2014 Annual Report
1301 A Street, Tacoma, WA 98402
253-305-1900 / 800-305-1905
ColumbiaBank.com
Member FDIC
Building the Premier
Pacific Northwest
Community Bank
Board of Directors
William T. Weyerhaeuser
Chairman of the Board
Melanie J. Dressel
President & Chief Executive
Officer
David A. Dietzler
Craig D. Eerkes
Ford Elsaesser
WASHINGTON
Mark A. Finkelstein
John P. Folsom
Frederick M. Goldberg*
Thomas M. Hulbert
Michelle M. Lantow
Mae Fujita Numata
Daniel C. Regis*
Elizabeth Seaton
James M. Will*
Executive Officers
OREGON
IDAHO
Kumi Yamamoto Baruffi
Executive Vice President &
General Counsel
Dave C. Lawson
Executive Vice President &
Human Resources Director
Andy McDonald
Executive Vice President &
Chief Credit Officer
Hadley S. Robbins
Executive Vice President &
Chief Operating Officer
Clint E. Stein
Executive Vice President &
Chief Financial Officer
Our people truly make the difference.
Columbia Bank has been recognized repeatedly by several organizations
as the best bank and a great place to work, including:
• Puget Sound Business Journal – Best Places to Work
• Pierce County Business Examiner – Top Places to Work
• Statesman Journal – Best Bank
* Retiring as of the Annual Meeting of Shareholders April 22, 2015
A combined network of
more than 150 branches.
2014 Annual Report
and Form 10-K
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To Our Shareholders
2014 was a successful and exciting year for your company,
as we extended our footprint into Idaho -- truly becoming a
premier Pacific Northwest regional community bank. We
currently operate over 150 branches -- 78 in Washington,
59 in Oregon and 16 in Idaho. Columbia ranks eighth
in deposit market share in the Pacific Northwest. Our
outstanding bankers throughout our footprint remained
externally focused on their current and prospective
customers, resulting in both record loan production and
earnings for the year.
Intermountain joins the Columbia family
During the third quarter last year, the board approved
a merger with Intermountain Community Bancorp, the
parent company of Panhandle State Bank and its divisions
Intermountain Community Bank and Magic Valley Bank.
Headquartered in Sandpoint, Idaho, Intermountain
operated 16 branch locations in Idaho, two in Spokane and
one branch in Ontario, Oregon. We were very pleased that
the acquisition received regulatory approval in just a little
over three months, becoming final on November 1, 2014.
The integration process has gone very well, and
we anticipate core conversion to take place in mid-May
this year.
Record loan production
At year-end, 2014, Columbia had total assets of $8.58
billion, up 20% from $7.16 billion the prior year. Total
deposits were $6.92 billion, up 16% from $5.96 billion at
the end of 2013. Our core deposits, which are an important
factor in maintaining a stable net interest margin,
comprised an exceptional 96% of total deposits. Our total
net loans were $5.38 billion, up 21% from $4.44 billion the
prior year. Total new loan production of $1.04 billion during
the year was at the highest
level in our company history,
with $325 million generated
in the fourth quarter.
Our loan portfolio continues
to be well diversified, and
our credit metrics continue
to improve. At the end
of 2014, 39% of our total
portfolio was in commercial
business loans, 43% was in commercial real estate loans,
7% in consumer loans, 4% in real estate construction-
related loans, 3% were in the 1-4 family residential
segment and 4% were related to our first four FDIC-
assisted transactions. Of particular note was the continued
improvement in loan quality. Our nonperforming assets at
December 31, 2014 represented 0.62% of our total assets,
down from 0.98% the prior year.
Net income for the year was a record $81.6 million, or
$1.52 per diluted common share, an increase of 36% from
net income of $60.0 million, or $1.21 per diluted common
share, for 2013. Total shareholders’ equity at the end of
2014 was $1.23 billion, an increase of 17% from $1.05
billion at December 31, 2013.
Our total risk-based capital ratio at December 31, 2014 was
14.13%, well in excess of the minimum of 10% required
to be considered “well-capitalized” under regulatory
standards. Our strong capital levels give us the flexibility
to continue our consideration of other options for effective
deployment of capital.
Forbes ranks Columbia among Americas’
top 20 best banks
For the fourth consecutive year, Columbia was ranked as
the best bank headquartered in Washington State on the
2104 Forbes list of America’s Best Banks. Nationally, we
ranked #17, up significantly from our previous ranking of
#31. The rankings were based on safety, soundness and
profitability measures of the nation’s 100 largest publicly
traded banks and thrifts. The Forbes list is meaningful
recognition for us since it acknowledges not just our
growth, but our commitment to providing a strong and
secure community bank to best serve our customers and
our communities.
We were also very gratified that our continued commitment
to employees contributed to Columbia Bank being named
as one of “Washington’s Best Workplaces” 2014 by the
Puget Sound Business Journal for the eighth consecutive
year. Our goal is to be among the top places to work in
Oregon and Idaho as well.
A look ahead
In the coming months, we will focus on making the most of
the exciting opportunities we see throughout our expanded
market area. We will continue our focus on high quality
“Melanie Dressel, President and CEO, was named for
the sixth time as one of the “25 Most Powerful Women
in Banking” 2014 by American Banker Magazine. The
list recognizes the most influential female leaders in the
banking industry.”
– William T. Weyerhaeuser
loan growth, which will be
a key component to our
financial performance in
2015. We will stay externally
focused on enhancing our
relationships with current
and prospective customers.
We will also continue to
employ technology and
improve our efficiencies
to help offset the ever-rising regulatory expenses –
without sacrificing our reputation for delivering customer
satisfaction.
We want to express our deepest thanks to Frederick M.
Goldberg, Daniel C. Regis and James M. Will, who will be
retiring from our board effective April 22, 2015. Freddy has
served as a director since 2003, and has been a member
of the Compensation and Enterprise Risk Management
committees in addition to chairing the Merger & Acquisition
committee. Dan has also been a director since 2003,
serving on the Audit committee as well as chairing
the Enterprise Risk Management committee. Jamie, a
director since our beginning in 1993, has chaired our Trust
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committees as well as served on the Audit and Enterprise
Risk Management committees. We are grateful for
their wise counsel and valuable contributions to
Columbia’s success.
Columbia welcomes new directors
We were delighted to welcome four new directors to our
board last year in anticipation of the directors whose terms
are expiring at our 2015 Annual Shareholders Meeting.
Elizabeth Whitehead Seaton joined the board on May 30,
2014. Currently Senior Vice President – Operations for
Saltchuk Company, Seattle, Washington, Betsy serves
on the Enterprise Risk Management and Merger and
Acquisitions committees. Craig D. Eerkes, a member
since September 2, 2014, serves on the Enterprise
Risk Management committee as well as the Personnel
and Compensation committee. Craig is the President
and Chief Executive Officer of Sun Pacific Energy, Inc.,
Kennewick, Washington. Mark A. Finkelstein, Chief Legal
and Administrative Office for Blucora, Inc. in Bellevue,
Washington, also joined the board on September 2. He is a
member of the Enterprise Risk Management and Merger
and Acquisitions committees. Ford Elsaesser, a board
member since November 1, 2014, serves on the Audit and
Trust Committees. Ford is a senior partner at Elsaesser
Jarzabek Anderson Elliott & Macdonald, a Sandpoint,
Idaho-based law firm. Previously, Ford was the board chair
for Intermountain Community Bancorp and its subsidiaries.
We were also pleased to welcome two new members of the
executive management team during 2014. Hadley Robbins,
who joined Columbia with the acquisition of West Coast
in 2013, has served as Executive Vice President and Chief
Operating Officer since March 1, 2014. Kumi Yamamoto
Baruffi, was named Executive Vice President and General
Counsel on September 2nd. While in private practice,
Kumi assisted us for over a decade with state and federal
regulatory matters.
We feel very positive about Columbia’s future as we
continue to build the premier Pacific Northwest regional
community bank. We firmly believe the foundation of our
success is building a stellar team of bankers who are
committed to our customers and to the communities we
serve, resulting in long-term benefits for our shareholders.
Sincerely,
William T. Weyerhaeuser
Chairman of the Board
Columbia Banking System, Inc.
Melanie J. Dressel
President and Chief Executive Officer
Columbia Banking System, Inc. and Columbia Bank
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-20288
COLUMBIA BANKING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Washington
(State or other jurisdiction of
incorporation or organization)
91-1422237
(I.R.S. Employer
Identification Number)
1301 “A” Street
Tacoma, Washington 98402
(Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, Including Area Code: (253) 305-1900
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, No Par Value
(Title of class)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (17 C.F.R. 229.405) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or
a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act
(check one):
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
No
The aggregate market value of Common Stock held by non-affiliates of the registrant at June 30, 2014 was
$1,367,918,597 based on the closing sale price of the Common Stock on that date.
The number of shares of registrant’s Common Stock outstanding at January 31, 2015 was 57,452,815.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s definitive 2015 Annual Meeting Proxy Statement.
Part III
COLUMBIA BANKING SYSTEM, INC.
FORM 10-K ANNUAL REPORT
DECEMBER 31, 2014
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations. . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . .
Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence. . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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27
30
59
61
116
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119
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119
120
121
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans,
objectives, expectations and intentions that are not historical facts, and statements identified by words such as “expects,”
“anticipates,” “intends,” “plans,” “believes,” “should,” “projects,” “seeks,” “estimates” or the negative version of those words
or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are based on
current beliefs and expectations of management and are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are
subject to assumptions with respect to future business strategies and decisions that are subject to change. In addition to the
factors set forth in the sections titled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this Form 10-K, the following factors, among others, could cause actual results to
differ materially from the anticipated results expressed or implied by the forward-looking statements:
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local and national economic conditions could be less favorable than expected or could have a more direct and
pronounced effect on us than expected and adversely affect our ability to continue internal growth and maintain the
quality of our earning assets;
the local housing/real estate markets where we operate and make loans could face challenges;
the risks presented by the economy, which could adversely affect credit quality, collateral values, including real estate
collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;
the efficiencies and enhanced financial and operating performance we expect to realize from investments in personnel,
acquisitions and infrastructure may not be realized;
the ability to complete future acquisitions and to successfully integrate acquired entities (including Intermountain
Community Bancorp (“Intermountain”)) into Columbia;
interest rate changes could significantly reduce net interest income and negatively affect funding sources;
projected business increases following strategic expansion or opening of new branches could be lower than expected;
changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverages;
the impact of acquired loans on our earnings;
changes in accounting principles, policies, and guidelines applicable to bank holding companies and banking;
changes in laws and regulations affecting our businesses, including changes in the enforcement and interpretation of
such laws and regulations by applicable governmental and regulatory agencies;
competition among financial institutions could increase significantly;
continued consolidation in the Pacific Northwest financial services industry resulting in the creation of larger financial
institutions that may have greater resources could change the competitive landscape;
the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse
impact on our earnings and capital;
the reputation of the financial services industry could deteriorate, which could adversely affect our ability to access
markets for funding and to acquire and retain customers;
our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,”
“hacking” and identity theft;
any material failure or interruption of our information and communications systems or inability to keep pace with
technological changes;
our ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk and
regulatory and compliance risk;
the effect of geopolitical instability, including wars, conflicts and terrorist attacks;
our profitability measures could be adversely affected if we are unable to effectively manage our capital; and
the effects of any damage to our reputation resulting from developments related to any of the items identified above.
You should take into account that forward-looking statements speak only as of the date of this report. Given the described
uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue
reliance on these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required under federal securities laws.
1
ITEM 1.
BUSINESS
General
PART I
Columbia Banking System, Inc. (referred to in this report as “we,” “our,”, “the Company”, and “Columbia”) is a
registered bank holding company whose wholly owned banking subsidiary is Columbia State Bank (“Columbia Bank” or “the
Bank”). Headquartered in Tacoma, Washington, we provide a full range of banking services to small and medium-sized
businesses, professionals and individuals throughout Washington, Oregon and Idaho. As part of the acquisition of West Coast
Bancorp on April 1, 2013, the Company also acquired West Coast Trust Company, Inc. (“West Coast Trust”), an Oregon trust
company that provides agency, fiduciary and other related trust services with offices in Portland and Salem, Oregon.
Columbia Bank was established in 1993 to take advantage of commercial banking business opportunities in our principal
market area. The opportunities to capture commercial banking market share were due to increased consolidations of banks,
primarily through acquisitions by out-of-state bank holding companies, which created dislocation of customers.
At December 31, 2014, Columbia Bank had 154 branch locations in Washington, Oregon and Idaho. Substantially all of
Columbia Bank’s loans, loan commitments and core deposits are within its service areas. Columbia Bank is a Washington state-
chartered commercial bank, the deposits of which are insured in whole or in part by the FDIC. Columbia Bank is subject to
regulation by the FDIC, the Washington State Department of Financial Institutions Division of Banks, the Oregon Department
of Consumer and Business Services Division of Finance and Corporate Securities, and the Idaho Department of Finance.
Although Columbia Bank is not a member of the Federal Reserve System, the Board of Governors of the Federal Reserve
System (“Federal Reserve”) has certain supervisory authority over the Company, which can also affect Columbia Bank.
Business Overview
Our goal is to continue to be a leading Pacific Northwest regional community banking company while consistently
increasing shareholder value. We continue to build on our reputation for excellent customer service in order to be recognized as
the bank of choice for retail customers and small to medium-sized businesses in all markets we serve.
We have established a network of 154 branches in Washington, Oregon and Idaho as of December 31, 2014 from which
we intend to grow market share. We operate 78 branches in 21 counties in the state of Washington, 60 branches in 16 counties
in Oregon and 16 branches in 10 counties in Idaho.
Our branch system funds our lending activities and allows for increased contact with customers, better serving both retail
and business depositors. We believe this approach enables us to expand lending activities while attracting a stable core deposit
base and enhancing utilization of our full range of products and services. To support our strategy of market penetration and
increased profitability, while continuing our personalized banking approach, we have invested in experienced banking and
administrative personnel and have incurred related costs in the creation of our branch network. Our branch system and other
delivery channels are continually evaluated as an important component of ongoing efforts to improve efficiencies without
compromising customer service.
Business Strategy
Our business strategy is to provide our customers with the financial sophistication and product depth of a regional
banking company while retaining the appeal and service level of a community bank. We continually evaluate our existing
business processes while focusing on maintaining asset quality and a diverse loan and deposit portfolio. We continue to build
our strong core deposit base, expanding total revenue and controlling expenses in an effort to increase our return on average
equity and gain operational efficiencies. As a result of our strong commitment to highly personalized, relationship-oriented
customer service, our varied products, our strategic branch locations and the long-standing community presence of our
managers, banking officers and branch personnel, we believe we are well positioned to attract and retain new customers and to
increase our market share of loans, deposits, investments, and other financial services. We are committed to increasing market
share in the communities we serve by continuing to leverage our existing branch network, adding new branches in key
locations and considering business combinations that are consistent with our expansion strategy throughout the Pacific
Northwest. We have grown our franchise over the past decade through a combination of acquisitions and organic growth.
To that end, on November 1, 2014, the Company completed its acquisition of Intermountain. The Company acquired
approximately $964.4 million in assets, including $502.6 million in loans measured at fair value, and approximately $736.8
million in deposits. See Note 2 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary
Data” of this report for further information regarding this acquisition.
2
Products & Services
We place the highest priority on customer service and assist our customers in making informed decisions when selecting
from the products and services we offer. We continuously review our product and service offerings to ensure that we provide
our customers with the tools to meet their financial needs. A more complete listing of all the services and products available to
our customers can be found on our website: www.columbiabank.com. Some of the core products and services we offer include:
Personal Banking
Business Banking
Wealth Management
• Checking and Saving Accounts
• Consumer Lending
• Electronic Bill Pay
• Mobile Banking
• Online Banking
• Agricultural Lending
• Investment Services through
CB Financial Services
• Checking and Saving Accounts
• Private Banking
• Commercial & Industrial Lending
• Professional Banking
• International Banking
• Trust Services
• Merchant Card Services
• Residential Lending
• Mobile Banking
• VISA® Card Services
• Municipal Lending
• Online Banking
• Real Estate and Real Estate
Construction Lending
• Remote Deposit Capture
• SBA Lending
• Small Business Services
• Treasury Management
• VISA® Card Services
Personal Banking: We offer our personal banking customers an assortment of account products including noninterest and
interest-bearing checking, savings, money market and certificate of deposit accounts. Overdraft protection is also available with
direct links to the customer’s checking account. Personal banking customers are also provided with a variety of borrowing
products including fixed and variable rate home equity loans and lines of credit, home mortgages for purchases and refinances,
personal loans, and other consumer loans. Eligible personal banking customers with checking accounts are provided a Visa®
Debit Card which can be used both to make purchases and as an ATM card. A variety of Visa® Credit Cards are also available
to eligible personal banking customers.
Online Banking
Columbia Bank’s Premier Personal Online Banking provides simple navigation, access to important information and
frequently used features, as well as the foundation for a best-in-class mobile banking solution. Our online banking service,
Columbia OnlineTM, provides our personal banking customers with the ability to safely and securely conduct their banking
business 24 hours a day, 7 days a week.
3
Business Banking: We offer our business banking customers the foundation of a variety of checking, savings, interest bearing
money market and certificate of deposit accounts to satisfy all their banking needs. In addition to these core banking products,
we provide a breadth of services to support the complete financial needs of small and middle market businesses including Cash
Management, Commercial Lending, International Banking, Merchant Card Services, Business VISA® Debit and Credit Cards
and Wealth Management.
Cash Management
Columbia Bank’s diversified Cash Management Programs are tailored to meet specific banking needs of each individual
business. We combine technology with integrated operations and local expertise for safe, powerful, flexible solutions.
Columbia customers, of all sizes, choose from a full range of transaction and Cash Management tools to gain more control over
and make more from their money. Services include Commercial Online Banking, Positive Pay fraud protection, Automated
Clearing House (ACH) payments, and Remote Deposit Capture.
Our Cash Management professionals work with businesses to find the best combination of services to meet their
needs. This customized, modular approach ensures their business banking operations are cost-effective now, with flexibility for
future growth.
Commercial Lending
We offer a variety of loan products tailored to meet the various needs of business banking customers. Commercial loan
products include accounts receivable and inventory financing as well as Small Business Administration (“SBA”) financing. We
also offer commercial real estate loan products for construction and development or permanent financing. Real estate lending
activities have been focused on construction and permanent loans for both owner occupants and investor oriented real estate
properties. Commercial banking has been directed toward meeting the credit and related deposit needs of various sized
businesses and professional practice organizations operating in our primary market areas.
International Banking
Columbia Bank’s International services division offers a range of financial services to help our business customers
explore global markets and conduct international trade smoothly and expediently. We are proud to provide small and mid-size
businesses with the same caliber of expertise and personalized service that national banks usually limit to large businesses. Our
experience with foreign currency exchange, letters of credit, foreign collections and trade finance services can help companies
open the door to new markets and suppliers overseas.
Merchant Card Services
Business clients that use Columbia’s Merchant Card Services have the ability to accept Visa®, MasterCard®, American
Express® and Discover® sales drafts for deposit directly into their business checking account. Merchants are provided with a
comprehensive accounting system tailored to their needs, which includes month-to-date credit card deposit information on a
transaction statement. Internet access is available, allowing business customers to review merchant statements, authorized,
captured, cleared and settled transactions. Columbia offers state-of-the-art point of sale solutions to suit our customers’ needs
for card acceptance, including terminals, mobile platforms, virtual terminals and on-line applications.
Business VISA® Debit and Credit Cards
We offer our business banking customers a selection of Visa® Cards including the Business Debit Card that works like a
check wherever Visa® is accepted. We partner with Elan Financial Services to offer a variety of Visa® Credit Cards that come
with important business features including award-winning expense management tools, free employee cards and added security
benefits. A specialty community card for nonprofit organizations and municipalities is also available.
4
Wealth Management: We offer tailored solutions to high net-worth individuals, families and professional businesses in the
areas of private banking, professional banking, financial services and trust and estate services.
CB Financial Services
Located at Columbia State Bank, CB Financial Services(1), offers a comprehensive array of financial solutions that
focuses on wealth management by delivering personalized service and experience through dedicated financial advisors serving
various geographical areas.
Comprehensive solutions include:
Individual and Business Retirement Solutions: 401(k) plans, SEPs, IRAs, SIMPLE, Profit Sharing, Non-Qualified
Deferred Compensation Plans, Money Pension Plans, Exit Planning Strategies.
Insurance Solutions: Long-Term Care, Disability, Life Insurance (Key Man Life Insurance, Buy-Sell Agreements).
Wealth Management: Professional Asset Management, Strategic Asset Allocation, Fixed Income (Bond) Investing
(Municipal, Corporate, Government), Exchange Traded Funds (ETFs), Annuities, Mutual Funds, Equities.
Financial Planning: Asset Allocation, Net Worth Analysis, Estate Planning & Preservation(2), Education Funding,
Wealth Transfer.
Private Banking
Columbia Private Banking offers affluent clientele and their businesses complex financial solutions, such as deposit and
cash management services, credit services, and wealth management strategies. Each private banker coordinates a relationship
team of experienced financial professionals to meet the unique needs of each discerning customer.
Professional Banking
Columbia Professional Bankers are uniquely qualified to help medical and dental professionals acquire, build and grow
their practice. We offer tailored banking and investment solutions delivered by experienced bankers with the industry
knowledge necessary to meet their business’s unique needs. No matter what the needs are now or in the years to come, we
guide professionals through all their financial options to make their banking as easy and personal as possible.
Trust and Investment Services
Trust services are provided through Columbia Bank Trust and West Coast Trust. We offer a wide range of high quality
fiduciary, investment and administrative trust services, coupled with local, personalized attention to the unique requirements of
each trust. Services include Personal Trusts, Special Needs (Supplemental) Trusts, Estate Settlement Services, Investment
Agency and Charitable Management Services.
Our highly skilled and experienced professionals are fully dedicated to providing the information, diligence and care to
help our customers achieve their financial goals and plan for a better future.
__________
(1) Securities and insurance products are offered through Cetera Investment Services LLC (doing insurance business in
California as CFGIS Insurance Agency), member FINRA/SIPC. Advisory services are offered through Cetera
Investment Advisers LLC. Neither firm is affiliated with the financial institution where investment services are
offered.
* Investment products are Not FDIC insured * No bank guarantee * Not a deposit * Not insured by any federal
government agency * May lose value.
(2) For a comprehensive review of your personal situation, always consult a tax or legal Advisor. Neither Cetera, nor any
of its representatives may give legal or tax advice.
5
Competition
Our industry remains highly competitive despite a slow recovery from the recent economic crisis. Several other financial
institutions with greater resources compete for banking business in our market areas. These competitors have the ability to
make larger loans, finance extensive advertising and promotion campaigns, access international financial markets and allocate
their investment assets to regions of highest yield and demand. In addition to competition from other banking institutions, we
continue to compete with non-banking companies such as credit unions, brokerage houses and other financial services
companies. We compete for deposits, loans, and other financial services by offering our customers similar breadth of products
as our larger competitors while delivering a more personalized service level with faster transaction turnaround time.
Employees
As of December 31, 2014 the Company employed 1,844 full-time equivalent employees, a 9% increase from 1,695 full-
time equivalent employees at December 31, 2013. The increase was primarily due to the acquisition of Intermountain during
the fourth quarter of 2014. We value our employees and pride ourselves on providing a professional work environment
accompanied by comprehensive pay and benefit programs. We are committed to providing flexible and value-added benefits to
our employees through a “Total Compensation Philosophy” which incorporates all compensation and benefits. Our continued
commitment to employees was demonstrated by Columbia Bank being honored as one of the Puget Sound Business Journal’s
“Washington’s Best Workplaces” for the eighth consecutive year.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K, proxy statements
and other information with the United States Securities and Exchange Commission (“SEC”). The public may obtain copies of
these reports and any amendments at the SEC’s Internet site, www.sec.gov.
Additionally, reports filed with the SEC can be obtained through our website at www.columbiabank.com. These reports
are made available through our website as soon as reasonably practicable after they are filed electronically with the SEC.
Information contained on our website is not incorporated by reference into this report.
Supervision and Regulation
The following discussion provides an overview of certain elements of the extensive regulatory framework applicable to
the Company and Columbia State Bank, which operates under the name Columbia Bank in Washington, Oregon and Idaho.
This regulatory framework is primarily designed for the protection of depositors, customers, federal deposit insurance funds
and the banking system as a whole, rather than specifically for the protection of shareholders. Due to the breadth and growth of
this regulatory framework, our costs of compliance continue to increase in order to monitor and satisfy these requirements.
To the extent that this section describes statutory and regulatory provisions, it is qualified by reference to those
provisions. These statutes and regulations, as well as related policies, are subject to change by Congress, state legislatures and
federal and state regulators. Changes in statutes, regulations or regulatory policies applicable to us, including the interpretation
or implementation thereof, could have a material effect on our business or operations. In light of the financial crisis, numerous
changes to the statutes, regulations or regulatory policies applicable to us have been made or proposed. The full extent to which
these changes will impact our business is not yet known. However, our continued efforts to monitor and comply with new
regulatory requirements add to the complexity and cost of our business.
Federal and State Bank Holding Company Regulation
General. The Company is a bank holding company as defined in the Bank Holding Company Act of 1956, as amended
(“BHCA”), and is therefore subject to regulation, supervision and examination by the Federal Reserve. In general, the BHCA
limits the business of bank holding companies to owning or controlling banks and engaging in other activities closely related to
banking. The Company must file reports with and provide the Federal Reserve such additional information as it may require.
Under the Financial Services Modernization Act of 1999, a bank holding company may apply to the Federal Reserve to become
a financial holding company, and thereby engage (directly or through a subsidiary) in certain expanded activities deemed
financial in nature, such as securities and insurance underwriting. As of the date of this report, we have not elected to be treated
as a financial holding company.
6
Holding Company Bank Ownership. The BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve before (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or
bank holding company if, after such acquisition, it would own or control more than 5% of such shares; (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank
holding company. In addition, under the Bank Merger Act of 1960, as amended, the prior approval of the FDIC is required for
the Bank to merge with another bank or purchase all or substantially all of the assets or assume any of the deposits of another
FDIC-insured depository institution. In reviewing applications seeking approval of merger and acquisition transactions, bank
regulators consider, among other things, the competitive effect and public benefits of the transactions, the capital position and
managerial resources of the combined organization, the risks to the stability of the U.S. banking or financial system, the
applicant’s performance record under the Community Reinvestment Act of 1977 (“CRA”), the applicant’s compliance with fair
housing and other consumer protection laws and the effectiveness of all organizations involved in combating money laundering
activities. In addition, failure to implement or maintain adequate compliance programs could cause bank regulators not to
approve an acquisition where regulatory approval is required or to prohibit an acquisition even if approval is not required.
Holding Company Control of Nonbanks. With some exceptions, the BHCA also prohibits a bank holding company from
acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not
a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or
controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-
bank activities that, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the
business of banking or of managing or controlling banks.
Tying Arrangements. We are prohibited from engaging in certain tie-in arrangements in connection with any extension
of credit, sale or lease of property or furnishing of services. For example, with certain exceptions, neither the Company nor its
subsidiaries may condition an extension of credit to a customer on either (i) a requirement that the customer obtain additional
services provided by us; or (ii) an agreement by the customer to refrain from obtaining other services from a competitor.
Support of Subsidiary Banks. Under Federal Reserve policy, as codified by the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”), the Company is required to act as a source of financial and managerial
strength to Columbia Bank, including at times when we may not be in a financial position to provide such resources, and it may
not be in our, or our shareholders’, best interests to do so. This means that the Company is required to commit, as necessary,
resources to support Columbia Bank. Any capital loans a bank holding company makes to its subsidiary banks are subordinate
to deposits and to certain other indebtedness of those subsidiary banks.
State Law Restrictions. As a Washington corporation, the Company is subject to certain limitations and restrictions under
applicable Washington corporate law. For example, state law restrictions in Washington include limitations and restrictions
relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested
shareholders, maintenance of books, records, and minutes, and observance of certain corporate formalities.
Federal and State Regulation of Columbia Bank
General. The deposits of Columbia Bank, a Washington chartered commercial bank with branches in Washington,
Oregon and Idaho, are insured by the FDIC. As a result, Columbia Bank is subject to supervision and regulation by the
Washington Department of Financial Institutions’ Division of Banks and the FDIC. These agencies have the authority to
prohibit banks from engaging in what they believe constitute unsafe or unsound banking practices. With respect to branches of
Columbia Bank in Oregon and Idaho, the Bank is also subject to certain laws and regulations governing its activities in those
states.
Consumer Protection. The Bank is subject to a variety of federal and state consumer protection laws and regulations that
govern its relationship with consumers including laws and regulations that impose certain disclosure requirements and regulate
the manner in which we take deposits, make and collect loans, and provide other services. Failure to comply with these laws
and regulations may subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines,
civil monetary penalties, criminal penalties, punitive damages, and the loss of certain contractual rights.
Community Reinvestment. The CRA requires that, in connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluate the record of the financial institution in meeting the credit needs of its
local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of the
institution. A bank’s community reinvestment record is also considered by the applicable banking agencies in evaluating
mergers, acquisitions and applications to open a branch or facility. The Bank’s failure to comply with the CRA could, among
other things, result in the denial or delay in connection with such transactions. The Bank received a rating of “satisfactory” in
its most recently completed CRA examination.
7
Transactions with Affiliates; Insider Credit Transactions. Transactions between the Bank and its subsidiaries, on the
one hand, and the Company or any other subsidiary, on the other hand, are regulated under federal banking law. The Federal
Reserve Act imposes quantitative and qualitative requirements and collateral requirements on covered transactions by the Bank
with, or for the benefit of, its affiliates. In addition, subsidiary banks of a bank holding company are subject to restrictions on
extensions of credit to the holding company or its subsidiaries, on investments in securities of the holding company or its
subsidiaries and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may
limit the Company’s ability to obtain funds from Columbia Bank for its cash needs, including funds for payment of dividends,
interest and operational expenses.
Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive
officers, directors, principal shareholders or any related interests of such persons. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, and follow credit underwriting procedures that are at least
as stringent as those prevailing at the time for comparable transactions with persons not related to the lending bank; and (ii)
must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to
certain lending limits and restrictions on overdrafts to insiders. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties, regulatory enforcement actions, and other regulatory sanctions.
Regulation of Management. Federal law (i) sets forth circumstances under which officers or directors of a bank may be
removed by the institution’s federal supervisory agency; (ii) places restraints on lending by a bank to its executive officers,
directors, principal shareholders, and their related interests; and (iii) generally prohibits management personnel of a bank from
serving as directors or in other management positions of another financial institution whose assets exceed a specified amount or
which has an office within a specified geographic area.
Safety and Soundness Standards. Certain non-capital safety and soundness standards are also imposed upon banks.
These standards cover internal controls, information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation. An
institution that fails to meet these standards may be subject to regulatory sanctions, including limitations on growth.
Interstate Banking and Branching
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) together with the Dodd-
Frank Act relaxed prior interstate branching restrictions under federal law by permitting, subject to regulatory approval, state
and federally chartered commercial banks to establish branches in states where the laws permit banks chartered in such states to
establish branches. The Interstate Act requires regulators to consult with community organizations before permitting an
interstate institution to close a branch in a low-income area. Federal banking agency regulations prohibit banks from using their
interstate branches primarily for deposit production and the federal banking agencies have implemented a loan-to-deposit ratio
screen to ensure compliance with this prohibition.
Dividends; Stress Testing
Columbia is a legal entity separate and distinct from the Bank and its other subsidiaries. As a bank holding company,
Columbia is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations. Federal
bank regulators are authorized to determine under certain circumstances relating to the financial condition of a bank holding
company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In
particular, federal bank regulators have stated that paying dividends that deplete a banking organization’s capital base to an
inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay
dividends only out of current operating earnings. In addition, in the current financial and economic environment, the Federal
Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment
ratios that are at maximum allowable levels unless both asset quality and capital are very strong. A significant portion of our
income comes from dividends from the Bank, which is also the primary source of our liquidity. In addition to the restrictions
discussed above, the Bank is subject to limitations under Washington law regarding the level of dividends that it may pay to us.
Washington law limits a bank’s ability to pay dividends that are greater than the bank’s retained earnings without approval of
the applicable banking agency.
8
In October 2012, as required by the Dodd-Frank Act, the Federal Reserve and the FDIC published final rules regarding
company-run stress testing. These rules require bank holding companies and banks with average total consolidated assets
greater than $10 billion to conduct an annual company-run stress test of capital, consolidated earnings and losses under one
base and at least two stress scenarios provided by the federal bank regulators. Neither we nor the Bank is currently subject to
the stress testing requirements, but we expect that once we are subject to those requirements, the Federal Reserve, the FDIC
and the Washington Department of Financial Institutions’ Division of Banks will consider our results as an important factor in
evaluating our capital adequacy, and that of the Bank, in evaluating any proposed acquisitions and in determining whether any
proposed dividends or stock repurchases by us or by the Bank may be an unsafe or unsound practice.
Regulatory Capital Requirements
Prior Capital Guidelines. The Federal Reserve monitors the capital adequacy of the Company on a consolidated basis,
and the FDIC and the Washington Department of Financial Institutions’ Division of Banks monitor the capital adequacy of the
Bank. The risk-based capital guidelines applicable to us and the Bank through December 31, 2014 were based on the 1988
capital accord, known as Basel I, of the Basel Committee on Banking Supervision (the “Basel Committee”) as implemented by
the federal bank regulators. Assets and off-balance sheet items were assigned to weighted risk categories, and capital classified
in one of the two following tiers depending on its characteristic:
•
•
Tier 1 (Core) Capital-common equity, retained earnings, qualifying non-cumulative perpetual preferred stock,
minority interests in equity accounts of consolidated subsidiaries (and, under existing standards, a limited
amount of qualifying trust preferred securities at the holding company level), less goodwill, most intangible
assets and certain other assets.
Tier 2 (Supplementary) Capital-perpetual preferred stock and trust preferred securities not meeting the
definition of Tier 1 capital, qualifying mandatory convertible debt securities, qualifying subordinated debt and a
limited amount of allowances for loan and lease losses.
Under the requirements in effect through December 31, 2014, we were required to maintain Tier 1 capital and total capital
(that is, Tier 1 capital plus Tier 2 capital, less certain deductions) equal to at least 4% and 8%, respectively, of our total risk-
weighted assets (including various off-balance sheet items such as letters of credit), with similar required capital ratios for the
Bank. See “-Prompt Corrective Action Framework” for a discussion of certain other capital ratios.
Under those guidelines, bank holding companies and banks were also required to comply with minimum leverage
requirements, measured based on the ratio of a bank holding company’s or a bank’s, as applicable, Tier 1 capital to adjusted
quarterly average total assets (as defined for regulatory purposes). These requirements generally necessitated a minimum Tier 1
leverage ratio of 4% for all bank holding companies and banks, with a lower 3% minimum for bank holding companies and
banks meeting certain specified criteria, including having the highest composite regulatory supervisory rating.
Basel III and the New Capital Rules. In July 2013, the federal bank regulators approved final rules implementing the
Basel Committee’s December 2010 final capital framework for strengthening international capital standards, known as Basel
III, and various provisions of the Dodd-Frank Act (the “New Capital Rules”). The New Capital Rules substantially revise the
risk-based capital requirements applicable to bank holding companies and banks, including us and the Bank, compared to the
risk-based capital rules in effect at December 31, 2014. The New Capital Rules revise the components of capital and address
other issues affecting the numerator in regulatory capital ratio calculations. The New Capital Rules also address risk weights
and other issues affecting the denominator in regulatory capital ratio calculations, including by replacing the existing risk-
weighting approach derived from Basel I with a more risk-sensitive approach based, in part, on the standardized approach
adopted by the Basel Committee in its 2004 capital accords, known as Basel II. The New Capital Rules also implement the
requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal bank regulators’
rules. Subject to a phase-in period for various provisions, the New Capital Rules became effective for us and for the Bank on
January 1, 2015.
The New Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1,” or
CET1, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified
requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made
to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments to capital as
compared to existing regulations.
Under the New Capital Rules, the minimum capital ratios as of January 1, 2015 are (i) 4.5% CET1 to risk-weighted
assets, (ii) 6% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets and (iii) 8% total capital (that
is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets.
9
The New Capital Rules also introduce a new capital conservation buffer designed to absorb losses during periods of
economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset
ratios. In addition, the New Capital Rules provide for a countercyclical capital buffer applicable only to certain covered
institutions. We do not expect the countercyclical capital buffer to be applicable to us or the Bank. Banking institutions with a
ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer (or below the combined
capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends,
equity repurchases and compensation based on the amount of the shortfall.
The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and will be
phased in over a three-year period (increasing by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1,
2019). When fully phased-in, the New Capital Rules will require us, and the Bank, to maintain such additional capital
conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5%
Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets. The New Capital Rules also eliminate
the more permissive 3% minimum Tier 1 leverage ratio under the capital guidelines that were in effect through December 31,
2014, resulting in a 4% minimum Tier 1 leverage ratio for all bank holding companies and banks.
The New Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example,
the requirement that mortgage servicing rights, certain deferred tax assets and significant investments in non-consolidated
financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories
in the aggregate exceed 15% of CET1. Implementation of the deductions and other adjustments to CET1 began on January 1,
2015 and will be phased in over a four-year period (beginning at 40% on January 1, 2015 and an additional 20% per year
thereafter). The New Capital Rules also generally preclude certain hybrid securities, such as trust preferred securities, from
being counted as Tier 1 capital for most bank holding companies. However, bank holding companies such as us who had less
than $15 billion in assets as of December 31, 2009 (and who continue to have less than $15 billion in assets) are permitted to
include trust preferred securities issued prior to May 19, 2010 as Additional Tier 1 capital under the New Capital Rules.
The New Capital Rules also prescribe a new standardized approach for risk weightings that expands the risk-weighting
categories from four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of
categories, depending on the nature of the assets, generally ranging from 0%, for U.S. government and agency securities, to
600%, for certain equity exposures, and resulting in higher risk weights for a variety of asset categories.
With respect to the Bank, the New Capital Rules also revise the prompt corrective action regulations pursuant to
Section 38 of the Federal Deposit Insurance Act (“FDIA”). See “-Prompt Corrective Action Framework.”
We believe that, as of December 31, 2014, we and the Bank would meet all capital adequacy requirements under the New
Capital Rules on a fully phased-in basis as if such requirements were then in effect.
Liquidity Requirements
Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a
supervisory matter, without required formulaic measures. The Basel III final framework requires banks and bank holding
companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures
historically applied by banks and regulators for management and supervisory purposes, going forward would be required by
regulation. One test, referred to as the liquidity coverage ratio is designed to ensure that the banking entity maintains an
adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time
horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to
as the net stable funding ratio is designed to promote more medium- and long-term funding of the assets and activities of
banking entities over a one-year time horizon. These requirements will incentivize banking entities to increase their holdings of
U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding
source.
Prompt Corrective Action Framework
The FDIA requires the federal bank regulators to take prompt corrective action in respect of depository institutions that
fail to meet specified capital requirements. The FDIA establishes five capital categories (“well-capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”), and the federal bank
regulators are required to take certain mandatory supervisory actions, and are authorized to take other discretionary actions,
with respect to institutions that are undercapitalized, significantly undercapitalized or critically undercapitalized. The severity
of these mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the FDIA requires the regulator to appoint a receiver or conservator for an institution
that is critically undercapitalized.
10
Under the rules in effect through December 31, 2014, an insured depository institution generally will be classified in the
following categories based on the capital measures indicated:
“Well capitalized”
Total capital ratio of at least 10%,
Tier 1 capital ratio of at least 6%,
Tier 1 leverage ratio of at least 5%, and
Not subject to any order or written directive requiring a
specific capital level.
“Adequately capitalized”
Total capital ratio of at least 8%,
Tier 1 capital ratio of at least 4%, and
Tier 1 leverage ratio of at least 4%.
“Undercapitalized”
Total capital ratio of less than 8%,
Tier 1 capital ratio of less than 4%, or
Tier 1 leverage ratio of less than 4%.
“Significantly undercapitalized”
Total capital ratio of less than 6%,
Tier 1 capital ratio of less than 3%, or
Tier 1 leverage ratio of less than 3%.
“Critically undercapitalized”
Tangible equity to average quarterly tangible assets of 2% or
less.
The New Capital Rules revised the prompt corrective action requirements effective January 1, 2015 by (i) introducing a
CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-
capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category (other than critically
undercapitalized), with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the previous 6%);
and (iii) eliminating the previous provision that allowed a bank with a composite supervisory rating of 1 to be considered
adequately capitalized with a leverage ratio of 3%. The New Capital Rules do not change the total risk-based capital
requirement for any prompt corrective action category.
An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital
ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with
respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action
regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or
prospects for other purposes.
As of December 31, 2014, we and the Bank were well capitalized with Tier 1 capital ratios of 12.98% and 12.52%,
respectively, total capital ratios of 14.13% and 13.67%, respectively, and Tier 1 leverage ratios of 10.57% and 9.79%,
respectively, in each case calculated under the then applicable risk-based capital guidelines.
An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is
required to submit an acceptable capital restoration plan to its appropriate federal bank regulator. Under the FDIA, in order for
the capital restoration plan to be accepted by the appropriate federal banking agency, a bank holding company must guarantee
that a subsidiary depository institution will comply with its capital restoration plan, subject to certain limitations. The bank
holding company must also provide appropriate assurances of performance. The obligation of a controlling bank holding
company under the FDIA to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary’s
assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions and capital distributions, establishing any branches or
engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the
FDIC. Institutions that are undercapitalized or significantly undercapitalized and either fail to submit an acceptable capital
restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets
and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions failing to
submit or implement an acceptable capital restoration plan are subject to appointment of a receiver or conservator.
In addition, the FDIA prohibits an insured depository institution from accepting brokered deposits or offering interest
rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending
upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the
FDIC. A depository institution that is adequately capitalized and accepts brokered deposits under a waiver from the FDIC may
not pay an interest rate on any deposit in excess of 75 basis points over certain prevailing market rates.
11
The Volcker Rule
The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and investing in and
sponsoring hedge funds and private equity funds. The statutory provision is commonly called the “Volcker Rule.” In December
2013, federal regulators adopted final rules to implement the Volcker Rule that became effective in April 2014. The Federal
Reserve, however, issued an order extending the period that institutions have to conform their activities to the requirements of
the Volcker Rule to July 21, 2015. Banks with less than $10 billion in total consolidated assets, such as the Bank, that do not
engage in any covered activities, other than trading in certain government, agency, state or municipal obligations, do not have
any significant compliance obligations under the rules implementing the Volcker Rule. We are continuing to evaluate the effects
of the Volcker Rules on our business, but we do not currently anticipate that the Volcker Rule will have a material effect on our
operations.
Interchange Fees
Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for
assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable
and proportional” to the costs incurred by issuers for processing such transactions.
Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing
electronic payment transactions. Under the final rules, the maximum permissible interchange fee is equal to no more than 21
cents plus 5 basis points of the transaction value for many types of debit interchange transactions. The Federal Reserve also
adopted a rule to allow a debit card issuer to recover 1 cent per transaction for fraud prevention purposes if the issuer complies
with certain fraud-related requirements required by the Federal Reserve. The Federal Reserve also has rules governing routing
and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
On July 31, 2013, the U.S. District Court for the District of Columbia found the interchange fee cap and the exclusivity
provision adopted by the Federal Reserve to be invalid. The U.S. Court of Appeals for the District of Columbia, or D.C. Circuit,
reversed this decision on March 21, 2014, generally upholding the Federal Reserve’s interpretation of the Durbin Amendment
and the Federal Reserve’s rules implementing it and on January 20, 2015, the U.S. Supreme Court denied plaintiffs’ petition for
certiorari.
Currently, we qualify for the small issuer exemption from the interchange fee cap, which applies to any debit card issuer
that, together with its affiliates, has total assets of less than $10 billion as of the end of the previous calendar year. We will
become subject to the interchange fee cap beginning July 1 of the year following the time when our total assets reaches or
exceeds $10 billion. Reliance on the small issuer exemption does not exempt us from federal regulations prohibiting network
exclusivity arrangements or from routing restrictions, however, and these regulations have negatively affected the interchange
income we have received from our debit card network.
Regulatory Oversight and Examination
The Federal Reserve conducts periodic inspections of bank holding companies, which are performed both onsite and
offsite. The supervisory objectives of the inspection program are to ascertain whether the financial strength of the bank holding
company is being maintained on an ongoing basis and to determine the effects or consequences of transactions between a
holding company or its non-banking subsidiaries and its subsidiary banks. For holding companies under $10 billion in assets,
the inspection type and frequency varies depending on asset size, complexity of the organization, and the holding company’s
rating at its last inspection.
Banks are subject to periodic examinations by their primary regulators. Bank examinations have evolved from reliance on
transaction testing in assessing a bank’s condition to a risk-focused approach. These examinations are extensive and cover the
entire breadth of operations of the bank. Generally, safety and soundness examinations occur on an 18-month cycle for banks
under $500 million in total assets that are well-capitalized and without regulatory issues, and 12-months otherwise.
Examinations alternate between the federal and state bank regulatory agency or may occur on a combined schedule. The
frequency of consumer compliance and CRA examinations is linked to the size of the institution and its compliance and CRA
ratings at its most recent examinations. However, the examination authority of the Federal Reserve and the FDIC allows them
to examine supervised banks as frequently as deemed necessary based on the condition of the bank or as a result of certain
triggering events.
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Corporate Governance and Accounting
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (“SOX”) addresses, among other things, corporate
governance, auditing and accounting, enhanced and timely disclosure of corporate information, and penalties for non-
compliance. Generally, SOX (i) requires chief executive officers and chief financial officers to certify to the accuracy of
periodic reports filed with the SEC; (ii) imposes specific and enhanced corporate disclosure requirements; (iii) accelerates the
time frame for reporting of insider transactions and periodic disclosures by public companies; (iv) requires companies to adopt
and disclose information about corporate governance practices, including whether or not they have adopted a code of ethics for
senior financial officers and whether the audit committee includes at least one “audit committee financial expert;” and (v)
requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings.
Anti-Money Laundering and Anti-terrorism
The Bank Secrecy Act (the “BSA”) requires all financial institutions, including banks and securities broker-dealers, to,
among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the
financing of terrorism. It includes a variety of recordkeeping and reporting requirements (such as cash and suspicious activity
reporting) as well as due diligence/know-your-customer documentation requirements.
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, intended to combat terrorism, was renewed with certain amendments in 2006 (the “Patriot Act”). The Patriot Act
further augments and strengthens the requirements set forth in the BSA. The Patriot Act, in relevant part, (i) prohibits banks
from providing correspondent accounts directly to foreign shell banks; (ii) imposes due diligence requirements on banks
opening or holding accounts for foreign financial institutions or wealthy foreign individuals; (iii) requires financial institutions
to establish an anti-money-laundering compliance program; and (iv) eliminates civil liability for persons who file suspicious
activity reports. The Patriot Act also includes provisions providing the government with power to investigate terrorism,
including expanded government access to bank account records. Columbia Bank has established compliance programs
designed to comply with the BSA and the Patriot Act.
Deposit Insurance
The Bank’s deposits are insured under the FDIA, up to the maximum applicable limits and are subject to deposit
insurance assessments designed to tie what banks pay for deposit insurance to the risks they pose. The Dodd-Frank Act
broadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less
tangible equity capital of a financial institution. In addition, the Dodd-Frank Act raised the minimum designated reserve ratio
(the FDIC is required to set the reserve ratio each year) of the Deposit Insurance Fund (“DIF”) from 1.15% to 1.35%; required
that the DIF meet that minimum ratio of insured deposits by 2020; and eliminates the requirement that the FDIC pay dividends
to insured depository institutions when the reserve ratio exceeds certain thresholds. The FDIC has established a higher reserve
ratio of 2% as a long-term goal beyond what is required by statute. The deposit insurance assessments to be paid by Columbia
Bank could increase as a result.
The Dodd-Frank Act
As a result of the financial crisis, on July 21, 2010 the Dodd-Frank Act was signed into law. The Dodd-Frank Act
significantly changed the bank regulatory structure and is affecting the lending, deposit, investment, trading and operating
activities of financial institutions and their holding companies, including the Company and Columbia Bank. The full impact of
the Dodd-Frank Act may not be known for years. Some of the provisions of the Dodd-Frank Act that may impact our business
are summarized below.
Corporate Governance. The Dodd-Frank Act requires publicly traded companies to provide their shareholders with (i) a
non-binding shareholder vote on executive compensation, (ii) a non-binding shareholder vote on the frequency of such vote,
(iii) disclosure of “golden parachute” arrangements in connection with specified change in control transactions, and (iv) a non-
binding shareholder vote on golden parachute arrangements in connection with these change in control transactions.
Prohibition Against Charter Conversions of Troubled Institutions. The Dodd-Frank Act generally prohibits a
depository institution from converting from a state to federal charter, or vice versa, while it is the subject to an enforcement
action unless the bank seeks prior approval from its regulator and complies with specified procedures to ensure compliance
with the enforcement action.
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Consumer Financial Protection Bureau. The Dodd-Frank Act created a new, independent federal agency called the
Consumer Financial Protection Bureau (the “CFPB”). The CFPB has broad rulemaking, supervision and enforcement authority
for a wide range of consumer protection laws applicable to banks and thrifts with greater than $10 billion in assets. Smaller
institutions are subject to certain rules promulgated by the CFPB but will continue to be examined and supervised by their
federal banking regulators for compliance purposes. The CFPB has issued numerous additional regulations that will likely
become industry best practice and increase the compliance burden of Columbia Bank.
Repeal of Demand Deposit Interest Prohibition. The Dodd-Frank Act repealed the federal prohibitions on the payment
of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other
accounts.
Heightened Requirements for Bank Holding Companies with $10 Billion or More in Assets
Various federal banking laws and regulations, including rules adopted by the Federal Reserve pursuant to the
requirements of the Dodd-Frank Act, impose heightened requirements on certain large banks and bank holding companies.
Most of these rules apply primarily to bank holding companies with at least $50 billion in total consolidated assets, but certain
rules also apply to banks and bank holding companies with at least $10 billion in total consolidated assets. Following the fourth
consecutive quarter (and any applicable phase-in period) where our or the Bank’s total consolidated assets, as applicable, equal
or exceed $10 billion, we or the Bank, as applicable, will, among other requirements:
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be required to perform annual stress tests as described above in “Dividends; Stress Testing;”
be required to establish a dedicated risk committee of our board of directors responsible for overseeing our
enterprise-wide risk management policies, which must be commensurate with our capital structure, risk
profile, complexity, activities, size and other appropriate risk-related factors, and including as a member at
least one risk management expert;
calculate our FDIC deposit assessment base using a performance score and a loss-severity score system; and
be examined for compliance with federal consumer protection laws primarily by the CFPB.
While we do not currently have $10 billion or more in total consolidated assets, we have begun analyzing these
requirements to ensure we are prepared to comply with the rules when and if they become applicable. It is reasonable to assume
that our total assets will exceed $10 billion in the future, based on our historic organic growth rates or if we engage in any
acquisitions.
Incentive Compensation
The Dodd-Frank Act requires the federal bank regulators and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements at specified regulated entities, including us and the Bank, having at least $1
billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal
stockholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition,
these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based
compensation arrangements. The agencies proposed such regulations in April 2011, but the regulations have not been finalized.
If the regulations are adopted in the form initially proposed, they will impose limitations on the manner in which we may
structure compensation for our executives.
In June 2010, the Federal Reserve and FDIC issued comprehensive final guidance on incentive compensation policies
intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the
ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key
principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that appropriately
balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent
risk, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate
governance, including active and effective oversight by the organization’s board of directors. These three principles are
incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, discussed above.
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The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation
arrangements of banking organizations, such as us, that are not “large, complex banking organizations.” These reviews will be
tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive
compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies
will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions
and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation
arrangements, or related risk management control or governance processes, pose a risk to the organization’s safety and
soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Proposed Legislation
Proposed legislation relating to the banking industry is introduced in almost every legislative session. Certain of such
legislation could dramatically affect the regulation of the banking industry. We cannot predict if any such legislation will be
adopted or if it is adopted how it would affect the business of Columbia Bank or the Company. Recent history has demonstrated
that new legislation or changes to existing laws or regulations usually results in a greater compliance burden and therefore
generally increases the cost of doing business.
Effects of Government Monetary Policy
Our earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary
policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements national monetary policy
for such purposes as curbing inflation and combating recession, but its open market operations in U.S. government securities,
control of the discount rate applicable to borrowings from the Federal Reserve, and establishment of reserve requirements
against certain deposits, influence the growth of bank loans, investments and deposits, and also affect interest rates charged on
loans or paid on deposits. The nature and impact of future changes in monetary policies and their impact on us cannot be
predicted with certainty.
ITEM 1A.
RISK FACTORS
Our business exposes us to certain risks. The following is a discussion of what we currently believe are the most
significant risks and uncertainties that may affect our business, financial condition and future results.
National and global economic and other conditions could adversely affect our future results of operations or market
price of our stock.
Our business is directly impacted by factors such as economic, political and market conditions, broad trends in
industry and finance, and changes in government monetary and fiscal policies and inflation, all of which are beyond our
control. In recent years, the national and global economies have faced a severe economic crisis including a major recession
from which they are slowly recovering, and these economies and the financial services sector in particular continue to face
significant challenges. Business growth across a wide range of industries and regions in the United States remains reduced, and
local governments and many businesses continue to experience financial difficulty. Since the recession, economic growth has
been slow and uneven, the financial markets have experienced substantial volatility, unemployment levels generally remain
elevated and there are continuing concerns related to the level of U.S. government debt and fiscal actions that may be taken to
address that debt. There can be no assurance that economic conditions will continue to improve, and these conditions could
worsen. Any renewed deterioration in the economies of the nation as a whole or in our markets would have an adverse effect,
which could be material, on our business, financial condition, results of operations and prospects, and could also cause the
market price of our stock to decline. While it is impossible to predict how long challenging economic conditions may exist, a
slow or fragile recovery could continue to present risks into the future for the industry and our company.
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Economic conditions in the market areas we serve may adversely impact our earnings and could increase our credit risk
associated with our loan portfolio, the value of our investment portfolio and the availability of deposits.
Substantially all of our loan and deposit customers are to businesses and individuals in Washington, Oregon and Idaho,
and continuing soft economies in these market areas could have a material adverse effect on our business, financial condition,
results of operations and prospects. While housing prices have stabilized, unemployment remains relatively high in all three
states. A deterioration in the market areas we serve could result in the following consequences, any of which would have an
adverse impact, which could be material, on our business, financial condition, results of operations and prospects:
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loan delinquencies may increase;
problem assets and foreclosures may increase;
collateral for loans made may decline further in value, in turn reducing customers’ borrowing power,
reducing the value of assets and collateral associated with existing loans;
certain securities within our investment portfolio could become other than temporarily impaired, requiring a
write-down through earnings to fair value, thereby reducing equity;
low cost or non-interest bearing deposits may decrease; and
demand for our loan and other products and services may decrease.
Concentrations within our loan portfolio could result in increased credit risk in a challenging economy.
Our loan portfolio is concentrated in commercial real estate and commercial business loans. These types of loans
generally are viewed as having more risk of default than residential real estate loans or certain other types of loans or
investments. In fact, the FDIC has issued pronouncements alerting banks of its concern about heavy loan concentrations.
Because our loan portfolio contains commercial real estate and commercial business loans with relatively large balances, the
deterioration of one or a few of these loans may cause a significant increase in our non-performing loans. An increase in non-
performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase
in loan charge-offs, any of which would have an adverse impact, which could be material, on our business, financial condition,
results of operations and prospects.
A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate. Deterioration in
the real estate market or other segments of our loan portfolio would lead to additional losses.
In conjunction with the recent financial crisis, the real estate market experienced a slow-down due to negative economic
trends and credit market disruption, from which the market continues to slowly recover. At December 31, 2014, 63% of our
total gross loans, were secured by real estate. Any renewed downturn in the economies or real estate values in the markets we
serve could have a material adverse effect on both borrowers’ ability to repay their loans and the value of the real property
securing such loans. Our ability to recover on defaulted loans would then be diminished, and we would be more likely to suffer
losses on defaulted loans, any or all of which would have an adverse impact, which could be material, on our business,
financial condition, results of operations and prospects.
Our allowance for loan and lease losses (“ALLL”) may not be adequate to cover future loan losses, which could
adversely affect earnings.
We maintain an ALLL in an amount that we believe is adequate to provide for losses inherent in our loan portfolio. While
we strive to carefully monitor credit quality and to identify loans that may become non-performing, at any time there are loans
in the portfolio that could result in losses, but that have not been identified as non-performing or potential problem loans. We
cannot be sure that we will be able to identify deteriorating loans before they become non-performing assets, or that we will be
able to limit losses on those loans that have been identified. Additionally, the process for determining the ALLL requires
different, subjective and complex judgments about the future impact from current economic conditions that might impair the
ability of borrowers to repay their loans. As a result, future significant increases to the ALLL may be necessary.
Future increases to the ALLL may be required based on changes in the composition of the loans comprising the portfolio,
deteriorating values in underlying collateral (most of which consists of real estate) and changes in the financial condition of
borrowers, such as may result from changes in economic conditions, or as a result of actual future events differing from
assumptions used by management in determining the ALLL. Additionally, banking regulators, as an integral part of their
supervisory function, periodically review our ALLL. These regulatory agencies may require us to increase the ALLL. Any
increase in the ALLL would have an adverse effect, which could be material, on our financial condition and results of
operations.
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Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial
condition.
Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on
nonaccrual loans, thereby adversely affecting our income, and increasing loan administration costs. Assets acquired by
foreclosure or similar proceedings are recorded at the lower of carrying value or fair value less estimated costs to sell. The
valuation of these foreclosed assets is periodically updated and resulting losses, if any, are charged to earnings in the period in
which they are identified. An increase in the level of nonperforming assets also increases our risk profile and may impact the
capital levels our regulators believe is appropriate in light of such risks. We utilize various techniques such as loan sales,
workouts, and restructurings to manage our problem assets. Decreases in the value of these problem assets, the underlying
collateral, or in the borrowers’ performance or financial condition, would have an adverse impact, which could be material, on
our business, financial condition, results of operations and prospects. In addition, the resolution of nonperforming assets
requires significant commitments of time from management and staff, which can be detrimental to performance of their other
responsibilities. We may experience further increases in nonperforming loans in the future.
Our acquisitions and the integration of acquired businesses subject us to various risks and may not result in all of the
benefits anticipated, and future acquisitions may be dilutive to current shareholders.
We have in the past and may in the future seek to grow our business by acquiring other businesses. Our acquisitions may
not have the anticipated positive results, including results relating to: correctly assessing the asset quality of the assets being
acquired; the total cost of integration including management attention and resources; the time required to complete the
integration successfully; the amount of longer-term cost savings; being able to profitably deploy funds acquired in an
acquisition; or the overall performance of the combined entity.
We also may encounter difficulties in obtaining required regulatory approvals and unexpected contingent liabilities can
arise from the businesses we acquire. Integration of an acquired business can be complex and costly, sometimes including
combining relevant accounting and data processing systems and management controls, as well as managing relevant
relationships with employees, clients, suppliers and other business partners. Integration efforts could divert management
attention and resources, which could adversely affect our operations or results.
We may also experience difficulties in complying with the technical requirements of our loss-sharing agreements with the
FDIC, which could result in some assets which we acquire in FDIC-assisted transactions losing their coverage under such
agreements.
Acquisitions may also result in business disruptions that cause us to lose customers or cause customers to remove their
accounts from us and move their business to competing financial institutions. It is possible that the integration process related
to acquisitions could result in the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and
policies that could adversely affect our ability to maintain relationships with clients, customers, depositors and employees. The
loss of key employees in connection with an acquisition could adversely affect our ability to successfully conduct our business.
We may engage in future acquisitions involving the issuance of additional common stock and/or cash. Any such
acquisitions and related issuances of stock may have a dilutive effect on earnings per share, book value per share or the
percentage ownership of current shareholders. The use of cash as consideration in any such acquisitions could impact our
capital position and may require us to raise additional capital.
Furthermore, notwithstanding our recent acquisitions, we cannot provide any assurance as to the extent to which we can
continue to grow through acquisitions as this will depend on the availability of prospective target opportunities at valuations we
find attractive. In addition, the Pacific Northwest is experiencing intensified consolidation and we face significant competition
from numerous other financial services institutions for attractive acquisition candidates, many of which competitors will have
greater financial resources than we do.
Our assumptions regarding the fair value of assets acquired could be inaccurate, which could materially and adversely
affect our business, financial condition, results of operations, and future prospects.
Management makes various assumptions and judgments about the collectability of the acquired loans, including the
creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured
loans. If our assumptions are incorrect, significant earnings volatility can occur and credit loss provisions may be needed to
respond to different economic conditions or adverse developments in the acquired loan portfolio. Any increase in future loan
losses could have a material adverse impact on our business, financial condition, results of operations and prospects.
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Our management of capital could adversely affect profitability measures and the market price of our common stock,
and could dilute the holders of our outstanding common stock.
Our capital ratios are significantly higher than regulatory minimums. We may lower our capital ratios through either
selective acquisitions that meet our disciplined criteria, organic loan growth, investment in securities, or a combination of all
three. We continually evaluate opportunities to expand our business through strategic acquisitions. There can be no assurance
that we will be able to negotiate future acquisitions on terms acceptable to us.
Conversely, there may be circumstances under which it would be prudent to consider alternatives for raising capital to
take advantage of significant acquisition opportunities or in response to changing economic conditions. In addition, we may
need to raise additional capital in the future to have sufficient capital resources and liquidity to meet our commitments and fund
our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. We
may not be able to raise additional capital when needed on terms acceptable to us or at all. Our ability to raise additional
capital, if needed, will depend on, among other things, conditions in the capital markets at the time, which are outside our
control, and our financial performance. Further, if we need to raise capital in the future, we may have to do so when many other
financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An
inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business,
financial condition, results of operations and prospects. In addition, any capital raising alternatives could dilute the holders of
our outstanding common stock and may adversely affect the market price of our common stock.
If the goodwill we have recorded in connection with acquisitions becomes impaired, it could have a material adverse
impact on our earnings and shareholders’ equity.
Accounting standards require that we account for acquisitions using the acquisition method of accounting. Under
acquisition accounting, if the purchase price of an acquired company exceeds the fair value of its net assets, the excess is
carried on the acquirer’s balance sheet as goodwill. In accordance with generally accepted accounting principles, our goodwill
is evaluated for impairment on an annual basis or more frequently if events or circumstances indicate that a potential
impairment exists. Such evaluation may be based on a variety of factors, including the quoted price of our common stock,
market prices of common stock of other banking organizations, common stock trading multiples, discounted cash flows, and
data from comparable acquisitions. Future evaluations of goodwill may result in impairment and ensuing write-down, which
could have a material adverse impact on our earnings and shareholders’ equity.
Fluctuating interest rates could adversely affect our business.
Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect
both our ability to originate new loans and our ability to grow. Conversely, decreases in interest rates could result in an
acceleration of loan prepayments. An increase in market interest rates could also adversely affect the ability of our floating-rate
borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and
charge offs, which could adversely affect our business.
Further, our profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”)
between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings,
and other interest-bearing liabilities. Because of the differences in maturities and repricing characteristics of our interest-
earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income
earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could
adversely affect our interest rate spread, and, in turn, our profitability.
Our business depends on our ability to successfully manage credit risk.
The operation of our business requires us to manage credit risk. As a lender, we are exposed to the risk that our borrowers
will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may
not be sufficient to ensure repayment. In addition, there are risks inherent in making any loan, including risks with respect to
the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in
economic and industry conditions and risks inherent in dealing with individual borrowers. In order to successfully manage
credit risk, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our bankers
follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a
lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to
adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of
our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly
increase our ALLL, each of which could adversely affect our net income. As a result, our inability to successfully manage
credit risk could have a material adverse effect on our business, financial condition, results of operations and prospects.
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We operate in a highly regulated environment and changes of or increases in, or supervisory enforcement of, banking or
other laws and regulations or governmental fiscal or monetary policies could adversely affect us.
We are subject to extensive regulation, supervision and examination by federal and state banking authorities. In addition,
as a publicly-traded company, we are subject to regulation by the SEC. Any change in applicable regulations or federal, state or
local legislation or in policies or interpretations or regulatory approaches to compliance and enforcement, income tax laws and
accounting principles could have a substantial impact on us and our operations. Changes in laws and regulations may also
increase our expenses by imposing additional fees or taxes or restrictions on our operations. Additional legislation and
regulations that could significantly affect our powers, authority and operations may be enacted or adopted in the future, which
could have a material adverse effect on our business, financial condition, results of operations and prospects. Failure to
appropriately comply with any such laws, regulations or principles could result in sanctions by regulatory agencies or damage
to our reputation, all of which could adversely affect our business, financial condition or results of operations. In that regard,
the Dodd-Frank Act was enacted in July 2010. Among other provisions, the legislation (i) created a new Consumer Financial
Protection Bureau (the “CFPB”) with broad powers to regulate consumer financial products such as credit cards and mortgages,
(ii) created a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, (iii) resulted in new
capital requirements from federal banking agencies, (iv) placed new limits on electronic debit card interchange fees and
(v) required the SEC and national stock exchanges to adopt significant new corporate governance and executive compensation
reforms, some of which have yet to be promulgated. The Dodd-Frank Act and regulations that have been adopted thereunder
have increased the overall costs of regulatory compliance and further Dodd-Frank Act related regulations may lead to
additional costs. In addition, the CFPB has broad rulemaking authority and is the principal federal regulatory agency
responsible for the supervision and enforcement of a wide range of consumer protection laws for banks with greater than $10
billion in assets.
The New Capital Rules implementing Basel III will be phased in through 2019. The New Capital Rules could have an
adverse impact on our financial position and future earnings due to, among other things, the increased capital requirements.
Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or
violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and
enforcement duties. Recently, these powers have been utilized more frequently due to the serious national, regional and local
economic conditions we are facing. The exercise of regulatory authority may have an adverse impact, which could be material,
on our business, financial condition, results of operations and prospects. Additionally, our business is affected significantly by
the fiscal and monetary policies of the U.S. federal government and its agencies, including the Federal Reserve Board.
We cannot accurately predict the full effects of recent legislation or the various other governmental, regulatory, monetary
and fiscal initiatives which have been and may be enacted on the financial markets, on the Company and on the Bank. The
terms and costs of these activities, or any worsening of current financial market and economic conditions, could materially and
adversely affect our business, financial condition and results of operations, as well as the trading price of our common stock.
We will be subject to heightened regulatory requirements if we exceed $10 billion in assets.
It is reasonable to assume that our total assets will exceed $10 billion in the future, based on our historic organic growth
rates or if we engage in any acquisitions. The Dodd-Frank Act and its implementing regulations impose various additional
requirements on bank holding companies with $10 billion or more in total assets, including compliance with portions of the
Federal Reserve’s enhanced prudential oversight requirements and annual stress testing requirements. In addition, banks with
$10 billion or more in total assets are primarily examined by the CFPB with respect to various federal consumer financial
protection laws and regulations. Currently, our bank is subject to regulations adopted by the CFPB, but the FDIC is primarily
responsible for examining our bank’s compliance with consumer protection laws and those CFPB regulations. As a relatively
new agency with evolving regulations and practices, there is uncertainty as to how the CFPB’s examination and regulatory
authority might impact our business.
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Compliance with these requirements may necessitate that we hire additional compliance or other personnel, design and
implement additional internal controls, or incur other significant expenses, any of which could have a material adverse effect on
our business, financial condition or results of operations. Compliance with the annual stress testing requirements, part of which
must be publicly disclosed, may also be misinterpreted by the market generally or our customers and, as a result, may adversely
affect our stock price or our ability to retain our customers or effectively compete for new business opportunities. To ensure
compliance with these heightened requirements when effective, our regulators may require us to fully comply with these
requirements or take actions to prepare for compliance even before our or our bank’s total assets equal or exceed $10 billion.
As a result, we may incur compliance-related costs before we might otherwise be required, including if we do not continue to
grow at the rate we expect or at all. Our regulators may also consider our preparation for compliance with these regulatory
requirements when examining our operations generally or considering any request for regulatory approval we may make, even
requests for approvals on unrelated matters.
We may be required, in the future, to recognize impairment with respect to investment securities.
Our securities portfolio currently includes securities with unrecognized losses. At December 31, 2014 gross unrealized
losses in our securities portfolio were $14.3 million. We may continue to observe declines in the fair market value of these
securities. Securities issued by certain states and municipalities have recently come under scrutiny due to concerns about credit
quality. Although management believes the credit quality of the Company’s state and municipal securities portfolio to be good,
there can be no assurance that the credit quality of these securities will not decline in the future. We evaluate the securities
portfolio for any other than temporary impairment each reporting period, as required by generally accepted accounting
principles in the United States of America. There can be no assurance, however, that future evaluations of the securities
portfolio will not require us to recognize further impairment charges with respect to these and other holdings. For example, it is
possible that government-sponsored programs to allow mortgages to be refinanced to lower rates could materially adversely
impact the yield on our portfolio of mortgage-backed securities, since a significant portion of our investment portfolio is
composed of such securities.
Substantial competition in our market areas could adversely affect us.
Commercial banking is a highly competitive business. We compete with other commercial banks, savings and loan
associations, credit unions, finance, insurance and other non-depository companies operating in our market areas. We also
experience competition, especially for deposits, from Internet-based banking institutions, which have grown rapidly in recent
years. We are subject to substantial competition for loans and deposits from other financial institutions. Some of our
competitors are not subject to the same degree of regulation and restriction as we are and/or have greater financial resources
than we do. Some of our competitors have severe liquidity issues, which could impact the pricing of deposits, loans and other
financial products in our markets. Our inability to effectively compete in our market areas could have a material adverse impact
on our business, financial condition, results of operations and prospects.
We may not be able to attract or retain key employees.
Our success depends in significant part on the skills of our management team and our ability to retain, recruit and
motivate key officers and employees. We expect our future success to be driven in large part by the relationships maintained
with our clients by our executives and other key employees. Leadership changes will occur from time to time, and we cannot
predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel.
Competition for senior executives and skilled personnel in the financial services and banking industry is intense, which means
the cost of hiring, incentivizing and retaining skilled personnel may continue to increase. We need to continue to attract and
retain key personnel and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and
successful operation of our business. The unexpected loss of any such employees, or the inability to recruit and retain qualified
personnel in the future, could have a material adverse impact on our business, financial condition, results of operations and
prospects.
Changes in accounting standards could materially impact our financial statements.
From time to time, the Financial Accounting Standards Board and the SEC change the financial accounting and reporting
standards that govern the preparation of our financial statements. These changes can be very difficult to predict and can
materially impact how we record and report our financial condition and results of operations. In some cases, we could be
required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements.
20
There can be no assurance as to the level of dividends we may pay on our common stock.
Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of
funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are
not required to do so and there may be circumstances under which we would eliminate our common stock dividend in the
future. This could adversely affect the market price of our common stock.
We rely on dividends and other payments from our bank for substantially all of our revenue.
We are a separate and distinct legal entity from the Bank, and we receive substantially all of our operating cash flows
from dividends and other payments from the Bank. These dividends and payments are the principal source of funds to pay
dividends on our capital stock and interest and principal on any debt we may have. Various federal and state laws and
regulations limit the amount of dividends that the Bank may pay to us. Also, our right to participate in a distribution of assets
upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the
Bank is unable to pay dividends to us, we may not be able to service debt, pay obligations, or pay dividends on our common
stock. The inability to receive dividends from the Bank could have a material adverse impact on our business, financial
condition, results of operations and prospects.
Our ability to sustain or improve upon existing performance is dependent upon our ability to respond to technological
change, and we may have fewer resources than some of our competitors to continue to invest in technological
improvements.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-
driven products and services. The effective use of technology increases efficiency and enables financial institutions to better
serve customers and to reduce costs. Many of our competitors have substantially greater resources to invest in technological
improvements than we do. Our future success will depend, in part, upon our ability to address the needs of our clients by using
technology to provide products and services that will satisfy client demands for convenience, as well as to create additional
efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be
successful in marketing these products and services to our customers. In addition, the implementation of technological changes
and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing
errors and system conversion delays and may cause us to fail to comply with applicable laws. There can be no assurance that
we will be able to successfully manage the risks associated with our increased dependency on technology.
A failure in or breach of our operational or security systems, or those of our third party service providers, including as a
result of cyber attacks, could disrupt our business, result in unintentional disclosure or misuse of confidential or proprietary
information, damage our reputation, increase our costs and cause losses.
As a financial institution, our operations rely heavily on the secure processing, storage and transmission of confidential
and other information on our computer systems and networks. Any failure, interruption or breach in security or operational
integrity of these systems could result in failures or disruptions in our online banking system, customer relationship
management, general ledger, deposit and loan servicing and other systems. The security and integrity of our systems could be
threatened by a variety of interruptions or information security breaches, including those caused by computer hacking, cyber
attacks, electronic fraudulent activity or attempted theft of financial assets. We cannot assure you that any such failures,
interruption or security breaches will not occur, or if they do occur, that they will be adequately addressed. While we have
certain protective policies and procedures in place, the nature and sophistication of the threats continue to evolve. We may be
required to expend significant additional resources in the future to modify and enhance our protective measures.
Additionally, we face the risk of operational disruption, failure, termination or capacity constraints of any of the third
parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial
intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems. Any failures,
interruptions or security breaches in our information systems could damage our reputation, result in a loss of customer
business, result in a violation of privacy or other laws, or expose us to civil litigation, regulatory fines or losses not covered by
insurance. All of which could have a material adverse impact on our business, financial condition, results of operations and
prospects.
21
Significant legal or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and
have a material adverse effect on our business and results of operations.
We are from time to time subject to claims and proceedings related to our operations. These claims and legal actions,
which could include supervisory or enforcement actions by our regulators, or criminal proceedings by prosecutorial authorities,
could involve large monetary claims, including civil money penalties or fines imposed by government authorities, and
significant defense costs. To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with
deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil
money penalties or fines imposed by government authorities and may not cover all other claims that might be brought against
us or continue to be available to us at a reasonable cost. As a result, we may be exposed to substantial uninsured liabilities,
which could adversely affect our business, prospects, results of operations and financial condition. Substantial legal liability or
significant regulatory action against us could cause significant reputational harm to us and/or could have a material adverse
impact on our business, financial condition, results of operations and prospects.
We are subject to a variety of operational risks, including reputational risk, legal risk and compliance risk, and the risk
of fraud or theft by employees or outsiders, which may adversely affect our business and results of operations.
We are exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud
or theft by employees or outsiders, and unauthorized transactions by employees or operational errors, including clerical or
record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.
If personal, non-public, confidential or proprietary information of customers in our possession were to be mishandled or
misused, we could suffer significant regulatory consequences, reputational damage and financial loss. Such mishandling or
misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the
information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise
inappropriately taken by third parties.
Because the nature of the financial services business involves a high volume of transactions, certain errors may be
repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated
systems to record and process transactions and our large transaction volume may further increase the risk that technical flaws or
employee tampering or manipulation of those systems will result in losses that are difficult to detect. We also may be subject to
disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer
viruses or electrical or telecommunications outages, or natural disasters, disease pandemics or other damage to property or
physical assets) which may give rise to disruption of service to customers and to financial loss or liability. We are further
exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same
risk of fraud or operational errors by their respective employees as we are) and to the risk that we (or our vendors’) business
continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished
ability of us to operate our business (for example, by requiring us to expend significant resources to correct the defect), as well
as potential liability to clients, reputational damage and regulatory intervention, which could have a material adverse impact on
our business, financial condition, results of operations and prospects.
We have various anti-takeover measures that could impede a takeover.
Our articles of incorporation include certain provisions that could make it more difficult to acquire us by means of a
tender offer, a proxy contest, merger or otherwise. These provisions include certain non-monetary factors that our board of
directors may consider when evaluating a takeover offer, and a requirement that any “Business Combination” be approved by
the affirmative vote of no less than 66 2/3% of the total shares attributable to persons other than a “Control Person.” These
provisions may have the effect of lengthening the time required for a person to acquire control of us through a tender offer,
proxy contest or otherwise, and may deter any potentially hostile offers or other efforts to obtain control of us. This could
deprive our shareholders of opportunities to realize a premium for their Columbia common stock, even in circumstances where
such action is favored by a majority of our shareholders.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
22
ITEM 2.
PROPERTIES
The Company’s principal properties include our corporate headquarters which is located at 13th & A Street, Tacoma,
Washington, and two operations facilities in Lakewood, Washington.
The Company’s branch network as of December 31, 2014 is made up of 154 branches located throughout several
Washington, Oregon and Idaho counties compared to 142 branches at December 31, 2013. The number of branches per state, as
well as whether it is owned or operated under a lease agreement is detailed in the following table.
Washington branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Columbia Bank branches. . . . . . . . . . . . . . . . . . . . . .
78
60
16
154
59
29
10
98
19
31
6
56
Number of
Branches
Occupancy Type
Owned
Leased
For additional information concerning our premises and equipment and lease obligations, see Notes 9 and 17,
respectively, to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
ITEM 3.
LEGAL PROCEEDINGS
On June 24, 2009, West Coast Trust, which as a result of our 2013 acquisition of West Coast Bancorp is now a
subsidiary of the Company, was served with an Objection to Personal Representative’s Petition and Petition for Surcharge of
Personal Representative in Linn County Circuit Court. The petitioners alleged a breach of fiduciary duty with respect to West
Coast Trust’s prior sale of real property owned by the petitioner’s estate and sought relief in the form of a surcharge to West
Coast Trust of $215.6 million. West Coast Trust filed a motion to dismiss on July 2, 2009, which was granted in a letter ruling
dated September 15, 2009. Petitioners appealed and on October 8, 2014, the Court of Appeals of the State of Oregon affirmed
the lower court’s ruling dismissing all claims against West Coast Trust. On November 12, 2014, the petitioners filed an
Appellant’s Petition for Review with the Supreme Court of the State of Oregon, seeking review and reversal of the Court of
Appeals’ decision and remand of the case to the circuit court for trial. On February 5, 2015, the Supreme Court of the State of
Oregon denied the Petition for Review, effectively disposing of this matter in its entirety.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
23
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Quarterly Common Stock Prices and Dividends
Our common stock is traded on the NASDAQ Global Select Market under the symbol “COLB”. Quarterly high and low
sales prices and dividend information for the last two years are presented in the following table. The prices shown do not
include retail mark-ups, mark-downs or commissions:
2014
High
Low
Regular
Special
Total Cash
Dividends Declared
Cash Dividends Declared
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
$
$
30.36
29.31
27.13
28.71
30.36
High
22.08
23.88
25.59
28.37
28.37
$
$
$
$
$
$
$
$
$
$
24.75
25.68
24.50
23.90
23.90
$
$
0.12
0.12
0.14
0.16
0.54
$
$
— $
0.12
0.14
0.14
0.40
$
0.12
0.24
0.28
0.30
0.94
Cash Dividends Declared
Low
Regular
Special
Total Cash
Dividends Declared
18.27
19.85
23.17
23.53
18.27
$
$
0.10
0.10
0.10
0.11
0.41
$
$
— $
—
—
—
— $
0.10
0.10
0.10
0.11
0.41
On December 31, 2014, the last sale price for our stock on the NASDAQ Global Select Market was $27.61. At
January 31, 2015, the number of shareholders of record was 2,729. This figure does not represent the actual number of
beneficial owners of common stock because shares are frequently held in “street name” by securities dealers and others for the
benefit of individual owners who may vote the shares.
At December 31, 2014, a total of 75,998 stock options were outstanding. Additional information about stock options and
other equity compensation plans is included in Note 22 to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data” of this report.
The payment of future cash dividends is at the discretion of our board of directors and subject to a number of factors,
including results of operations, general business conditions, growth, financial condition and other factors deemed relevant to
capital management strategies by the board of directors. In addition, the payment of cash dividends is subject to Federal
regulatory requirements for capital levels and other restrictions. In this regard, current guidance from the Federal Reserve
provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings
per share, measured over the previous four fiscal quarters.
Subsequent to year end, on January 29, 2015 the Company declared a regular quarterly cash dividend of $0.16 per share
and a special cash dividend of $0.14, both payable on February 25, 2015, to shareholders of record at the close of business on
February 11, 2015.
24
Equity Compensation Plan Information
The following table provides information as of December 31, 2014, regarding securities issued and to be issued under our
equity compensation plans that were in effect during 2014:
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . .
__________
Year ended December 31, 2014
Number of Shares to be
Issued Upon Exercise of
Outstanding
Options and Rights (1)
Weighted-Average
Exercise Price of
Outstanding Options
and Rights
Number of Shares
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (2)
75,998
$
—
62.41
—
2,402,279
—
(1) Includes shares to be issued upon exercise of options under plans of West Coast Bancorp, Bank of Astoria, Mountain
Bank Holding Company and Town Center Bancorp, which were assumed as a result of their acquisitions.
(2) Includes 1,784,537 shares available for future issuance under the current stock option and equity compensation plan,
75,998 shares available for future issuance under the former stock option and equity compensation plan and 541,744
shares available for purchase under the Employee Stock Purchase Plan as of December 31, 2014.
The following table provides information about repurchases of common stock by the Company during the quarter ended
December 31, 2014:
Period
10/1/2014 - 10/31/2014 . . . . . . . .
11/1/2014 - 11/30/2014 . . . . . . . .
12/1/2014 - 12/31/2014 . . . . . . . .
Total Number of
Common Shares
Purchased (1)
Average Price Paid
per Common Share
Total number of
Shares Purchased as
Part of Publicly
Announced Plan (2)
Maximum Number
of Remaining Shares
That May Be
Purchased at Period
End Under the Plan
348
—
—
348
$
$
25.60
—
—
25.60
—
—
—
—
2,000,000
2,000,000
2,000,000
(1) All common share repurchases during the quarter relate to shares withheld to pay taxes due upon vesting of restricted
stock. During the three months ended December 31, 2014, no shares were repurchased pursuant to the Company’s
publicly announced corporate stock repurchase plan described in (2) below.
(2) The repurchase plan, which was approved by the board of directors and announced in 2011, originally authorized the
repurchase of up to 2 million shares.
25
Five-Year Stock Performance Graph
The following graph shows a five-year comparison of the total return to shareholders of Columbia’s common stock,
the Nasdaq Composite Index (which is a broad nationally recognized index of stock performance by companies listed on the
Nasdaq Stock Market) and the SNL Bank NASDAQ (comprised of banks listed on the NASDAQ Stock Market).
The definition of total return includes appreciation in market value of the stock as well as the actual cash and stock
dividends paid to shareholders. The graph assumes that the value of the investment in Columbia’s common stock, the
NASDAQ Composite, the SNL Bank NASDAQ and the SNL Columbia Peer Group was $100 on December 31, 2009, and that
all dividends were reinvested.
Total Return Performance
e
u
l
a
V
x
e
d
n
I
240
220
200
180
160
140
120
100
80
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
Period Ending
Columbia Banking System, Inc.
NASDAQ Composite
SNL Bank NASDAQ
Index
Columbia Banking System, Inc.. . . .
NASDAQ Composite. . . . . . . . . . . .
SNL Bank NASDAQ . . . . . . . . . . . .
12/31/2009
100.00
100.00
100.00
12/31/2010
130.44
118.15
117.98
12/31/2011
121.20
117.22
104.68
12/31/2012
118.62
138.02
124.77
12/31/2013
185.02
193.47
179.33
12/31/2014
192.74
222.16
185.73
Period Ending
Source: SNL Financial LC, Charlottesville, VA
26
ITEM 6.
SELECTED FINANCIAL DATA
Five-Year Summary of Selected Consolidated Financial Data (1)
2014
2013 (2)
2012 (2)
2011 (2)
2010 (2)
(dollars in thousands except per share amounts)
For the Year
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan and lease losses (2) . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
Per Common Share
Earnings (Basic) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (Diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
$
$
$
308,042
3,994
304,048
6,727
59,750
239,286
81,574
81,478
1.53
1.52
21.34
$
$
$
$
$
$
$
$
$
$
$
296,935
5,840
291,095
(101)
26,700
230,886
60,016
59,984
1.24
1.21
20.50
$
$
$
$
$
$
$
$
$
$
$
248,504
9,577
238,927
39,367
27,058
162,913
46,143
46,143
1.16
1.16
19.25
$
$
$
$
$
$
$
$
$
$
$
251,271
14,535
236,736
5,752
(9,283)
155,759
48,037
48,037
1.22
1.21
19.23
$
$
$
$
$
$
$
$
$
$
$
185,879
21,092
164,787
47,346
52,781
137,147
30,784
25,837
0.73
0.72
17.97
Averages
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,468,091
$ 6,558,517
$ 4,826,283
$ 4,509,010
$ 4,248,590
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,561,047
$ 5,754,543
$ 4,246,724
$ 3,871,424
$ 3,583,728
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,782,369
$ 4,140,826
$ 2,900,520
$ 2,607,266
$ 2,485,650
Securities, including Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . .
$ 1,708,575
$ 1,474,744
$ 1,011,294
$
928,891
$
720,152
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,187,342
$ 5,420,577
$ 3,875,666
$ 3,541,399
$ 3,270,923
Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,109,581
$
979,099
$
761,185
$
730,726
$
668,469
Financial Ratios
Net interest margin (tax equivalent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average equity to average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.76%
1.09%
7.36%
14.86%
5.16%
0.92%
6.14%
14.93%
5.77%
0.96%
6.06%
15.77%
6.27%
1.07%
6.57%
16.21%
4.76%
0.72%
4.15%
15.73%
At Year End
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,578,846
$ 7,161,582
$ 4,906,335
$ 4,785,945
$ 4,256,363
Loans (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,445,378
$ 4,517,296
$ 2,947,103
$ 2,885,244
$ 2,438,870
Allowance for loan and lease losses (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
69,569
$
72,454
$
82,300
$
57,985
Securities, including Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . .
$ 2,131,622
$ 1,696,640
$ 1,023,484
$ 1,050,325
$
$
67,048
781,774
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,924,722
$ 5,959,475
$ 4,042,085
$ 3,815,529
$ 3,327,269
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,619,944
$ 5,696,357
$ 3,802,366
$ 3,510,435
$ 2,998,482
Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,228,175
1,053,249
764,008
759,338
706,878
Nonperforming Assets
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned and other personal property owned (2) . . . . . . . . . . . . .
Total nonperforming assets (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Nonperforming loans to year end loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets to year end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses to year end loans . . . . . . . . . . . . . . . . . . . .
31,352
22,225
53,577
0.58%
0.62%
1.28%
$
34,015
36,037
70,052
0.75%
0.98%
1.60%
$
37,395
27,464
64,859
1.27%
1.32%
2.79%
53,483
60,030
89,163
45,434
$
113,513
$
134,597
1.85%
2.37%
2.01%
3.66%
3.16%
2.75%
Net loan charge-offs (2)
Other nonfinancial data
$
9,612
$
9,745
$
15,052
$
14,815
$
33,776
Full-time equivalent employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Banking branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,844
154
1,695
142
1,198
99
1,256
102
1,092
84
__________
(1) These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.
(2) Adjusted to conform to current period presentation. The adjustments were limited to including historically disclosed “covered” amounts into the
respective rows as these amounts are no longer disclosed separately in the consolidated balance sheets or consolidated statements of income.
27
Consolidated Five-Year Financial Data (1)
Interest Income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities. . . . . . . . . . . . . . . . . . . . .
Federal funds sold and deposits with banks . . . .
Total interest income. . . . . . . . . . . . . . . . . .
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances. . . . . . . . . .
Prepayment charge on Federal Home Loan
Bank advances . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . .
Net Interest Income . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan and lease
losses (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision . . . . . . .
Noninterest income (loss). . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes. . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . .
Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . .
Less: Dividends on preferred stock. . . . . . .
Net Income (Loss) Applicable to Common
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
Per Common Share
Earnings (loss) basic . . . . . . . . . . . . . . . . . .
Earnings (loss) diluted . . . . . . . . . . . . . . . .
Average number of common shares
outstanding (basic) . . . . . . . . . . . . . . . . . . . . .
Average number of common shares
outstanding (diluted). . . . . . . . . . . . . . . . . . . .
Total assets at year end. . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . .
Years ended December 31,
2014
2013 (2)
2012 (2)
2011 (2)
2010 (2)
(in thousands, except per share amounts)
$ 268,279
28,754
10,830
179
308,042
$ 266,284
20,459
9,837
355
296,935
$ 219,433
18,276
9,941
854
248,504
$ 218,420
21,870
10,142
839
251,271
$ 157,292
18,276
9,348
963
185,879
3,005
396
—
—
593
3,994
304,048
6,727
297,321
59,750
239,286
117,785
36,211
81,574
96
81,478
1.53
1.52
$
$
$
$
3,962
(404)
1,548
—
734
5,840
291,095
(101)
291,196
26,700
230,886
87,010
26,994
60,016
32
59,984
1.24
1.21
$
$
$
$
5,887
2,608
603
—
479
9,577
238,927
39,367
199,560
27,058
162,913
63,705
17,562
46,143
—
46,143
1.16
1.16
$
$
$
$
10,478
2,980
—
579
498
14,535
236,736
5,752
230,984
(9,283)
155,759
65,942
17,905
48,037
—
48,037
1.22
1.21
$
$
$
$
16,733
2,841
—
1,029
489
21,092
164,787
47,346
117,441
52,781
137,147
33,075
2,291
30,784
4,947
25,837
0.73
0.72
$
$
$
$
52,618
47,993
39,260
39,103
35,209
53,183
49,051
39,263
39,180
35,392
$ 7,161,582
$ 4,906,335
$ 4,785,945
$ 8,578,846
$
$
0.94
— $
$
— $
$
0.41
— $
$
0.98
$ 4,256,363
25,735
0.04
— $
$
0.27
__________
(1) These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this report.
(2) Adjusted to conform to current period presentation. The adjustment was limited to including historically disclosed “covered” amounts
into the respective row as these amounts are no longer disclosed separately in the consolidated statements of income.
28
Selected Quarterly Financial Data (1)
The following table presents selected unaudited consolidated quarterly financial data for each quarter of 2014 and 2013.
The information contained in this table reflects all adjustments, which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods.
First
Quarter
Second
Quarter
Fourth
Quarter
(in thousands, except per share amounts)
Third
Quarter
Year Ended
December 31,
2014
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Common Share (2)
Earnings (basic) . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (diluted). . . . . . . . . . . . . . . . . . . . . . . .
2013
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan and lease losses (3) . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Common Share (2)
Earnings (basic) . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (diluted). . . . . . . . . . . . . . . . . . . . . . . .
$
74,925
$
76,087
$
77,133
$
79,897
$
308,042
985
73,940
1,922
14,008
57,386
28,640
8,796
19,844
0.38
0.37
54,761
1,279
53,482
(20)
1,658
38,049
17,111
4,935
12,176
0.31
0.31
$
$
$
$
$
$
$
963
75,124
2,117
14,627
57,764
29,870
8,643
21,227
0.40
0.40
82,268
2,279
79,989
288
6,808
64,504
22,005
7,414
14,591
0.28
0.28
$
$
$
$
$
$
$
913
76,220
980
15,930
59,982
31,188
9,605
21,583
0.41
0.41
81,599
1,184
80,415
3,313
7,622
64,714
20,010
6,734
13,276
0.26
0.25
1,133
78,764
1,708
15,185
64,154
28,087
9,167
18,920
0.34
0.34
78,307
1,098
77,209
(3,682)
10,612
63,619
27,884
7,911
19,973
0.39
0.38
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,994
304,048
6,727
59,750
239,286
117,785
36,211
81,574
1.53
1.52
296,935
5,840
291,095
(101)
26,700
230,886
87,010
26,994
60,016
1.24
1.21
__________
(1) These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this report.
(2) Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year.
(3) Adjusted to conform to current period presentation. The adjustment was limited to including historically disclosed “covered” amounts
into the respective row as these amounts are no longer disclosed separately in the consolidated statements of income.
29
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
This discussion should be read in conjunction with our Consolidated Financial Statements and related notes in “Item 8.
Financial Statements and Supplementary Data” of this report. In the following discussion, unless otherwise noted, references to
increases or decreases in average balances in items of income and expense for a particular period and balances at a particular
date refer to the comparison with corresponding amounts for the period or date for the previous year.
Critical Accounting Policies
We have established certain accounting policies in preparing our Consolidated Financial Statements that are in
accordance with accounting principles generally accepted in the United States. Our significant accounting policies are
presented in Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this
report. Certain of these policies require the use of judgments, estimates and economic assumptions which may prove inaccurate
or are subject to variation that may significantly affect our reported results of operations and financial position for the periods
presented or in future periods. Management believes that the judgments, estimates and economic assumptions used in the
preparation of the Consolidated Financial Statements are appropriate given the factual circumstances at the time. We consider
the following policies to be most critical in understanding the judgments that are involved in preparing our consolidated
financial statements.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (“ALLL”) is established to absorb known and inherent losses in our loan and
lease portfolio. Our methodology in determining the appropriate level of the ALLL includes components for a general valuation
allowance in accordance with the Contingencies topic of the Financial Accounting Standards Board Accounting Standards
Codification (“FASB ASC”), a specific valuation allowance in accordance with the Receivables topic of the FASB ASC and an
unallocated component. Both quantitative and qualitative factors are considered in determining the appropriate level of the
ALLL. Quantitative factors include historical loss experience, delinquency and charge-off trends and the evaluation of specific
loss estimates for problem loans. Qualitative factors include existing general economic and business conditions in our market
areas as well as the duration of the current business cycle. Changes in any of the factors mentioned could have a significant
impact on our calculation of the ALLL. Our ALLL policy and the judgments, estimates and economic assumptions involved are
described in greater detail in the “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit”
section of this discussion and in Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data” of this report.
Business Combinations
The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the
acquiring entity in a business combination recognizes 100 percent of the assets acquired and liabilities assumed at their
acquisition date fair values. Management utilizes prevailing valuation techniques appropriate for the asset or liability being
measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired,
including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets
acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related
costs are expensed as incurred.
Purchased Credit Impaired Loans
Loans acquired at a discount for which it is probable that all contractual payments will not be received are generally
accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”).
In addition, certain purchased loans with evidence of deteriorated credit quality may be accounted for under this topic even if it
is not yet probable that all contractual payments will not be received. These loans are recorded at fair value at the time of
acquisition. Estimated credit losses are included in the determination of fair value, therefore, an allowance for loan losses is not
recorded on the acquisition date. The excess of expected cash flows at acquisition over the initial investment in acquired loans
(“accretable yield”) is recorded as interest income over the life of the loans if the timing and amount of the future cash flows is
reasonably estimable. Subsequent to acquisition, the Company aggregates individual loans with common risk characteristics
into pools of loans. Increases in estimated cash flows over those expected at the acquisition date are recognized as interest
income, prospectively. Decreases in expected cash flows after the acquisition date are recognized by recording an allowance for
loan losses.
30
Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete
interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, purchased credit
impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount
of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and the purchase price
discount on those loans is not recorded as interest income until the timing and amount of future cash flows can be reasonably
estimated.
FDIC Loss-sharing Asset
In conjunction with certain of the FDIC-assisted acquisitions, the Bank entered into loss-sharing agreements with the
FDIC. At the date of the acquisitions, the Company elected to account for amounts receivable under the loss-sharing
agreements as an indemnification asset in accordance with the Business Combinations topic of the FASB ASC. Subsequent to
initial recognition, the FDIC loss-sharing asset is reviewed quarterly and adjusted for any changes in expected cash flows.
These adjustments are measured on the same basis as the related covered assets. Any decrease in expected cash flows due to an
increase in expected credit losses will increase the FDIC loss-sharing asset and any increase in expected future cash flows due
to a decrease in expected credit losses will decrease the FDIC loss-sharing asset. Increases and decreases to the FDIC loss-
sharing asset are recorded as adjustments to noninterest income.
Valuation and Recoverability of Goodwill
Goodwill represented $382.5 million of our $8.58 billion in total assets as of December 31, 2014. The Company has one,
single reporting unit. We review goodwill for impairment annually, during the third quarter, and also test for impairment
between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our
reporting unit below its carrying amount. Such events and circumstances may include among others: a significant adverse
change in legal factors or in the general business climate; significant decline in our stock price and market capitalization;
unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse
action or assessment by a regulator. Any adverse change in these factors could have a significant impact on the recoverability of
goodwill and could have a material impact on our consolidated financial statements.
Under the Intangibles – Goodwill and Other topic of the FASB ASC, the testing for impairment may begin with an
assessment of qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. When required, the goodwill impairment test involves a two-step process. In step one, we would test goodwill
for impairment by comparing the fair value of the reporting unit with its carrying amount. If the fair value of the reporting unit
exceeds the carrying amount of the reporting unit, goodwill is not deemed to be impaired, and no further testing is necessary. If
the carrying amount of the reporting unit were to exceed the fair value of the reporting unit, we would perform a second test to
measure the amount of impairment loss, if any. To measure the amount of any impairment loss, we would determine the
implied fair value of goodwill in the same manner as if the reporting unit were being acquired in a business combination.
Specifically, we would allocate the fair value of the reporting unit to all of the assets and liabilities of the reporting unit in a
hypothetical calculation that would determine the implied fair value of goodwill. If the implied fair value of goodwill is less
than the recorded goodwill, we would record an impairment charge for the difference.
The accounting estimates related to our goodwill require us to make considerable assumptions about fair values. Our
assumptions regarding fair values require significant judgment about economic and industry factors, as well as our views
regarding the growth and earnings prospects of the Bank. Changes in these judgments, either individually or collectively, may
have a significant effect on the estimated fair values.
Based on the results of the annual goodwill impairment test, we determined that no goodwill impairment charges were
required as our single reporting unit’s fair value exceeded its carrying amount. As of December 31, 2014 we determined there
were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying
amount.
Even though we determined that there was no goodwill impairment during 2014, additional adverse changes in the
operating environment for the financial services industry may result in a future impairment charge.
Please refer to Note 10 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary
Data” of this report for further discussion.
Reclassifications
Certain amounts in the 2013 financial statements have been reclassified to conform to the current year’s presentation.
These reclassifications had no effect on total stockholders’ equity, net income or cash flows as previously reported.
31
2014 Financial Summary
• Consolidated net income for 2014 was $81.6 million, or $1.52 per diluted common share, compared with a net income
of $60.0 million, or $1.21 per diluted common share, in 2013.
• Net interest income for 2014 increased 4% to $304.0 million compared to $291.1 million for 2013. Interest income
was $308.0 million in 2014, compared to $296.9 million in 2013. The increase was primarily due to higher loan and
securities balances, partially offset by lower earning rates. Interest expense decreased $1.8 million, primarily due to
the prepayment charge on Federal Home Loan Bank advances recorded in 2013.
•
Provision expense on loans was $6.7 million in 2014, compared to provision recapture of $0.1 million in 2013. The
loan provision for the current year was driven by growth in the loan portfolio and net charge-offs.
• Noninterest income was $59.8 million for 2014, an increase from $26.7 million for 2013. The increase was due to
lower expense recorded in 2014 for the FDIC loss-sharing asset as well as an increase of $7.2 million in service
charges and other fees compared to 2013.
• Noninterest expense increased $8.4 million, or 4% to $239.3 million for 2014 due to additional ongoing noninterest
expense resulting from the Intermountain acquisition during 2014 and the West Coast acquisition on April 1, 2013.
• Total assets at December 31, 2014 were $8.58 billion, up 20% from $7.16 billion at the end of 2013, due to a
combination of organic growth and the acquisition of Intermountain.
•
Investment securities available for sale at December 31, 2014 were $2.10 billion, up 26% from $1.66 billion at
December 31, 2013, primarily due to the acquisition of Intermountain.
• Loans were $5.45 billion, up 21% from $4.52 billion at the end of 2013. The increase from December 31, 2013 was
due to a combination of organic loan growth as well as the acquisition of Intermountain, which added $502.6 million
in loans.
• The allowance for loan and lease losses decreased slightly to $69.6 million at December 31, 2014 compared to $72.5
million at December 31, 2013 due to improved loan quality on a larger loan portfolio. The Company’s allowance
decreased to 1.28% of total loans, compared with 1.60% at the end of 2013.
• Nonperforming assets totaled $53.6 million at December 31, 2014, down from $70.1 million at December 31, 2013.
The decrease in nonperforming assets was primarily due to a $13.8 million decrease in Other Real Estate Owned
(“OREO) and Other Personal Property Owned (“OPPO”) balances. Nonperforming assets to year end assets decreased
to 0.62% at December 31, 2014 compared to 1.02% at December 31, 2013.
• Deposits totaled $6.92 billion at December 31, 2014 compared to $5.96 billion at December 31, 2013. The increase
was due to a combination of organic growth as well as the acquisition of Intermountain, which added $736.8 million
in deposits. Core deposits totaled $6.62 billion at December 31, 2014, compared to $5.70 billion at December 31,
2013. Core deposits held steady at 96% of total deposits at December 31, 2014 and 2013.
• The Company is well capitalized with a total risk-based capital ratio of 14.13% at December 31, 2014 compared to
14.68% at December 31, 2013. The decrease in the total risk-based capital ratio was due to the deployment of capital
for the acquisition of Intermountain.
32
Business Combinations
On November 1, 2014, the Company completed its acquisition of Intermountain. The Company acquired approximately
$964.4 million in assets, including $502.6 million in loans measured at fair value and $736.8 million in deposits. See Note 2 to
the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report for further
information regarding this acquisition.
On April 1, 2013, the Company completed its acquisition of West Coast. The Company acquired approximately $2.63
billion in assets, including $1.41 billion in loans measured at fair value and $1.88 billion in deposits. See Note 2 to the
Consolidated Financial Statements in “Item 8. Financial Statements” of this report for further information regarding this
acquisition.
On August 5, 2011, the Bank acquired certain assets and assumed certain liabilities of the Bank of Whitman from the
FDIC in an FDIC-assisted transaction. The Bank and the FDIC entered into a modified whole bank purchase and assumption
agreement without loss share. The bank acquired $437.5 million in assets, including $200.0 million in loans measured at fair
value, and $401.1 million in deposits located in nine branches in eastern Washington. The Bank participated in a competitive
bid process in which the accepted bid included no deposit premium on non-brokered deposits and a negative bid of $30.0
million on net assets acquired.
On May 27, 2011, the Bank acquired certain assets and assumed certain liabilities of First Heritage Bank from the FDIC
in an FDIC-assisted transaction. The Bank acquired $165.0 million in assets and $159.5 million in deposits located in five
branches in the King and Snohomish counties of Washington. First Heritage Bank’s loans and other real estate assets acquired
of $89.7 million are subject to a loss-sharing agreement with the FDIC. The Bank participated in a competitive bid process in
which the accepted bid included a 0.75% deposit premium on non-brokered deposits and a negative bid of $10.5 million on net
assets acquired.
On May 20, 2011, the Bank acquired certain assets and assumed certain liabilities of Summit Bank from the FDIC in an
FDIC-assisted transaction. The Bank acquired $131.1 million in assets and $123.3 million in deposits located in three branches
in the northern Puget Sound region of Washington. Summit Bank’s loans and other real estate assets acquired of $71.9 million
are subject to a loss-sharing agreement with the FDIC. The Bank participated in a competitive bid process in which the
accepted bid included a 0.75% deposit premium on non-brokered deposits and a negative bid of $9.5 million on net assets
acquired.
33
RESULTS OF OPERATIONS
Summary
A summary of the Company’s results of operations for each of the last five years ended December 31 follows:
Year
ended
2014
Increase
(Decrease)
Year
ended
Increase
(Decrease)
Years ended December 31,
Amount
%
2013 (1)
Amount
%
2012 (1)
2011 (1)
2010 (1)
(dollars in thousands, except per share amounts)
Interest income . . . . . . . . . . .
$ 308,042
$
11,107
4
$ 296,935
$
48,431
19
$ 248,504
$ 251,271
$ 185,879
(1,846)
12,953
(32)
4
5,840
291,095
(3,737)
52,168
6,828
(6,760)
(101)
(39,468)
33,050
124
26,700
(358)
(39)
22
(100)
(1)
9,577
238,927
39,367
27,058
14,535
236,736
5,752
(9,283)
21,092
164,787
47,346
52,781
Interest expense. . . . . . . . . . .
Net interest income . . . . . . . .
Provision (recapture) for
loan and lease losses (1) . .
Noninterest income (loss) . . .
Noninterest expense:
Compensation and
employee
benefits . . . . . . . . . .
Other expense. . . . . . . .
Total . . . . . . . . . .
3,994
304,048
6,727
59,750
130,864
108,422
239,286
Less: earnings
allocated to
participating
securities. . . . .
Earnings allocated
to common
shareholders. . . . . . .
Earnings per
common share,
diluted . . . . . . . . . . .
Income before income
taxes . . . . . . . . . . . . . . . . .
117,785
30,775
Provision for income
taxes . . . . . . . . . . . . . . . . .
36,211
9,217
Net income . . . . . . . . . .
$
81,574
$
21,558
5,432
2,968
8,400
4
3
4
35
34
36
52
125,432
105,454
230,886
39,998
27,975
67,973
87,010
23,305
26,994
9,432
$
60,016
$
13,873
618
175
47
36
42
37
54
30
40
85,434
77,479
81,552
74,207
69,780
67,367
162,913
155,759
137,147
63,705
65,942
33,075
17,562
17,905
2,291
$
46,143
$
48,037
$
30,784
443
450
5,191
937
319
$
80,637
$
1.52
$
$
21,239
36
$
59,398
$
13,698
30
$
45,700
$
47,587
$
25,593
0.31
26
$
1.21
$
0.05
4
$
1.16
$
1.21
$
0.72
__________
(1) Adjusted to conform to current period presentation. The adjustment was limited to including historically disclosed “covered” amounts into
the respective row as these amounts are no longer disclosed separately in the consolidated statements of income.
Net Interest Income
Net interest income is the difference between interest income and interest expense. Net interest income on a fully taxable-
equivalent basis expressed as a percentage of average total interest-earning assets is referred to as the net interest margin, which
represents the average net effective yield on interest-earning assets.
34
The following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing
liabilities, the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing
liabilities, the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities by category
and in total, net interest income, net interest spread, net interest margin and the ratio of average interest-earning assets to
interest-earning liabilities:
7.59%
2.47%
5.69%
0.26%
6.00%
0.60%
0.03%
0.11%
0.16%
0.22%
Net Interest Income Summary
ASSETS
Loans, net (1)(2)(3)(5) . . . . . . . . . . . . . . .
Taxable securities (4). . . . . . . . . . . . . . . .
Tax exempt securities (5). . . . . . . . . . . . .
Interest-earning deposits with banks . . . .
Total interest-earning assets . . . . . .
Other earning assets. . . . . . . . . . . . . . . . .
Noninterest-earning assets. . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . .
$ 7,468,091
LIABILITIES AND SHAREHOLDERS’ EQUITY
2014
Interest
Earned/
Paid
Average
Balances
Average
Rate
Average
Balances
2013 (1)
Interest
Earned/
Paid
Average
Rate
Average
Balances
2012 (1)
Interest
Earned/
Paid
Average
Rate
(dollars in thousands)
$ 4,782,369
$270,210
5.65% $ 4,140,826
$266,903
6.45% $ 2,900,520
$220,198
1,332,144
376,431
70,103
28,754
16,997
179
2.16% 1,155,066
4.52%
0.26%
319,678
138,973
20,459
15,262
355
1.77%
4.77%
0.26%
740,418
270,876
334,910
18,276
15,423
854
6,561,047
316,140
4.82% 5,754,543
302,979
5.27% 4,246,724
254,751
132,419
774,625
111,228
692,746
$ 6,558,517
76,327
503,232
$ 4,826,283
Certificates of deposit . . . . . . . . . . . . . . .
$ 485,487
$
1,259
0.26% $ 535,656
$
1,998
0.37% $
543,349
$
3,257
Savings accounts . . . . . . . . . . . . . . . . . . .
543,303
Interest-bearing demand . . . . . . . . . . . . .
1,204,584
Money market accounts. . . . . . . . . . . . . .
1,668,150
Total interest-bearing deposits . . . .
3,901,524
60
478
1,208
3,005
0.01%
445,666
0.04% 1,048,482
0.07% 1,566,539
0.08% 3,596,343
94
587
1,283
3,962
0.02%
0.06%
298,223
790,887
0.08% 1,051,171
0.11% 2,683,630
77
869
1,684
5,887
Federal Home Loan Bank
advances (6) . . . . . . . . . . . . . . . . . . . .
44,876
396
0.88%
51,030
1,144
2.24%
100,337
3,211
3.20%
Other borrowings and interest-
bearing liabilities. . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . .
39,617
3,986,017
593
3,994
1.50%
35,772
0.10% 3,683,145
734
5,840
2.05%
25,000
0.16% 2,808,967
479
9,577
1.92%
0.34%
Noninterest-bearing deposits. . . . . . . . . .
2,285,818
Other noninterest-bearing liabilities . . . .
Shareholders’ equity . . . . . . . . . . . . . . . .
86,675
1,109,581
Total liabilities & shareholders’
equity. . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,468,091
1,824,234
72,039
979,099
$ 6,558,517
1,192,036
64,095
761,185
$ 4,826,283
Net interest income (tax equivalent) . . . . . . . . . . . . . . . .
$312,146
$297,139
$245,174
Net interest spread (tax equivalent) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (tax equivalent) . . . . . . . . . . . . . . . . . . . . . . . . . .
4.72%
4.76%
Average interest-earning assets to average interest-bearing
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164.60%
5.11%
5.16%
156.24%
5.66%
5.77%
151.18%
__________
(1) Adjusted to conform to current period presentation. The adjustment was limited to including historically disclosed “covered” amounts into the respective
row as these amounts are no longer disclosed separately in the consolidated balance sheets.
(2) Nonaccrual loans were included in the table as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on certain
acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $4.5 million in 2014, $3.3 million in
2013 and $2.1 million in 2012. The accretion of net unearned discounts on certain acquired loans was $21.6 million in 2014, $28.4 million in 2013, and
$5.9 million in 2012.
Incremental accretion on purchased credit impaired loans is also included in loan interest earned. The incremental accretion income on purchased credit
impaired loans was $20.2 million in 2014, $29.8 million in 2013 and $55.3 million in 2012.
(3)
(4) During the twelve months ended December 31, 2014, the Company recorded a $2.6 million reversal of premium amortization, which increased interest
income on taxable securities.
(5) Yields on fully taxable equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.9 million, $619 thousand and $765
thousand for the years ended December 31, 2014, 2013, and 2012, respectively. The tax equivalent yield adjustment to interest earned on tax exempt
securities was $6.2 million, $5.4 million and $5.5 million for the years ended December 31, 2014, 2013, and 2012, respectively.
(6) Federal Home Loan Bank advances includes prepayment charges of $1.5 million and $603 thousand in 2013 and 2012, respectively. No prepayment
charges were recorded on Federal Home Loan Bank advances during 2014. As a result of the 2013 prepayment, the Company recorded $874 thousand in
premium amortization, which partially offset the impact of the prepayment charge.
35
Net interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate
multiplied by prior volume) and the mix of interest-earning assets and interest-bearing liabilities. The following table shows
changes in net interest income on a fully taxable-equivalent basis between 2014 and 2013, as well as between 2013 and 2012
broken down between volume and rate. Changes attributable to the combined effect of volume and interest rates have been
allocated proportionately to the changes due to volume and the changes due to interest rates:
Interest Income
Loans, net (1) . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities. . . . . . . . . . . . . . . . . .
Interest earning deposits with banks . . . . . .
Interest income. . . . . . . . . . . . . . . .
Interest Expense
Deposits:
Certificates of deposit . . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . .
Total interest on deposits . . . . . . . .
Federal Home Loan Bank advances. . . . . . .
Other borrowings and interest-bearing
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
Changes in Net Interest Income
2014 Compared to 2013
Increase (Decrease) Due to
2013 Compared to 2012
Increase (Decrease) Due to
Volume
Rate
Total
Volume (1)
Rate (1)
Total (1)
(in thousands)
$ 38,511
3,420
2,598
(177)
$ 44,352
$ (35,204)
4,875
(863)
1
$ (31,191)
$
3,307
$ 83,654
8,295
8,313
1,735
(176)
$ 13,161
2,542
(500)
$ 94,009
$ (36,949)
(6,130)
(2,703)
1
$ (45,781)
$ 46,705
2,183
(161)
(499)
$ 48,228
$
(174)
$
17
79
80
2
(117)
80
(35)
$
$ 44,387
$
(565)
(51)
(188)
(155)
(959)
(631)
(739)
(34)
(109)
(75)
(957)
(748)
$
(45)
33
228
624
840
(1,284)
$ (1,214)
(16)
(510)
(1,025)
(2,765)
(783)
$ (1,259)
17
(282)
(401)
(1,925)
(2,067)
(221)
$ (1,811)
$ (29,380)
(141)
$ (1,846)
$ 15,007
219
(225)
$ 94,234
$
36
$ (3,512)
$ (42,269)
255
$ (3,737)
$ 51,965
__________
(1) Adjusted to conform to current period presentation. The adjustment was limited to including historically disclosed “covered loans” into
the respective row for loans, net as covered loans are no longer disclosed separately in the consolidated balance sheets or statements of
income.
The following table shows the impact to interest income of incremental accretion income as well as the net interest
margin and operating net interest margin for the periods presented:
Year ended
December 31, 2014
Year Ended
December 31, 2013
Year ended
December 31, 2012
(in thousands)
Incremental accretion income due to:
FDIC purchased credit impaired loans . . . . . . .
Other FDIC acquired loans . . . . . . . . . . . . . . . .
Other acquired loans . . . . . . . . . . . . . . . . . . . . .
Total incremental accretion income . . . . . . . . . . . .
$
$
Net interest margin (tax equivalent) . . . . . . . . . . . .
Operating net interest margin (tax equivalent) (1) .
$
$
20,224
484
21,093
41,801
4.76%
4.21%
$
$
29,815
2,211
26,200
58,226
5.16%
4.32%
55,305
5,872
—
61,177
5.77%
4.36%
__________
(1) Operating net interest margin (tax equivalent) is a Non-GAAP financial measure. See Non-GAAP financial measures
section of Item 7, Management’s Discussion and Analysis.
36
Comparison of 2014 with 2013
Taxable-equivalent net interest income totaled $312.1 million in 2014, compared with $297.1 million for 2013. The
increase in net interest income during 2014 resulted from the increase in the size of the loan portfolio as well as lower rates
paid on deposits. These increases were partially offset by lower incremental accretion on acquired loans. The incremental
accretion income represents the amount of income recorded on the acquired loans above the contractual rate stated in the
individual loan notes. The additional income stems from the discount established at the time these loan portfolios were
acquired, and increases net interest income.
The Company’s net interest margin (tax equivalent) decreased from 5.16% for the year ended December 31, 2013 to
4.76% for the current year due to the decreased impact of accretion income on the loan portfolio. The Company’s operating net
interest margin (tax equivalent) decreased from 4.32% for the year ended December 31, 2013 to 4.21% for the current year due
to lower rates on loans due to the overall decreasing trend in rates.
For a discussion of the methodologies used by management in recording interest income on loans, please see “Critical
Accounting Policies” section of this discussion and Note 1 to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data” of this report.
Comparison of 2013 with 2012
Taxable-equivalent net interest income totaled $297.1 million in 2013, compared with $245.2 million for 2012. The
increase in net interest income during 2013 resulted primarily from the increase in the size of the loan and securities portfolios
due to the acquisition of West Coast as well as lower rates paid on deposits, partially offset by lower rates on loans.
The Company’s net interest margin (tax equivalent) decreased from 5.77% for the year ended December 31, 2012 to
5.16% for the year ended December 31, 2013 due to a decrease in yield on securities as well as the decreased impact of
incremental accretion income on the loan portfolio. Although total incremental accretion income was comparable to 2012, the
impact to the net interest margin was greater for the 2012 period due to the lower average interest-earning assets for the 2012
period. The operating net interest margin (tax equivalent) also decreased from 4.36% in 2011 to 4.32% for 2013. The decrease
was due to the combination of lower rates on loans as well as securities due to the overall decreasing trend in rates.
Provision for Loan and Lease Losses
The Company accounts for the credit risk associated with lending activities through its allowance for loan and lease
losses and provision for loan and lease losses. The provision is the expense recognized in the consolidated statements of income
to adjust the allowance to the levels deemed appropriate by management, as determined through its application of the
Company’s allowance methodology procedures. For discussion of the methodology used by management in determining the
adequacy of the ALLL see the “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit” and
“Critical Accounting Policies” sections of this discussion.
The Company recorded provision expense of $6.7 million, a provision recapture of $101 thousand and a provision
expense of $39.4 million in 2014, 2013 and 2012, respectively. The provision recorded in 2014 reflects management’s ongoing
assessment of the credit quality of the Company’s loan portfolio, which is impacted by various economic trends. Additional
factors affecting the provision include credit quality migration, size and composition of the loan portfolio and changes in the
economic environment during the period. See “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters
of Credit” section of this discussion for further information on factors considered by the Company in assessing the credit
quality of the loan portfolio and establishing the allowance for loan and lease losses.
For the years ended December 31, 2014, 2013 and 2012, net loan charge-offs amounted to $9.6 million, $9.7 million, and
$15.1 million, respectively.
37
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage
change from period to period:
2014
$
Change
%
Change
2013
$
Change
%
Change
2012
Years ended December 31,
(dollars in thousands)
$ 55,555
$
7,204
15 % $ 48,351
$ 18,353
61 % $ 29,998
7,975
552
3,823
11,834
(837)
90
253
1,312
(9)%
19 %
7 %
12 %
8,812
462
3,570
10,522
658
(3,271)
709
3,743
8 %
(88)%
25 %
55 %
8,154
3,733
2,861
6,779
79,739
(19,989)
8,022
25,028
$ 59,750
$ 33,050
11 %
71,717
(56)% (45,017)
124 % $ 26,700
20,192
(20,550)
(358)
$
39 %
51,525
84 % (24,467)
(1)% $ 27,058
Service charges and other fees. . . . . .
Merchant services fees . . . . . . . . . . .
Investment securities gains . . . . . . . .
Bank owned life insurance (BOLI) . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income before change
in FDIC loss-sharing asset . . . . . . .
Change in FDIC loss-sharing asset . .
Total noninterest income . . . . . . . . . .
Comparison of 2014 with 2013
The $8.0 million increase in noninterest income before the change in FDIC loss-sharing asset from the prior year was
primarily due to the increase of $7.2 million in service charges and other fees as well as an increase of $1.3 million in other
noninterest income. The increase in service charges and other fees as well as other noninterest income was due to the increased
customer base from organic growth as well as the Intermountain and West Coast acquisitions. In addition to these increases,
there was a decrease in the charge relating to the change in FDIC loss-sharing asset from a charge of $45.0 million in 2013 to a
charge of $20.0 million in 2014.
The change in the FDIC loss-sharing asset recognizes the decreased amount that Columbia expects to collect from the
FDIC under the terms of its loss-sharing agreements. The Company remeasures contractual and expected cash flows of
purchased credit impaired loans on a quarterly basis. When the quarterly remeasurement results in an increase in expected
future cash flows due to a decrease in expected credit losses the nonaccretable difference decreases and the accretable yield of
the related loan pool is increased and recognized as interest income over the life of the loan portfolio. As a result of the
improved expected cash flows, the FDIC loss-sharing asset is reduced first by the amount of any impairment previously
recorded and, second, by increased amortization over the remaining life of the loss-sharing agreements. For additional
information on the FDIC loss-sharing asset, please see the “Loss-sharing Asset” section of Management’s Discussion and
Analysis and Note 8 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of
this report.
Comparison of 2013 with 2012
Noninterest income before the change in FDIC loss-sharing asset for the year ended December 31, 2013 was $71.7
million, an increase of $20.2 million from 2012. The increase in noninterest income before the change in FDIC loss-sharing
asset from the prior year was primarily due to the $18.4 million increase in service charges and other fees as well as an increase
of $3.7 million in other noninterest income. The increase in service charges and other fees as well as other noninterest income
was due to the increased customer base from the West Coast acquisition. These increases were partially offset by a decrease in
investment securities gains primarily due to the $3.0 million impairment charge recorded during 2011 on a single municipal
obligation for which we received full repayment during 2012, resulting in a gain of approximately $3.0 million. These increases
were offset by an increase in the charge to the change in FDIC loss-sharing asset from $24.5 million in 2012 to $45.0 million in
2013.
For additional information on the FDIC loss-sharing asset, please see the “Loss-sharing Asset” section of Management’s
Discussion and Analysis and Note 8 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data” of this report.
38
Other Noninterest Income: The following table presents selected items of “other noninterest income” and the related
dollar and percentage change from period to period:
Years ended December 31,
2014
$
Change
%
Change
2013
$
Change
%
Change
2012
$ 1,563
$
(225)
(dollars in thousands)
$
(13)% $ 1,788
562
46 % $ 1,226
1,821
465
480
2,475
968
1,465
2,597
$ 11,834
721
26
104
(244)
509
178
243
$ 1,312
1,100
66 %
439
6 %
376
28 %
2,719
(9)%
459
111 %
1,287
14 %
10 %
2,354
12 % $ 10,522
493
47
12
1,339
(63)
962
391
$ 3,743
607
81 %
392
12 %
364
3 %
1,380
97 %
522
(12)%
325
296 %
20 %
1,963
55 % $ 6,779
Mortgage banking . . . . . . . . . . . . . . .
Small Business Administration
premiums . . . . . . . . . . . . . . . . . . . .
Letter of credit fees . . . . . . . . . . . . . .
Currency exchange income . . . . . . . .
Miscellaneous fees on loans. . . . . . . .
Interest rate swap income. . . . . . . . . .
Credit card fees . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . .
Total other noninterest income . .
Comparison of 2014 with 2013
The increase in other noninterest income was due to increases in several components of noninterest income, including
Small Business Administration premiums, interest rate swap income and credit card fees. The increase in Small Business
Administration premiums was due to an increase in volume of Small Business Administration loans coupled with favorable
secondary market pricing experienced during 2014.
Comparison of 2013 with 2012
The increase in other noninterest income was due to increases in several components of noninterest income, including
miscellaneous fees on loans, credit card fees, mortgage banking income and Small Business Administration premiums. The
increase in miscellaneous loan fees was primarily a result of the larger loan portfolio due to the acquisition of West Coast as
well as a general increase in prepayment fees.
Noninterest Expense
Noninterest expense was $239.3 million in 2014, an increase of $8.4 million, or 4%, over 2013. Noninterest expense
increased $68.0 million, or 42%, in 2013 over 2012.
39
The following table presents the significant components of noninterest expense and the related dollar and percentage
change from period to period:
2014
$
Change
%
Change
2013 (1)
$
Change
%
Change
2012 (1)
Years ended December 31,
Compensation and employee benefits . . . .
All other noninterest expense:
$ 130,864
$
5,432
(dollars in thousands)
4 % $125,432
$39,998
47 % $ 85,434
Occupancy . . . . . . . . . . . . . . . . . . . . . .
Merchant processing . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . .
Legal and professional services. . . . . .
Taxes, license and fees. . . . . . . . . . . . .
Regulatory premiums . . . . . . . . . . . . .
Net benefit of operation of other
real estate owned (1) . . . . . . . . . . . .
Amortization of intangibles. . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . .
Total all other noninterest
expense . . . . . . . . . . . . . . . . . . .
Total noninterest expense . .
32,300
4,006
3,964
15,369
11,389
4,552
4,549
(1,045)
6,293
27,045
(754)
455
(126)
1,293
(949)
(481)
(157)
6,356
248
(2,917)
(2)%
13 %
(3)%
9 %
(8)%
(10)%
(3)%
(86)%
4 %
(10)%
33,054
3,551
4,090
14,076
12,338
5,033
4,706
(7,401)
6,045
29,962
13,023
(61)
440
4,362
3,423
297
1,322
(5,432)
1,600
9,001
65 %
(2)%
12 %
45 %
38 %
6 %
39 %
276 %
36 %
43 %
20,031
3,612
3,650
9,714
8,915
4,736
3,384
(1,969)
4,445
20,961
108,422
$ 239,286
$
2,968
8,400
3 % 105,454
4 % $230,886
27,975
$67,973
36 %
77,479
42 % $ 162,913
__________
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to combining the rows for covered and
noncovered other real estate owned into one row for net benefit of operation of other real estate owned as well as 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.
The following table shows the impact of the acquisition-related expenses for the periods indicated to the various
components of noninterest expense:
Noninterest Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact of acquisition-related costs to noninterest expense . . . . . . . . . . . . .
$
$
Comparison of 2014 with 2013
2014
Years ended December 31,
2013
(in thousands)
2012
2,875
740
464
684
2,497
2,172
9,432
$
$
8,440
4,684
877
767
4,766
5,954
25,488
$
$
—
—
2
—
1,760
18
1,780
Compensation and employee benefits expense increased 4% to $130.9 million in 2014 from $125.4 million in 2013
primarily due to the added personnel costs associated with the Intermountain and West Coast acquisitions. The remaining
noninterest expense categories increased $3.0 million, or 3%, between 2013 and 2014. The increase was primarily due to lower
benefit on OREO, which was a benefit of $7.4 million in 2013, but only $1.0 million in 2014. Acquisition-related expenses
were $9.4 million in 2014 compared to $25.5 million in 2013.
Comparison of 2013 with 2012
Compensation and employee benefits expense increased to $125.4 million, or 47%, in 2013 from $85.4 million in 2012
primarily due to the added personnel costs associated with the West Coast acquisition. The remaining noninterest expense
categories increased $28.0 million, or 36%, between 2012 and 2013. The increase was primarily due to $25.5 million in
acquisition-related expenses related to the acquisition of West Coast, for which there were only $1.8 million incurred during
2012, as well as additional ongoing noninterest expense related to the acquisition.
40
Other Noninterest Expense: The following table presents selected items of “other noninterest expense” and the related
dollar and percentage change from period to period:
2014
$
Change
%
Change
2013 (1)
$
Change
%
Change
2012 (1)
Years ended December 31,
(dollars in thousands)
Investments in affordable housing projects
expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
Software support & maintenance. . . . . . . . . . . .
Federal Reserve Bank processing fees. . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sponsorships & charitable contributions . . . . . .
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investor relations . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director expenses. . . . . . . . . . . . . . . . . . . . . . . .
Employee expenses . . . . . . . . . . . . . . . . . . . . . .
ATM Network . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC clawback expense (recovery) (1) . . . . . . .
2,178
503
1,473
2,936
1,961
2,115
243
1,623
711
1,046
1,042
295
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . .
10,919
(739)
(782)
289
(95)
(527)
799
155
(216)
(178)
77
(3)
(963)
17
(751)
(100)% $
739
$
130
21 % $
609
(26)%
135 %
(6)%
(15)%
69 %
8 %
(47)%
(10)%
12 %
— %
(48)%
6 %
(6)%
2,960
214
1,568
3,463
1,162
1,960
459
1,801
634
1,049
2,005
278
1,386
(2)
436
1,375
382
592
281
771
83
310
874
332
88 %
(1)%
39 %
66 %
49 %
43 %
158 %
75 %
15 %
42 %
77 %
(615)%
1,574
216
1,132
2,088
780
1,368
178
1,030
551
739
1,131
(54)
11,670
2,051
21 %
9,619
Total other noninterest expense (1) . . . . . .
$ 27,045
$ (2,917)
(10)% $ 29,962
$ 9,001
43 % $ 20,961
_________
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to adding a separate line item for FDIC
clawback liability expense to the table above as it is now a component of other noninterest expense.
Comparison of 2014 with 2013
Other noninterest expense decreased $2.9 million due to acquisition-related costs of $2.2 million recorded to other
noninterest expense during 2014 compared to $6.0 million in 2013 and the reclassification of investments in affordable housing
projects expense to provision for income taxes related to the Company’s adoption of ASU 2014-01 Accounting for Investments
in Qualified Affordable Housing Projects during 2014. For additional information, see Note 1 to the Consolidated Financial
Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Comparison of 2013 with 2012
Other noninterest expense increased $9.0 million primarily due to acquisition-related costs of $6.0 million recorded to
other noninterest expense during 2013 compared to only $18 thousand in 2012.
Income Tax
For the years ended December 31, 2014, 2013 and 2012 we recorded income tax provisions of $36.2 million, $27.0
million and $17.6 million, respectively. The effective tax rate was 31% in 2014, 31% in 2013 and 28% in 2012. For additional
information, see Note 23 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data”
of this report.
Our effective tax rate increased during 2013 primarily due to the acquisition of West Coast. The majority of West Coast’s
operations were located in the State of Oregon which has a state income tax. As a result, a larger portion of our income was
subject to state income taxes. In addition, certain acquisition-related costs related to both the West Coast acquisition as well as
the recent Intermountain acquisition were not tax deductible which also increased our effective tax rate. However, our effective
tax rate continues to be less than our federal statutory rate of 35% primarily due to the amount of tax-exempt municipal
securities held in the investment portfolio and tax-exempt earnings on bank owned life insurance.
41
Financial Condition
Our total assets increased 20% to $8.58 billion at December 31, 2014 from $7.16 billion at December 31, 2013, due to
organic growth and the acquisition of Intermountain. Our available for sale securities portfolio increased $434.1 million or
26%, due primarily to the acquisition of Intermountain. The net loan portfolio increased $931.0 million to $5.38 billion, due a
combination of organic loan growth and the acquisition of Intermountain, which added $502.6 million in loans. The FDIC loss-
sharing asset decreased $24.7 million or 62% to $15.2 million at December 31, 2014. The decrease in the FDIC loss-sharing
asset was primarily due to $21.3 million in amortization and $2.5 million in cash received from the FDIC. Premises and
equipment, net increased $17.4 million or 11%, as our number of branches increased due to the acquisition of Intermountain.
Deposit balances increased $965.2 million to $6.92 billion, due to a combination of organic growth and the acquisition of
Intermountain, which added $736.8 million in deposits. FHLB advances increased $180.0 million to $216.6 million due to
short-term cash needs related to loan originations and securities purchases. Securities sold under agreements to repurchase
increased $80.1 million to $105.1 million due to the acquisition of Intermountain. Total shareholders’ equity increased $174.9
million to $1.23 billion primarily due to the shares issued related to the acquisition of Intermountain as well as net income for
the year less dividends paid.
Investment Portfolio
We invest in securities to generate revenues for the Company, to manage liquidity while minimizing interest rate risk and
to provide collateral for certain public deposits and short-term borrowings. The amortized cost amounts represent the
Company’s original cost for the investments, adjusted for accumulated amortization or accretion of any yield adjustments
related to the security. The estimated fair values are the amounts we believe the securities could be sold for as of the dates
indicated. At December 31, 2014 gross unrealized losses in our securities portfolio were $14.3 million related to 258 separate
available for sale securities. Based on past experience with these types of securities and our own financial performance, we do
not currently intend to sell any impaired securities nor does available evidence suggest it is more likely than not that
management will be required to sell any impaired securities before the recovery of the amortized cost basis. We review these
investments for other-than-temporary impairment on an ongoing basis.
In addition to the securities acquired through the acquisition of Intermountain of $299.5 million, during 2014 there were
securities purchases of $363.7 million, while maturities, repayments and sales totaled $243.4 million. During 2013, there were
purchases of $458.0 million and securities acquired through the acquisition of West Coast of $730.8 million, while maturities,
repayments and sales totaled $460.9 million.
At December 31, 2014, U.S. government agency and government-sponsored enterprise mortgage-backed securities
(“MBS”) and collateralized mortgage obligations (“CMO”) comprised 55% of our investment portfolio, state and municipal
securities were 24%, government agency and government-sponsored enterprise securities were 20%, and government securities
were 1%. Our entire investment portfolio is categorized as available for sale and carried on our balance sheet at fair value. The
average duration of our investment portfolio was approximately 3 years and 10 months at December 31, 2014. This duration
takes into account calls, where appropriate, and consensus prepayment speeds.
During the fourth quarter of 2012, the Company received full payment on a municipal bond that was determined to be
other-than-temporarily impaired during December 2011. The $2.95 million gain related to this security was recorded in the line
item Investment securities gains, net in the Consolidated Statements of Income.
42
The following table presents the contractual maturities and weighted average yield of our investment portfolio:
December 31, 2014
Amortized
Cost
Fair
Value
Yield
(dollars in thousands)
U.S. government agency and government-sponsored enterprise
mortgage-backed securities & collateralized mortgage obligations (1)
Due through 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 1 through 5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 5 through 10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and municipal securities (2)
Due through 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 1 through 5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 5 through 10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and government-sponsored enterprise
securities (1)
Due through 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 1 through 5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 5 through 10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities (1)
Due through 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 1 through 5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,047
47,238
236,159
875,934
$ 1,160,378
$
1,052
47,738
236,764
876,833
$ 1,162,387
$
$
$
$
$
$
15,424
81,894
160,329
225,931
483,578
1,525
277,367
138,027
416,919
1,050
19,860
20,910
$
$
$
$
$
$
15,578
83,557
163,343
234,006
496,484
1,525
275,113
137,068
413,706
1,050
19,449
20,499
1.31%
1.80%
1.66%
1.36%
1.44%
4.92%
3.26%
3.63%
4.78%
4.15%
0.41%
1.08%
1.97%
1.37%
0.20%
1.15%
1.10%
__________
(1) The maturities reported for mortgage-backed securities, collateralized mortgage obligations, government agency,
government-sponsored enterprise, and government securities are based on contractual maturities and principal
amortization.
(2) Yields on fully taxable equivalent basis.
For further information on our investment portfolio, see Note 4 of the Consolidated Financial Statements in “Item 8.
Financial Statements and Supplementary Data” of this report.
FHLB Stock
As a condition of membership in the Federal Home Loan Bank of Seattle (“FHLB”), the Company is required to
purchase and hold a certain amount of FHLB stock. Our stock purchase requirement is based, in part, upon the outstanding
principal balance of advances from the FHLB and is calculated in accordance with the Capital Plan of the FHLB. Our FHLB
stock has a par value of $100 and is redeemable at par for cash.
FHLB stock is carried at cost and is subject to recoverability testing per the Financial Services – Depository and Lending
topic of the FASB ASC. The FHLB is currently classified as adequately capitalized by the Federal Housing Finance Agency
(“Finance Agency”). Accordingly, as of December 31, 2014 we did not recognize an impairment charge related to our FHLB
stock holdings. We will continue to monitor the financial condition of the FHLB as it relates to, among other things, the
recoverability of our investment.
43
Loan Portfolio
The Bank is a full service commercial bank, which originates a wide variety of loans, and focuses its lending efforts on
originating commercial business and commercial real estate loans. The following table sets forth our loan portfolio by type of
loan for the dates indicated:
2014
% of
Total
2013 (1)
% of
Total
2012 (1)
% of
Total
2011 (1)
% of
Total
2010 (1)
% of
Total
(dollars in thousands)
$ 2,119,565
38.9 % $ 1,561,782
34.6 % $ 1,155,158
39.2 % $ 1,031,721
35.8 % $ 795,369
32.6 %
December 31,
175,571
3.2 %
108,317
2.4 %
43,922
1.5 %
64,491
2.2 %
49,383
2.0 %
2,363,541
43.5 %
2,080,075
46.0 %
1,061,201
36.0 %
998,165
2,539,112
46.7 %
2,188,392
48.4 %
1,105,123
37.5 %
1,062,656
34.6 %
36.8 %
794,329
843,712
32.6 %
34.6 %
116,866
2.1 %
54,155
1.2 %
50,602
1.7 %
50,208
1.7 %
67,961
2.8 %
134,443
251,309
364,182
2.5 %
4.6 %
6.7 %
126,390
180,545
357,014
2.8 %
4.0 %
7.9 %
65,101
115,703
157,493
2.2 %
3.9 %
5.4 %
36,768
86,976
183,235
1.3 %
3.0 %
6.4 %
30,185
98,146
182,017
1.2 %
4.0 %
7.5 %
$ 230,584
4.2 % $ 297,845
6.6 % $ 421,393
14.3 % $ 536,873
18.6 % $ 523,116
21.4 %
5,504,752
101.1 %
4,585,578
101.5 %
2,954,870
100.3 %
2,901,461
100.6 %
2,442,360
100.1 %
(59,374)
(1.1)%
(68,282)
(1.5)%
(7,767)
(0.3)%
(16,217)
(0.6)%
(3,490)
(0.1)%
5,445,378
100.0 %
4,517,296
100.0 %
2,947,103
100.0 %
2,885,244
100.0 %
2,438,870
100.0 %
$
1,116
$
735
$
2,563
$
2,148
$
754
Commercial business . . . . . . . . .
Real estate:
One-to-four family residential . . .
Commercial and multifamily
residential . . . . . . . . . . . . . . . .
Total real estate . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential . . .
Commercial and multifamily
residential . . . . . . . . . . . . . . . .
Total real estate construction . . . .
Consumer . . . . . . . . . . . . . . . . . .
Purchased credit impaired (1). .
Subtotal (1). . . . . . . . . . . . . . . . . .
Less: Net unearned income . . . . .
Loans, net of unearned income
(before Allowance for Loan
and Lease Losses) (1) . . . . . . .
Loans held for sale . . . . . . . . . . . .
__________
(1) Adjusted to conform to current period presentation. The adjustment was limited to including purchased credit impaired loans in the table above as these
loans are no longer disclosed separately in the consolidated balance sheets.
At December 31, 2014, total loans, gross of ALLL were $5.45 billion compared with $4.52 billion in the prior year, an
increase of $928.1 million, or 21% from the previous year. The increase in the loan portfolio was due to both organic loan
growth and the acquisition of Intermountain, which added $502.6 million in loans. Total loans, net of ALLL represented 63%
and 62% of total assets at December 31, 2014 and 2013, respectively.
Commercial Business Loans: We are committed to providing competitive commercial lending in our primary market
areas. Management expects a continued focus within its commercial lending products and to emphasize, in particular,
relationship banking with businesses and business owners.
Real Estate Loans: One-to-four family residential loans are secured by properties located within our primary market
areas and, typically, have loan-to-value ratios of 80% or lower at origination. Our underwriting standards for commercial and
multifamily residential loans generally require that the loan-to-value ratio for these loans not exceed 75% of appraised value,
cost, or discounted cash flow value, as appropriate, and that commercial properties maintain debt coverage ratios (net operating
income divided by annual debt servicing) of 1.2 or better. However, underwriting standards can be influenced by competition
and other factors. We endeavor to maintain the highest practical underwriting standards while balancing the need to remain
competitive in our lending practices.
Real Estate Construction Loans: We originate a variety of real estate construction loans. Underwriting guidelines for
these loans vary by loan type but include loan-to-value limits, term limits and loan advance limits, as applicable.
Our underwriting guidelines for commercial and multifamily residential real estate construction loans generally require
that the loan-to-value ratio not exceed 75% and stabilized debt coverage ratios (net operating income divided by annual debt
servicing) of 1.2 or better. As noted above, underwriting standards can be influenced by competition and other factors.
However, we endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive
in our lending practices.
Consumer Loans: Consumer loans include automobile loans, boat and recreational vehicle financing, home equity and
home improvement loans and miscellaneous personal loans.
44
Foreign Loans: The Company has 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.
Purchased Credit Impaired Loans: Purchased credit impaired loans are comprised of loans and loan commitments
acquired in connection with the 2011 FDIC-assisted acquisitions of First Heritage Bank and Summit Bank, as well as the 2010
FDIC-assisted acquisitions of Columbia River Bank and American Marine Bank. Purchased credit impaired loans are generally
accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”).
For additional information on our loan portfolio, including amounts pledged as collateral on borrowings, see Note 5 to
the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table presents the maturity distribution of our commercial and real estate construction loan portfolios and
the sensitivity of these loans due after one year to changes in interest rates as of December 31, 2014:
Maturing
Due
Through 1
Year
Over 1
Through 5
Years
Over 5
Years
Total
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
917,422
129,626
$ 1,047,048
Fixed rate loans due after 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable rate loans due after 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(in thousands)
$
$
$
$
566,698
72,918
639,616
340,283
299,333
639,616
$
$
$
$
679,950
55,107
735,057
485,555
249,502
735,057
$ 2,164,070
257,651
$ 2,421,721
825,838
$
548,835
$ 1,374,673
Risk Elements
The extension of credit in the form of loans or other credit substitutes to individuals and businesses is one of our principal
commerce activities. Our policies, applicable laws, and regulations require risk analysis as well as ongoing portfolio and credit
management. We manage our credit risk through lending limit constraints, credit review, approval policies, and extensive,
ongoing internal monitoring. We also manage credit risk through diversification of the loan portfolio by type of loan, type of
industry, type of borrower, and by limiting the aggregation of debt to a single borrower.
In analyzing our existing portfolio, we review our consumer and residential loan portfolios by their performance as a pool
of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. In contrast, the
monitoring process for the commercial business, real estate construction, and commercial real estate portfolios includes
periodic reviews of individual loans with risk ratings assigned to each loan and performance judged on a loan by loan basis.
We review these loans to assess the ability of our borrowers to service all interest and principal obligations and, as a
result, the risk rating may be adjusted accordingly. In the event that full collection of principal and interest is not reasonably
assured, the loan is appropriately downgraded and, if warranted, placed on nonaccrual status even though the loan may be
current as to principal and interest payments. Additionally, we assess whether an impairment of a loan warrants specific
reserves or a write-down of the loan. For additional discussion on our methodology in managing credit risk within our loan
portfolio see the following “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit” section
and Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Loan policies, credit quality criteria, portfolio guidelines and other controls are established under the guidance of our
Chief Credit Officer and approved, as appropriate, by the board of directors. Credit Administration, together with the
management loan committee, has the responsibility for administering the credit approval process. As another part of its control
process, we use an internal credit review and examination function to provide reasonable assurance that loans and
commitments are made and maintained as prescribed by our credit policies. This includes a review of documentation when the
loan is initially extended and subsequent examination to ensure continued performance and proper risk assessment.
45
Nonperforming Loans: The Consolidated Financial Statements are prepared according to the accrual basis of accounting.
This includes the recognition of interest income on the loan portfolio, unless a loan is placed on nonaccrual status, which
occurs when there are serious doubts about the collectability of principal or interest. Our policy is generally to discontinue the
accrual of interest on all loans past due 90 days or more and place them on nonaccrual status. Loans accounted for under ASC
310-30 are generally considered accruing and performing as the loans accrete interest income over the estimated lives of the
loans when cash flows are reasonably estimable. Accordingly, purchased credit impaired loans accounted for under ASC
310-30 that are contractually past due are still considered to be accruing and performing loans.
Nonperforming Assets: Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans placed on a
nonaccrual basis when the loan becomes past due 90 days or when there are otherwise serious doubts about the collectability of
principal or interest within the existing terms of the loan, (ii) other real estate owned; and (iii) other personal property owned, if
applicable. Nonperforming assets totaled $53.6 million, or 0.62% of year-end assets at December 31, 2014, compared to $70.1
million, or 0.98% of year end assets at December 31, 2013.
The following table sets forth information with respect to our nonperforming loans, other real estate owned, other
personal property owned, total nonperforming assets, accruing loans past-due 90 days or more, and potential problem loans:
Nonaccrual:
Commercial business . . . . . . . . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential . . . . . . . . . . . . .
Commercial and multifamily residential. . . . . .
Real estate construction:
One-to-four family residential . . . . . . . . . . . . .
Commercial and multifamily residential. . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonaccrual loans: . . . . . . . . . . . . . . . . . . .
Other real estate owned and other personal property
owned (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets (1) . . . . . . . . . . . . .
Accruing loans past-due 90 days or more . . . . . . . . . . . .
Forgone interest on nonperforming loans . . . . . . . . . . . .
Interest recognized on nonperforming loans . . . . . . . . . .
Potential problem loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses (1) . . . . . . . . . . . . .
Nonperforming loans to year end loans (2). . . . . . . . . . .
Nonperforming assets to year end assets (2) . . . . . . . . . .
December 31,
2014
2013 (1)
2012 (1)
2011 (1)
2010 (1)
(dollars in thousands)
$ 16,799
$ 12,609
$
9,299
$ 10,243
$ 32,367
2,696
19,485
10,785
7,067
3,207
53,483
2,996
23,192
18,004
7,584
5,020
89,163
2,349
19,204
4,900
—
1,643
37,395
27,464
$ 64,859
2,822
7,847
465
480
2,939
31,352
22,225
$ 53,577
$ 1,386
$ 2,196
$ 1,327
$ 7,846
$ 69,569
2,667
11,043
3,705
—
3,991
34,015
36,036
$ 70,051
$
$ 2,860
$ 1,306
$ 13,356
$ 72,454
— $
3,388
$
1,114
$
$
5,915
$ 82,300
— $
5,326
$
$
1,017
$ 10,618
$ 57,985
31,905
$ 85,388
30,991
$ 120,154
—
— $
6,389
$
2,035
$
$
3,793
$ 67,048
0.58%
0.62%
0.75%
0.98%
1.27%
1.32%
1.85%
1.78%
3.66%
2.82%
__________
(1) Adjusted to conform to current period presentation. The adjustment was limited to including historically disclosed
“covered” amounts into the respective rows as these amounts are no longer disclosed separately in the consolidated balance
sheets.
(2) Nonperforming asset ratios have been adjusted as a result of the adjustments noted in (1) above to no longer calculate ratios
exclusive of “covered” amounts.
At December 31, 2014, nonperforming loans decreased to 0.58% of year end loans, down from 0.75% of year end loans
at December 31, 2013. Nonperforming commercial business loans increased from $12.6 million, or 37% of nonperforming
loans at December 31, 2013 to $16.8 million, or 54% of nonperforming loans at year end 2014. The increase in nonperforming
commercial business loans resulted from the Intermountain acquisition. The nonperforming residential construction loan sector
declined to $465 thousand during 2014, down from $3.7 million at December 31, 2013. Nonperforming commercial real estate
loans improved as well, declining from $11.0 million at December 31, 2013 to $7.8 million at year end 2014.
46
Other Real Estate Owned and Other Personal Property Owned: As of December 31, 2014 there was $22.2 million in
OREO and OPPO which is primarily comprised of property from foreclosed real estate loans, a decrease of $13.8 million from
$36.0 million at December 31, 2013. The decrease was primarily driven by OREO sales of $22.7 million and write-downs of
$4.1 million, partially offset by $10.2 million of transfers from loans and the acquisition of $2.8 million of OREO in the
Intermountain acquisition. Properties acquired by foreclosure or deed in lieu of foreclosure are transferred to OREO and are
recorded at fair value less estimated costs to sell, at the date of transfer of the property. If the carrying value exceeds the fair
value at the time of the transfer, the difference is charged to the allowance for loan and lease losses. The fair value of the OREO
property is based upon current appraisal. Subsequent losses that result from the ongoing periodic valuation of these properties
are charged to the net cost of operation of OREO expense in the period in which they are identified. In general, improvements
to the OREO are capitalized and holding costs are charged to the net cost of operation of OREO as incurred.
Potential Problem Loans: Potential problem loans are loans which are currently performing and are not on nonaccrual
status, restructured or impaired, but about which there are significant doubts as to the borrower’s future ability to comply with
repayment terms and which may later be included in nonaccrual, past due, restructured or impaired loans. Potential problem
loans totaled $7.8 million at year end 2014, compared to $13.4 million at year end 2013.
The following table summarizes activity in nonperforming loans for the period indicated:
Balance, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Established through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans placed on nonaccrual or restructured. . . . . . . . . . . . . . . . . . . . .
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans returned to accrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments (including interest applied to principal) . . . . . . . . . . . . .
Transfers to OREO/OPPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Years Ended December 31,
2014
2013
(in thousands)
34,015
2,432
25,541
633
(4,775)
(9,007)
(13,818)
(3,669)
31,352
$
$
37,395
18,858
31,549
86
(6,745)
(16,944)
(20,767)
(9,417)
34,015
Loans are considered impaired when based on current information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan agreement or when a loan has been modified in
a troubled debt restructuring. A loan is classified as a troubled debt restructuring when a borrower is experiencing financial
difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that
it would not otherwise consider. These concessions may include interest rate reductions, principal forgiveness, extension of
maturity date and other actions intended to minimize potential losses. Generally, a nonaccrual loan that is restructured remains
on nonaccrual status for a period of six months to demonstrate that the borrower can meet the restructured terms. If the
borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.
The assessment for impairment occurs when and while such loans are designated as classified per the Company’s internal
risk rating system or when and while such loans are on nonaccrual. All nonaccrual loans greater than $500,000 and all troubled
debt restructured loans are considered impaired and analyzed individually on a quarterly basis. Classified loans with an
outstanding balance greater than $500,000 are evaluated for potential impairment on a quarterly basis. The Company’s policy is
to record cash receipts on impaired loans first as reductions in principal and then as interest income.
47
The following table summarizes impaired loan financial data at December 31, 2014 and 2013:
December 31,
2014
2013
(in thousands)
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impaired loans with specific allocations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of the specific allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
28,099
1,216
241
$
$
$
26,389
8,199
1,690
Impaired loans with a carrying amount of $28.1 million at December 31, 2014 were subject to specific allocations of
allowance for loan and lease losses of $241 thousand and partial charge-offs of $1.0 million during the year. Collateral
dependent impaired loans without specific allocations at December 31, 2014 and 2013 either had collateral which exceeded the
carrying value of the loans or reflected a partial charge-off to the market value of collateral (less costs to sell), as of the most
recent appraisal date. Restructured loans accruing interest totaled $11.1 million and $11.5 million at December 31, 2014 and
2013, respectively.
When a loan with unique risk characteristics has been identified as being impaired, the amount of impairment will be
measured by the Company using discounted cash flows, except when it is determined that the remaining source of repayment
for the loan is the operation or liquidation of the underlying collateral. In these cases, the current fair value of the collateral,
reduced by costs to sell, will be used in place of discounted cash flows. As a final alternative, the observable market price of the
debt may be used to assess impairment. Predominately, the Company uses the fair value of collateral approach based upon a
reliable valuation.
When a loan secured by real estate migrates to nonperforming and impaired status and it does not have a market
valuation less than one year old, the Company secures an updated market valuation by a third-party appraiser that is reviewed
by the Company’s on-staff appraiser. Subsequently, the asset will be appraised annually by a third-party appraiser or the
Company’s on-staff appraiser. The evaluation may occur more frequently if management determines that there has been
increased market deterioration within a specific geographical location. Upon receipt and verification of the market valuation,
the Company will record the loan at the lower of cost or market (less costs to sell) by recording a charge-off to the allowance
for loan and lease losses or by designating a specific reserve in accordance with accounting principles generally accepted in the
United States.
For additional information on our nonperforming loans, see Note 5 to our Consolidated Financial Statements in “Item 8.
Financial Statements and Supplementary Data” of this report.
Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit
Loans, excluding Purchased Credit Impaired Loans
We maintain an allowance for loan and lease losses (“ALLL”) to absorb losses inherent in the loan portfolio. The size
of the ALLL is determined through quarterly assessments of the probable estimated losses in the loan portfolio. Our
methodology for making such assessments and determining the adequacy of the ALLL includes the following key elements:
1. General valuation allowance consistent with the Contingencies topic of the FASB ASC.
2. Classified loss reserves on specific relationships. Specific allowances for identified problem loans are determined in
accordance with the Receivables topic of the FASB ASC.
3. The unallocated allowance provides for other factors inherent in our loan portfolio that may not have been
contemplated in the general and specific components of the allowance. This unallocated amount generally comprises
less than 5% of the allowance. The unallocated amount is reviewed quarterly based on trends in credit losses, the
results of credit reviews and overall economic trends.
48
On a quarterly basis our Chief Credit Officer reviews with executive management and the board of directors the various
additional factors that management considers when determining the adequacy of the ALLL, including economic and business
condition reviews. Factors which influenced management’s judgment in determining the amount of the additions to the ALLL
charged to operating expense include the following as of the applicable balance sheet dates:
• Existing general economic and business conditions affecting our market place
• Credit quality trends
• Historical loss experience
• Seasoning of the loan portfolio
• Bank regulatory examination results
• Findings of internal credit examiners
• Duration of current business cycle
• Specific loss estimates for problem loans
The ALLL is increased by provisions for loan and lease losses (“provision”) charged to expense, and is reduced by loans
charged off, net of recoveries or recapture of previous provision. While we believe the best information available is used by us
to determine the ALLL, changes in market conditions could result in adjustments to the ALLL, affecting net income, if
circumstances differ from the assumptions used in determining the ALLL.
In addition to the ALLL, we maintain an allowance for unfunded commitments and letters of credit. We report this
allowance as a liability on our consolidated balance sheet. We determine this amount using estimates of the probability of the
ultimate funding and losses related to those credit exposures. This methodology is similar to the methodology we use for
determining the adequacy of our ALLL. For additional information on our allowance for unfunded commitments and letters of
credit, see Note 6 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this
report.
Purchased Credit Impaired Loans (“PCI Loans”)
Purchased credit impaired loans are accounted for under ASC 310-30 and initially measured at fair value based on
expected future cash flows over the life of the loans. PCI loans that have common risk characteristics are aggregated into pools.
The Company re-measures contractual and expected loan cash flows, at the pool-level, on a quarterly basis. If, due to credit
deterioration, the present value of expected cash flows, as periodically re-measured, is less than the carrying value of the loan
pool, the Company adjusts the carrying value of the loan pool to the lower amount by adjusting the allowance for loan losses
with a charge to earnings through the provision for loan losses. If the present value of expected cash flows is greater than the
carrying value of the loan pool, the Company adjusts the carrying value of the loan pool to a higher amount by recapturing
previously recorded allowance for loan losses, if any. For additional information on our accounting for PCI loans, see Note 1 to
the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
49
Analysis of the ALLL
The following table provides an analysis of our loan loss experience by loan type for the last five years:
Changes in Allowance for Loan and Lease Losses and
Unfunded Commitments and Letters of Credit
Beginning balance (1). . . . . . . . . . . . . . . . . . . . . . . . .
$
72,454
$
82,300
Charge-offs:
2014
2013 (1)
December 31,
2012 (1)
(dollars in thousands)
$
57,985
$
2011 (1)
2010 (1)
67,048
$
53,478
Commercial business . . . . . . . . . . . . . . . . . . . . .
(4,289)
(4,942)
(10,173)
(7,909)
(14,879)
Real estate:
One-to-four family residential . . . . . . . . . .
Commercial and multifamily residential . .
Real estate construction:
One-to-four family residential . . . . . . . . . .
Commercial and multifamily residential . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired (1) . . . . . . . . . . . . . . .
Total charge-offs (1) . . . . . . . . . . . . . . . . . .
Recoveries:
(230)
(2,993)
—
—
(2,774)
(14,436)
(24,722)
(228)
(2,543)
(133)
—
(2,242)
(13,852)
(23,940)
(549)
(5,474)
(1,606)
(93)
(2,534)
(5,112)
(717)
(3,687)
(2,487)
(2,213)
(3,918)
(1,488)
(406)
(6,173)
(10,856)
(3,107)
(3,982)
—
(25,541)
(22,419)
(39,403)
Commercial business . . . . . . . . . . . . . . . . . . . . .
3,007
2,444
1,548
2,598
2,389
Real estate:
One-to-four family residential . . . . . . . . . .
Commercial and multifamily residential . .
Real estate construction:
One-to-four family residential . . . . . . . . . .
Commercial and multifamily residential . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired (1) . . . . . . . . . . . . . . .
Total recoveries. . . . . . . . . . . . . . . . . . . . . .
Net charge-offs. . . . . . . . . . . . . . . . .
Provision for loan and lease losses (1) . . . . . . . . . . . .
159
940
1,930
—
1,353
7,721
15,110
(9,612)
6,727
270
1,033
2,665
—
552
7,231
14,195
(9,745)
(101)
285
1,599
1,488
66
1,171
4,332
10,489
(15,052)
39,367
80
459
2,091
—
351
2,025
7,604
(14,815)
5,752
15
125
1,673
775
650
—
5,627
(33,776)
47,346
Ending balance (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
69,569
$
72,454
$
82,300
$
57,985
$
67,048
Loans outstanding at end of period (1) (2) . . . . . . . . .
$ 5,445,378
$ 4,517,296
$ 2,947,103
$ 2,885,244
$ 2,438,870
Average amount of loans outstanding (1) (2) . . . . . . .
$ 4,782,369
$ 4,140,826
$ 2,900,520
$ 2,607,266
$ 2,485,650
Allowance for loan and lease losses to period-end
loans (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs to average loans outstanding (3) . . . .
Allowance for unfunded commitments and
letters of credit
1.28%
0.20%
1.60%
0.24%
2.79%
0.52%
2.01%
0.57%
2.75%
1.36%
Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in the allowance for unfunded
commitments and letters of credit. . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,505
150
2,655
$
$
1,915
590
2,505
$
$
1,535
380
1,915
$
$
1,165
370
1,535
$
$
775
390
1,165
__________
(1) Adjusted to conform to current period presentation. The adjustments were limited to including purchased credit impaired amounts into
the respective rows as these amounts are no longer disclosed separately in the consolidated balance sheets or consolidated statements of
income.
(2) Excludes loans held for sale.
(3) Ratios have been adjusted as a result of the adjustments noted in (1) above to no longer calculate ratios exclusive of purchased credit
impaired amounts.
50
At December 31, 2014, our ALLL was $69.6 million, or 1.28% of total loans (excluding loans held for sale). This
compares with an allowance of $72.5 million, or 1.60% of total loans (excluding loans held for sale) at December 31, 2013.
This decrease in the allowance relative to loans in the current period as compared to December 31, 2013 reflects improvements
in core asset quality during the current year.
We have used the same methodology for ALLL calculations during 2014, 2013 and 2012. Adjustments to the percentages
of the ALLL allocated to loan categories are made based on trends with respect to delinquencies and problem loans within each
loan class. The Bank reviews the ALLL quantitative and qualitative methodology on a quarterly basis and makes adjustments
when appropriate. The Bank maintains a conservative approach to credit quality and will continue to make revisions to our
ALLL as necessary to maintain adequate reserves. The Bank carefully monitors the loan portfolio and continues to emphasize
the importance of credit quality while continuously strengthening loan monitoring systems and controls.
Allocation of the ALLL
The table below sets forth the allocation of the ALLL by loan category:
2014
2013 (1)
December 31,
2012 (1)
2011 (1)
2010 (1)
Balance at End of
Period Applicable to:
% of
Total
Loans*
Amount
% of
Total
Loans*
% of
Total
Loans*
Amount
Amount
% of
Total
Loans*
Amount
% of
Total
Loans*
Amount
Commercial business. . . . . . . .
Real estate and
construction: . . . . . . . . . . . .
One-to-four family
residential. . . . . . . . . .
Commercial and
multifamily
residential. . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . .
Purchase credit impaired (1) . .
Unallocated . . . . . . . . . . . . . . .
$ 26,850
38.8% $ 31,723
34.4% $ 28,023
39.1% $ 25,434
35.7% $ 22,549
32.6%
(dollars in thousands)
5,338
5.3%
2,684
3.5%
2,500
3.2%
3,849
3.9%
7,161
4.8%
16,021
3,180
16,336
1,844
45.4%
6.3%
4.2%
—%
13,671
2,547
20,174
1,655
48.2%
7.3%
6.6%
—%
18,273
2,437
30,056
1,011
38.1%
5.3%
14.3%
—%
20,345
2,719
4,944
694
35.4%
6.4%
18.6%
—%
25,880
2,120
6,055
3,283
33.8%
7.5%
21.4%
—%
Total. . . . . . . . . . . . . . . . . . . . .
$ 69,569
100.0% $ 72,454
100.0% $ 82,300
100.0% $ 57,985
100.0% $ 67,048
100.0%
__________
* Represents the total of all outstanding loans in each category as a percent of total loans outstanding.
(1) Adjusted to conform to current period presentation. The adjustment was limited to including purchased credit impaired amounts into the
table above as these amounts are no longer disclosed separately in the consolidated balance sheets.
FDIC Loss-sharing Asset
The Company has elected to account for amounts receivable under loss-sharing agreements with the FDIC as an
indemnification asset in accordance with the Business Combinations topic of the FASB ASC. The FDIC indemnification asset
is initially recorded at fair value, based on the discounted expected future cash flows under the loss-sharing agreements.
Subsequent to initial recognition, the FDIC indemnification asset is reviewed quarterly and adjusted for any changes in
expected cash flows. These adjustments are measured on the same basis as the related covered loans. Any decrease in expected
cash flows on the covered loans due to an increase in expected credit losses will increase the FDIC indemnification asset and
any increase in expected future cash flows on the covered loans due to a decrease in expected credit losses will decrease the
FDIC indemnification asset. Changes in the estimated cash flows on covered assets that are immediately recognized in income
generally result in a similar immediate adjustment to the loss-sharing asset while changes in expected cash flows on covered
assets that are accounted for as an adjustment to yield generally result in adjustments to the amortization or accretion rate for
the loss-sharing asset. Increases and decreases to the FDIC loss-sharing asset are recorded as adjustments to noninterest
income.
At December 31, 2014, the FDIC loss-sharing asset was comprised of a $13.1 million FDIC indemnification asset and a
$2.1 million FDIC receivable. The FDIC receivable represents amounts due from the FDIC for claims related to covered losses
the Company has incurred less amounts due back to the FDIC relating to shared recoveries.
51
The following table summarizes the activity related to the FDIC loss-sharing asset for the twelve months ended
December 31, 2014 and 2013:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
Adjustments not reflected in income:
Cash received from the FDIC, net . . . . . . . . . . . . . . . . . .
FDIC reimbursable recoveries, net . . . . . . . . . . . . . . . . . .
Adjustments reflected in income:
Amortization, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan impairment (recapture). . . . . . . . . . . . . . . . . . . . . . .
Sale of other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-downs of other real estate . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2014
2013
(in thousands)
$
39,846
$
96,354
(2,499)
(2,184)
(21,279)
2,301
(2,179)
1,065
103
$
15,174
$
(9,246)
(2,245)
(36,729)
(2,609)
(6,177)
364
134
39,846
For additional information on the FDIC loss-sharing asset, including the timing of the expirations of our loss-sharing
agreements with the FDIC, please see Note 8 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data” of this report.
Deposits
The following table sets forth the composition of the Company’s deposits by significant category:
December 31,
2014
2013
2012
Core deposits:
Demand and other noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit less than $100,000 . . . . . . . . . . . . . . . . . . . . . . . . .
Total core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit greater than $100,000 . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit insured through CDARS® . . . . . . . . . . . . . . . . . . .
Brokered money market accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium resulting from acquisition date fair value adjustment . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,651,373
1,304,258
1,760,331
615,721
288,261
6,619,944
202,014
18,429
83,402
6,923,789
933
$ 6,924,722
(in thousands)
$ 2,171,703
1,170,006
1,569,261
496,444
288,943
5,696,357
201,498
19,488
41,765
5,959,108
367
$ 5,959,475
$ 1,321,171
870,821
1,043,459
314,371
252,544
3,802,366
212,924
26,720
—
4,042,010
75
$ 4,042,085
Deposits totaled $6.92 billion at December 31, 2014 compared to $5.96 billion at December 31, 2013. The increase of
$965.2 million was due to organic growth and the acquisition of Intermountain, which added $736.8 million in deposits. This
growth was partially offset by the decrease of $22.2 million in deposits associated with branch sale activity in 2014. For
additional information on the branch sale activity, see Note 25 to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data” of this report. Core deposits, which include noninterest-bearing deposits and interest-
bearing deposits excluding time deposits of $100,000 and over, provide a stable source of low cost funding. Core deposits
increased to $6.62 billion at December 31, 2014 compared with $5.70 billion at December 31, 2013. We anticipate continued
growth in our core deposits through both the addition of new customers and our current client base.
52
At December 31, 2014, brokered and other wholesale deposits (excluding public deposits) totaled $101.8 million or 1.5%
of total deposits compared to $61.3 million or 1.0% of total deposits, at year-end 2013. The increase in brokered deposits is
attributed to an increase in participation in the brokered money market account program, which is similar to the Certificate of
Deposit Account Registry Service (“CDARS®”) program. CDARS® is a network that allows participating banks to offer
extended FDIC deposit insurance coverage on time deposits. These extended deposit insurance programs are generally
available only to existing customers and are not used as a means of generating additional liquidity.
At December 31, 2014, public deposits held by the Company totaled $357.9 million compared to $289.0 million at
December 31, 2013. Uninsured public deposit balances increased from $244.9 million at December 31, 2013 to $296.6 million
at December 31, 2014. The Company is required to fully collateralize Washington state public deposits and 50% of Oregon
state public deposits.
The following table sets forth the amount outstanding of time certificates of deposit and other time deposits in amounts of
$100,000 or more (which represent CDARS® accounts) by time remaining until maturity and percentage of total deposits:
Amounts maturing in:
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 3 through 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 6 through 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2014
Time Certificates of Deposit
of $100,000 or More
Other Time Deposits of
$100,000 or More
Amount
$
52,010
35,299
58,349
56,356
$ 202,014
Percent of
Total
Deposits
Amount
(dollars in thousands)
Percent of
Total
Deposits
0.8% $
0.5%
0.8%
0.8%
2.9% $
13,707
300
3,163
—
17,170
0.2%
—%
—%
—%
0.2%
The following table sets forth the average amount of and the average rate paid on each significant deposit category:
Years ended December 31,
2014
2013
2012
Average
Deposits
Rate
Average
Deposits
Rate
Average
Deposits
Interest bearing demand . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits. . . . . . . . . . . .
Demand and other non-interest bearing . . . .
Total average deposits . . . . . . . . . . . . . .
$ 1,204,584
1,668,150
543,303
485,487
3,901,524
2,285,818
$ 6,187,342
(dollars in thousands)
0.04% $ 1,048,482
1,566,539
0.07%
445,666
0.01%
535,656
0.26%
3,596,343
0.08%
1,824,234
$ 5,420,577
0.06% $
0.08%
0.02%
0.37%
0.11%
790,887
1,051,171
298,223
543,349
2,683,630
1,192,036
$ 3,875,666
Rate
0.11%
0.16%
0.03%
0.60%
0.22%
Borrowings
Borrowed funds provide an additional source of funding for loan growth. Our borrowed funds consist primarily of
borrowings from the FHLB and Federal Reserve Bank (“FRB”) as well as securities repurchase agreements. FHLB and FRB
borrowings are secured by our loan portfolio and investment securities. Securities repurchase agreements are secured by
investment securities and commercial loans.
53
The Company has not had FRB borrowings in the last three years. The following table sets forth the details of FHLB
advances:
Years ended December 31,
2014
2013
2012
(dollars in thousands)
FHLB Advances
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average balance during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average rate during the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average rate at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 216,568
$
44,876
$ 216,568
36,606
$
$
51,030
$ 190,631
$
6,644
$ 100,337
$ 118,967
0.74%
0.41%
1.12%
1.09%
2.79%
5.42%
For additional information on our borrowings, including amounts pledged as collateral, see Notes 12, 13 and 14 to the
Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Off-Balance Sheet Arrangements
In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These
financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount reflected in the consolidated balance sheets.
Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The Company evaluates each client’s creditworthiness on a case-by-case basis.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
The Company had off-balance sheet loan commitments aggregating $1.58 billion at December 31, 2014, an increase from
$1.37 billion at December 31, 2013. Standby letters of credit were $36.7 million at both December 31, 2014 and 2013. In
addition, commitments under commercial letters of credit used to facilitate customers’ trade transactions and other off-balance
sheet liabilities amounted to $4.4 million and $2.7 million at December 31, 2014 and 2013, respectively.
Contractual Obligations & Commitments
We are party to many contractual financial obligations, including repayment of borrowings, operating and equipment
lease payments, and commitments to extend credit. The table below presents certain future financial obligations of the
Company:
Payments due within time period at December 31, 2014
0-12
Months
1-3
Years
Operating & equipment leases . . . . . . . . . . . .
$
8,557
$
11,955
Total deposits (1) . . . . . . . . . . . . . . . . . . . . . .
6,790,236
110,410
Federal Home Loan Bank advances (1) . . . . .
Other borrowings (1) . . . . . . . . . . . . . . . . . . .
210,000
80,080
1,000
—
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,088,873
$
123,365
$
4-5
Years
(in thousands)
8,979
$
23,961
—
25,000
57,940
Due after
Five
Years
Total
$
18,121
$
47,612
115
5,000
8,248
6,924,722
216,000
113,328
$
31,484
$ 7,301,662
__________
(1) In the banking industry, interest-bearing obligations are principally used to fund interest-earning assets. As such, interest
charges on contractual obligations were excluded from reported amounts, as the potential cash outflows would have
corresponding cash inflows from interest-earning assets.
For additional information regarding future financial commitments, see Note 17 to our Consolidated Financial Statements
in “Item 8. Financial Statements and Supplementary Data” of this report.
54
Liquidity and Sources of Funds
In general, our primary sources of funds are net income, loan repayments, maturities and principal payments on
investment securities, customer deposits, advances from the FHLB, securities repurchase agreements and other borrowings.
These funds are used to make loans, purchase investments, meet deposit withdrawals and maturing liabilities and cover
operational expenses. Scheduled loan repayments and core deposits have proved to be a relatively stable source of funds while
other deposit inflows and unscheduled loan prepayments are influenced by interest rate levels, competition and general
economic conditions. We manage liquidity through monitoring sources and uses of funds on a daily basis and had unused credit
lines with the FHLB and the FRB of $865.1 million and $86.1 million, respectively, at December 31, 2014, that are available to
us as a supplemental funding source. The holding company’s sources of funds are dividends from its banking subsidiary which
are used to fund dividends to shareholders and cover operating expenses.
Capital
Our shareholders’ equity increased to $1.23 billion at December 31, 2014, from $1.05 billion at December 31, 2013,
primarily due to shares issued in conjunction with the acquisition of Intermountain. Shareholders’ equity was 14.32% and
14.71% of total assets at December 31, 2014 and 2013.
Regulatory Capital. In July 2013, the federal bank regulators approved the New Capital Rules (as discussed in “item 1.
Business-Supervision and Regulation-Regulatory Capital Requirements”), which implement the Basel III capital framework
and various provisions of the Dodd-Frank Act. We and the Bank are required to comply with these rules as of January 1, 2015,
subject to the phase-in of certain provisions. We believe that, as of December 31, 2014, we and the Bank would meet all capital
adequacy requirements under the New Capital Rules on a fully phased-in basis as if such requirements were then in effect.
Banking regulations in effect prior to January 1, 2015 required bank holding companies to maintain a minimum “leverage”
ratio of core capital to adjusted quarterly average total assets of at least 3%. In addition, banking regulators maintained risk-
based capital guidelines, under which risk percentages were assigned to various categories of assets and off-balance sheet items
to calculate a risk-adjusted capital ratio. Tier I capital generally consisted of common shareholders’ equity, less goodwill and
certain identifiable intangible assets, while Tier II capital included the allowance for loan losses, subject to certain limitations.
Regulatory minimum risk-based capital guidelines required Tier I capital of 4% of risk-adjusted assets and total capital
(combined Tier I and Tier II) of 8% to be considered “adequately capitalized”.
FDIC regulations set forth the qualifications necessary for a bank to be classified as “well capitalized”, primarily for
assignment of FDIC insurance premium rates. Prior to the adoption of the New Capital Rules, to qualify as “well capitalized,”
banks must have a Tier I risk-adjusted capital ratio of at least 6%, a total risk-adjusted capital ratio of at least 10%, and a
leverage ratio of at least 5%. Failure to qualify as “well capitalized” can negatively impact a bank’s ability to expand and to
engage in certain activities. The Company and its banking subsidiary qualified as “well-capitalized” at December 31, 2014 and
2013.
The following table sets forth the Company’s and its banking subsidiary’s capital ratios at December 31, 2014 and 2013
under the then applicable guidance and rules:
Total risk-based capital ratio . . . . . . . . . .
Tier 1 risk-based capital ratio. . . . . . . . . .
Leverage ratio. . . . . . . . . . . . . . . . . . . . . .
Stock Repurchase Program
Company
Columbia Bank
Requirements
2014
14.13%
12.98%
10.57%
2013
14.68%
13.43%
10.19%
2014
13.67%
12.52%
9.79%
2013
13.52%
12.27%
9.29%
Adequately
capitalized
Well-
Capitalized
8%
4%
4%
10%
6%
5%
In October 2011, the board of directors approved a stock repurchase program authorizing the Company to repurchase up
to 2 million shares of its outstanding shares of common stock. The Company may purchase the shares from time to time in the
open market or in private transactions, under conditions which allow such repurchases to be accretive to earnings per share
while maintaining capital ratios that exceed the guidelines for a well-capitalized financial institution. This repurchase program
supersedes and replaces the prior stock repurchase program adopted in February 2002. No shares were repurchased under the
stock repurchase program during 2014, 2013 or 2012.
55
Dividends
The following table sets forth the dividends paid per common share and the dividend payout ratio (dividends paid per
common share divided by basic earnings per share):
Dividends paid per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout ratio (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2014
2013
2012
$
0.94
$
0.41
$
0.98
62%
34%
84%
______________
(1) Dividends paid per common share as a percentage of earnings per diluted common share
For quarterly detail of dividends declared during 2014 and 2013, including special dividends declared, see “Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this report.
Subsequent to year end, on January 29, 2015 the Company declared a quarterly cash dividend of $0.16 per share and
common share equivalent for holders of preferred stock, and a special cash dividend of $0.14, both payable on February 25,
2015, to shareholders of record at the close of business on February 11, 2015.
Applicable federal and Washington state regulations restrict capital distributions, including dividends, by the Company’s
banking subsidiary. Such restrictions are tied to the institution’s capital levels after giving effect to distributions. Our ability to
pay cash dividends is substantially dependent upon receipt of dividends from the Bank. In addition, the payment of cash
dividends is subject to Federal regulatory requirements for capital levels and other restrictions. In this regard, current guidance
from the Federal Reserve provides, among other things, that dividends per share on the Company’s common stock generally
should not exceed earnings per share, measured over the previous four fiscal quarters.
Reference “Item 6. Selected Financial Data” of this report for our return on average assets, return on average equity and
average equity to average assets ratios for all reported periods.
56
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators, the Company considers various measures when evaluating
capital utilization and adequacy, including:
• Tangible common equity to tangible assets, and
• Tangible common equity to risk-weighted assets.
The Company believes these measures are important because they reflect the level of capital available to withstand
unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of the
Company’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators
principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of
which varies across organizations. Additionally, these measures present capital adequacy inclusive and exclusive of
accumulated other comprehensive income. These calculations are intended to complement the capital ratios defined by banking
regulators for both absolute and comparative purposes.
Because generally accepted accounting principles in the United States of America (“GAAP”) do not include capital ratio
measures, the Company believes there are no comparable GAAP financial measures to these tangible common equity ratios.
The following table reconciles the Company’s calculation of these measures to amounts reported under GAAP.
Despite the importance of these measures to the Company, there are no standardized definitions for them and, as a result,
the Company’s calculations may not be comparable with other organizations. Also, there may be limits in the usefulness of
these measures to investors. As a result, the Company encourages readers to consider its consolidated financial statements in
their entirety and not to rely on any single financial measure.
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements (c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratios
Tangible common equity to tangible assets (a)/(b) . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets (a)/(c). . . . . . . . . . . . . . .
December 31,
2014
December 31,
2013
(dollars in thousands)
$ 1,228,175
(382,537)
(30,459)
(2,217)
812,962
8,578,846
(382,537)
(30,459)
$ 8,165,850
$ 1,053,249
(343,952)
(25,852)
(2,217)
681,228
7,161,582
(343,952)
(25,852)
$ 6,791,778
$ 6,299,863
$ 5,178,748
9.96%
12.90%
10.03%
13.15%
57
The Company also considers operating net interest margin (tax equivalent) to be an important measurement as it more
closely reflects the ongoing operating performance of the Company. Despite the importance of the operating net interest margin
to the Company, there is no standardized definition for it and, as a result, the Company’s calculations may not be comparable
with other organizations. Also, there may be limits in the usefulness of this measure to investors. As a result, the Company
encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial
measure.
The following table reconciles the Company’s calculation of the operating net interest margin (tax equivalent) to the net interest
margin (tax equivalent) for the periods indicated:
Years ended December 31,
2014
2013
2012
Operating net interest margin non-GAAP reconciliation:
Net interest income (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
312,146
(dollars in thousands)
$
297,139
$
245,174
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on FDIC purchased credit impaired loans . . .
Incremental accretion income on other FDIC acquired loans. . . . . . . . . . . . .
Incremental accretion income on other acquired loans. . . . . . . . . . . . . . . . . .
Premium amortization on acquired securities . . . . . . . . . . . . . . . . . . . . . . . . .
Correction of immaterial error - securities premium amortization (2) . . . . . .
Interest reversals on nonaccrual loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment charges on FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,224)
(484)
(21,093)
7,123
(2,622)
1,291
—
(29,815)
(2,211)
(26,200)
7,309
—
882
1,548
(55,305)
(5,872)
—
—
—
747
603
Operating net interest income (tax equivalent) (1). . . . . . . . . . . . . . . . . . . . . . . .
$
276,137
$
248,652
$
185,347
Average interest earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,561,047
$ 5,754,543
$ 4,246,724
Net interest margin (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating net interest margin (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . .
4.76%
4.21%
5.16%
4.32%
5.77%
4.36%
__________
(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest
income of $8.1 million, $6.0 million and $6.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.
(2) For further information on this item, see Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data” of this report.
58
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
We are exposed to interest rate risk, which is the risk that changes in prevailing interest rates will adversely affect assets,
liabilities, capital, income and expenses at different times or in different amounts. Generally, there are four sources of interest
rate risk as described below:
Repricing risk—Repricing risk is the risk of adverse consequences from a change in interest rates that arises
because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities.
Basis risk—Basis risk is the risk of adverse consequence resulting from unequal changes in the spread between
two or more rates for different instruments with the same maturity.
Yield curve risk—Yield curve risk is the risk of adverse consequence resulting from unequal changes in the spread
between two or more rates for different maturities for the same instrument.
Option risk—In banking, option risks are known as borrower options to prepay loans and depositor options to
make deposits, withdrawals, and early redemptions. Option risk arises whenever bank products give customers the right, but
not the obligation, to alter the quantity or the timing of cash flows.
An Asset/Liability Management Committee is responsible for developing, monitoring and reviewing asset/liability
processes, interest rate risk exposures, strategies and tactics and reporting to the board of directors. It is the responsibility of the
board of directors to establish policies and interest rate limits and approve these policies and interest rate limits annually. It is
the responsibility of management to execute the approved policies, develop and implement risk management strategies and to
report to the board of directors on a regular basis. We maintain an asset/liability management policy that provides guidelines for
controlling exposure to interest rate risk. The policy guidelines direct management to assess the impact of changes in interest
rates upon both earnings and capital. The guidelines establish limits for interest rate risk sensitivity.
Interest Rate Risk Sensitivity
A number of measures are used to monitor and manage interest rate risk, including income simulations, interest
sensitivity (gap) analysis and economic value of equity sensitivity. An income simulation model is the primary tool used to
assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Key assumptions
in the model include prepayment speeds on loans and investment securities, decay rates on non-maturity deposits, investment
security, loan, deposit and borrowing volumes and pricing. These assumptions are inherently uncertain and, as a result, the net
interest income projections should be viewed as an estimate of the net interest income sensitivity at the time of the analysis.
Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in
market conditions and management strategies, among other factors.
Based on the results of the simulation model as of December 31, 2014, we would expect a decrease in net interest income
of $3.8 million if interest rates gradually decrease from current rates by 100 basis points and an increase in net interest income
of $10.6 million if interest rates gradually increase from current rates by 200 basis points over a twelve-month period.
The analysis of an institution’s interest rate gap (the difference between the repricing of interest-earning assets and
interest-bearing liabilities during a given period of time) is one standard tool for the measurement of the exposure to interest
rate risk. We believe that because interest rate gap analysis does not address all factors that can affect earnings performance. It
should be used in conjunction with other methods of evaluating interest rate risk.
The table on the following page sets forth the estimated maturity or repricing, and the resulting interest rate gap of our
interest-earning assets and interest-bearing liabilities at December 31, 2014. The amounts in the table are derived from our
internal data and are based upon regulatory reporting formats. Therefore, they may not be consistent with financial information
appearing elsewhere herein that has been prepared in accordance with accounting principles generally accepted in the United
States.
The estimates for net interest income sensitivity and interest rate gap could be significantly affected by external factors
such as changes in prepayment assumptions, early withdrawal of deposits and competition. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while other types may lag changes in market interest rates.
59
Additionally, certain assets, such as adjustable-rate mortgages, have features that restrict changes in the interest rates of
such assets both on a short-term basis and over the lives of such assets. Further, in the event of a change in market interest rates,
prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables. Finally, the
ability of many borrowers to service their adjustable-rate debt may decrease in the event of a substantial increase in market
interest rates.
December 31, 2014
Estimated Maturity or Repricing
0-3
months
4-12
months
Over 1 year
through
5 years
(dollars in thousands)
Due after
5 years
Total
Interest-Earning Assets. . . . . . . . . . . . . . . .
Interest-earning deposits . . . . . . . . . . . .
Loans, net of deferred fees. . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . .
Total interest-earning assets . . . . . .
$
16,949
2,263,879
1,116
148,433
$ 2,430,377
$
$
— $
— $
— $
662,812
—
240,641
903,453
2,122,872
—
1,082,929
$ 3,205,801
395,815
—
659,619
$ 1,055,434
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,949
5,445,378
1,116
2,131,622
7,595,065
(69,569)
171,221
172,090
710,039
$ 8,578,846
— $ 3,763,712
509,637
308
329,896
5,568
4,603,245
5,876
2,747,426
7,350,671
1,228,175
$ 8,578,846
Interest-Bearing Liabilities
Interest-bearing non-maturity
deposits. . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . .
Borrowings. . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . .
$ 3,763,712
135,712
298,328
$ 4,197,752
$
$
— $
— $
239,501
—
239,501
134,116
26,000
160,116
$
$
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing liabilities as a percent of
total interest-earning assets . . . . . . . . . . . .
55.27 %
3.15 %
2.11%
0.08%
Rate sensitivity gap . . . . . . . . . . . . . . . . . . . .
$ (1,767,375)
$
663,952
$ 3,045,685
$ 1,049,558
Cumulative rate sensitivity gap. . . . . . . . . . .
$ (1,767,375)
$ (1,103,423)
$ 1,942,262
$ 2,991,820
Rate sensitivity gap as a percentage of
interest-earning assets . . . . . . . . . . . . . . . .
Cumulative rate sensitivity gap as a
percentage of interest-earning assets . . . . .
Impact of Inflation and Changing Prices
(23.27)%
8.74 %
40.10%
13.82%
(23.27)%
(14.53)%
25.57%
39.39%
The impact of inflation on our operations is increased operating costs. Unlike most industrial companies, virtually all the
assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant
impact on a financial institution’s performance than the effect of general levels of inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates.
60
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Columbia Banking System, Inc.
Tacoma, Washington
We have audited the accompanying consolidated balance sheets of Columbia Banking System, Inc. and its subsidiaries
(the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Columbia Banking System, Inc. and its subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 27, 2015 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Seattle, Washington
February 27, 2015
61
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale at fair value (amortized cost of $2,087,069 and $1,680,491,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net of unearned income of ($59,374) and ($68,282), respectively (1) . . . . . . . . . . . .
Less: allowance for loan and lease losses (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC loss-sharing asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingent liabilities (Note 17)
Shareholders’ equity:
Preferred stock (no par value)
Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued and outstanding
Common stock (no par value)
Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . .
Issued and outstanding . . . . . . . . . . . . . . . . . . . . .
December 31,
2014
December 31,
2013
(in thousands)
2,000
9
63,033
57,437
2,000
9
63,033
51,265
Retained earnings
Accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2014
December 31,
2013 (1)
(in thousands)
$
171,221
16,949
188,170
$
165,030
14,531
179,561
2,098,257
33,365
1,116
5,445,378
69,569
5,375,809
15,174
27,802
172,090
22,190
382,537
30,459
231,877
$ 8,578,846
$ 2,651,373
4,273,349
6,924,722
216,568
105,080
8,248
96,053
7,350,671
1,664,111
32,529
735
4,517,296
72,454
4,444,842
39,846
22,206
154,732
35,927
343,952
25,852
217,289
$ 7,161,582
$ 2,171,703
3,787,772
5,959,475
36,606
25,000
—
87,252
6,108,333
2,217
2,217
985,839
234,498
5,621
1,228,175
$ 8,578,846
860,562
202,514
(12,044)
1,053,249
$ 7,161,582
__________
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to removing the separate line items for
covered loans and including the prior period balances in the line items for loans, net of unearned income and allowance for loan and lease
losses.
See accompanying Notes to Consolidated Financial Statements.
62
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits in banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment charge on Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan and lease losses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision (recapture) for loan and lease losses. . . . . . . . .
Noninterest Income
Service charges and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant services fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in FDIC loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, licenses and fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net benefit of operation of other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Common Share
Years ended December 31,
2014
2013 (1)
(in thousands except per share)
2012 (1)
$
$
268,279
28,754
10,830
179
308,042
3,005
396
—
593
3,994
304,048
6,727
297,321
55,555
7,975
552
3,823
(19,989)
11,834
59,750
130,864
32,300
4,006
3,964
15,369
11,389
4,552
4,549
(1,045)
6,293
27,045
239,286
117,785
36,211
81,574
$
$
266,284
20,459
9,837
355
296,935
3,962
(404)
1,548
734
5,840
291,095
(101)
291,196
48,351
8,812
462
3,570
(45,017)
10,522
26,700
125,432
33,054
3,551
4,090
14,076
12,338
5,033
4,706
(7,401)
6,045
29,962
230,886
87,010
26,994
60,016
$
$
219,433
18,276
9,941
854
248,504
5,887
2,608
603
479
9,577
238,927
39,367
199,560
29,998
8,154
3,733
2,861
(24,467)
6,779
27,058
85,434
20,031
3,612
3,650
9,714
8,915
4,736
3,384
(1,969)
4,445
20,961
162,913
63,705
17,562
46,143
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of common shares outstanding. . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of diluted common shares outstanding. . . . . . . . . . . . . . . . . .
__________
(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 as
well as removing the separate line item for provision for losses on covered loans and including the prior period activity in the line item for
provision for loan and lease losses.
1.53
1.52
52,618
53,183
1.16
1.16
39,260
39,263
1.24
1.21
47,993
49,051
$
$
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
63
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 ($10,200), $17,498 and
$1,902. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment of net gain from sale of available for
sale securities included in income, net of tax of $200, $163 and
$1,316. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gain (loss) from securities, net of reclassification
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan liability adjustment:
Years ended December 31,
2014
2013
2012
(in thousands)
$
81,574
$
60,016
$
46,143
17,922
(30,727)
(2,609)
(352)
(299)
(2,417)
17,570
(31,026)
(5,026)
Unrecognized net actuarial loss during the period, net of tax of $0,
$780 and $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: amortization of unrecognized net actuarial losses included in
net periodic pension cost, net of tax of ($54), ($135) and ($38) . . . . .
Pension plan liability adjustment, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
95
95
17,665
99,239
$
$
(1,432)
265
(1,167)
(32,193)
27,823
—
42
42
(4,984)
41,159
$
See accompanying Notes to Consolidated Financial Statements.
64
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Preferred Stock
Common Stock
Number
of
Shares
Amount
Number
of
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance at January 1, 2012. . . . . . . . . . . .
— $
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . .
Issuance of common stock - stock
option and other plans. . . . . . . . . . . . . . .
Issuance of common stock - restricted
stock awards, net of canceled awards . . .
Cash dividends paid on common stock
($0.98 per share) . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Balance at December 31, 2012 . . . . . . . . .
— $
—
—
—
—
—
—
—
—
—
(in thousands, except per share amounts)
39,506
$ 579,136
$ 155,069
$
25,133
$
759,338
—
—
40
140
—
—
—
713
1,622
46,143
—
—
—
—
(38,824)
—
(4,984)
—
—
—
46,143
(4,984)
713
1,622
(38,824)
39,686
$ 581,471
$ 162,388
$
20,149
$
764,008
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . .
Issuance of preferred stock, common
stock and warrants - acquisition
related . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock - stock
option and other plans. . . . . . . . . . . . . . .
Issuance of common stock - restricted
stock awards, net of canceled awards . . .
Activity in deferred compensation plan . . .
Tax benefit associated with share-based
compensation . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends ($0.31 per common
share equivalent) . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock
($0.41 per share) . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2013 . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . .
Issuance of common stock - acquisition
related . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock - exercise of
warrants. . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock - stock
option and other plans. . . . . . . . . . . . . . .
Issuance of common stock - restricted
stock awards, net of canceled awards . . .
Activity in deferred compensation plan . . .
Tax benefit associated with share-based
compensation . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends ($0.94 per common
share equivalent) . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock
($0.94 per share) . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2014 . . . . . . . . .
—
—
9
—
—
—
—
—
—
—
9
—
—
—
—
—
—
—
—
—
—
—
9
—
—
—
—
2,217
11,380
273,964
—
—
—
—
—
—
—
73
144
—
—
1,243
2,693
517
1,103
(18)
(429)
—
—
—
—
60,016
—
—
—
—
—
—
—
(32)
(19,858)
—
(32,193)
—
—
—
—
—
—
—
—
60,016
(32,193)
276,181
1,243
2,693
517
1,103
(429)
(32)
(19,858)
$
2,217
51,265
$ 860,562
$ 202,514
$
(12,044)
$
1,053,249
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,208
116,907
1,722
5,000
41
225
—
—
929
2,859
(1)
205
(24)
(622)
81,574
—
—
—
—
—
—
—
—
—
—
—
—
(96)
(49,494)
—
17,665
—
—
—
—
—
—
—
—
—
81,574
17,665
116,907
5,000
929
2,859
(1)
205
(622)
(96)
(49,494)
$
2,217
57,437
$ 985,839
$ 234,498
$
5,621
$
1,228,175
See accompanying Notes to Consolidated Financial Statements.
65
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
Provision (recapture) for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and accretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized (gain) loss on sale of other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain on sale of other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain on sale of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down on other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in:
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Investing Activities
Loans originated and acquired, net of principal collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of:
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from:
FDIC reimbursement on loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal repayments and maturities of securities available for sale . . . . . . . . . . . . . . . . . . . .
Sales of loans held for investment and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of other real estate and other personal property owned (1) . . . . . . . . . . . . . . . . . . . . . .
Payments to FDIC related to loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid in branch sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (paid) received in business combinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Financing Activities
Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from:
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Reserve Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for:
Years Ended December 31,
2013 (1)
2012 (1)
2014
(in thousands)
$
81,574
$
60,016
$
46,143
6,727
2,859
44,459
(552)
564
(5,909)
(565)
4,039
14,646
229
(944)
89
(4,479)
(5,119)
137,618
(101)
2,844
40,431
(462)
(48)
(10,539)
—
2,035
5,413
1,828
(7,938)
(122)
(3,385)
(10,336)
79,636
(440,376)
(161,827)
(363,693)
(12,485)
5,950
63,292
180,648
4,128
28,559
(3,451)
—
—
(16,788)
32,255
(521,961)
250,629
21,037
929
5,000
1,602,000
800
(457,985)
(13,133)
9,246
166,881
293,940
4,031
36,453
—
(3,577)
(919)
—
(154,170)
(281,060)
33,983
—
1,092
—
1,215,100
50
39,367
1,622
57,305
(3,733)
(456)
(11,634)
—
8,300
(3,656)
(415)
1,019
(629)
(2,113)
3,779
134,899
(92,088)
(322,342)
(17,137)
54,649
95,165
236,749
4,414
49,004
—
(11)
—
—
—
8,403
226,556
—
713
—
100
100
(1,422,000)
(800)
(96)
(49,494)
(14,636)
(622)
205
392,952
8,609
179,561
188,170
Repayment of Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of Federal Reserve Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of other borrowings (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Information:
Cash paid during the year for:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing activities
Loans transferred to other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based consideration issued in business combinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
__________
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to removing the separate line item for sales
of covered other real estate owned and including the prior period activity in the line item for sales of other real estate and other personal
property owned as well as removing the separate line item for repayment of long-term subordinated debt and including prior period activity in
the line item for repayment of other borrowings.
(1,313,000)
(50)
(32)
(19,858)
(51,000)
(429)
1,203
(132,941)
(334,365)
513,926
179,561
(112,210)
(100)
—
(38,824)
—
—
—
76,335
219,637
294,289
513,926
10,200
116,907
18,100
276,181
3,904
21,230
5,962
26,754
10,206
11,927
21,627
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
66
COLUMBIA BANKING SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2014, 2013 and 2012
1. Summary of Significant Accounting Policies
Organization
Columbia Banking System, Inc. (the “Corporation”, “we”, “our”, “Columbia” or the “Company”) is the holding company
for Columbia State Bank (“Columbia Bank” or the “Bank”) and West Coast Trust Company, Inc. (“West Coast Trust”). The
Bank provides a full range of financial services through 154 branch locations, including 78 in the State of Washington, 60 in
Oregon and 16 in Idaho. West Coast Trust provides fiduciary, agency, trust and related services, and life insurance products.
Because the Bank comprises substantially all of the business of the Corporation, references to the “Company” mean the
Corporation and the Bank together. The Corporation is approved as a bank holding company pursuant to the Gramm-Leach-
Bliley Act of 1999.
The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United
States of America (“GAAP”) and practices in the financial services industry. To prepare the financial statements in conformity
with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and income and expenses during the reporting period. Circumstances and events that differ
significantly from those underlying our estimates and assumptions could cause actual financial results to differ from our
estimates. The most significant estimates included in the financial statements relate to the allowance for loan and lease losses,
business combinations, purchased credit impaired loans, Federal Deposit Insurance Corporation (“FDIC”) loss sharing asset
and goodwill impairment.
The Company has applied its accounting policies and estimation methods consistently in all periods presented in these
financial statements (to the periods in which they applied), except for the adoption of Accounting Standards Update (“ASU”)
2012-06 Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-
Assisted Acquisition of a Financial Institution on January 1, 2013. As a result of adoption of the ASU, the Company adjusted
the indemnification asset amortization period to be the term of the FDIC loss-sharing agreement if it was shorter than the term
of the acquired loans.
Correction of Immaterial Error Related to Prior Periods
During the year ended December 31, 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 or previously
reported results.
Consolidation
The consolidated financial statements of the Company include the accounts of the Corporation and its subsidiaries,
including the Bank and West Coast Trust. Intercompany balances and transactions have been eliminated in consolidation.
Cash and cash equivalents
Cash and cash equivalents include cash and due from banks, and interest bearing balances due from correspondent banks
and the Federal Reserve Bank. Cash and cash equivalents have a maturity of 90 days or less at the time of purchase.
Securities
Securities are classified based on management’s intention on the date of purchase. All securities are classified as available
for sale and are presented at fair value. Unrealized gains or losses on securities available for sale are excluded from net income
but are included as separate components of other comprehensive income, net of taxes. Purchase premiums or discounts on
securities available for sale are amortized or accreted into income using the interest method over the terms of the individual
securities. The Company performs a quarterly assessment to determine whether a decline in fair value below amortized cost is
other-than-temporary. Amortized cost includes adjustments made to the cost of an investment for accretion, amortization,
collection of cash and previous other-than temporary impairment recognized in earnings. Other-than-temporary impairment
exists when it is probable that the Company will be unable to recover the entire amortized cost basis of the security.
67
In performing the quarterly assessment for debt securities, management considers whether or not the Company expects to
recover the entire amortized cost basis of the security. In addition, management also considers whether it is more likely than not
that it will not have to sell the security before recovery of its cost basis. If the Company intends to sell a security or it is more
likely than not it will be required to sell a security prior to recovery of its cost basis, the entire amount of impairment is
recognized in earnings. If the Company does not intend to sell the security or it is not more likely than not it will be required to
sell the security prior to recovery of its cost basis, the credit loss component of impairment is recognized in earnings and
impairment associated with non-credit factors, such as market liquidity, is recognized in other comprehensive income net of
tax. A credit loss is the difference between the cost basis of the security and the present value of cash flows expected to be
collected, discounted at the security’s effective interest rate at the date of acquisition. The cost basis of an other-than-
temporarily impaired security is written down by the amount of impairment recognized in earnings. The new cost basis is not
adjusted for subsequent recoveries in fair value. However, the difference between the new amortized cost basis and the cash
flows expected to be collected is accreted as interest income. The total other-than-temporary impairment, if any, is presented in
the consolidated statements of income with a reduction for the amount of other-than-temporary impairment that is recognized
in other comprehensive income, if any.
Realized gains or losses on sales of securities available for sale are recorded using the specific identification method.
Federal Home Loan Bank Stock
The Company’s investment in Federal Home Loan Bank (“FHLB”) stock is carried at par value because the shares can
only be redeemed with the FHLB at par. The Company is required to maintain a minimum level of investment in FHLB stock
based on specific percentages of its outstanding mortgages and FHLB advances. Stock redemptions are at the discretion of the
FHLB or of the Company, upon five years’ prior notice for FHLB Class B stock or six months notice for FHLB Class A stock
to the FHLB. FHLB stock is subject to recoverability testing per the Financial Services—Depository and Lending topic of the
FASB Accounting Standards Codification (“ASC”).
Loans
Loans, excluding purchased credit impaired loans are generally carried at the unpaid principal balance, net of premiums,
unearned discounts and net deferred loan fees. Net deferred loan fees include deferred unamortized fees less direct incremental
loan origination costs. Net deferred loan fees, premiums and unearned discounts are amortized into interest income using either
the interest method or straight-line method over the terms of the loans, adjusted for actual prepayments. The amortization is
calculated using the interest method for all loans except revolving loans, for which the straight-line method is used. Interest
income is accrued as earned. Fees related to lending activities other than the origination or purchase of loans are recognized as
noninterest income during the period the related services are performed.
Nonaccrual loans—Loans are placed on nonaccrual status when a loan becomes contractually past due 90 days with
respect to interest or principal unless the loan is both well secured and in the process of collection, or if full collection of
interest or principal becomes uncertain. When a loan is placed on nonaccrual status, any accrued and unpaid interest receivable
is reversed and the recognition of net deferred loan fees, premiums and unearned discounts ceases. Thereafter, interest collected
on the loan is accounted for on the cash collection or cost recovery method until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when the delinquent principal and interest are brought current in accordance
with the terms of the loan agreement for a minimum period of six months and future payments are reasonably assured.
Impaired loans—Loans are considered impaired when based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when a loan has
been modified in a troubled debt restructuring. The assessment for impairment occurs when and while such loans are
designated as classified per the Company’s internal risk rating system or when and while such loans are on nonaccrual. All
nonaccrual loans greater than $500,000 and all troubled debt restructured loans are considered impaired and analyzed
individually on a quarterly basis. Classified loans with an outstanding balance greater than $500,000 are evaluated for potential
impairment on a quarterly basis.
When a loan with unique risk characteristics has been identified as being impaired, the amount of impairment will be
measured by the Company using discounted cash flows, except when it is determined that the remaining source of repayment
for the loan is the operation or liquidation of the underlying collateral. In these cases, the current fair value of the collateral,
reduced by costs to sell, will be used in place of discounted cash flows. As a final alternative, the observable market price of the
debt may be used to assess impairment. Predominantly, the Company uses the fair value of collateral approach based upon a
reliable valuation.
68
When the measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by
recording a charge-off to the allowance for loan and lease losses or by designating a specific reserve. The Company’s policy is
to record cash receipts received on impaired loans first as reductions to principal and then to interest income.
Restructured Loans—A loan is classified as a troubled debt restructuring when a borrower is experiencing financial
difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that
it would not otherwise consider. These concessions may include interest rate reductions, principal forgiveness, extension of
maturity date and other actions intended to minimize potential losses. Generally, a nonaccrual loan that is restructured remains
on nonaccrual status for a period of six months to demonstrate that the borrower can meet the restructured terms. If the
borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.
Purchased Credit Impaired Loans (“PCI Loans”)—Loans acquired with evidence of credit deterioration since origination
for which it is probable that all contractually required payments will not be collected are accounted for under ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality, formerly SOP 03-3 Accounting for Certain Loans or
Debt Securities Acquired in a Transfer. In addition, because of the significant discounts associated with certain of the acquired
loan portfolios, the Company elected to account for those certain acquired loans under ASC 310-30.
In situations where such loans have similar risk characteristics, loans are aggregated into pools to estimate cash flows. A
pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. Expected cash
flows at the acquisition date in excess of the fair value of loans are considered to be accretable yield, which is recognized as
interest income over the life of the loan pool using a level yield method if the timing and amount of the future cash flows of the
pool is reasonably estimable. Subsequent to the acquisition date, any increases in cash flow over those expected at purchase
date in excess of fair value are recorded as interest income prospectively. Any subsequent decreases in cash flow over those
expected at purchase date due to credit deterioration are recognized by recording an allowance for losses on purchased credit
impaired loans. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the removal of the
loan from the loan pool at the carrying amount.
Unfunded loan commitments—Unfunded commitments are generally related to providing credit facilities to clients of the
Bank and are not actively traded financial instruments. These unfunded commitments are disclosed as financial instruments
with off-balance sheet risk in Note 17 in the Notes to Consolidated Financial Statements.
Allowance for Loan and Lease Losses
The Company accounts for the credit risk associated with lending activities through its allowance for loan and lease
losses and provision for loan and lease losses. The provision is the expense recognized in the consolidated statements of income
to adjust the allowance to the levels deemed appropriate by management, as determined through application of the Company’s
allowance methodology procedures. The provision for loan and lease losses reflects management’s judgment of the adequacy of
the allowance for loan and lease losses. Loan and lease losses are charged against the allowance when management believes the
collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan and lease losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, and estimated value of any underlying collateral and
prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
The allowance consists of general, specific, and unallocated components. The general component covers loans not
specifically measured for impairment and is based on historical loss experience adjusted for qualitative factors. The specific
component relates to loans that are impaired. For impaired loans an allowance is established when the discounted cash flows
(or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The
unallocated allowance provides for other credit losses inherent in the Company’s loan portfolio that may not have been
contemplated in the general and specific components of the allowance. This unallocated amount generally comprises less than
5% of the allowance. The unallocated amount is reviewed periodically based on trends in credit losses, the results of credit
reviews and overall economic trends.
69
Allowance for Loan Losses on Purchased Credit Impaired Loans
The Company updates its cash flow projections for purchased credit impaired loans accounted for under ASC 310-30 on
a quarterly basis. Assumptions utilized in this process include projections related to probability of default, loss severity,
prepayment and recovery lag. Projections related to probability of default and prepayment are calculated utilizing a loan
migration analysis. The loan migration analysis is a matrix of probability that is used to estimate the probability of a loan pool
transitioning into a particular delinquency state given its delinquency state at the remeasurement date. Loss severity factors are
based upon either actual charge-off data within the loan pools or industry averages and recovery lags are based upon the
collateral within the loan pools.
Any decreases in expected cash flows after the acquisition date and subsequent measurement periods are recognized by
recording a provision for loan losses. See Purchased Credit Impaired Loans for further discussion.
Allowance for Unfunded Commitments and Letters of Credit
The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb
estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is
based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage,
credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit
facilities. The allowance for unfunded commitments is included in other liabilities on the consolidated balance sheets, with
changes to the balance charged against noninterest expense.
Premises and Equipment
Land, buildings, leasehold improvements and equipment are stated at cost less accumulated depreciation and
amortization. Gains or losses on dispositions are reflected in current operations. Expenditures for improvements and major
renewals are capitalized, and ordinary maintenance, repairs and small purchases are charged to operating expenses.
Depreciation and amortization are computed based on the straight-line method over the estimated useful lives of the various
classes of assets. The ranges of useful lives for the principal classes of assets are as follows:
Buildings and building improvements. . . . . . . . . . . 5 to 39 years
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . Term of lease or useful life, whichever is shorter
Furniture, fixtures and equipment . . . . . . . . . . . . . . 3 to 7 years
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 5 years
Software
Capitalized software is stated at cost, less accumulated amortization. Amortization is computed on a straight-line basis
and charged to expense over the estimated useful life of the software which is generally three years. Capitalized software is
included in Premises and equipment, net in the consolidated balance sheets.
Other Real Estate Owned
OREO is composed of real estate acquired in satisfaction of loans. Properties acquired by foreclosure or deed in lieu of
foreclosure are transferred to OREO and are recorded at fair value less estimated costs to sell, at the date of transfer of the
property. If the carrying value exceeds the fair value at the time of the transfer, the difference is charged to the allowance for
loan and lease losses. The fair value of the OREO property is based upon current appraisal. Losses that result from the ongoing
periodic valuation of these properties are charged to the net cost of operation of OREO in the period in which they are
identified. Improvements to the OREO are capitalized and holding costs are charged to the net cost of operation of OREO as
incurred.
70
FDIC Loss-sharing Asset
The acquisition date fair value of the reimbursement the Company expected to receive from the FDIC under loss-sharing
agreements was recorded in the FDIC loss-sharing asset on the consolidated balance sheet. Subsequent to initial recognition,
the FDIC loss-sharing asset is reviewed quarterly and adjusted for any changes in expected cash flows. These adjustments are
measured on the same basis as the related covered assets. Any decrease in expected cash flows for the covered assets due to an
increase in expected credit losses will increase the FDIC loss-sharing asset and any increase in expected future cash flows for
the covered assets due to a decrease in expected credit losses will decrease the FDIC loss-sharing asset. Changes in the
estimated cash flows on covered assets that are immediately recognized in income generally result in a similar immediate
adjustment to the loss-sharing asset while changes in expected cash flows on covered assets that are accounted for as an
adjustment to yield generally result in adjustments to the amortization or accretion rate for the loss-sharing asset. Increases and
decreases to the FDIC loss-sharing asset are recorded as adjustments to noninterest income.
Goodwill and Intangibles
Net assets of companies acquired in purchase transactions are recorded at fair value at the date of acquisition. Identified
intangibles are amortized on an accelerated basis over the period benefited. Goodwill is not amortized but is reviewed for
potential impairment during the third quarter on an annual basis or, more frequently, if events or circumstances indicate a
potential impairment, at the reporting unit level. A reporting unit is an operating segment or one level below an operating
segment for which discrete financial information is available and regularly reviewed by management. The Company consists of
a single reporting unit. If the fair value of the reporting unit, including goodwill, is determined to be less than the carrying
amount of the reporting unit, a further test is required to measure the amount of impairment. If an impairment loss exists, the
carrying amount of goodwill is adjusted to a new cost basis. Subsequent reversal of a previously recognized goodwill
impairment loss is prohibited.
Intangible assets are evaluated for impairment if events and circumstances indicate a possible impairment. Such
evaluation of other intangible assets is based on undiscounted cash flow projections. At December 31, 2014, intangible assets
included on the consolidated balance sheets principally consists of a core deposit intangible amortized using an accelerated
method with an original estimated life 10 years.
Income Taxes
The provision for income taxes includes current and deferred income tax expense on net income adjusted for permanent
and temporary differences such as interest income on state and municipal securities and affordable housing credits. Deferred
tax assets and liabilities are recognized for the expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities using enacted tax laws and rates. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. On a
quarterly basis, management evaluates deferred tax assets to determine if these tax benefits are expected to be realized in future
periods. This determination is based on facts and circumstances, including the Company’s current and future tax outlook. To the
extent a deferred tax asset is no longer considered “more likely than not” to be realized, a valuation allowance is established.
We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be
sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based
on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest
and penalties related to unrecognized tax benefits in “Provision for income taxes” in the consolidated statements of income.
Advertising
Advertising costs are generally expensed as incurred.
Earnings per Common Share
The Company’s capital structure includes convertible preferred shares, common shares, restricted common shares,
common share options, and during portions of 2014 and 2013, warrants to purchase common shares. Restricted common shares
participate in dividends declared on common shares at the same rate as common shares. Preferred shares participate in
dividends declared on common shares on an “as if converted” basis. Accordingly, the Company calculates earnings per
common share (“EPS”) using the two-class method under the Earnings per Share topic of the FASB ASC. The two-class
method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would
have been available to common shareholders but does not require the presentation of basic and diluted EPS for securities other
than common shares.
71
Under the two-class method, basic EPS is computed by dividing earnings allocated to common shareholders by the
weighted average number of common shares outstanding for the period. Earnings allocated to common shareholders represents
net income reduced by earnings allocated to participating securities. Participating securities include nonvested restricted stock
awards and preferred stock. Diluted EPS is computed in the same manner as basic earnings per share except that the
denominator is increased to include the number of additional common shares that would have been outstanding if certain shares
issuable upon exercise of options and warrants were included unless those additional shares would have been anti-dilutive. For
the diluted EPS computation, the treasury stock method is applied and compared to the two-class method and whichever
method results in a more dilutive impact is utilized to calculate diluted EPS.
Share-Based Payment
The Company accounts for stock options and stock awards in accordance with the Compensation—Stock Compensation
topic of the FASB ASC. Authoritative guidance requires the Company to measure the cost of employee services received in
exchange for an award of equity instruments, such as stock options or stock awards, based on the fair value of the award on the
grant date. This cost must be recognized in the consolidated statements of income over the vesting period of the award.
The Company issues restricted stock awards which generally vest over a four- or five-year period during which time the
holder receives dividends and has full voting rights. Restricted stock is valued at the closing price of the Company’s stock on
the date of an award.
Derivatives and Hedging Activities
In accordance with the Derivatives and Hedging topic of the FASB ASC, the Company recognizes derivatives as assets or
liabilities on the consolidated balance sheets at their fair value. The Company periodically enters into interest rate contracts
with customers and offsetting contracts with third parties. As these interest rate contracts are not designated as hedges under the
Derivatives and Hedging topic of the FASB ASC, the changes in fair value of these instruments are recognized immediately in
earnings.
Accounting Pronouncements
During the year ended December 31, 2014, the following Accounting Standards Updates were issued or became effective:
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. 2014-15 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 amendments in ASU 2014-12
provide 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
December 31, 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.
In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures. The amendments in ASU 2014-11 change 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.
72
In May 2014, the FASB issued ASU 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. ASU 2014-08 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, but does not expect the guidance to have a material impact on the
Company’s 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. Those not
electing the proportional amortization method would account for such investments using the equity method or cost method.
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 adopted this
ASU prospectively on December 31, 2014 as the retrospective adjustments were not material. The net investment balance at
December 31, 2014 was $7.3 million. The amount of affordable housing tax credits recognized during 2014 was $1.5 million.
Using the proportional amortization method, the amount recognized as a component of income tax expense for 2014 was $2.0
million, inclusive of the adjustment made to remove the previously recorded deferred tax asset. Prior to adopting this guidance,
the Company accounted for such investments using the equity method. Under the equity method, the Company would have
recognized $1.1 million as a component of other noninterest expense. Adoption of this ASU did not have a material impact on
the Company's consolidated financial statements.
2. Business Combinations
Intermountain Community Bancorp
On November 1, 2014, the Company completed its acquisition of Intermountain Community Bancorp and its wholly-
owned banking subsidiary Panhandle State Bank ("Intermountain"). The Company acquired 100% of the voting equity interests
of Intermountain. The primary reason for the acquisition was to expand the Company's geographic footprint into the state of
Idaho, consistent with its ongoing growth strategy.
73
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting
(formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair
values as of the November 1, 2014 acquisition date. Initial accounting for deferred taxes was incomplete as of December 31,
2014. The amount currently recognized in the financial statements has been determined provisionally as the final Intermountain
Community Bancorp tax return has not yet been completed. The application of the acquisition method of accounting resulted in
the recognition of goodwill of $38.6 million and a core deposit intangible of $10.9 million, or 1.75% of core deposits. The
goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The goodwill is not
deductible for income tax purposes.
The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and
liabilities assumed:
November 1, 2014
(in thousands)
Purchase price as of November 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fair value of identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
131,935
47,283
299,458
2,124
502,595
4,656
20,696
2,752
10,900
35,353
(736,795)
(22,904)
(59,043)
(13,725)
93,350
38,585
See Note 10, Goodwill and Other Intangible Assets, for further discussion of the accounting for goodwill and other
intangible assets.
The operating results of the Company include the operating results produced by the acquired assets and assumed
liabilities for the period November 1, 2014 to December 31, 2014. Disclosure of the amount of Intermountain’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.
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The following table presents certain unaudited pro forma information for illustrative purposes only, for the years ended
December 31, 2014 and 2013 as if Intermountain had been acquired on January 1, 2013. This unaudited estimated pro forma
financial information combines the historical results of Intermountain 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 on January 1, 2013. 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 January 1,
2013. 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
Years Ended December 31,
2014
2013
(in thousands except per share)
Total revenues (net interest income plus noninterest income) . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
397,152
85,939
1.56
1.55
$
$
$
$
360,655
72,587
1.32
1.31
The following table shows the impact of the acquisition-related expenses related to the acquisition of Intermountain for
the periods indicated to the various components of noninterest expense:
Year ended December 31,
2014
(in thousands)
Noninterest Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact of acquisition-related costs to noninterest expense. . . . . . . . . . . . . . . . . . .
$
$
2,077
44
464
—
2,114
197
4,896
West Coast Bancorp
On April 1, 2013, the Company completed its acquisition of West Coast Bancorp (“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.
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 December 31, 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.
75
The following table presents certain unaudited pro forma information for illustrative purposes only, for the years ended
December 31, 2013 and 2012 as if West Coast had been acquired on January 1, 2012. The unaudited estimated 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 on January 1, 2012. 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 on January 1, 2012.
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
Years Ended December 31,
2013
2012
(in thousands except per share)
Total revenues (net interest income plus noninterest income) . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
337,712
76,496
1.50
1.46
$
$
$
$
420,167
91,261
1.79
1.74
The following table shows the impact of the acquisition-related expenses related to the acquisition of West Coast for the
periods indicated to the various components of noninterest expense:
Noninterest Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact of acquisition-related costs to noninterest expense . . . . . . . . . . . . .
$
$
2014
Years ended December 31,
2013
(in thousands)
2012
798
696
—
684
383
1,975
4,536
$
$
8,440
4,684
877
767
4,766
5,954
25,488
$
$
—
—
2
—
1,760
18
1,780
3. Cash and Cash Equivalents
The Company is required to maintain an average reserve balance with the Federal Reserve Bank or maintain such reserve
balance in the form of cash. The average required reserve balance for the years ended December 31, 2014 and 2013 was
approximately $47.4 million and $36.3 million, respectively, and was met by holding cash and maintaining an average balance
with the Federal Reserve Bank.
4. Securities
At December 31, 2014 the Company’s securities portfolio primarily consisted of securities issued by the U.S.
government, U.S. government agencies, U.S. government-sponsored enterprises and state and municipalities. All of the
Company’s mortgage-backed securities and collateralized mortgage obligations are issued by U.S. government agencies and
U.S. government-sponsored enterprises and are implicitly guaranteed by the U.S. government. The Company had no other
issuances in its portfolio which exceeded ten percent of shareholders’ equity.
76
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of
securities available for sale:
December 31, 2014
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. government agency and government-sponsored
enterprise mortgage-backed securities and collateralized
mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and municipal securities . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and government-sponsored
enterprise securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2013
U.S. government agency and government-sponsored
enterprise mortgage-backed securities and collateralized
mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and municipal securities . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and government-sponsored
enterprise securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,087,069
$
25,527
$
$ 1,160,378
$
483,578
416,919
20,910
5,284
$
961,442
$
357,013
335,671
21,081
5,284
$
10,219
14,432
(8,210)
(1,526)
$ 1,162,387
496,484
(4,069)
(411)
(123)
(14,339)
413,706
20,499
5,181
$ 2,098,257
10,640
11,450
$
(23,674)
(3,993)
$
948,408
364,470
(10,066)
(967)
(231)
(38,931)
326,039
20,114
5,080
$ 1,664,111
856
—
20
434
—
27
$ 1,680,491
$
22,551
$
Proceeds from sales of securities available-for-sale were $63,292 thousand, $166,881 thousand and $95,165 thousand for
the years ended December 31, 2014, 2013 and 2012, respectively. The following table provides the gross realized gains and
losses on the sales and calls of securities for the periods indicated:
Years Ended December 31,
2014
2013
2012
(in thousands)
Gross realized gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
553
(1)
552
$
$
632
(170)
462
$
$
4,447
(714)
3,733
The scheduled contractual maturities of investment securities available for sale at December 31, 2014 are presented as
follows:
Due within one year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities with no stated maturity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available-for-sale . . . . . . . . . . . . . . . . . . .
December 31, 2014
Amortized Cost
Fair Value
(in thousands)
$
18,872
$
426,532
534,515
19,028
426,035
537,175
1,101,866
1,110,838
5,284
5,181
$
2,087,069
$
2,098,257
77
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:
Washington and Oregon State to secure public deposits . . . . . . . . . . . . . . . .
Federal Reserve Bank to secure borrowings . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities pledged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities pledged as collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2014
December 31,
2013
(in thousands)
328,400
$
277,012
41,146
157,097
42,694
43,081
526,643
$
362,787
The following tables show 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 December 31, 2014 and 2013:
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands)
December 31, 2014
U.S. government agency and government-
sponsored enterprise mortgage-backed securities
and collateralized mortgage obligations . . . . . . . . . .
$
258,825
$
(1,287)
$
279,015
$
(6,924)
$
537,840
(8,211)
(1,525)
State and municipal securities . . . . . . . . . . . . . . . . . . . .
71,026
(543)
44,148
(982)
115,174
U.S. government agency and government-
sponsored enterprise securities . . . . . . . . . . . . . . . . .
105,250
(518)
216,221
(3,551)
321,471
(4,069)
U.S. government securities . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,313
—
(2)
19,450
2,834
(411)
(121)
19,450
5,147
(411)
(123)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
437,414
$
(2,350)
$
561,668
$
(11,989)
$
999,082
$
(14,339)
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
260,001
20,114
2,257
(8,063)
28,447
(2,003)
288,448
(10,066)
(967)
(58)
—
2,783
—
(173)
20,114
5,040
(967)
(231)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
887,693
$
(23,148)
$
166,348
$
(15,783)
$ 1,054,041
$
(38,931)
At December 31, 2014, there were 125 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 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 December 31, 2014.
At December 31, 2014, there were 95 state and municipal government securities in an unrealized loss position, of which
44 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 December 31, 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 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 December 31, 2014.
At December 31, 2014, there were 34 U.S. government agency and government-sponsored enterprise securities in an
unrealized loss position, of which 17 were in a continuous loss position for 12 months or more. The decline in fair value is
78
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 December 31, 2014.
At December 31, 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 December 31, 2014.
At December 31, 2014, there were two other securities in an unrealized loss position, of which one security, a mortgage-
backed securities fund 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 December 31,
2014 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.
Securities Deemed to be Other-Than-Temporarily Impaired
During the fourth quarter of 2012, the Company received full payment on a municipal bond that was determined to be
other-than-temporarily impaired during 2011 for which the Company recorded impairment of $3.0 million in 2011. The 2012
gain related to this security is recorded in the line item Investment securities gains(losses), net in the Consolidated Statements
of Income.
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 major types of loans (net of unearned income):
December 31, 2014
December 31, 2013
Loans,
excluding
PCI loans
PCI Loans
Total
Loans,
excluding
PCI loans
PCI Loans
Total
(in thousands)
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,119,565
$
44,505
$ 2,164,070
$
1,561,782
$
60,942
$ 1,622,724
Real estate:
One-to-four family residential . . . . . . . . . . . . . . .
Commercial and multifamily residential . . . . . . .
Total real estate . . . . . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential . . . . . . . . . . . . . . .
Commercial and multifamily residential . . . . . . .
Total real estate construction . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,571
2,363,541
2,539,112
116,866
134,443
251,309
364,182
Less: Net unearned income. . . . . . . . . . . . . . . . . .
(59,374)
Total loans, net of unearned income . . . . . . . . . . . . . . .
5,214,794
Less: Allowance for loan and lease losses . . . . . .
(53,233)
Total loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,161,561
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,116
26,993
128,769
155,762
4,021
2,321
6,342
23,975
—
230,584
(16,336)
202,564
2,492,310
2,694,874
120,887
136,764
257,651
388,157
108,317
2,080,075
2,188,392
54,155
126,390
180,545
357,014
(59,374)
(68,282)
33,943
154,191
188,134
13,313
5,373
18,686
30,083
—
142,260
2,234,266
2,376,526
67,468
131,763
199,231
387,097
(68,282)
5,445,378
4,219,451
297,845
4,517,296
(69,569)
(52,280)
(20,174)
(72,454)
$
$
214,248
$ 5,375,809
—
$
1,116
$
$
4,167,171
735
$
$
277,671
$ 4,444,842
— $
735
At December 31, 2014 and 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, Oregon, and Idaho.
79
The Company has granted loans to 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 $13.2 million and
$14.2 million at December 31, 2014 and 2013, respectively. During 2014, advances on related party loans totaled $5.7 million and
repayments on related party loans totaled $6.7 million.
At December 31, 2014 and 2013, $1.08 billion of commercial and residential real estate loans were pledged as collateral on
Federal Home Loan Bank advances. The Company has also pledged $46.0 million and $45.2 million of commercial loans to the
Federal Reserve Bank for additional borrowing capacity at December 31, 2014 and 2013, respectively.
Nonaccrual loans totaled $31.4 million and $34.0 million at December 31, 2014 and 2013, respectively. The amount of
interest income foregone as a result of these loans being placed on nonaccrual status totaled $2.2 million for 2014, $2.9 million for
2013 and $3.4 million for 2012. There were $1.4 million in loans 90 days past due and still accruing interest as of December 31,
2014 and no loans 90 days past due and still accruing interest as of December 31, 2013. At December 31, 2014 and 2013, there
were $349 thousand and $28 thousand, respectively, of commitments of additional funds for loans accounted for on a nonaccrual
basis.
The following is an analysis of nonaccrual loans as of December 31, 2014 and 2013:
December 31, 2014
December 31, 2013
Recorded
Investment
Nonaccrual
Loans
Unpaid Principal
Balance
Nonaccrual
Loans
Recorded
Investment
Nonaccrual
Loans
Unpaid Principal
Balance
Nonaccrual
Loans
(in thousands)
Commercial business:
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16,552
$
21,453
$
12,433
$
19,186
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential . . . . . . . . . . . . . . . . .
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . . . . . . . . . .
Residential construction . . . . . . . . . . . . . . . . . .
Commercial and multifamily residential:
Owner occupied . . . . . . . . . . . . . . . . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
247
2,822
821
3,200
3,826
95
370
480
2,939
269
5,680
1,113
5,521
5,837
112
370
489
3,930
176
2,667
442
4,267
6,334
3,246
459
—
3,991
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
31,352
$
44,774
$
34,015
$
202
4,678
783
5,383
7,486
6,601
1,928
—
6,187
52,434
80
Loans, excluding purchased credit impaired loans
The following is an aging of the recorded investment of the loan portfolio as of December 31, 2014 and 2013:
December 31, 2014
Commercial business:
Current
Loans
30 - 59
Days
Past Due
60 - 89
Days
Past Due
Greater
than 90
Days Past
Due
(in thousands)
Total
Past Due
Nonaccrual
Loans
Total Loans
Secured. . . . . . . . . . . . . . . . .
$
2,004,418
$
5,137
$
6,149
$
1,372
$
12,658
$
16,552
$
2,033,628
Unsecured . . . . . . . . . . . . . .
79,661
185
Real estate:
One-to-four family residential . . .
167,197
1,700
Commercial and multifamily
residential:
Commercial land . . . . . . . . .
Income property . . . . . . . . . .
Owner occupied . . . . . . . . . .
187,470
1,294,982
839,689
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . .
Residential construction. . . .
Commercial and multifamily
residential:
Income property . . . . . . . . . .
Owner occupied . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . .
15,462
97,821
73,783
57,470
341,032
1,454
3,031
937
953
326
—
—
933
—
45
34
786
289
—
—
—
994
118
—
—
—
—
—
—
4
—
—
10
185
247
80,093
1,745
2,822
171,764
1,488
3,817
1,226
953
330
—
994
1,061
821
3,200
3,826
95
370
—
480
2,939
189,779
1,301,999
844,741
16,510
98,521
73,783
58,944
345,032
Total . . . . . . . . . . . . . . . . . . . . . . .
$
5,158,985
$
14,656
$
8,415
$
1,386
$
24,457
$
31,352
$
5,214,794
December 31, 2013
Commercial business:
Current
Loans
30 - 59
Days
Past Due
60 - 89
Days
Past Due
Greater
than 90
Days Past
Due
(in thousands)
Total
Past Due
Nonaccrual
Loans
Total Loans
Secured. . . . . . . . . . . . . . . . .
$
1,457,820
$
12,713
$
Unsecured . . . . . . . . . . . . . .
72,255
156
Real estate:
One-to-four family residential . . .
100,591
1,993
Commercial and multifamily
residential:
Commercial land . . . . . . . . .
Income property . . . . . . . . . .
Owner occupied . . . . . . . . . .
142,034
1,138,732
749,561
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . .
Residential construction. . . .
Commercial and multifamily
residential:
Income property . . . . . . . . . .
Owner occupied . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . .
8,225
41,533
86,521
38,916
322,685
—
144
4,714
199
—
—
—
835
681
17
641
358
3,289
—
—
—
—
—
823
$
— $
13,394
$
12,433
$
1,483,647
—
—
—
—
—
—
—
—
—
—
173
176
72,604
2,634
2,667
105,892
358
3,433
4,714
199
—
—
—
1,658
442
4,267
6,334
3,246
459
—
—
3,991
142,834
1,146,432
760,609
11,670
41,992
86,521
38,916
328,334
Total . . . . . . . . . . . . . . . . . . . . . . .
$
4,158,873
$
20,754
$
5,809
$
— $
26,563
$
34,015
$
4,219,451
81
The following is an analysis of the impaired loans (see Note 1) as of December 31, 2014 and 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
(in thousands)
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
December 31, 2014
Commercial business:
Secured . . . . . . . . . . . . . . . . . . . . . . . .
$
2,023,104
$
10,524
$
Unsecured . . . . . . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential . . . . . . . . . . . .
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . . . .
Income property. . . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . . .
Residential construction . . . . . . . . . . .
Commercial and multifamily residential:
Income property. . . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80,091
169,619
189,779
1,295,650
835,895
16,401
98,521
73,783
58,944
344,908
2
2,145
—
6,349
8,846
109
—
—
—
124
$
99
2
424
—
—
582
109
—
—
—
—
$
99
2
465
—
—
582
109
—
—
—
—
25
2
120
—
—
27
67
—
—
—
—
$
10,425
$ 12,410
—
—
1,721
2,370
—
6,349
8,264
—
10,720
12,732
—
—
—
—
124
—
—
—
—
201
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,186,695
$
28,099
$
1,216
$
1,257
$
241
$
26,883
$ 38,433
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
(in thousands)
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
December 31, 2013
Commercial business:
Secured . . . . . . . . . . . . . . . . . . . . . . . .
$
1,478,560
$
5,087
$
2,866
$ 2,885
$
Unsecured . . . . . . . . . . . . . . . . . . . . . .
72,569
35
Real estate:
One-to-four family residential . . . . . . . . . . . .
104,272
1,620
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . . . .
Income property. . . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential
Land and acquisition . . . . . . . . . . . . . .
Residential construction . . . . . . . . . . .
Commercial and multifamily residential:
Income property. . . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
142,719
1,140,019
749,601
9,726
41,992
86,521
38,916
328,167
115
6,413
11,008
1,944
—
—
—
167
35
442
—
918
35
479
—
933
343
35
138
—
26
3,802
3,817
1,073
113
—
—
—
23
113
—
—
—
27
71
—
—
—
4
$
2,221
$ 2,560
—
—
1,178
2,119
115
5,495
7,206
398
7,885
10,464
1,831
2,587
—
—
—
144
—
—
—
210
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,193,062
$
26,389
$
8,199
$ 8,289
$
1,690
$
18,190
$ 26,223
82
The following table provides additional information on impaired loans for the years ended December 31, 2014, 2013 and
2012:
Year ended December 31, 2014
Year Ended December 31, 2013
Year ended December 31, 2012
Average
Recorded
Investment
Impaired Loans
Interest
Recognized
on
Impaired Loans
Average
Recorded
Investment
Impaired Loans
Interest
Recognized
on
Impaired Loans
Average
Recorded
Investment
Impaired Loans
Interest
Recognized
on
Impaired Loans
Commercial business
Secured. . . . . . . . . .
Unsecured . . . . . . .
Real estate:
One-to-four family
residential . . . . . . . . .
Commercial &
multifamily
residential
Commercial land . .
Income property . . .
Owner occupied . . .
Real estate construction:
One-to-four family
residential
Land and
acquisition . . . . .
Residential
construction . . . .
Commercial &
multifamily
residential
Income property . . .
Consumer . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
$
7,345
$
19
2,094
82
6,782
9,472
694
—
—
147
36
1
49
—
270
956
6
—
—
9
(in thousands)
$
5,636
$
61
1,665
1,691
8,910
10,779
2,624
420
—
253
19
3
63
—
238
971
6
—
—
6
$
8,978
$
113
2,130
3,124
7,895
13,315
4,465
3,223
3,169
1,112
9
6
—
—
77
1,004
—
11
—
7
$
26,635
$
1,327
$
32,039
$
1,306
$
47,524
$
1,114
83
1
1
4
1
1
2
Commercial business:
Secured . . . . . . . . .
Real estate:
One-to-four family
residential . . . . . . .
Commercial and
multifamily
residential:
Commercial
land . . . . . . . . .
Income
property . . . . . .
Owner
occupied . . . . .
Real estate
construction:
One-to-four family
residential:
Land and
acquisition . . . .
Consumer . . . . . . . . . .
Total . . . . . . . . . . . . . .
The following is an analysis of loans classified as troubled debt restructurings (“TDR”) for the years ended December 31,
2014, 2013 and 2012:
Year ended December 31, 2014
Year Ended December 31, 2013
Year ended December 31, 2012
Number of
TDR
Modifications
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
TDR
Modifications
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
TDR
Modifications
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
(dollars in thousands)
4
$
759
$
759
2
$
190
$
190
1
$
195
$
194
2
494
494
113
113
—
—
—
—
143
—
126
1,496
1,496
—
—
—
—
—
1
1
—
—
8
137
137
1,186
1,186
172
172
117
53
117
53
—
1
—
—
—
2
—
—
4,279
2,650
—
—
—
—
—
—
$
4,474
$
2,844
$
2,892
$
2,875
12
$
1,968
$
1,968
The Company’s loans classified as TDR are loans that have been modified or the borrower has been granted special
concessions due to financial difficulties, that if not for the challenges of the borrower, the Company would not otherwise consider.
The Company had no commitments to lend additional funds on loans classified as TDR as of December 31, 2014 and 2013. The
TDR modifications or concessions are made to increase the likelihood that these borrowers with financial difficulties will be able to
satisfy their debt obligations as amended. Credit losses for loans classified as TDR are measured on the same basis as impaired
loans. For impaired loans, an allowance is established when the collateral value less selling costs (or discounted cash flows or
observable market price) of the impaired loan is lower than the recorded investment of that loan. The Company did not have any
loans modified as TDR that defaulted within 12 months of being modified as TDR during the years ended December 31, 2014,
2013, and 2012.
Purchased Credit Impaired Loans (“PCI Loans”)
PCI loans are accounted for under ASC 310-30 and initially measured at fair value based on expected future cash flows over
the life of the loans. Loans that have common risk characteristics are aggregated into pools. The Company remeasures contractual
and expected cash flows, at the pool-level, on a quarterly basis.
Contractual cash flows are calculated based upon the loan pool terms after applying a prepayment factor. Calculation of the
applied prepayment factor for contractual cash flows is the same as described below for expected cash flows.
Inputs to the determination of expected cash flows include cumulative default and prepayment data as well as loss severity and
recovery lag information. Cumulative default and prepayment data are calculated via a transition matrix. The transition matrix is a
matrix of probability values that specifies the probability of a loan pool transitioning into a particular delinquency state (e.g. 0-30
days past due, 31 to 60 days, etc.) given its delinquency state at the remeasurement date. Loss severity factors are based upon either
actual charge-off data within the loan pools or industry averages and recovery lags are based upon the collateral within the loan
pools.
84
The excess of cash flows expected to be collected over the initial fair value of acquired impaired loans is referred to as the
accretable yield and is accreted into interest income over the estimated life of the acquired loans using the effective yield method.
Other adjustments to the accretable yield include changes in the estimated remaining life of the acquired loans, changes in expected
cash flows and changes of indices for acquired loans with variable interest rates.
The following is an analysis of our PCI loans, net of related allowance for losses as of December 31, 2014 and 2013:
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and multifamily residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and multifamily residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal of purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Valuation discount resulting from acquisition accounting . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans, net of valuation discounts and allowance for loan losses . . . . . . . . . . . . .
$
December 31, 2014
December 31, 2013
(in thousands)
$
50,334
$
72,870
31,981
140,398
172,379
4,353
2,588
6,941
26,814
256,468
25,884
16,336
214,248
$
41,642
170,879
212,521
14,781
6,869
21,650
34,101
341,142
43,297
20,174
277,671
The following table shows the changes in accretable yield for acquired loans for the years ended December 31, 2014, 2013,
and 2012:
Years Ended December 31,
2014
2013
(in thousands)
2012
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications from nonaccretable difference. . . . . . . . . . . . . . . . . . .
$
103,907
(36,066)
(3,386)
9,394
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
73,849
$
166,888
(51,816)
(6,898)
(4,267)
103,907
$
259,669
(86,671)
(12,856)
6,746
$
166,888
The Company did not acquire any loans accounted for under ASC 310-30 during 2014 or 2013.
6. Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit
Loans, excluding PCI loans
We maintain an allowance for loan and lease losses (“ALLL”) to absorb losses inherent in the loan portfolio. The size of
the ALLL is determined through quarterly assessments of the probable estimated losses in the loan portfolio. Our methodology
for making such assessments and determining the adequacy of the ALLL includes the following key elements:
1. General valuation allowance consistent with the Contingencies topic of the FASB ASC.
2. Classified loss reserves on specific relationships. Specific allowances for identified problem loans are determined in
accordance with the Receivables topic of the FASB ASC.
3. The unallocated allowance provides for other factors inherent in our loan portfolio that may not have been
contemplated in the general and specific components of the allowance. This unallocated amount generally
comprises less than 5% of the allowance. The unallocated amount is reviewed quarterly based on trends in credit
losses, the results of credit reviews and overall economic trends.
85
The general valuation allowance is calculated quarterly using quantitative and qualitative information about specific loan
classes. The minimum required level with respect to which an entity develops a methodology to determine its allowance for
loan and lease losses is by general categories of loans, such as commercial business, real estate, and consumer. However, the
Company’s methodology in determining its allowance for loan and lease losses is prepared in a more detailed manner at the
loan class level, utilizing specific categories such as commercial business secured, commercial business unsecured, real estate
commercial land, and real estate income property multifamily. The quantitative information uses historical losses from a
specific loan class and incorporates the loan’s risk rating migration from origination to the point of loss based upon the
consideration of an appropriate look back period.
A loan’s risk rating is primarily determined based upon the borrower’s ability to fulfill its debt obligation from a cash
flow perspective. In the event there is financial deterioration of the borrower, the borrower’s other sources of income or
repayment are also considered, including recent appraisal values for collateral dependent loans. The qualitative information
takes into account general economic and business conditions affecting our marketplace, seasoning of the loan portfolio,
duration of the business cycle, etc. to ensure our methodologies reflect the current economic environment and other factors as
using historical loss information exclusively may not give an accurate estimate of inherent losses within the Company’s loan
portfolio.
When a loan is deemed to be impaired, the Company has to determine if a specific valuation allowance is required for
that loan. The specific valuation allowance is a reserve, calculated at the individual loan level, for each loan determined to be
both, impaired and containing a value less than its recorded investment. The Company measures the impairment based on the
discounted expected future cash flows, observable market price, or the fair value of the collateral less selling costs if the loan is
collateral dependent or if foreclosure is probable. The specific reserve for each loan is equal to the difference between the
recorded investment in the loan and its determined impairment value.
The ALLL is increased by provisions for loan and lease losses (“provision”) charged to expense, and is reduced by loans
charged off, net of recoveries. While the Company’s management believes the best information available is used to determine
the ALLL, changes in market conditions could result in adjustments to the ALLL, affecting net income, if circumstances differ
from the assumptions used in determining the ALLL.
We have used the same methodology for ALLL calculations during 2014, 2013 and 2012. Adjustments to the percentages
of the ALLL allocated to loan categories are made based on trends with respect to delinquencies and problem loans within each
class of loans. The Company reviews the ALLL quantitative and qualitative methodology on a quarterly basis and makes
adjustments when appropriate. The Company continues to strive towards maintaining a conservative approach to credit quality
and will continue to make revisions to our ALLL as necessary to maintain adequate reserves. The Company carefully monitors
the loan portfolio and continues to emphasize the importance of credit quality.
Once it is determined that all or a portion of a loan balance is uncollectable, and the amount can be reasonably estimated,
the uncollectable portion of the loan is charged-off.
PCI Loans
Purchased credit impaired loans that have common risk characteristics are aggregated into loan pools. When required, we
record impairment, at the pool-level, to adjust the pool’s carrying value to its net present value of expected future cash flows.
Quarterly, we re-measure expected loan pool cash flows. If, due to credit deterioration, the present value of expected cash flows
is less than carrying value, we reduce the loan pool’s carrying value by adjusting the allowance for loan losses with an
impairment charge to earnings which is recorded as provision for loan losses. If credit quality improves and the present value of
expected cash flows exceeds carrying value, we increase the loan pool’s carrying value by recapturing previously recorded
allowance for loan losses, if any. See Note 5, Loans, for further discussion of the accounting for PCI loans.
Credit losses attributable to draws on purchased credit impaired loans, advanced subsequent to the loan purchase date, are
accounted for under ASC 450-20 and those amounts are also subject to the Company’s internal and external credit review. An
allowance for loan losses is estimated in a similar manner as the loan portfolio, excluding PCI loans, and a provision for loan
losses is charged to earnings as necessary.
86
The following tables show a detailed analysis of the allowance for loan and lease losses for loans for the years ended
December 31, 2014, 2013 and 2012:
Year ended December 31, 2014
Commercial business:
Beginning
Balance
Charge-offs
Recoveries
Provision
(Recovery)
Ending
Balance
Specific
Reserve
General
Allocation
(in thousands)
Secured. . . . . . . . . . . . . . . . . . . . .
$
31,027
$
(4,159) $
2,637
$
(3,582) $
25,923
$
Unsecured . . . . . . . . . . . . . . . . . .
696
Real estate:
One-to-four family residential . . . . . . .
1,252
Commercial and multifamily
residential:
Commercial land . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . .
Residential construction. . . . . . . .
Commercial and multifamily
residential:
Income property . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . .
489
9,234
3,605
610
822
285
58
2,547
20,174
1,655
(130)
(230)
(29)
(1,934)
(1,030)
—
—
—
—
(2,774)
(14,436)
—
370
159
70
819
51
740
1,190
—
—
1,353
7,721
—
(9)
927
25
2
$
25,898
925
1,100
2,281
120
2,161
269
1,040
2,381
(153)
(152)
337
376
2,054
2,877
189
799
9,159
5,007
1,197
1,860
622
434
3,180
16,336
1,844
—
—
27
67
—
—
—
—
—
—
799
9,159
4,980
1,130
1,860
622
434
3,180
16,336
1,844
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
72,454
$
(24,722) $
15,110
$
6,727
$
69,569
$
241
$
69,328
Year Ended December 31, 2013
Commercial business:
Beginning
Balance
Charge-offs
Recoveries
Provision
(Recovery)
Ending
Balance
Specific
Reserve
General
Allocation
(in thousands)
Secured. . . . . . . . . . . . . . . . . . . . .
$
27,270
$
(4,148) $
1,512
$
6,393
$
31,027
$
343
$
30,684
Unsecured . . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential . . . . . . .
Commercial and multifamily
residential:
Commercial land . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . .
Residential construction. . . . . . . .
Commercial and multifamily
residential:
Income property . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . .
753
694
460
11,033
6,362
1,171
635
316
102
2,437
30,056
1,011
(794)
(228)
(20)
(1,405)
(1,118)
(32)
(101)
—
—
(2,242)
(13,853)
—
932
270
169
489
375
2,553
112
—
—
552
7,232
—
(195)
696
35
661
516
1,252
138
1,114
(120)
(883)
(2,014)
(3,082)
176
(31)
(44)
1,800
(3,261)
644
489
9,234
3,605
610
822
285
58
2,547
20,174
1,655
—
26
1,073
71
—
—
—
4
—
—
489
9,208
2,532
539
822
285
58
2,543
20,174
1,655
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
82,300
$
(23,941) $
14,196
$
(101) $
72,454
$
1,690
$
70,764
87
Year ended December 31, 2012
Commercial business:
Beginning
Balance
Charge-offs
Recoveries
Provision
(Recovery)
Ending
Balance
Specific
Reserve
General
Allocation
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . . .
$
24,745
$
(10,029) $
1,354
$
11,200
$
27,270
$
113
$
27,157
Unsecured . . . . . . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential . . . . . . . . . . . .
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . . . .
Income property. . . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . . .
Residential construction . . . . . . . . . . .
Commercial and multifamily residential:
Income property. . . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
689
654
488
9,551
9,606
2,331
864
665
35
2,719
4,944
694
(144)
(549)
(526)
(4,030)
(918)
(989)
(617)
(93)
—
(2,534)
(5,112)
—
194
285
63
905
631
1,059
429
66
—
1,171
4,332
—
14
304
435
4,607
(2,957)
(1,230)
(41)
(322)
67
1,081
25,892
317
753
694
460
11,033
6,362
1,171
635
316
102
2,437
30,056
1,011
92
112
—
1,040
38
—
—
—
—
—
—
—
661
582
460
9,993
6,324
1,171
635
316
102
2,437
30,056
1,011
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
57,985
$
(25,541) $
10,489
$
39,367
$
82,300
$
1,395
$
80,905
Changes in the allowance for unfunded commitments and letters of credit, a component of other liabilities in the
consolidated balance sheet, are summarized as follows:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in the allowance for unfunded commitments and letters
of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Risk Elements
Years Ended December 31,
2014
2013
2012
(in thousands)
2,505
150
2,655
$
$
1,915
590
2,505
$
$
1,535
380
1,915
The extension of credit in the form of loans or other credit products to individuals and businesses is one of our principal
business activities. Our policies and applicable laws and regulations require risk analysis as well as ongoing portfolio and credit
management. We manage our credit risk through lending limit constraints, credit review, approval policies and extensive,
ongoing internal monitoring. We also manage credit risk through diversification of the loan portfolio by type of loan, type of
industry, type of borrower and by limiting the aggregation of debt to a single borrower.
Risk ratings are reviewed and updated whenever appropriate, with more periodic reviews as the risk and dollar value of
loss on the loan increases. In the event full collection of principal and interest is not reasonably assured, the loan is
appropriately downgraded and, if warranted, placed on nonaccrual status even though the loan may be current as to principal
and interest payments. Additionally, we assess whether an impairment of a loan warrants specific reserves or a write-down of
the loan.
Pass loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in
accordance with all terms and conditions. Special mention loans have potential weaknesses that, if left uncorrected, may result
in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans with a
risk rating of Substandard or worse are reported as classified loans in our allowance for loan and lease losses analysis. We
review these loans to assess the ability of our borrowers to service all interest and principal obligations and, as a result, the risk
rating may be adjusted accordingly. Substandard loans reflect loans where a loss is possible if loan weaknesses are not
corrected. Doubtful loans have a high probability of loss, however, the amount of loss has not yet been determined. Loss loans
are considered uncollectable and when identified, are charged off.
88
The following is an analysis of the credit quality of our loan portfolio, excluding PCI loans as of December 31, 2014 and
2013:
December 31, 2014
Loans, excluding PCI loans
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . .
$ 1,963,210
79,534
$ 15,790
—
$
54,628
559
$ — $ — $ 2,033,628
80,093
—
—
Real estate:
One-to-four family residential . . . . . . . . .
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . .
Residential construction . . . . . . . . . .
Commercial and multifamily residential:
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
163,914
55
7,795
183,701
1,287,729
825,694
4,217
5,885
7,876
1,861
8,385
11,171
15,307
96,031
167
909
1,036
1,581
—
—
—
—
—
—
—
—
—
—
—
—
73,783
58,055
339,695
$ 5,086,653
—
—
68
$ 34,967
$
—
889
5,269
93,174
—
—
—
—
—
—
$ — $ —
171,764
189,779
1,301,999
844,741
16,510
98,521
73,783
58,944
345,032
5,214,794
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, excluding PCI loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,233
$ 5,161,561
December 31, 2013
Loans, excluding PCI loans
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . .
$ 1,372,038
72,226
$ 43,309
199
$
68,300
179
$ — $ — $ 1,483,647
72,604
—
—
Real estate:
One-to-four family residential . . . . . . . . .
Commercial and multifamily residential:
98,626
1,567
5,699
Commercial land . . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
137,850
1,108,033
748,725
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . .
Residential construction . . . . . . . . . .
Commercial and multifamily residential:
7,526
36,270
—
5,473
—
—
2,352
4,984
32,926
11,884
4,144
3,370
—
—
—
—
—
—
—
—
—
—
—
—
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . .
86,206
38,916
321,348
$ 4,027,764
—
—
331
$ 53,231
315
—
6,188
$ 137,989
$
—
—
467
467
—
—
—
$ —
Less:
105,892
142,834
1,146,432
760,609
11,670
41,992
86,521
38,916
328,334
4,219,451
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, excluding PCI loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,280
$ 4,167,171
89
The following is an analysis of the credit quality of our PCI loan portfolio as of December 31, 2014 and 2013:
December 31, 2014
PCI loans:
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . .
Unsecured. . . . . . . . . . . . . . . . . . . . .
$
37,927
2,156
$
Real estate:
One-to-four family residential. . . . . . . . .
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . .
Residential construction . . . . . . . . . .
Commercial and multifamily residential:
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
28,822
9,104
51,435
58,629
1,595
741
1,435
926
24,037
$ 216,807
$
937
—
—
—
1,892
346
—
—
—
—
—
3,175
$
$
9,223
91
— $
—
— $
—
48,087
2,247
3,159
6,240
7,186
5,566
913
1,104
227
—
2,777
36,486
$
—
—
—
—
—
—
—
—
—
— $
$
—
—
—
—
—
—
—
—
—
—
31,981
15,344
60,513
64,541
2,508
1,845
1,662
926
26,814
256,468
Valuation discount resulting from acquisition accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,884
16,336
$ 214,248
December 31, 2013
PCI loans:
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . .
Unsecured. . . . . . . . . . . . . . . . . . . . .
$
48,510
2,732
$
$
2,849
396
18,291
92
$
— $
—
— $
—
69,650
3,220
Real estate:
One-to-four family residential. . . . . . . . .
Commercial and multifamily residential:
Commercial land . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . .
Residential construction . . . . . . . . . .
Commercial and multifamily residential:
Income property . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
35,066
1,842
4,734
10,778
55,985
67,653
4,674
3,008
3,806
1,074
30,722
$ 264,008
$
198
3,950
111
2,739
—
—
—
33
12,118
$
7,589
10,657
13,958
1,936
2,424
1,709
280
3,319
64,989
$
—
—
—
—
—
—
—
—
27
27
$
—
—
—
—
—
—
—
—
—
—
41,642
18,565
70,592
81,722
9,349
5,432
5,515
1,354
34,101
341,142
Valuation discount resulting from acquisition accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,297
20,174
$ 277,671
90
7. Other Real Estate Owned
The following table sets forth activity in OREO for the period:
December 31,
2014
December 31,
2013
(in thousands)
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Established through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers in, net of write-downs ($0 and $90, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional OREO write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of OREO property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total OREO, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
35,927
2,752
10,200
—
(4,039)
(28,559)
5,909
22,190
$
$
26,987
14,708
18,100
3,577
(2,035)
(35,949)
10,539
35,927
8. FDIC Loss-sharing Asset and Covered Assets
We are a party to four loss sharing agreements with the FDIC. Such agreements cover a substantial portion of losses
incurred on acquired covered loans and other real estate owned. The loss-sharing agreements relate to the acquisitions of (1)
Columbia River Bank in January 2010, (2) American Marine Bank in January 2010, (3) Summit Bank in May 2011, and (4)
First Heritage Bank in May 2011. Under the terms of the loss-sharing agreements, the FDIC will absorb 80% of losses and
share in 80% of loss recoveries up to specified amounts. With respect to loss-sharing agreements for two acquisitions
completed in 2010, after those specified amounts, the FDIC will absorb 95% of losses and share in 95% of loss recoveries. The
loss-sharing provisions of the agreements for commercial and single-family mortgage loans are in effect for five and ten years,
respectively, from the acquisition dates and the loss recovery provisions are in effect for eight and ten years, respectively, from
the acquisition dates.
Ten years and forty-five days after the acquisition dates, the Bank must pay to the FDIC a clawback in the event the
losses from the acquisitions fail to reach stated levels. The amount of the clawback is determined by a formula specified in each
individual loss-sharing agreement. As of December 31, 2014 and 2013, the net present value of the Bank’s estimated clawback
liability is $4.2 million and $3.9 million, respectively, which is included in other liabilities on the consolidated balance sheet.
At December 31, 2014 and 2013, the FDIC loss-sharing asset is comprised of an FDIC indemnification asset of $13.1
million and $37.9 million, respectively, and an FDIC receivable of $2.1 million and $2.0 million, respectively. The
indemnification represents the cash flows the Company expects to collect from the FDIC under the loss-sharing agreements and
the FDIC receivable represents the reimbursable amounts from the FDIC that have not yet been received.
For purchased credit impaired loans, the Company remeasures contractual and expected cash flows on a quarterly basis.
When the quarterly remeasurement process results in a decrease in expected cash flows due to an increase in expected credit
losses, impairment is recorded. As a result of this impairment, the indemnification asset is increased to reflect anticipated future
cash to be received from the FDIC. Consistent with the loss-sharing agreements between the Company and the FDIC, the
amount of the increase to the indemnification asset is measured as 80% of the resulting impairment.
Alternatively, when the quarterly remeasurement results in an increase in expected future cash flows due to a decrease in
expected credit losses, the nonaccretable difference decreases and the effective yield of the related loan portfolio is increased.
As a result of the improved expected cash flows, the indemnification asset would be reduced first by the amount of any
impairment previously recorded and, second, by increased amortization over the remaining life of the related loss-sharing
agreement.
91
The following table shows a detailed analysis of the FDIC loss-sharing asset for the years ending December 31, 2014 and
2013:
2014
2013
(in thousands)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
39,846
$
96,354
Adjustments not reflected in income:
Cash received from the FDIC, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC reimbursable recoveries, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments reflected in income:
Amortization, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan impairment (recapture) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-downs of other real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,499)
(2,184)
(21,279)
2,301
(2,179)
1,065
103
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,174
$
(9,246)
(2,245)
(36,729)
(2,609)
(6,177)
364
134
39,846
The following table presents information about the composition of the FDIC loss-sharing asset, the clawback liability, and
the non-single family and the single family covered assets as of the date indicated:
Columbia River
Bank
American Marine
Bank
December 31, 2014
Summit Bank
(in thousands)
First Heritage
Bank
Total
FDIC loss-sharing asset. . . . . . . . . . . . .
Clawback liability . . . . . . . . . . . . . . . . .
Non-single family covered assets . . . . .
Single family covered assets . . . . . . . . .
$
$
$
$
1,183
4,017
115,230
11,166
$
$
$
$
4,927
157
17,984
26,587
$
$
$
$
4,712
$
— $
14,352
6,530
$
$
4,352
$
— $
27,281
2,516
$
$
15,174
4,174
174,847
46,799
Loss-sharing expiration dates:
Non-single family . . . . . . . . . . . . . . . . .
Single family . . . . . . . . . . . . . . . . . . . . .
First Quarter
2015
First Quarter
2020
First Quarter
2015
First Quarter
2020
Second Quarter
2016
Second Quarter
2021
Second Quarter
2016
Second Quarter
2021
Loss recovery expiration dates:
Non-single family . . . . . . . . . . . . . . . . .
Single family . . . . . . . . . . . . . . . . . . . . .
First Quarter
2018
First Quarter
2020
First Quarter
2018
First Quarter
2020
Second Quarter
2019
Second Quarter
2021
Second Quarter
2019
Second Quarter
2021
92
9. Premises and Equipment
Real and personal property and software, less accumulated depreciation and amortization, were as follows:
December 31,
2014
2013
(in thousands)
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
52,338
103,240
21,199
28,486
596
15,666
221,525
(49,435)
172,090
$
$
48,992
94,878
14,254
29,465
546
17,490
205,625
(50,893)
154,732
Total depreciation and amortization expense was $10.9 million, $10.2 million, and $6.3 million, for the years ended
December 31, 2014, 2013, and 2012, respectively.
10. Goodwill and Other Intangible Assets
In accordance with the Intangibles – Goodwill and Other topic of the FASB ASC, goodwill is not amortized but is
reviewed for potential impairment at the reporting unit level. Management analyzes its goodwill for impairment on an annual
basis and between annual tests in certain circumstances such as upon material adverse changes in legal, business, regulatory
and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied
fair value. The Company performed an impairment assessment as of July 31, 2014 and concluded that there was no impairment.
As of December 31, 2014 we determined there were no events or circumstances which would more likely than not reduce the
fair value of our reporting unit below its carrying amount.
The core deposit intangible (“CDI”) is evaluated for impairment if events and circumstances indicate a possible
impairment. The CDI is amortized on an accelerated basis over an estimated life of 10 years.
The following table sets forth activity for goodwill and other intangible assets for the period:
Years Ended December 31,
2014
2013
2012
(in thousands)
Total goodwill, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . .
Established through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill, end of period . . . . . . . . . . . . . . . . . . . . . . . . . .
$
343,952
$
38,585
382,537
115,554
228,398
343,952
$
115,554
—
115,554
Other intangible assets, net
Core deposit intangible:
Gross core deposit intangible balance, beginning of period . . . .
Accumulated amortization, beginning of period . . . . . . . . . . . . .
Core deposit intangible, net, beginning of period . . . . . . . . . . . .
Established through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . .
CDI current period amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Total core deposit intangible, end of period. . . . . . . . . . . . .
Intangible assets not subject to amortization . . . . . . . . . . . . . . . . . .
Other intangible assets, net at end of period . . . . . . . . . . . . . . . . . .
Total goodwill and intangible assets, end of period. . . . . . . . . . . . .
47,698
(22,765)
24,933
10,900
(6,293)
29,540
919
30,459
32,441
(16,720)
15,721
15,257
(6,045)
24,933
919
25,852
32,441
(12,275)
20,166
—
(4,445)
15,721
—
15,721
$
412,996
$
369,804
$
131,275
93
The following table provides the estimated future amortization expense of core deposit intangibles for the succeeding five
years:
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(in thousands)
6,882
5,945
4,913
3,855
2,951
11. Deposits
Year-end deposits are summarized in the following table:
Core deposits:
Demand and other noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit less than $100,000 . . . . . . . . . . . . . . . . . . . . . .
Total core deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit greater than $100,000 . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit insured through CDARS® . . . . . . . . . . . . . . . . . . .
Brokered money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment resulting from acquisition accounting . . . .
Total deposits
December 31,
2014
2013
(in thousands)
$
$
2,651,373
1,304,258
1,760,331
615,721
288,261
6,619,944
202,014
18,429
83,402
6,923,789
933
6,924,722
$
$
2,171,703
1,170,006
1,569,261
496,444
288,943
5,696,357
201,498
19,488
41,765
5,959,108
367
5,959,475
Overdrafts of $1.3 million and $1.1 million were reclassified as loan balances at December 31, 2014 and 2013,
respectively.
The following table shows the amount and maturity of time deposits that had balances of $100,000 or greater:
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in thousands)
162,828
40,375
8,069
3,822
3,982
108
219,184
94
12. Federal Home Loan Bank and Federal Reserve Bank Borrowings
FEDERAL HOME LOAN BANK
The Company has entered into borrowing arrangements with the FHLB of Seattle to borrow funds under a short-term
floating rate cash management advance program and fixed-term loan agreements. All borrowings are secured by stock of the
FHLB and a blanket pledge of qualifying loans receivable. At December 31, 2014 FHLB advances were scheduled to mature as
follows:
Federal Home Loan Bank Advances
Fixed rate advances
Weighted Average Rate
Amount
(dollars in thousands)
Within 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.27% $
Over 1 through 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.66%
5.37%
Due after 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment from acquisition accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
210,000
1,000
5,000
216,000
568
216,568
The maximum, average outstanding and year-end balances and average interest rates on advances from the FHLB were as
follows for the years ended December 31, 2014, 2013 and 2012:
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average balance during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year . . . . . . . . . . . . . . . . . . .
Weighted average rate during the year. . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average rate at December 31 . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB advances are collateralized by the following:
Years ended December 31,
2014
2013
2012
(dollars in thousands)
$
$
$
216,568
44,876
216,568
$
$
$
36,606
51,030
190,631
$
$
$
6,644
100,337
118,967
0.74%
0.41%
1.12%
1.09%
2.79%
5.42%
December 31,
2014
2013
(in thousands)
Recorded value of blanket pledge on loans receivable . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB borrowing capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
1,083,879
1,083,879
865,138
$
$
$
1,075,389
1,075,389
1,037,159
FEDERAL RESERVE BANK
The Company is also eligible to borrow under the Federal Reserve Bank’s primary credit program, including the Term
Auction Facility auctions. All borrowings are secured by certain pledged available for sale investment securities.
95
Although the Company has not had FRB borrowings in the last three years, the Company pledges securities and loans for
borrowing capacity at the Federal Reserve Bank.
The following table shows amounts pledged to the Federal Reserve Bank:
December 31,
2014
2013
(in thousands)
Fair value of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recorded value of pledged commercial loans. . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Reserve Bank borrowing capacity . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
40,128
46,002
86,130
86,130
$
$
$
40,210
45,242
85,452
85,452
13. Securities Sold Under Agreements to Repurchase
Securities Sold Under Agreements to Repurchase - Term
The Company has entered into wholesale repurchase agreements with certain brokers. At December 31, 2014 and 2013,
the Company held $25.0 million in wholesale repurchase agreements with an interest rate of 1.88%. Securities available for
sale with a carrying amount of $28.4 million at December 31, 2014 were pledged as collateral for the repurchase agreement
borrowings. The broker holds the securities while the Company continues to receive the principal and interest payments from
the securities. Upon maturity of the agreement in 2018, the pledged securities will be returned to the Company.
Securities Sold Under Agreements to Repurchase - Sweep
These sweep repurchase agreements are generally short-term agreements. These agreements are treated as financing
transactions and the obligations to repurchase securities sold are reflected as a liability in the consolidated financial statements.
The dollar amount of securities underlying the agreements remains in the applicable asset account of the consolidated financial
statements. These agreements had a balance of $80.1 million and a weighted average interest rate of 0.12% at December 31,
2014. All of these repurchase agreements in existence at December 31, 2014 mature on a daily basis. Securities available for
sale with a carrying amount of $103.0 million at December 31, 2014 were pledged as collateral for the repurchase agreement
borrowings related to the acquisition of Intermountain.
14. Other Borrowings
On November 1, 2014, with its acquisition of Intermountain, the Company assumed $16.5 million of trust preferred
obligations. The Company redeemed $8.3 million of these obligations on December 26, 2014. At December 31, 2014, the
remaining $8.2 million of obligations bore interest at a rate of 3.03%, paid quarterly. Subsequent to year-end, on January 7,
2015, the Company redeemed the remaining trust preferred obligations.
15. Derivatives and Balance Sheet Offsetting
The Company periodically enters into certain commercial loan interest rate swap agreements in order to provide
commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company
enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively
converts the customer’s variable rate loan into a fixed rate. The Company then enters into a corresponding swap agreement
with a third party in order to offset its exposure on the variable and fixed components of the customer agreement. As the
interest rate swap agreements with the customers and third parties are not designated as hedges under the Derivatives and
Hedging topic of the FASB ASC, the instruments are marked to market in earnings. The notional amount of open interest rate
swap agreements at December 31, 2014 and 2013 was $215.6 million and $179.5 million, respectively. During 2014 a mark-to-
market loss of $51 thousand was recorded to other noninterest expense. There was no earnings impact for the years ending
December 31, 2013 and 2012.
96
The following table presents the fair value and balance sheet classification of derivatives not designated as hedging
instruments at December 31, 2014 and 2013:
Asset Derivatives
Liability Derivatives
2014
2013
2014
2013
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other assets
$ 11,800 Other assets
$
9,044 Other liabilities
$ 11,851 Other liabilities
$
9,044
(in thousands)
Interest rate
contracts
The Company is party to interest rate swap agreements and repurchase agreements that are subject to enforceable master
netting arrangements or similar agreements. Under these agreements, the Company may have the right to net settle multiple
contracts with the same counterparty. The following tables show the gross interest rate swap agreements and repurchase
agreements in the consolidated balance sheets and the respective collateral received or pledged in the form of other financial
instruments, which are generally marketable securities. The collateral amounts in these tables are limited to the outstanding
balances of the related asset or liability. Therefore, instances of overcollateralization are not shown.
Gross Amounts of
Recognized
Assets/Liabilities
Gross Amounts
Offset in the
Consolidated
Balance Sheets
Net Amounts of
Assets/Liabilities
Presented in the
Consolidated
Balance Sheets
(in thousands)
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Collateral Posted
Net Amount
December 31, 2014
Assets
Interest rate contracts . . . $
11,800
Liabilities
Interest rate contracts . . . $
Repurchase agreements . . $
11,851
105,080
December 31, 2013
Assets
Interest rate contracts . . . $
9,044
Liabilities
Interest rate contracts . . . $
Repurchase agreements . . $
9,044
25,000
$
$
$
$
$
$
16. Employee Benefit Plans
401(k) Plan
— $
11,800
— $
— $
11,851
105,080
— $
9,044
— $
— $
9,044
25,000
$
$
$
$
$
$
— $
11,800
(11,851) $
(105,080) $
—
—
— $
9,044
(9,044) $
(25,000) $
—
—
The Company maintains defined contribution and profit sharing plans in conformity with the provisions of section 401(k)
of the Internal Revenue Code. The Columbia Bank 401(k) and Profit Sharing Plan (the “401(k) Plan”), permits eligible
Columbia Bank employees, those who are at least 18 years of age and have completed six months of service, to contribute up to
75% of their eligible compensation to the 401(k) Plan. On a per pay period basis the Company is required to match 50% of
employee contributions up to 3% of each employee’s eligible compensation. The Company contributed $2.0 million during
2014, $1.9 million during 2013, and $1.4 million during 2012, in matching funds to the 401(k) Plan. Additionally, as
determined annually by the board of directors of the Company, the 401(k) Plan provides for a non-matching discretionary profit
sharing contribution. The Company’s discretionary profit sharing contributions were $4.4 million during 2014, $4.0 million
during 2013 and $2.9 million during 2012.
97
Employee Stock Purchase Plan
The Company maintains an “Employee Stock Purchase Plan” (the “ESP Plan”) in which substantially all employees of
the Company are eligible to participate. The ESP Plan provides participants the opportunity to purchase common stock of the
Company at a discounted price. Under the ESP Plan, participants can purchase common stock of the Company for 90% of the
lowest price on either the first or last day in each of two six month look-back periods. The look-back periods are January 1st
through June 30th and July 1st through December 31st of each calendar year. The 10% discount is recognized by the Company
as compensation expense and does not have a material impact on net income or earnings per common share. Participants of the
ESP Plan purchased 34,168 shares for $904 thousand in 2014, 32,598 shares for $686 thousand in 2013 and 39,393 shares for
$725 thousand in 2012. At December 31, 2014 there were 541,744 shares available for purchase under the ESP plan.
Supplemental Compensation Plan
The Company maintains supplemental compensation arrangements (“Unit Plans”) to provide benefits for certain
employees. The Unit Plans generally vest over a 4-10 year period and provide a fixed annual benefit over a 5-10 year period. At
December 31, 2014 and 2013 the liability associated with these plans was $4.8 million and $4.7 million, respectively. Expense
associated with these plans for the years ended December 31, 2014, 2013 and 2012 was $588 thousand, $458 thousand and
$677 thousand, respectively.
Supplemental Executive Retirement Plan
The Company maintains a supplemental executive retirement plan (the “SERP”), a nonqualified deferred compensation
plan that provides retirement benefits to certain highly compensated executives. The SERP is unsecured and unfunded and
there are no program assets. The SERP projected benefit obligation, which represents the vested net present value of future
payments to individuals under the plan is accrued over the estimated remaining term of employment of the participants and has
been determined by actuarial valuation using the “RP-2000 Annuity Mortality Table” for the mortality assumptions and
discount rate of 5.10% for both 2014 and 2013. Additional assumptions and features of the plan are a normal retirement age of
65 and a 2% annual cost of living benefit adjustment. The projected benefit obligation is included in other liabilities on the
Consolidated Balance Sheets.
The following table reconciles the accumulated liability for the projected benefit obligation:
December 31,
2014
2013
(in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Established through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
16,423
511
—
1,325
(1,718)
16,541
$
$
11,616
3,398
2,212
1,880
(2,683)
16,423
The benefits expected to be paid in conjunction with the SERP are presented in the following table:
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 through 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in thousands)
975
994
1,088
1,349
1,384
9,580
15,370
98
17. Commitments and Contingent Liabilities
Lease Commitments: The Company leases locations as well as equipment under various non-cancellable operating leases
that expire between 2015 and 2045. The majority of the leases contain renewal options and provisions for increases in rental
rates based on an agreed upon index or predetermined escalation schedule. As of December 31, 2014, minimum future rental
payments, exclusive of taxes and other charges, of these leases were:
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum payments. . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
8,557
$
6,602
5,353
4,671
4,308
18,121
47,612
$
Total rental expense on buildings and equipment, net of rental income of $756 thousand, $673 thousand and $639
thousand, was $8.3 million, $8.5 million and $4.5 million, for the years ended December 31, 2014, 2013 and 2012,
respectively.
Financial Instruments with Off-Balance Sheet Risk: In the normal course of business, the Company makes loan
commitments (typically unfunded loans and unused lines of credit) and issues standby letters of credit to accommodate the
financial needs of its customers.
Standby letters of credit commit the Company to make payments on behalf of customers under specified conditions.
Historically, no significant losses have been incurred by the Company under standby letters of credit. Both arrangements have
credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit
policies, including collateral requirements, where appropriate. At December 31, 2014 and 2013, the Company’s loan
commitments amounted to $1.58 billion and $1.37 billion, respectively. Standby letters of credit were $36.7 million at both
December 31, 2014 and 2013. In addition, commitments under commercial letters of credit used to facilitate customers’ trade
transactions and other off-balance sheet liabilities amounted to $4.4 million and $2.7 million at December 31, 2014 and 2013,
respectively.
Legal Proceedings: The Company and its subsidiaries are from time to time defendants in and are threatened with various
legal proceedings arising from their regular business activities. Management, after consulting with legal counsel, is of the
opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a
material effect on the financial statements of the Company.
18. Shareholders’ Equity
Preferred Stock. In conjunction with the acquisition of West Coast, the Company issued 8,782 shares of mandatorily
convertible cumulative participating preferred stock, Series B (“Series B Preferred Stock”). The Series B Preferred Stock is not
subject to the operation of a sinking fund. The Series B Preferred Stock is not redeemable by the Company and is perpetual
with no maturity. The holders of Series B Preferred Stock have no general voting rights. If the Company declares and pays a
dividend to its common shareholders, it must declare and pay to its holders of Series B Preferred Stock, on the same date, a
dividend in an amount per share of the Series B Preferred Stock that is intended to provide such holders dividends in the
amount they would have received if shares of Series B Preferred Stock had been converted into common stock as of that date.
The outstanding shares of Series B Preferred Stock are convertible into 102,363 shares of Company common stock.
Warrants to Purchase Common Stock. In conjunction with the acquisition of West Coast, the Company issued Amended
and Restated Warrants (the “Warrants”) to purchase shares of Company common stock at an exercise price of $8.58 per share.
The Company’s Amended and Restated Warrants amended and restated the Class C Warrants previously issued by West Coast.
The Warrants were immediately exercisable and will expire on October 23, 2016. At December 31, 2014, there were no
remaining warrants outstanding. During the year ended December 31, 2014, 1,722,497 common shares were issued from the
exercise of warrants.
99
Dividends. On January 23, 2014, the Company declared a quarterly cash dividend of $0.12 per common share and
common share equivalent for holders of preferred stock, payable on February 19, 2014 to shareholders of record as of the close
of business on February 5, 2014.
On April 23, 2014 the Company declared a quarterly cash dividend of $0.12 per common share and common share
equivalent for holders of preferred stock, and a special cash dividend of $0.12 per common share and common share
equivalent for holders of preferred stock, both payable on May 21, 2014 to shareholders of record at the close of business
May 7, 2014.
On July 23, 2014 the Company declared a quarterly cash dividend of $0.14 per common share and common share
equivalent for holders of preferred stock, and a special cash dividend of $0.14 per common share and common share equivalent
for holders of preferred stock, both payable on August 20, 2014 to shareholders of record at the close of business August 6,
2014.
On October 23, 2014 the Company declared a quarterly cash dividend of $0.16 per share and common share equivalent
for holders of preferred stock, and a special cash dividend of $0.14 per common share and common share equivalent for
holders of preferred stock, both payable on November 19, 2014 to shareholders of record at the close of business October 31,
2014.
Subsequent to year end, on January 29, 2015 the Company declared a quarterly cash dividend of $0.16 per share and
common share equivalent for holders of preferred stock, and a special cash dividend of $0.14, both payable on February 25,
2015, to shareholders of record at the close of business on February 11, 2015.
The payment of cash dividends is subject to federal regulatory requirements for capital levels and other restrictions. In
addition, the cash dividends paid by Columbia Bank to the Company are subject to both federal and state regulatory
requirements.
Stock Repurchase Program
In 2011, the board of directors authorized the repurchase of 2 million shares of Columbia common stock. The Company
may purchase the shares from time to time in the open market or in private transactions, under conditions which allow such
repurchases to be accretive to earnings per share while maintaining capital ratios that exceed the guidelines for a well-
capitalized financial institution. No shares were repurchased under the stock repurchase program during 2014, 2013 or 2012.
100
19. Accumulated Other Comprehensive Income
The following table shows changes in accumulated other comprehensive income (loss) by component for the years
ended December 31, 2014 and 2013:
Year ended December 31, 2014
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassifications . . . . . . .
Amounts reclassified from accumulated other comprehensive
income (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2013
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive
income (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive loss . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized Gains and
Losses on Available-
for-Sale Securities (1)
Unrealized Gains
and Losses on
Pension Plan
Liability (1)
(in thousands)
Total (1)
$
$
$
$
(10,108)
17,922
(352)
17,570
7,462
20,918
(30,727)
(299)
(31,026)
(10,108)
$
$
$
$
(1,936)
—
95
95
(1,841)
(769)
(1,432)
265
(1,167)
(1,936)
$
$
$
$
(12,044)
17,922
(257)
17,665
5,621
20,149
(32,159)
(34)
(32,193)
(12,044)
__________
(1) All amounts are net of tax. Amounts in parenthesis indicate debits.
(2) See following table for details about these reclassifications.
The following table shows details regarding the reclassifications from accumulated other comprehensive income for
the years ended December 31, 2014 and :
Amount Reclassified from Accumulated
Other Comprehensive Income
Affected line Item in the Consolidated
Statement of Income
Years Ended
December 31,
2014
December 31,
2013
(in thousands)
Unrealized gains and losses on available-
for-sale securities . . . . . . . . . . . . . . . . . . . .
$
552
$
462
Investment securities gains, net
462
(163)
299
Total before tax
Income tax provision
Net of tax
Total before tax
(400) Compensation and employee benefits
(400)
135
(265) Net of tax
Income tax benefit
Amortization of pension plan liability
actuarial losses . . . . . . . . . . . . . . . . . . . . . .
$
$
$
552
(200)
352
(149)
(149)
54
(95)
$
$
$
101
20. Fair Value Accounting and Measurement
The Fair Value Measurements and Disclosures topic of the FASB ASC defines fair value, establishes a consistent
framework for measuring fair value and expands disclosure requirements about fair value. We hold fixed and variable rate
interest-bearing securities, investments in marketable equity securities and certain other financial instruments, which are carried
at fair value. Fair value is determined based upon quoted prices when available or through the use of alternative approaches,
such as matrix or model pricing, when market quotes are not readily accessible or available.
The valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect our own market assumptions. These two types of inputs
create the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets that are accessible at the measurement date.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable.
Fair values are determined as follows:
Securities at fair value are priced using a combination of market activity, industry recognized information sources, yield
curves, discounted cash flow models and other factors. These fair value calculations are considered a Level 2 input method
under the provisions of the Fair Value Measurements and Disclosures topic of the FASB ASC for all securities other than U.S.
Treasury notes, which are considered a Level 1 input method.
Interest rate contract positions are valued in models, which use as their basis, readily observable market parameters and
are classified within Level 2 of the valuation hierarchy.
102
The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a
recurring basis at December 31, 2014 and 2013 by level within the fair value hierarchy. Financial assets and liabilities are
classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
Fair value at
December 31, 2014
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
(in thousands)
$
1,162,387
$
— $
1,162,387
$
Assets
Securities available for sale
U.S. government agency and sponsored
enterprise mortgage-back securities and
collateralized mortgage obligations . . . . . .
State and municipal securities . . . . . . . . . . . .
U.S. government agency and government-
sponsored enterprise securities . . . . . . . . . .
U.S. government securities. . . . . . . . . . . . . . .
Other securities. . . . . . . . . . . . . . . . . . . . . . . .
Total securities available for sale. . . . . . . . . . . . . .
Other assets (Interest rate contracts) . . . . . . . . . . .
Liabilities
Other liabilities (Interest rate contracts) . . . . . . . .
$
$
$
496,484
413,706
20,499
5,181
2,098,257
11,800
11,851
Fair value at
December 31, 2013
Assets
Securities available for sale
U.S. government agency and sponsored
enterprise mortgage-back securities and
collateralized mortgage obligations . . . . . .
State and municipal debt securities . . . . . . . .
U.S. government agency and government-
sponsored enterprise securities. . . . . . . . . . . .
U.S. government securities. . . . . . . . . . . . . . .
Other securities. . . . . . . . . . . . . . . . . . . . . . . .
Total securities available for sale. . . . . . . . . . . . . .
Other assets (Interest rate contracts) . . . . . . . . . . .
Liabilities
Other liabilities (Interest rate contracts) . . . . . . . .
$
$
$
$
948,408
364,470
326,039
20,114
5,080
1,664,111
9,044
9,044
—
—
20,499
—
496,484
413,706
—
5,181
20,499
$
2,077,758
— $
11,800
— $
11,851
$
$
$
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
(in thousands)
— $
—
—
20,114
—
948,408
364,470
326,039
—
5,080
20,114
$
1,643,997
— $
9,044
— $
9,044
$
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
There were no transfers between Level 1 and Level 2 of the valuation hierarchy during the years ended December 31,
2014 and 2013. The Company recognizes transfers between levels of the valuation hierarchy based on the valuation level at the
end of the reporting period.
103
Nonrecurring Measurements
Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans
measured for impairment and OREO. The following methods were used to estimate the fair value of each such class of
financial instrument:
Impaired loans—A loan is considered to be impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the
loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s
effective interest rate, a loan’s observable market price, or the fair market value of the collateral less estimated costs to sell if
the loan is a collateral-dependent loan. Generally, the Company utilizes the fair market value of the collateral to measure
impairment. The impairment evaluations are performed in conjunction with the ALLL process on a quarterly basis by officers
in the Special Credits group, which reports to the Chief Credit Officer. The Real Estate Appraisal Services Department
(“REASD”), which also reports to the Chief Credit Officer, is responsible for obtaining appraisals from third-parties or
performing internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the
adequacy of the appraisal report, including its scope, methods, accuracy, and reasonableness.
Other real estate owned —OREO is real property that the Bank has taken ownership of in partial or full satisfaction of a
loan or loans. OREO is generally measured based on the property’s fair market value as indicated by an appraisal or a letter of
intent to purchase. OREO is recorded at the lower of the carrying amount or fair value less estimated costs to sell. This amount
becomes the property’s new basis. Any write-downs based on the property fair value less estimated costs to sell at the date of
acquisition are charged to the allowance for loan and lease losses. Management periodically reviews OREO in an effort to
ensure the property is carried at the lower of its new basis or fair value, net of estimated costs to sell. Any write-downs
subsequent to acquisition are charged to earnings. The initial and subsequent write-down evaluations are performed by officers
in the Special Credits group, which reports to the Chief Credit Officer. The REASD obtains appraisals from third-parties for
OREO and performs internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to
evaluate the adequacy of the appraisal report, including its scope, methods, accuracy, and reasonableness.
The following table sets forth the Company’s assets that were measured using fair value estimates on a nonrecurring
basis during the years ended December 31, 2014 and 2013:
OREO . . . . . . . . . . . . . . . . . . . .
Impaired loans . . . . . . . . . . . . .
OREO (1) . . . . . . . . . . . . . . . . .
Fair value at
December 31, 2014
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
Losses During the
Year Ended
December 31, 2014
$
$
5,365
5,365
Fair value at
December 31, 2013
$
$
8,973
5,693
14,666
$
$
$
$
(in thousands)
— $
— $
— $
— $
5,365
5,365
$
$
1,008
1,008
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
Losses During the
Year Ended
December 31, 2013
(in thousands)
— $
—
— $
— $
—
— $
8,973
5,693
14,666
$
$
1,536
1,230
2,766
(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to combining historically
reported noncovered OREO and covered OREO into one line item for OREO.
The losses on impaired loans disclosed above represent the amount of the specific reserve and/or charge-offs during the
period applicable to loans held at period end. For 2014, there were no losses recorded during the period to loans still held at
period end. The amount of the specific reserve is included in the allowance for loan and lease losses. The losses on OREO
disclosed above represent the write-downs taken at foreclosure that were charged to the allowance for loan and lease losses, as
well as subsequent write-downs from updated appraisals that were charged to earnings.
104
Quantitative information about Level 3 fair value measurements
The range and weighted-average of the significant unobservable inputs used to fair value our Level 3 nonrecurring assets
during 2014 and 2013, along with the valuation techniques used, are shown in the following tables:
Fair value at
December 31, 2014
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,365
Valuation Technique
Unobservable Input
(dollars in thousands)
Fair Market Value
of Collateral
Adjustment to
Appraisal Value
Range (Weighted
Average) (1)
N/A (2)
(1) Discount applied to appraisal value, letter of intent to purchase, or stated value (in the case of accounts receivable and inventory).
(2) Quantitative disclosures are not provided for OREO because there were no adjustments made to the appraisal value during the current
period.
Fair value at
December 31, 2013
Valuation Technique
Unobservable Input
Range (Weighted
Average) (1)
Impaired loans. . . . . . . . . . . . . . . . . . . . .
$
OREO (3) . . . . . . . . . . . . . . . . . . . . . . . .
(dollars in thousands)
8,973
5,693
Fair Market Value
of Collateral
Fair Market Value
of Collateral
Adjustment to
Appraisal Value
Adjustment to
Appraisal Value
N/A (2)
N/A (2)
(1) Discount applied to appraisal value, letter of intent to purchase, or stated value (in the case of accounts receivable and inventory).
(2) Quantitative disclosures are not provided for impaired loans and OREO because there were no adjustments made to the appraisal value
during the current period.
(3) Reclassified to conform to the current period’s presentation. The reclassification was limited to combining historically reported
noncovered OREO and covered OREO into one line item for OREO.
Fair value of financial instruments
Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations
attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature,
involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be
determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or
immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the
underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results.
For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be
construed to represent, the underlying value of the Company.
105
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Cash and due from banks and interest-earning deposits with banks—The fair value of financial instruments that are
short-term or reprice frequently and that have little or no risk are considered to have a fair value that approximates carrying
value (Level 1).
Securities available for sale—Securities at fair value, other than U.S. Treasury Notes, are priced using a combination of
market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors (Level 2).
U.S. Treasury Notes are priced using quotes in active markets (Level 1).
Federal Home Loan Bank stock—The fair value is based upon the par value of the stock which equates to its carrying
value (Level 2).
Loans—Loans are not recorded at fair value on a recurring basis. Nonrecurring fair value adjustments are periodically
recorded on impaired loans that are measured for impairment based on the fair value of collateral. For most performing loans,
fair value is estimated using expected duration and lending rates that would have been offered on December 31, 2014 or 2013
for loans which mirror the attributes of the loans with similar rate structures and average maturities. The fair values resulting
from these calculations are reduced by an amount representing the change in estimated fair value attributable to changes in
borrowers’ credit quality since the loans were originated. For nonperforming loans, fair value is estimated by applying a
valuation discount based upon loan sales data from the FDIC. For purchased credit impaired loans, fair value is estimated by
discounting the expected future cash flows using a lending rate that would have been offered on December 31, 2014 (Level 3).
FDIC loss-sharing asset —The fair value of the FDIC loss-sharing asset is estimated based on discounting the expected
future cash flows using an estimated market rate (Level 3).
Interest rate contracts—Interest rate contracts are valued in models, which use readily observable market parameters as
their basis (Level 2).
Deposits—For deposits with no contractual maturity, the fair value is equal to the carrying value (Level 1). The fair value
of fixed maturity deposits is based on discounted cash flows using the difference between the deposit rate and current market
rates for deposits of similar remaining maturities (Level 2).
FHLB advances—The fair value of FHLB advances is estimated based on discounting the future cash flows using the
market rate currently offered (Level 2).
Repurchase agreements—The fair value of term repurchase agreements is estimated based on discounting the future
cash flows using the market rate currently offered. The carrying amount of sweep repurchase agreements approximates their
fair values due to the short period of time between repricing dates (Level 2).
Other Borrowings— Other borrowings are trust preferred obligations assumed by the Company in the Intermountain
acquisition. The fair value is estimated as the carrying value as these obligations are redeemable and a market participant
would expect redemption in the near-term. Subsequent to year-end, on January 7, 2015, the Company redeemed these trust
preferred obligations (Level 2).
Other financial instruments—The majority of our commitments to extend credit and standby letters of credit carry
current market interest rates if converted to loans, as such, carrying value is assumed to equal fair value.
106
The following tables summarize carrying amounts and estimated fair values of selected financial instruments for the
periods indicated:
December 31,
2014
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
(in thousands)
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
171,221
$
171,221
$
171,221
$
Interest-earning deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,949
16,949
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,098,257
2,098,257
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,365
1,116
33,365
1,116
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,375,809
5,516,286
FDIC loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,174
11,800
4,054
11,800
16,949
20,499
—
—
—
—
—
Liabilities
— $
—
2,077,758
33,365
1,116
—
—
—
—
—
—
—
5,516,286
4,054
11,800
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,924,722
$ 6,921,804
$ 6,416,017
$
505,787
$
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
216,568
105,080
8,248
11,851
217,296
106,171
8,248
11,851
—
—
—
—
217,296
106,171
8,248
11,851
—
—
—
—
—
—
December 31,
2013
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
(in thousands)
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
165,030
$
165,030
$
165,030
$
Interest-earning deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,531
14,531
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,664,111
1,664,111
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,529
735
32,529
735
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,444,842
4,605,038
FDIC loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,846
9,044
11,248
9,044
14,531
20,114
—
—
—
—
—
— $
—
1,643,997
32,529
735
—
—
9,044
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,959,475
$ 5,958,747
$ 5,449,546
$
509,201
$
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,606
25,000
9,044
35,080
26,361
9,044
—
—
—
35,080
26,361
9,044
—
—
—
—
—
4,605,038
11,248
—
—
—
—
—
21. Earnings per Common Share
The Company applies the two-class method of computing basic and diluted EPS. Under the two-class method, EPS is
determined for each class of common stock and participating security according to dividends declared and participation rights
in undistributed earnings. The Company issues restricted shares under share-based compensation plans and preferred shares
which qualify as participating securities.
107
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
Basic EPS:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Earnings allocated to participating securities
Preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to common shareholders . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS:
Earnings allocated to common shareholders (1) . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of equity awards and warrants . . . . . . . . . . . . . . . . . . . . . . .
Weighted average diluted common shares outstanding . . . . . . . . . . . . . . . .
Diluted earnings per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potentially dilutive share options that were not included in the
computation of diluted EPS because to do so would be anti-dilutive . . .
Year Ended December 31,
2014
2013
2012
(in thousands except per share)
$
81,574
$
60,016
$
46,143
$
$
$
$
$
$
$
157
780
80,637
52,618
1.53
80,640
52,618
565
53,183
$
$
$
95
523
59,398
47,993
1.24
59,407
47,993
1,058
49,051
1.52
$
1.21
$
64
64
—
443
45,700
39,260
1.16
45,700
39,260
3
39,263
1.16
9
__________
(1) Earnings allocated to common shareholders for basic and diluted EPS may differ under the two-class method as a result of
adding common stock equivalents for options and warrants to dilutive shares outstanding, which alters the ratio used to
allocate earnings to common shareholders and participating securities for the purposes of calculating diluted EPS.
22. Share-Based Payments
At December 31, 2014, the Company had one equity compensation plan (the “Plan”), which is shareholder approved, that
provides for the granting of share options and shares to eligible employees and directors up to 1,800,000 shares.
Share Awards: Restricted share awards provide for the immediate issuance of shares of Company common stock to the
recipient, with such shares held in escrow until certain service conditions are met, generally four years of continual service.
Recipients of restricted shares do not pay any cash consideration to the Company for the shares, have the right to vote all shares
subject to such grant, and receive all dividends with respect to such shares, whether or not the shares have vested. The fair
value of share awards is equal to the fair market value of the Company’s common stock on the date of grant.
108
A summary of changes in the Company’s nonvested shares and related information for the years ended December 31,
2014, 2013 and 2012 is presented below:
Nonvested Shares
Nonvested at January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Grant-Date
Fair Value
19.24
21.32
21.65
18.60
19.54
20.78
16.90
20.24
20.79
25.97
21.45
21.92
23.03
Shares
362,675
180,841
(118,511)
(40,915)
384,090
203,441
(117,153)
(59,780)
410,598
246,068
(108,371)
(28,510)
519,785
$
$
$
$
$
$
$
$
$
$
$
$
$
As of December 31, 2014, there was $7.0 million of total unrecognized compensation cost related to nonvested share-
based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average
period of 2.4 years. The total fair value, as measured on the date of vesting, of shares vested during the years ended
December 31, 2014, 2013, and 2012 was $2.3 million, $2.5 million, and $2.5 million, respectively.
Share Options: Option awards are generally granted with an exercise price equal to the market price of the Company’s
stock at the date of grant; those option awards generally vest based on three years of continual service and are exercisable for a
five-year period after vesting. Option awards granted have a 10-year maximum term.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The
fair value of all options is amortized on a straight-line basis over the requisite service periods, which are generally the vesting
periods. The expected life of options granted represents the period of time that they are expected to be outstanding. The
expected life is determined based on historical experience with similar awards, giving consideration to the contractual terms
and vesting schedules. Expected volatilities of our common stock are estimated at the date of grant based on the historical
volatility of the stock. The volatility factor is based on historical stock prices over the most recent period commensurate with
the estimated expected life of the award. The risk-free interest rate is based on the U.S. Treasury curve in effect at the time of
the award. The expected dividend yield is based on dividend trends and the market value of the Company’s stock price at the
time of the award.
A summary of option activity under the Plan as of December 31, 2014, and changes during the year then ended is
presented below.
Options
Balance at December 31, 2013. . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2014. . . . . . . . . . . . . . . . .
Vested or expected to vest at December 31, 2014 . .
Total Exercisable at December 31, 2014 . . . . . . . . .
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000)
65.01
75.32
91.95
12.09
62.41
62.41
62.41
2.4
2.4
2.4
$
$
$
391
391
391
$
$
$
$
$
$
$
Shares
116,197
(8,753)
(22,330)
(9,116)
75,998
75,998
75,998
109
The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $138
thousand, $410 thousand, and $5 thousand, respectively. The weighted average grant-date fair value of options granted in
during the year ended December 31, 2013 was $3.06. There were no options granted during the years ended December 31,
2014 and 2012. There were no options that vested during the years ended December 2014, 2013, and 2012.
As of December 31, 2014, outstanding stock options consist of the following:
Ranges of
Exercise Prices
$0.00 - $9.99
$10.00 - $19.99
$30.00 - $39.99
$40.00 - $49.99
$50.00 - $136.93
Number of
Option
Shares
21,579
600
4,051
349
49,419
75,998
Weighted Average
Remaining
Contractual Life
4.3
2.6
2.1
3.5
1.6
2.4
Weighted Average
Exercise Price of
Option Shares
Number of
Exercisable
Option Shares
Weighted Average
Exercise Price of
Exercisable Option
Shares
$
$
$
$
$
$
9.91
12.61
30.86
44.49
88.65
62.41
21,579
600
4,051
349
49,419
75,998
$
$
$
$
$
$
9.91
12.61
30.86
44.49
88.65
62.41
It is the Company’s policy to issue new shares for share option exercises and share awards. The Company expenses
awards of share options and shares on a straight-line basis over the related vesting term of the award. For the 12 months ended
December 31, 2014, 2013 and 2012, the Company recognized pre-tax share-based compensation expense of $2.9 million, $2.8
million and $1.6 million, respectively.
23. Income Tax
The components of income tax expense (benefit) are as follows:
Current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
21,565
14,646
36,211
$
$
21,581
5,413
26,994
$
$
21,218
(3,656)
17,562
Years Ended December 31,
2014
2013
(in thousands)
2012
110
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets:
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental executive retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option and restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses and credit carryforwards (1). . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Asset purchase tax basis difference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on investment securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2014
2013 (1)
(in thousands)
26,341
9,037
1,177
1,101
68
15,272
—
14,929
532
68,457
(6,595)
(4,086)
(4,691)
(2,987)
(5,394)
(23,753)
44,704
$
$
27,196
8,565
917
7,929
2,354
15,551
7,176
1,250
491
71,429
(7,754)
(4,159)
(4,512)
—
(7,076)
(23,501)
47,928
__________
(1) Reclassified to conform to current period presentation. The reclassification was limited to including previously reported
amounts for net operating losses and credit carryforwards, which had been included in the row for other deferred tax assets into
a separate row.
A reconciliation of the Company’s effective income tax rate with the federal statutory tax rate is as follows:
Income tax based on statutory rate . . . . . .
Reduction resulting from:
Tax exempt instruments . . . . . . . . . .
Life insurance proceeds . . . . . . . . . .
Acquisition costs . . . . . . . . . . . . . . . .
Other, net (1) . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . .
Years Ended December 31,
2014
2013 (1)
2012 (1)
Amount
Percent
Amount
Percent
Amount
Percent
(dollars in thousands)
$ 41,225
35 % $ 30,454
35 % $ 22,297
35 %
(5,328)
(1,352)
448
1,218
$ 36,211
(4,113)
(5)%
(1,250)
(1)%
1,362
— %
541
2 %
31 % $ 26,994
(3,906)
(5)%
(1,001)
(1)%
—
2 %
— %
172
31 % $ 17,562
(6)%
(2)%
— %
— %
27 %
__________
(1) Reclassified to conform to current period presentation. The reclassification was limited to including previously reported
amounts for tax credits in the row for other, net.
As of December 31, 2014 and 2013, we had no unrecognized tax benefits. There were no amounts related to interest and
penalties recognized for the years ended December 31, 2014 and 2013. The tax years subject to examination by federal and
state taxing authorities are the years ending December 31, 2014, 2013, 2012 and 2011. As a result of recent acquisitions, the
Company has net operating loss carryforwards in the federal, Idaho and Oregon jurisdictions of of $30.7 million, $38.1 million
and $13.5 million , respectively, which begin to expire in 2024 and federal and Oregon credit carryforwards of $561 thousand
and $1.6 million, respectively. Federal credit carryforwards related to alternative minimum taxes, and have no expiration, while
the Oregon credit carryforwards begin to expire in 2015. The amount of carryforwards that may be utilized annually is limited
under Sections 382 and 383 as a result of changes in control. Management believes that these carryforwards will be used in the
normal course of business, and as such, has not recorded a valuation allowance.
111
24. Regulatory Capital Requirements
The Company (on a consolidated basis) and its banking subsidiary are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company
and its banking subsidiary’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and its banking subsidiary must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking
subsidiary to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted
assets (as defined in the regulations) and of Tier 1 capital to average assets (as defined in the regulations). Management
believes, as of December 31, 2014 and 2013, that the Company and Columbia Bank met all capital adequacy requirements to
which they are subject.
As of December 31, 2014, the most recent notification from the Federal Deposit Insurance Corporation categorized
Columbia Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the following tables. There are no conditions or events since the notification that management believes have changed Columbia
Bank’s category. The Company and its banking subsidiary’s actual capital amounts and ratios as of December 31, 2014 and
2013, are also presented in the following table.
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized Under
Prompt
Corrective Action
Provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
As of December 31, 2014
Total Capital (to risk-weighted assets):
The Company . . . . . . . . . . . . . . . . . . . . .
Columbia Bank . . . . . . . . . . . . . . . . . . . .
$ 890,029
$ 860,755
14.13% $ 503,989
13.67% $ 503,852
N/A
8.0%
8.0% $ 629,816
N/A
10.0%
Tier 1 Capital (to risk-weighted assets):
The Company . . . . . . . . . . . . . . . . . . . . .
Columbia Bank . . . . . . . . . . . . . . . . . . . .
$ 817,805
$ 788,531
12.98% $ 251,995
12.52% $ 251,926
N/A
4.0%
4.0% $ 377,889
Tier 1 Capital (to average assets):
The Company . . . . . . . . . . . . . . . . . . . . .
Columbia Bank . . . . . . . . . . . . . . . . . . . .
$ 817,805
$ 788,531
10.57% $ 309,579
9.79% $ 322,029
4.0%
N/A
4.0% $ 402,537
N/A
6.0%
N/A
5.0%
As of December 31, 2013
Total Capital (to risk-weighted assets):
The Company . . . . . . . . . . . . . . . . . . . . .
Columbia Bank . . . . . . . . . . . . . . . . . . . .
$ 760,349
$ 700,099
14.68% $ 414,300
13.52% $ 414,238
8.0%
N/A
8.0% $ 517,797
N/A
10.0%
Tier 1 Capital (to risk-weighted assets):
The Company . . . . . . . . . . . . . . . . . . . . .
Columbia Bank . . . . . . . . . . . . . . . . . . . .
$ 695,489
$ 635,248
13.43% $ 207,150
12.27% $ 207,119
4.0%
N/A
4.0% $ 310,678
Tier 1 Capital (to average assets):
The Company . . . . . . . . . . . . . . . . . . . . .
Columbia Bank . . . . . . . . . . . . . . . . . . . .
$ 695,489
$ 635,248
10.19% $ 272,891
9.29% $ 273,560
4.0%
N/A
4.0% $ 341,950
N/A
6.0%
N/A
5.0%
112
25. Branch Sales
On August 23, 2014, Columbia completed a branch sale transaction to Sound Community Bank. In the transaction,
Columbia sold three branches and related assets and deposit liabilities to Sound Community Bank. The transaction was
completed with a transfer of $22.2 million in deposits to Sound Community Bancorp in exchange for a deposit premium of
2.35%. Also included in the branch sale were $1.1 million in loans and $3.8 million in premises and equipment. The Company
recognized a gain of $565 thousand related to the deposit premium, which was recorded in the line item Other noninterest
income in the consolidated statements of income. In addition, the Company recorded a $50 thousand loss on the disposal of
premises and equipment related to this transaction, which was recorded in the line item Other noninterest expense in the
consolidated statements of income.
26. Parent Company Financial Information
Condensed Statements of Income—Parent Company Only
Income
Dividend from banking subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax benefit and equity in undistributed net
income (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in undistributed net income of subsidiaries. . . . .
Equity in undistributed net income (loss) of subsidiaries . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2014
2013
(in thousands)
2012
$
$
16,200
25
10
16,235
530
83
1,433
2,046
14,189
(704)
14,893
66,681
$
81,574
$
183,000
68
7
183,075
658
258
4,162
5,078
177,997
(1,552)
179,549
(119,533)
60,016
$
$
48,950
153
—
49,103
182
—
1,193
1,375
47,728
(435)
48,163
(2,020)
46,143
Condensed Balance Sheets—Parent Company Only
Assets
Cash and due from banking subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in banking subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in other subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Shareholders’ Equity
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
113
December 31,
2014
2013
(in thousands)
$
$
$
$
10,322
12,274
22,596
1,207,143
5,351
5,273
1,240,363
8,248
3,940
12,188
1,228,175
1,240,363
$
$
$
$
3,006
50,678
53,684
993,002
5,037
1,952
1,053,675
—
426
426
1,053,249
1,053,675
Condensed Statements of Cash Flows—Parent Company Only
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net loss (income) of subsidiaries . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in other assets and liabilities. . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . .
Investing Activities
Net cash acquired (paid) in business combinations . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . .
Financing Activities
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . .
Downstream stock offering proceeds to the Bank . . . . . . . . . . . . . . . . .
Excess tax benefit associated with share-based compensation . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents. . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . .
Years Ended December 31,
2014
2013
2012
(in thousands)
$
81,574
$
60,016
$
46,143
(66,681)
2,859
(403)
17,349
10,277
10,277
(96)
(49,494)
(14,636)
5,000
(622)
929
—
205
(58,714)
(31,088)
53,684
119,533
2,844
6,830
189,223
(53,159)
(53,159)
(32)
(19,858)
(51,000)
—
(429)
1,092
(100,000)
1,203
(169,024)
(32,960)
86,644
$
22,596
$
53,684
$
2,020
1,622
(264)
49,521
—
—
—
(38,824)
—
—
—
713
—
—
(38,111)
11,410
75,234
86,644
114
27. Summary of Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2014 and 2013 is summarized as follows:
2014
Total interest income . . . . . . . . . . . . . . . . . . . . . .
Total interest expense. . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses. . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Per common share (1)
Earnings (basic). . . . . . . . . . . . . . . . . . . . . . .
Earnings (diluted) . . . . . . . . . . . . . . . . . . . . .
2013
Total interest income . . . . . . . . . . . . . . . . . . . . . .
Total interest expense. . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan and lease losses . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Per common share (1)
Earnings (basic). . . . . . . . . . . . . . . . . . . . . . .
Earnings (diluted) . . . . . . . . . . . . . . . . . . . . .
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year Ended
December 31,
(in thousands, except per share amounts)
$
$
$
$
$
$
$
$
74,925
985
73,940
1,922
14,008
57,386
28,640
8,796
19,844
0.38
0.37
54,761
1,279
53,482
(20)
1,658
38,049
17,111
4,935
12,176
0.31
0.31
$
$
$
$
$
$
$
$
76,087
963
75,124
2,117
14,627
57,764
29,870
8,643
21,227
0.40
0.40
82,268
2,279
79,989
288
6,808
64,504
22,005
7,414
14,591
0.28
0.28
$
$
$
$
$
$
$
$
77,133
913
76,220
980
15,930
59,982
31,188
9,605
21,583
0.41
0.41
81,599
1,184
80,415
3,313
7,622
64,714
20,010
6,734
13,276
0.26
0.25
$
$
$
$
$
$
$
$
79,897
1,133
78,764
1,708
15,185
64,154
28,087
9,167
18,920
0.34
0.34
78,307
1,098
77,209
(3,682)
10,612
63,619
27,884
7,911
19,973
0.39
0.38
$
$
$
$
$
$
$
$
308,042
3,994
304,048
6,727
59,750
239,286
117,785
36,211
81,574
1.53
1.52
296,935
5,840
291,095
(101)
26,700
230,886
87,010
26,994
60,016
1.24
1.21
__________
(1) Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year.
115
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including
the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, the
CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures
are effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Securities
Exchange Act of 1934 is (i) accumulated and communicated to our management (including the CEO and CFO) to allow timely
decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.
Internal Control Over Financial Reporting
Management’s Annual Report On Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting. The internal control system has been designed to provide reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair presentation of the Company’s published financial statements. Internal
control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the
Company’s transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the
Company’s financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with
management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company
assets that could have a material effect on the Company’s financial statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance
that a misstatement of the Company’s financial statements would be prevented or detected.
Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2014
based on the control criteria established in a report entitled Internal Control-Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Management excluded from its assessment the internal
control over financial reporting at Intermountain Community Bancorp (“Intermountain”), the parent of Panhandle State Bank,
which was acquired on November 1, 2014 and whose financial data and results constituted, of the consolidated financial
statement amounts, approximately 9% of loans (net of allowance for loan losses), 11% of deposits, 11% of total assets and 2%
of net interest income as of and for the year ended December 31, 2014.
Based on such evaluation, management has concluded that the Company’s internal control over financial reporting is
effective as of December 31, 2014. There were no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal year that materially affected or are
reasonably likely to materially affect internal control over financial reporting.
Our independent registered public accounting firm has issued an attestation report on our internal control over financial
reporting, which appears in this annual report on Form 10-K.
116
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Columbia Banking System, Inc.
Tacoma, Washington
We have audited the internal control over financial reporting of Columbia Banking System, Inc. and its subsidiaries (the
“Company”) as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Because management’s assessment and our audit
were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement
Act (FDICIA), management’s assessment and our audit of the Company’s internal control over financial reporting included
controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for
the Consolidated Reports of Condition and Income for Schedules RC, RI, and RI-A. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report On Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
As described in Management’s Report on Internal Controls Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Intermountain Community Bancorp (“Intermountain”), the parent of
Panhandle State Bank, which was acquired on November 1, 2014 and whose financial data and results constitute approximately
9% of loans (net of allowance for loan losses), 11% of deposits, 11% of total assets, and 2% of net interest income as of and for
the year ended December 31, 2014. Accordingly, our audit did not include the internal control over financial reporting at
Intermountain.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have not examined and, accordingly, we do not express an opinion or any other form of assurance on management’s
statement referring to compliance with laws and regulations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report
dated February 27, 2015 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Seattle, Washington
February 27, 2015
117
ITEM 9B.
OTHER INFORMATION
Director Retirement
On February 25, 2015, James M. Will notified the Company that he had decided not to stand for reelection as a director of
the Company at our 2015 Annual Meeting of Shareholders (the “Annual Meeting”). Mr. Will will continue to serve as a director
until his term expires at the Annual Meeting. His decision was not the result of any disagreement with the Company regarding
its operations, policies, or practices.
Certain Executive Arrangements
On February 27, 2015, the Company and the Bank entered into an amendment to the employment agreement with
Melanie J. Dressel, President and Chief Executive Officer. Previously, in February 2009, in connection with our voluntary
participation in the U.S. Department of Treasury’s Troubled Asset Relief Program (“TARP”), Ms. Dressel’s employment
agreement was amended to provide that total payments and benefits otherwise payable to Ms. Dressel under the employment
agreement upon the occurrence of a change in control-related event would be limited to an amount equal to $1 less than any
“parachute payment” amount received. In 2010, the Company repaid in full all of our TARP obligations and cancelled all of our
equity interests held by the U.S. Department of Treasury. The February 27, 2015 amendment removes this cut-back related to
our TARP participation and provides that Ms. Dressel and the Company will cooperate and use all reasonable efforts, in
compliance with applicable law, to minimize the amount of any excise tax imposed by Section 4999 of the Internal Revenue
Code.
On February 27, 2015, the Bank also entered into an amendment to the second amended and restated supplemental
executive retirement plan agreement with Ms. Dressel, as well as amended and restated supplemental executive retirement plan
agreements with each of Clint E. Stein, Executive Vice President and Chief Financial Officer and Andrew L. McDonald,
Executive Vice President and Chief Credit Officer. Pursuant to these agreements, certain fixed dollar amounts for, or fixed
dollar caps on, the base annual retirement amount, before any applicable adjustments, were amended to provide that the
applicable base annual retirement amount, before any applicable adjustments, will be an amount equal to 60% of the average of
the applicable executive’s three highest years of base salary. The agreements also reflect certain other immaterial changes to
update and standardize the agreements as well as to simplify administration.
118
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding “Directors, Executive Officers and Corporate Governance” will be set forth in the Company’s
2015 Annual Proxy Statement (the “Proxy Statement”), which will be filed with the SEC within 120 days of the end of our
2014 fiscal year and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
Information regarding “Executive Compensation” will be set forth in the Proxy Statement and is incorporated herein by
reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information regarding “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” will be set forth in the Proxy Statement and is incorporated herein by reference. Information relating to securities
authorized for issuance under the Company’s equity compensation plans is included in Part II of this Annual Report on Form
10-K under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.”
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information regarding “Certain Relationships and Related Transactions, and Director Independence” will be set forth in
the Proxy Statement and is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding “Principal Accounting Fees and Services” will be set forth in the Proxy Statement and is
incorporated herein by reference.
119
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
PART IV
The Consolidated Financial Statements and related documents set forth in “Item 8. Financial Statements and
Supplementary Data” of this report are filed as part of this report.
(2) Financial Statements Schedules:
All other schedules to the Consolidated Financial Statements required by Regulation S-X are omitted because they are
not applicable, not material or because the information is included in the Consolidated Financial Statements and related notes in
“Item 8. Financial Statements and Supplementary Data” of this report.
(3) Exhibits:
The response to this portion of Item 15 is submitted as a separate section of this report appearing immediately following
the signature page and entitled “Index to Exhibits.”
120
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of February 2015.
SIGNATURES
COLUMBIA BANKING SYSTEM, INC.
(Registrant)
By:
/s/ MELANIE J. DRESSEL
Melanie J. Dressel
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated, on the 27th day of February 2015.
Principal Executive Officer:
By:
/s/ MELANIE J. DRESSEL
Melanie J. Dressel
President and Chief Executive Officer
Principal Financial Officer:
By:
/s/ CLINT E. STEIN
Clint E. Stein
Executive Vice President and Chief Financial Officer
Principal Accounting Officer:
By:
/s/ BARRY S. RAY
Barry S. Ray
Senior Vice President and Chief Accounting Officer
Melanie J. Dressel, pursuant to a power of attorney that is being filed with the Annual Report on Form 10-K, has signed
this report on February 27, 2015 as attorney in fact for the following directors who constitute a majority of the board of
directors.
[David A. Dietzler]
[Craig D. Eerkes]
[Ford Elsaesser]
[Mark A. Finkelstein]
[John P. Folsom]
[Frederick M. Goldberg]
[Thomas M. Hulbert]
/s/ MELANIE J. DRESSEL
Melanie J. Dressel
Attorney-in-fact
February 27, 2015
[Michelle M. Lantow]
[S. Mae Fujita Numata]
[Daniel C. Regis]
[Betsy W. Seaton]
[William T. Weyerhaeuser]
[James M. Will]
121
Exhibit No.
2.1
3.1
3.2
4.1
4.2
INDEX TO EXHIBITS
Exhibit
Agreement and Plan of Merger, dated as of July 23, 2014, by and between Columbia Banking System, Inc.
and Intermountain Community Bancorp (1)
Amended and Restated Articles of Incorporation (2)
Amended and Restated Bylaws (3)
Specimen of common stock certificate (4)
Pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, copies of instruments defining the rights of holders of
long-term debt and preferred securities are not filed. The Company agrees to furnish a copy thereof to the
Securities and Exchange Commission upon request.
10.1*
Amended and Restated Stock Option and Equity Compensation Plan (5)
10.2*
Form of Stock Option Agreement (6)
10.3*
Form of Restricted Stock Agreement (6)
10.4*
Form of Stock Appreciation Right Agreement (6)
10.5*
Form of Restricted Stock Unit Agreement (6)
10.6*
Form of Long-Term Restricted Stock Agreement (7)
10.7*
Amended and Restated Employee Stock Purchase Plan (8)
10.8
Office Lease, dated as of December 15, 1999, between the Company and Haub Brothers Enterprises Trust (9)
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
Employment Agreement between the Bank, the Company and Melanie J. Dressel effective August 1, 2004
(10)
Amendment to Employment Agreement between the Bank, the Company and Melanie J. Dressel effective
February 1, 2009 (11)
Amendment to Employment Agreement effective December 31, 2008 among the Bank, the Company and
Melanie J. Dressel (12)
Change in Control Agreement between the Bank and Kent L. Roberts dated December 4, 2011 (13)
Change in Control Agreement between the Bank and Mark W. Nelson dated as of October 23, 2012 (14)
Change in Control Agreement between the Bank and Clint E. Stein dated as of October 24, 2012 (14)
Form of Long-Term Care Agreement between the Bank, the Company, and each of the following directors:
Mr. Folsom, Mr. Hulbert, Mr. Matson, Mr. Rodman, Mr. Weyerhaeuser and Mr. Will (15)
Amended and Restated Executive Supplemental Compensation Agreements dated as of May 27, 2009 among
the Company, Columbia State Bank and Melanie J. Dressel and Mark W. Nelson, respectively (16)
Amended and Restated 401 Plus Plan (Deferred Compensation Plan) dated December 14, 2011 for directors
and key employees (13)
Form of Supplemental Compensation Agreement between the Bank and Mssrs. Andrew L. McDonald and
Clint E. Stein, respectively (6)
122
Exhibit No.
Exhibit
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
Form of Indemnification Agreement between the Company and its directors (12)
Supplemental Executive Retirement Plan Agreement between the Bank and Clint E. Stein, effective June 1,
2013 (17)
Supplemental Executive Retirement Plan Agreement between the Company and Andrew L. McDonald,
effective June 1, 2013 (17)
Change in Control Agreement between the Bank and Hadley S. Robbins dated February 4, 2014 (effective
March 1, 2014) (18)
West Coast Bancorp 2002 Stock Incentive Plan (19)
West Coast Bancorp 2012 Omnibus Incentive Plan (19)
2014 Stock Option and Equity Compensation Plan (20)
10.26*
2014 Form of Restricted Stock Agreement (20)
10.27*
2014 Form of Stock Option Agreement (20)
10.28*
2014 Form of Stock Appreciation Rights Agreement (20)
10.29*
2014 Form of Restricted Stock Unit Agreement (20)
10.30*
2014 Form of Cash Award Agreement (20)
10.31*
Supplemental Executive Retirement Plan Agreement between the Company and David C. Lawson, effective
July 1, 2013 (21)
10.32*
Change in Control Agreement between the Bank and Andrew L. McDonald dated June 1, 2014 (22)
10.33*+
10.34*+
14
21+
23+
24+
31.1+
31.2+
32+
101+
Employment Agreement among the Bank, the Company and Hadley S. Robbins dated September 25, 2012
Change in Control Agreement between the Bank and David C. Lawson, dated September 25, 2013
Code of Ethics (23)
Subsidiaries of the Company
Consent of Deloitte & Touche LLP
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Filed Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
The following financial information from Columbia Banking System, Inc.’s Annual Report on Form 10-K for
the year ended December 31, 2014 is formatted in XBRL: (i) Audited Consolidated Balance Sheets, (ii)
Audited Consolidated Statements of Income, (iii) Audited Consolidated Statements of Comprehensive
Income, (iv) Audited Consolidated Statements of Changes in Shareholders’ Equity, (v) Audited Consolidated
Statements of Cash Flows, and (vi) Notes to Audited Consolidated Financial Statements.
123
__________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed July 24, 2014
Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013
Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on February 2, 2010
Incorporated by reference to Exhibit 4.3 of the Company’s S-3 Registration Statement (File No. 333-156350) filed December 19, 2008
Incorporated by reference to Exhibit 99.1 of the Company’s S-8 Registration Statement (File No. 333-160370) filed July 1, 2009
Incorporated by reference to Exhibits 10.2-10.5 and 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007
Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 5, 2010
Incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010
Incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000
(10)
Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
(11)
Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed February 19, 2009
(12)
Incorporated by reference to Exhibits 10.2 and 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009
(13)
Incorporated by reference to Exhibits 10.14 and 10.15 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011
(14)
Incorporated by reference to Exhibits 10.1 and 10.2 of the Company’s Current Report on Form 8-K filed October 29, 2012
(15)
Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
(16)
Incorporated by reference to Exhibits 10.1 and 10.3 of the Company’s Current Report on Form 8-K filed on June 2, 2009
(17)
Incorporated by reference to Exhibits 10.1 and 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013
(18)
Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013
(19)
Incorporated by reference to Exhibits 99.1 and 99.2 of the Company’s S-8 Registration Statement (File No. 333-187690) filed April 2, 2013
(20)
Incorporated by reference to Exhibits 99.1-99.6 of the Company’s S-8 Registration Statement (File No. 333-195456) filed April 23, 2014
(21)
Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014
(22)
Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014
(23)
Incorporated by reference to Exhibit 14 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003
* Management contract or compensatory plan or arrangement
+ Filed herewith
124
[THIS PAGE INTENTIONALLY LEFT BLANK]
INDEPENDENT AUDITORS
Deloitte & Touche, LLP
TRANSFER AGENT AND REGISTRAR
Broadridge Corporate Issuer Solutions
FINANCIAL INFORMATION
Columbia news and financial results are
available through the Internet and mail.
REGULATORY & SECURITIES COUNSEL
Sullivan & Cromwell, LLP
STOCK LISTING
The Company’s common stock trades on the
Nasdaq National market tier of The Nasdaq
Stock Markets under the symbol: COLB
INTERNET
For information about Columbia Banking
System, Inc., including news and financial
results, product information and service
locations, access our home page on the World
Wide Web at www.ColumbiaBank.com. You
can also view or retrieve copies of Columbia’s
financial reports on the Internet by connecting
to www.sec.gov. Immediate access to the
Company’s quarterly earnings news releases via
the Internet is provided by Company News On
Call at www.prnewswire.com.
1301 A Street, Tacoma, WA 98402
253-305-1900 / 1-800-305-1905
ColumbiaBank.com
JOB NO.
NAME
DOC TYPE
PROOF DATE DRAFT
PG
BLACK
1401301
2014 10K COVER
LETTER
BOOKLET 030515 FINAL 4
Board of Directors
William T. Weyerhaeuser
Melanie J. Dressel
David A. Dietzler
Craig D. Eerkes
Ford Elsaesser
Chairman of the Board
President & Chief Executive
Officer
WASHINGTON
Mark A. Finkelstein
John P. Folsom
Frederick M. Goldberg*
Thomas M. Hulbert
Michelle M. Lantow
Mae Fujita Numata
Daniel C. Regis*
Elizabeth Seaton
James M. Will*
Executive Officers
OREGON
IDAHO
Kumi Yamamoto Baruffi
Dave C. Lawson
Andy McDonald
Hadley S. Robbins
Clint E. Stein
Executive Vice President &
General Counsel
Executive Vice President &
Human Resources Director
Executive Vice President &
Executive Vice President &
Executive Vice President &
Chief Credit Officer
Chief Operating Officer
Chief Financial Officer
Our people truly make the difference.
Columbia Bank has been recognized repeatedly by several organizations
as the best bank and a great place to work, including:
• Puget Sound Business Journal – Best Places to Work
• Pierce County Business Examiner – Top Places to Work
• Statesman Journal – Best Bank
* Retiring as of the Annual Meeting of Shareholders April 22, 2015
A combined network of
more than 150 branches.
2014 Annual Report
1301 A Street, Tacoma, WA 98402
253-305-1900 / 800-305-1905
ColumbiaBank.com
Member FDIC
Building the Premier
Pacific Northwest
Community Bank