprehensive income (loss)
 
11,549

 
(23,357
)
Total comprehensive income
 
$
74,203

 
$
16,686

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, 2013
 

 
$

 
39,686

 
$
581,471

 
$
162,388

 
$
20,149

 
$
764,008

Net income
 

 

 

 

 
40,043

 

 
40,043

Other comprehensive loss
 

 

 

 

 

 
(23,357
)
 
(23,357
)
Issuance of preferred stock, common stock and warrants
 
9

 
2,217

 
11,380

 
273,964

 

 

 
276,181

Activity in deferred compensation plan
 

 

 

 
517

 

 

 
517

Issuance of common stock - stock option and other plans
 

 

 
68

 
1,154

 

 

 
1,154

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

 

 
153

 
1,881

 

 

 
1,881

Purchase and retirement of common stock
 

 

 
(16
)
 
(391
)
 

 

 
(391
)
Preferred dividends
 

 

 

 

 
(20
)
 

 
(20
)
Cash dividends paid on common stock
 

 

 

 

 
(14,219
)
 

 
(14,219
)
Balance at September 30, 2013
 
9

 
$
2,217

 
51,271

 
$
858,596

 
$
188,192

 
$
(3,208
)
 
$
1,045,797

Balance at January 1, 2014
 
9

 
$
2,217

 
51,265

 
$
860,562

 
$
202,514

 
$
(12,044
)
 
$
1,053,249

Net income
 

 

 

 

 
62,654

 

 
62,654

Other comprehensive income
 

 

 

 

 

 
11,549

 
11,549

Issuance of common stock - cashless exercise of warrants
 

 

 
1,140

 

 

 

 

Activity in deferred compensation plan
 

 

 

 
(1
)
 

 

 
(1
)
Issuance of common stock - stock option and other plans
 

 

 
40

 
915

 

 

 
915

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

 

 
228

 
2,041

 

 

 
2,041

Purchase and retirement of common stock
 

 

 
(24
)
 
(605
)
 

 

 
(605
)
Preferred dividends
 

 

 

 

 
(66
)
 

 
(66
)
Cash dividends paid on common stock
 

 

 

 

 
(33,525
)
 

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

 
$
2,217

 
52,649

 
$
862,912

 
$
231,577

 
$
(495
)
 
$
1,096,211


See accompanying Notes to unaudited Consolidated Financial Statements.

4

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net Income
 
$
62,654

 
$
40,043

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for loan and lease losses on noncovered and covered loans
 
5,019

 
3,581

Stock-based compensation expense
 
2,041

 
1,881

Depreciation, amortization and accretion
 
21,956

 
30,216

Investment securities gain, net
 
(552
)
 
(462
)
Net realized (gain) loss on sale of other assets
 
566

 
(107
)
Net realized gain on sale of other real estate owned
 
(4,955
)
 
(8,745
)
Net realized gain on sale of branches
 
(565
)
 

Write-down on other real estate owned
 
3,220

 
1,929

Net change in:
 
 
 
 
Loans held for sale
 
(214
)
 
1,723

Interest receivable
 
(3,092
)
 
(9,846
)
Interest payable
 
(61
)
 
(88
)
Other assets
 
(5,567
)
 
1,805

Other liabilities
 
6,749

 
(2,114
)
Net cash provided by operating activities
 
87,199

 
59,816

Cash Flows From Investing Activities
 
 
 
 
Loans originated and acquired, net of principal collected
 
(310,185
)
 
(166,905
)
Purchases of:
 
 
 
 
Securities available for sale
 
(127,728
)
 
(292,744
)
Premises and equipment
 
(10,530
)
 
(10,087
)
Proceeds from:
 
 
 
 
FDIC reimbursement on loss-sharing asset
 
4,607

 
7,871

Sales of securities available for sale
 
55,834

 
166,881

Principal repayments and maturities of securities available for sale
 
134,882

 
241,388

Sales of other assets
 
1,470

 
1,117

Sales of covered other real estate owned
 
8,161

 
19,222

Sales of other real estate and other personal property owned
 
16,527

 
10,779

Payments to FDIC related to loss-sharing asset
 
(3,384
)
 

Acquisition of intangible assets
 

 
(919
)
Net cash paid in branch sale
 
(16,788
)
 

Net cash paid in acquisition
 

 
(154,170
)
Other investing activities
 

 
(522
)
Net cash used in investing activities
 
(247,134
)
 
(178,089
)
Cash Flows From Financing Activities
 
 
 
 
Net increase in deposits
 
307,103

 
23,475

Proceeds from:
 
 
 
 
Federal Home Loan Bank advances
 
1,308,000

 
1,144,100

Federal Reserve Bank borrowings
 
800

 
50

Exercise of stock options
 
915

 
1,154

Payments for:
 
 
 
 
Repayment of Federal Home Loan Bank advances
 
(1,338,000
)
 
(1,244,000
)
Repayment of Federal Reserve Bank borrowings
 
(800
)
 
(50
)
Common stock dividends
 
(33,525
)
 
(14,219
)
Preferred stock dividends
 
(66
)
 
(20
)
Repayment of long-term subordinated debt
 

 
(51,000
)
Purchase and retirement of common stock
 
(605
)
 
(391
)
Net cash provided by (used in) financing activities
 
243,822

 
(140,901
)
Increase (Decrease) in cash and cash equivalents
 
83,887

 
(259,174
)
Cash and cash equivalents at beginning of period
 
179,561

 
513,926

Cash and cash equivalents at end of period
 
$
263,448

 
$
254,752

Supplemental Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Cash paid for interest
 
$
2,922

 
$
4,830

Cash paid for income tax
 
$
11,230

 
$
20,221

Non-cash investing and financing activities
 
 
 
 
Loans transferred to other real estate owned
 
$
8,930

 
$
17,279

Share-based consideration issued for acquisitions
 
$

 
$
276,181


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 West Coast Trust Company, Inc. (“West Coast Trust”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of results to be anticipated for the year ending December 31, 2014. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2013 Annual Report on Form 10-K.
Due to the timing of the acquisition of West Coast Bancorp (“West Coast”), our results of operations for the nine month period ended September 30, 2014 include the acquisition for the entire nine month period, however the prior year period only includes the acquisition for six months of the nine month period. See Note 3, Business Combinations, for further information regarding this acquisition.
Significant Accounting Policies
The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2013 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2013 Form 10-K disclosure for the year ended December 31, 2013.
Correction of Immaterial Error Related to Prior Periods
During the three months ended September 30, 2014, the Company made a $2.6 million adjustment which increased interest income on taxable securities as a result of identifying that the premium amortization related to the Company’s mortgage-backed securities, as calculated by a third-party provider, was not being amortized utilizing an acceptable method under accounting principles generally accepted in the United States. The adjustment reflects the one-time correction necessary to change the accounting for premium amortization to be in conformity with the interest method. Based upon an evaluation of all relevant factors, management believes the correcting adjustment did not have a material impact on the Company’s current quarter, current year-to-date, or previously reported results.
2.
Accounting Pronouncements Recently Issued
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The Update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU No. 2014-12 is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Services Period. The Update provides guidance for determining compensation cost under specific circumstances when an employee is eligible to vest in an award regardless of whether the employee is rendering service on the date the performance target is achieved. ASU 2014-12 becomes effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted. As of September 30, 2014, the Company did not have any share-based payment awards that include performance targets that could be achieved after the requisite service period. As such, the adoption of ASU No. 2014-12 is not expected to have a material impact on the Company’s consolidated financial statements.

6

Table of Contents

In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The Update changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with accounting for other repurchase agreements. Additionally, the amendment requires new disclosures on transfers accounted for as sales in transactions that are economically similar to repurchase agreements and requires increased transparency on collateral pledged in secured borrowings. The amendments in this update will be effective for the first interim or annual period beginning after December 31, 2014, with the exception of the collateral disclosures which will be effective for interim periods beginning after March 15, 2015. Early application is not permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-04 No. 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 will be effective for interim and annual periods beginning after December 15, 2016. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In April 2014, the the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Update raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. The Company is assessing the impact of the new guidance on its consolidated financial statements.
In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. The Update clarifies when a creditor would be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that all or a portion of the loan would be derecognized and the real estate property recognized. Under the guidance, a consumer loan collateralized by residential real estate should be reclassified to other real estate owned when (1) the creditor obtains legal title to the residential property or (2) the borrower conveys all interest in the property to the creditor to satisfy the loan by completing a deed in lieu of foreclosure or similar agreement. In addition, an entity is required to disclose the amount of residential real estate meeting the conditions above, and the recorded investment in consumer mortgage loans secured by residential real estate that are in the process of foreclosure. ASU 2014-04 is effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2014. Adoption of the new guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The Update provides guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments in this Update permit the reporting entity to make an accounting policy election to account for its investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the cost of the investment is amortized each reporting period in proportion to the tax credits received. Under the new guidance, classification of the amortization would change from noninterest expense to income tax expense. ASU 2014-01 is effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2014. The guidance is to be applied retrospectively to all periods presented. The Company has assessed the impact of the new guidance and determined that adopting the proportional amortization method will not have a material impact on its consolidated financial statements.
3.
Business Combinations
On April 1, 2013, the Company completed its acquisition of West Coast. The Company paid $540.8 million in total consideration to acquire 100% of the voting equity interests of West Coast. The primary reason for the acquisition was to expand the Company’s geographic footprint consistent with its ongoing growth strategy. The fair value of the net assets acquired totaled $312.4 million, including $1.88 billion of deposits, $1.41 billion of loans and $15.3 million of other intangible assets. Goodwill of $228.4 million was recorded as part of the acquisition. The goodwill is not deductible for income tax purposes.

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Table of Contents

The operating results of the Company include the operating results produced by the acquired assets and assumed liabilities for the period April 1, 2013 to September 30, 2014. Disclosure of the amount of West Coast’s revenue and net income (excluding integration costs) included in Columbia’s consolidated income statement is impracticable due to the integration of the operations and accounting for this acquisition.
For illustrative purposes only, the following table presents certain unaudited pro forma information for the nine month period ended September 30, 2013. This unaudited pro forma information was calculated as if West Coast had been acquired as of the beginning of the year prior to the acquisition. The unaudited pro forma information combines the historical results of West Coast 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 acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, Columbia expects to achieve further operating cost savings and other business synergies, including revenue growth, as a result of the acquisition which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented.
 
 
Unaudited Pro Forma
 
 
Nine Months Ended September 30,
 
 
2013
 
 
(in thousands)
Total revenues (net interest income plus noninterest income)
 
$
252,392

Net income
 
$
53,053

Earnings per share - basic
 
$
1.04

Earnings per share - diluted
 
$
1.01

In connection with the West Coast acquisition, Columbia recognized $2.8 million and $7.6 million of acquisition-related expenses for the three month periods ended September 30, 2014 and 2013, respectively, and $4.4 million and $17.6 million for the nine month periods ended September 30, 2014 and 2013, respectively. In addition, related to the recently announced acquisition of Intermountain Community Bancorp, Columbia recognized $459 thousand of acquisition-related expenses for the three month period ended September 30, 2014.
See Note 2, Business Combinations, in Item 8 of our 2013 Form 10-K for additional details related to the West Coast acquisition.

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Table of Contents

4.
Securities
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
(in thousands)
September 30, 2014
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
867,583

 
$
7,950

 
$
(13,067
)
 
$
862,466

State and municipal securities
 
376,862

 
14,101

 
(1,466
)
 
389,497

U.S. government agency and government-sponsored enterprise securities
 
339,152

 
467

 
(5,620
)
 
333,999

U.S. government securities
 
20,903

 
1

 
(600
)
 
20,304

Other securities
 
5,284

 
22

 
(161
)
 
5,145

Total
 
$
1,609,784

 
$
22,541

 
$
(20,914
)
 
$
1,611,411

December 31, 2013
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
961,442

 
$
10,640

 
$
(23,674
)
 
$
948,408

State and municipal securities
 
357,013

 
11,450

 
(3,993
)
 
364,470

U.S. government agency and government-sponsored enterprise securities
 
335,671

 
434

 
(10,066
)
 
326,039

U.S. government securities
 
21,081

 

 
(967
)
 
20,114

Other securities
 
5,284

 
27

 
(231
)
 
5,080

Total
 
$
1,680,491

 
$
22,551

 
$
(38,931
)
 
$
1,664,111

Proceeds from sales of securities available-for-sale were $25.1 million and $55.8 million for the three and nine months ended September 30, 2014, respectively. There were no proceeds from the sales of securities available for sale for the three months ended September 30, 2013. Proceeds from the sales of securities available for sale for the nine months ended September 30, 2013 were $166.9 million. 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,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in thousands)
Gross realized gains
 
$
33

 
$

 
$
552

 
$
632

Gross realized losses
 

 

 

 
(170
)
Net realized gains
 
$
33

 
$

 
$
552

 
$
462


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Table of Contents

The scheduled contractual maturities of investment securities available for sale at September 30, 2014 are presented as follows:
 
 
September 30, 2014
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
12,863

 
$
12,945

Due after one year through five years
 
357,261

 
356,376

Due after five years through ten years
 
443,780

 
443,165

Due after ten years
 
790,596

 
793,779

Other securities with no stated maturity
 
5,284

 
5,146

Total investment securities available-for-sale
 
$
1,609,784

 
$
1,611,411

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, 2014
 
 
(in thousands)
Washington and Oregon State to secure public deposits
 
$
286,337

Federal Reserve Bank to secure borrowings
 
41,352

Other securities pledged
 
44,488

Total securities pledged as collateral
 
$
372,177

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, 2014 and December 31, 2013:
 
 
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, 2014
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
162,583

 
$
(1,219
)
 
$
283,292

 
$
(11,848
)
 
$
445,875

 
$
(13,067
)
State and municipal securities
 
29,307

 
(170
)
 
52,322

 
(1,296
)
 
81,629

 
(1,466
)
U.S. government agency and government-sponsored enterprise securities
 
50,689

 
(201
)
 
231,082

 
(5,419
)
 
281,771

 
(5,620
)
U.S. government securities
 

 

 
19,253

 
(600
)
 
19,253

 
(600
)
Other securities
 

 

 
5,109

 
(161
)
 
5,109

 
(161
)
Total
 
$
242,579

 
$
(1,590
)
 
$
591,058

 
$
(19,324
)
 
$
833,637

 
$
(20,914
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
492,921

 
$
(10,991
)
 
$
121,303

 
$
(12,684
)
 
$
614,224

 
$
(23,675
)
State and municipal securities
 
112,400

 
(3,069
)
 
13,815

 
(923
)
 
126,215

 
(3,992
)
U.S. government agency and government-sponsored enterprise securities
 
260,001

 
(8,063
)
 
28,447

 
(2,003
)
 
288,448

 
(10,066
)
U.S. government securities
 
20,114

 
(967
)
 

 

 
20,114

 
(967
)
Other securities
 
2,257

 
(58
)
 
2,783

 
(173
)
 
5,040

 
(231
)
Total
 
$
887,693

 
$
(23,148
)
 
$
166,348

 
$
(15,783
)
 
$
1,054,041

 
$
(38,931
)

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Table of Contents

At September 30, 2014, there were 66 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 43 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, 2014.
At September 30, 2014, there were 74 state and municipal government securities in an unrealized loss position, of which 56 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, 2014, 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, 2014.
At September 30, 2014, there were 29 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, 20 of which were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2014.
At September 30, 2014, there were two U.S. government securities in an unrealized loss position, both of which were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2014.
At September 30, 2014, there were two other securities in an unrealized loss position, both of which were 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 these investments to be other-than-temporarily impaired at September 30, 2014 as it has the intent and ability to hold the investments for sufficient time to allow for recovery in the market value.
5.
Noncovered Loans
Noncovered loans include loans originated through our branch network and loan departments as well as acquired loans that are not subject to Federal Deposit Insurance Corporation (“FDIC”) loss-sharing agreements.

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Table of Contents

The following is an analysis of the noncovered loan portfolio by major types of loans (net of unearned income):
 
 
September 30,
2014
 
December 31,
2013
Noncovered loans:
 
(in thousands)
Commercial business
 
$
1,829,393

 
$
1,561,782

Real estate:
 
 
 
 
One-to-four family residential
 
108,743

 
108,317

Commercial and multifamily residential
 
2,144,044

 
2,080,075

Total real estate
 
2,252,787

 
2,188,392

Real estate construction:
 
 
 
 
One-to-four family residential
 
73,882

 
54,155

Commercial and multifamily residential
 
137,366

 
126,390

Total real estate construction
 
211,248

 
180,545

Consumer
 
338,826

 
357,014

Less: Net unearned income
 
(53,076
)
 
(68,282
)
Total noncovered loans, net of unearned income
 
4,579,178

 
4,219,451

Less: Allowance for loan and lease losses
 
(49,938
)
 
(52,280
)
Total noncovered loans, net
 
$
4,529,240

 
$
4,167,171

Loans held for sale
 
$
949

 
$
735

At September 30, 2014 and December 31, 2013, 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 and Oregon.
The Company has granted 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 $12.1 million at September 30, 2014 and $14.2 million at December 31, 2013. During the first nine months of 2014, advances on related party loans totaled $1.7 million and repayments totaled $3.8 million.
At September 30, 2014 and December 31, 2013, $1.04 billion and $1.08 billion of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank borrowings and additional borrowing capacity. The Company has also pledged $38.3 million and $45.2 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at September 30, 2014 and December 31, 2013, respectively.
The following is an analysis of noncovered, nonaccrual loans as of September 30, 2014 and December 31, 2013:
 
 
September 30, 2014
 
December 31, 2013
 
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
 
Recorded
Investment
Nonaccrual
Loans
 
Unpaid Principal
Balance
Nonaccrual
Loans
Noncovered loans:
 
(in thousands)
Commercial business:
 
 
 
 
 
 
 
 
Secured
 
$
11,199

 
$
16,666

 
$
12,433

 
$
19,186

Unsecured
 
291

 
301

 
176

 
202

Real estate:
 
 
 
 
 
 
 
 
One-to-four family residential
 
3,513

 
5,825

 
2,667

 
4,678

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
Commercial land
 
488

 
788

 
442

 
783

Income property
 
3,998

 
6,486

 
4,267

 
5,383

Owner occupied
 
3,982

 
6,144

 
6,334

 
7,486

Real estate construction:
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
Land and acquisition
 
573

 
1,754

 
3,246

 
6,601

Residential construction
 
458

 
1,928

 
459

 
1,928

Consumer
 
3,496

 
4,980

 
3,991

 
6,187

Total
 
$
27,998

 
$
44,872

 
$
34,015

 
$
52,434


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Table of Contents

 The following is an aging of the recorded investment of the noncovered loan portfolio as of September 30, 2014 and December 31, 2013:
 
 
 
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, 2014
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,740,253

 
$
6,484

 
$
394

 
$

 
$
6,878

 
$
11,199

 
$
1,758,330

Unsecured
 
66,057

 
334

 
20

 

 
354

 
291

 
66,702

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
103,040

 
259

 

 

 
259

 
3,513

 
106,812

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
138,874

 

 
435

 

 
435

 
488

 
139,797

Income property
 
1,201,919

 
8,517

 
90

 

 
8,607

 
3,998

 
1,214,524

Owner occupied
 
760,234

 
519

 
739

 

 
1,258

 
3,982

 
765,474

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
12,431

 

 

 

 

 
573

 
13,004

Residential construction
 
59,841

 

 

 

 

 
458

 
60,299

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
85,090

 

 

 

 

 

 
85,090

Owner occupied
 
51,420

 

 

 

 

 

 
51,420

Consumer
 
313,536

 
601

 
93

 

 
694

 
3,496

 
317,726

Total
 
$
4,532,695

 
$
16,714

 
$
1,771

 
$

 
$
18,485

 
$
27,998

 
$
4,579,178

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2013
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,457,820

 
$
12,713

 
$
681

 
$

 
$
13,394

 
$
12,433

 
$
1,483,647

Unsecured
 
72,255

 
156

 
17

 

 
173

 
176

 
72,604

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
100,591

 
1,993

 
641

 

 
2,634

 
2,667

 
105,892

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
142,034

 

 
358

 

 
358

 
442

 
142,834

Income property
 
1,138,732

 
144

 
3,289

 

 
3,433

 
4,267

 
1,146,432

Owner occupied
 
749,561

 
4,714

 

 

 
4,714

 
6,334

 
760,609

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land and acquisition
 
8,225

 
199

 

 

 
199

 
3,246

 
11,670

Residential construction
 
41,533

 

 

 

 

 
459

 
41,992

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income property
 
86,521

 

 

 

 

 

 
86,521

Owner occupied
 
38,916

 

 

 

 

 

 
38,916

Consumer
 
322,685

 
835

 
823

 

 
1,658

 
3,991

 
328,334

Total
 
$
4,158,873

 
$
20,754

 
$
5,809

 
$

 
$
26,563

 
$
34,015

 
$
4,219,451


13

Table of Contents

The following is an analysis of impaired loans as of September 30, 2014 and December 31, 2013: 
 
 
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, 2014
 
(in thousands)
Noncovered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
$
1,751,081

 
$
7,249

 
$
1,134

 
$
1,727

 
$
39

 
$
6,115

 
$
7,055

Unsecured
 
66,691

 
11

 
11

 
11

 
11

 

 

Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
104,244

 
2,568

 
428

 
469

 
124

 
2,140

 
3,585

Commercial & multifamily residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial land
 
139,709

 
88

 

 

 

 
88

 
398

Income property
 
1,207,801

 
6,723

 

<