2018
Annual Report
To Our Shareholders
2018 was another successful year and the 25th anniversary for
your company. We saw record net income and loan production
and our bankers succeeded in growing relationships in a very
competitive environment. Low levels of nonperforming assets
were the result of a strong core deposit mix, low funding costs
and active management of credit exposure.
Solid Financial Performance
Net income for 2018 was a record $172.9 million, an increase of
53% from 2017 and diluted earnings per common share were
$2.36 for 2018 compared to $1.86 for 2017. We also achieved two
milestones during 2018 as total assets at year-end surpassed
$13 billion and loan originations exceeded $1.4 billion.
Our credit metrics remain strong. At the end of 2018, our
ratio of nonperforming assets to total
assets was 0.46%, comparing very
favorably to our peers. This metric was
positively impacted by the decrease
in nonaccrual loans and other real
estate owned.
Columbia’s total risk-based capital
ratio at December 31, 2018 was
13.99%, 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 best options
for effective deployment of capital.
Pacific Continental Integration
The migration of former Pacific
Continental Bank clients to Columbia
Bank’s platform was completed during the first quarter of
2018. The systems conversion marked the final phase of the
integration and provides former PCB clients with access to the
complete array of solutions offered by our retail, commercial
and wealth management groups.
New Executive Leaders and Directors
We were pleased to announce the addition of Janine Terrano
to our board last year. Ms. Terrano brings extensive business
leadership and demonstrated board experience as well as data
security expertise and experience building companies in the
technology sector. She is a member of the Audit Committee and
Enterprise Risk Management Committee.
Lisa Dow was appointed to the new role of Executive Vice
President, Chief Risk Officer during the first quarter of 2018. Ms.
Dow is responsible for bringing together a team of seasoned
professionals across multiple risk-related disciplines within the
bank and working to establish a corporate risk framework that
considers the unique aspects of each line of business.
During the second quarter of the year, Greg Sigrist was named
Executive Vice President, Chief Financial Officer. Prior to joining
Columbia, Mr. Sigrist completed a 12-year tenure at Morgan
Stanley, playing a pivotal role in the acquisition of Smith Barney
and culminating in his appointment as Chief Financial Officer of
Morgan Stanley Bank, N.A..
Eight Years on the Forbes List
For the eighth consecutive year, Columbia was named to
the Forbes list of America’s Best Banks. The most recent
designation also marks the fourth time in five years that
Columbia has been named among the top 25 banks on the
list. The annual list is based on the safety, soundness and
profitability of the nation’s 100 largest publicly traded banks
and thrifts. Our continued performance on the Forbes list is the
result of our ability to consistently meet the needs of our clients
and our communities.
A Digitally-Enabled Bank
The past year marked an increased focus on the opportunities
technology and data provide for an improved and integrated
client experience. We completed work on a comprehensive
strategic digital roadmap. The roadmap
expands upon the recent launch of
several technology platforms that
include a Customer Relationship
Management suite, a Marketing
Automation system and several
consumer and business digital banking
and payment technologies.
Work on the roadmap yielded a
prioritized portfolio of initiatives that
provide clients with competitive digital
solutions and bankers with additional
tools and insights to increase the
effectiveness of sales and support
functions. The roadmap also includes
initiatives designed to improve our ability
to leverage insights from data as well
as technology aimed at accelerating
the speed with which we automate processes and repetitive
functions. All of these efforts are aimed at providing a better
client experience while increasing the capacity of our bankers to
focus on maintaining and deepening client relationships.
As we execute each initiative on our digital roadmap and
maintain our focus on the care of our clients, we position
ourselves for continued performance. We are looking forward
to building another 25 years of success for your company.
Sincerely,
Craig D. Eerkes
Chairman of the Board
Columbia Banking System, Inc.
Hadley S. Robbins
President and Chief Executive Officer
Columbia Banking System, Inc. and Columbia Bank
25-Year Commitment to our Community
Our People
Our commitment to our people is the foundation of
our successful business model. Hiring, training and
retaining top talent results in a meaningful difference for
our clients and continued returns for our shareholders
and communities. Following this model, we continue to
make investments in their success. After an overhaul
of the federal tax code early in the year, we dedicated a
portion of the funds we saved to leadership development
programs and a $15/hour starting wage. This investment
allows us to better attract new
talent while strengthening
leadership skills and stimulating
career development growth for
existing employees.
services like Amazon, Spotify, iTunes, and Netflix.
We were pleased to be recognized by the Portland business
Journal as one of the top ten Most Admired Companies
and to be named the Best Bank by South Sound Magazine.
Our focus on the client experience continues to make a
difference for businesses and individuals in the Northwest.
Our Communities
Community engagement was the highest on record
with more than 3.5 million directed to local nonprofit
Providing a great place to work
remains our greatest priority
and we are honored to continue
to earn recognition for our
commitment. For the 12th
consecutive year, Columbia Bank
was named one of Washington’s
Best Workplaces by the Puget
Sound Business Journal. We
also received recognition from
The Oregonian as one of the Top
Work Places. We are proud to be
recognized by our employees through these awards each
year. Each honor highlights our ongoing commitment to
our people.
Our Clients
Keeping clients at the heart of all we do has been an
important ingredient to our success. We took several
important steps on our journey toward becoming a more
digitally enabled bank for our clients in 2018. The Ballard
NeighborHub was introduced as the incubator for the
bank’s retail network. Employing a variety of technology,
the NeighborHub seamlessly merges digital tools with
knowledgeable bankers. Consumer digital banking was
enhanced with the addition of our new CardSwap product,
taking the hassle out of updating card information in
organizations through employee
giving, fundraising and company
giving throughout the year.
Volunteerism was the highest on
record as well with nearly 27,000
hours recorded through local
opportunities and company-wide
events including Hunger and
Homelessness Awareness Week
and Melanie Dressel Community
Commitment Week.
The fourth year of our annual
Warm Hearts Winter Drive set
a new record with more than
$250,000 raised to provide
local shelters with resources
to help those struggling with
homelessness during the coldest months of the year.
Our community engagement efforts were recognized by
the Puget Sound Business Journal, where we were named
Top Corporate Philanthropist in midsize business. We
were also listed as one of the Most Generous Corporate
Philanthropists by the Portland Business Journal. We
were honored to be recognized by the Washington
Secretary of State. We were awarded the National
Secretaries of State Medallion for outstanding work to
improve lives in Washington communities.
Our employees and our clients remain committed to
contributing their time, their expertise and their dollars to
the organizations working to better our communities.
Introducing the NeighborHub
The NeighborHub is Columbia Bank’s new concept branch
and the incubator for the bank’s retail network. Located
in the heart of Seattle’s dynamic Ballard neighborhood,
the NeighborHub combines new technology and new roles
for retail bankers with a marketing strategy designed
to bring clients and the
neighborhood together
to grow and deepen
relationships.
The NeighborHub team
incorporates new roles that
combine traditional retail
deposit and loan sales and
support functions. Each
Relationship Banker is
skilled in opening accounts
and loans in addition
to supporting everyday
transactions. Technology
and the NeighborHub team
work together to create a
seamless and exceptional
experience. Custom tablet apps and touchscreens help
bankers navigate client sales or support conversations and
automate much of the referral process. New technology
and processes are incubated in the location prior to being
introduced across the organization.
The design of the NeighborHub draws from popular
coworking office spaces, featuring several locations where
clients can work remotely, comfortably host a meeting
or attend a small workshop. A private community room
incorporates whiteboards, video displays and other
collaboration tools, providing a perfect meeting space for
clients or local organizations.
Connecting the bank with the neighboring community is at
the heart of the marketing strategy for the NeighborHub
and the space achieves
that goal in a variety of
ways that evolve with
the time of day. By day,
the NeighborHub is a
warm and welcoming
hub of banking and social
activity where clients and
neighbors can gather,
get their banking done
or learn through small
workshops. At night, the
NeighborHub transforms
into a flexible event space
where prospects and
clients attend business
seminars, events hosted
by local organizations and community celebrations. The
NeighborHub is designed to draw you in, allowing our
bankers to share our passion for the community, our array
of solutions and our unique brand of banking.
2018
Annual Report
and Form 10-K
Board of Directors
Craig D. Eerkes
David A. Dietzler
Ford Elsaesser
Mark A. Finkelstein
John P. Folsom
Chairman of the Board
Eric Forrest
Thomas M. Hulbert
Michelle M. Lantow
Randy Lund
Mae Fujita Numata
Elizabeth Seaton
Janine Terrano
William T. Weyerhaeuser
Executive Officers
Hadley S. Robbins
President & Chief
Executive Officer
Kumi Y. Baruffi
Executive Vice President &
General Counsel
Lisa Dow
Executive Vice President &
Chief Risk Officer
Dave C. Lawson
Executive Vice President &
Chief Human Resources Officer
Andy McDonald
Executive Vice President &
Chief Credit Officer
Greg Sigrist
Executive Vice President &
Chief Financial Officer
Clint E. Stein
Executive Vice President &
Chief Operating Officer
UNITED STATTT ES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
☐
ANNUAL REPORTRR PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2018 or
TRANSITION REPORTRR 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,rr 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 x 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 x
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 x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted 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 such files). Yes x 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, a non-accelerated filer, a
smaller reporting company,yy or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,”yy and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth
Company
If an emerging growth company,yy indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No x
The aggregate market value of Common Stock held by non-affiliates
$2,967,255,859 based on the closing sale price of the Common Stock on that date.
ff
of the registrant at June 30, 2018 was
The number of shares of registrant’s Common Stock outstanding at January 31, 2019 was 73,267,025.
DOCUMENTS INCORPORATEDAA
BY REFERENCE:
Portions of the Registrant’s definitive 2019 Annual Meeting Proxy Statement.
Part III
COLUMBIA BANKING SYSTEM, INC.
FORM 10-K ANNUAL REPORTRR
DECEMBER 31, 2018
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 Staffff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for the Registrant’s Common Equity,yy 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
and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
ff
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence. . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
15
23
24
24
25
27
29
54
112
112
114
115
115
115
115
115
116
116
117
118
i
CAUTIONARYRR NOTE REGARDING FORWARR
RD-LOOKING STATTT EMENTS
This annual report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. 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. 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, 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
from the anticipated results expressed or implied by forward-looking statements:
ff materially
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ff
ff
ff
ff
Rate”);
funding sources;
on us than expected and adversely affect
of changes to LIBOR (“London Interbank Offering
credit quality,yy collateral values, including real estate
our ability to continue internal growth and maintain the
and enhanced financial and operating performance we expect to realize from investments in personnel,
national and global economic conditions could be less favorable than expected or could have a more direct and
ff
ff
pronounced effect
quality of our earning assets;
the markets where we operate and make loans could face challenges;
the risks presented by the economy,yy which could adversely affect
collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;
the efficiencies
acquisitions and infrastructure may not be realized;
interest rate changes could significantly reduce net interest income and negatively affect
ff
the effect
projected business increases following strategic expansion 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
such laws and regulations by applicable governmental and regulatory agencies;
competition among financial institutions and nontraditional providers of financial services could increase significantly;
continued consolidation in the 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;
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
ff
regulatory and compliance risk;
failure
ff
the effect
ff
our profitability measures could be adversely affected
natural disasters, including earthquakes, tsunamis, flooding, fires and other unexpected events; and
ff
the effects
of any damage to our reputation resulting from developments related to any of the items identified above.
manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk and
internal controls over financial reporting or disclosure controls and procedures;
our businesses, including changes in the enforcement and interpretation of
of geopolitical instability,yy including wars, conflicts and terrorist attacks;
if we are unable to effectively
to maintain effective
manage our capital;
ff
ff
ff
ff
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 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”).
Established in 1993 in Tacoma, Washington, we provide a full range of banking services to small and medium-sized businesses,
Company
professionals and individuals throughout Washington, Oregon and Idaho. The Company’s subsidiary Columbia Trust
(“Columbia Trust”)
ff
Washington, Oregon and Idaho.
is an Oregon trust company that provides agency,yy fiduciary and other related trust services with offices
in
r
r
Columbia Bank has locations throughout Washington, Oregon and Idaho. The vast majority of Columbia Bank’s loans
and 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,yy which can also affect
Columbia Bank.
ff
Business Overview
Having celebrated our 25th anniversary in 2018, our goal is to continue to be a leading Northwest regional community
banking company while consistently increasing shareholder value. We continue to build on our reputation for exceptional
customer satisfaction in order to be recognized as the bank of choice for individual and business customers in all markets we
serve.
We have established a network of 150 branches in Washington, Oregon and Idaho as of December 31, 2018, from which
we intend to grow market share. We operate 74 branches in 21 counties in the state of Washington, 62 branches in 16 counties
in Oregon and 14 branches in 10 counties in Idaho.
Our branch system funds our lending activities and allows us to better serve 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,yy
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
without compromising customer
ff
service. We are taking major steps towards enhancing our digitally enabled bank that puts the client first and ensures they can
bank when, how and where they choose.
to improve efficiencies
ff
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 diversified loan and deposit portfolio. We continue to
build our strong core deposit base, expanding total revenue and controlling expenses in an effort
and increase our return on average equity. As a result of our strong commitment to highly personalized, relationship-oriented
customer service, our diverse products, our strategic branch locations and the long-standing community presence of our
managers and staff,ff 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 dedicated to increasing market share in the communities we
serve by continuing to leverage our existing branch network and considering business combinations that are consistent with our
expansion strategy throughout the Northwest. We have grown our franchise over the past decade through a combination of
acquisitions and organic growth.
to gain operational efficiencies
ff
ff
2
Products & Services
We place the highest priority on customer service and assist our clients in making informed decisions when selecting
to ensure that we provide our
from the products and services we offer
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
. We continually review our product and service offerings
. Some of the core products and services we offer
include:
ww
ff
ff
ff
Personal Banking
Business Banking
Wealth Management
•
•
•
•
•
•
Checking and Savings Accounts
Debit and Credit Cards
Digital Banking
Personal Loans
Home Loans
Foreign Currency
•
•
•
•
•
Checking and Savings Accounts
Debit and Credit Cards
Business Loans
Professional Banking
Treasury Management
• Merchant Card Services
•
International Banking
•
•
•
Financial Services
Private Banking
r
Trust
and Investment Services
ff
our personal banking customers an assortment of account products including noninterest and
Personal Banking: We offer
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 may also choose from a variety of loan products
including home mortgages for purchases and refinances, home equity loans and lines of credit, and other personal loans.
Eligible personal banking customers with checking accounts are provided a Visa® Debit Card. Further, a variety of Visa® Credit
Cards are available to eligible personal banking customers.
In addition, Columbia Connect, our personal digital banking platform, allows our personal banking customers to safely
and securely conduct their banking business 24 hours a day,yy 7 days a week across all of their devices. Columbia Connect has
simple navigation and provides access to frequently used features such as depositing checks, paying bills, transferring funds, or
locating the nearest Columbia Bank branch or ATM.
to business banking customers to satisfy all their banking needs. In addition to these core banking products, we provide
Business Banking: A variety of checking, savings, interest bearing money market and certificate of deposit accounts are
offered
ff
a breadth of services to support the complete financial needs of small and middle market businesses including Business Debit
and Credit Cards, Business Loans, Professional Banking, Treasury Management, Merchant Card Services, and International
Banking.
Business Debit and Credit Cards
Our business banking customers are offered
ff
a check wherever Visa® is accepted. We also partner with Elan Financial Services to offer
a variety of Visa® Credit Cards that
come with important business features including expense management tools, free employee cards and added security benefits.
A specialty community card for nonprofit organizations and municipalities is also available.
a selection of Visa® Cards including the Business Debit Card that works like
ff
Business Loans
ff
We offer
a variety of loan products tailored to meet the diverse needs of business banking customers. Business loan
products include agricultural loans, asset-based loans, builder and other commercial real estate loans, and loans guaranteed by
the Small Business Administration. In addition, we offer
a suite of Business Edge loans designed for small businesses looking
to expand, purchase equipment, or in need of working capital.
ff
Professional Banking
Columbia Professional Bankers are uniquely qualified to help dentists, physicians and veterinarians acquire, build and
grow their practice. We offer
necessary to meet their business’s unique needs.
ff
tailored banking solutions delivered by experienced bankers with the industry knowledge
3
Treasury Management
Columbia Bank’s diversified Treasury 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’s clients, of all sizes, choose from a full range of transaction and Treasury Management tools to gain more
control over their money. Treasury Management solutions include Business Online and Mobile Banking, Business Bill Pay,yy
Automated Clearing House (ACH) collections and payments, Remote Deposit Capture, and a variety tools to protect against
fraud and manage excess funds.
Merchant Card Services
Since 2017, we have partnered with Vantiv to provide businesses with a broad range of payment acceptance solutions to
meet their customer’s needs. Our Merchant Card Services powered by Vantiv provide businesses with sophisticated technology,yy
competitive pricing and best-in-class service for their merchant needs.
International Banking
Columbia International Banking offers
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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.
Wealth Management: We offer
services and private banking, as well as trust and investment services.
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tailored solutions to individuals, families and professional businesses in the areas of financial
CB Financial Services
CB Financial Services(1) offers
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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.
Financial Services solutions include:
Financial Planning: Asset Allocation, Net Worth Analysis, Estate Planning & Preservation(2), Education Funding,
Wealth Transfer.
Wealth Management: Professional Asset Management, Tailored Investment Strategies, and Professional Money
Managers.
Insurance Solutions: Long-TermTT
Care, Life, and Disability Insurance.
Individual Retirement Solutions: Retirement Planning, Retirement Income Strategies, and Traditional and Roth
IRAs.
Business Solutions: Business Retirement Plans, Key Person Insurance, Business Succession Planning, and Deferred
Compensation Plans.
Private Banking
Columbia Private Banking offers
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affluent
clientele and their businesses complex financial solutions, such as deposit and
treasury 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.
__________
(1) Securities and insurance products are offered
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through Cetera Investment Services LLC (doing insurance business in
California as CFGIS Insurance Agency), member FINRA/SIPC. Advisory services are offered
Investment Advisers LLC. Neither firm is affiliated
offered.
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* Investment products are not FDIC insured * No bank guarantee * Not a deposit * Not insured by any federal
government agency * May lose value.
with the financial institution where investment services are
through Cetera
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(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.
4
Trust and Investment Services: Through our Columbia Trust
fiduciary,yy investment and administrative trust services, coupled with local, personalized attention to the unique requirements of
Special Needs (Supplemental) Trusts,
each trust. Services include Personal Trusts,
Agency and Charitable Management Services. A more complete listing of all the services and products available to our
customers can be found on Columbia Trust’
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Trust’
s website is not incorporated by reference into this report.
s website: www.columbiatrustcompany
Estate Settlement Services, Investment
. Information contained on Columbia
Company subsidiary,yy we offer
a wide range of high quality
.comyy
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Competition
Our industry is highly competitive. 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
promotional 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, financial technology companies 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.
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Employees
As of December 31, 2018, the Company employed 2,137 full-time equivalent employees. 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 “TotalTT
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 12th consecutive
year.
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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 (the “SEC”). The public may obtain copies
.
of these reports and any amendments at the SEC’s Internet site, www.sec.gov
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.
Additionally,yy reports filed with the SEC can be obtained free of charge 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.
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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 or non-depository creditors. 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, cannot be predicted, but may have a material effect
on our business, financial condition, or results of
operations. In light of the 2008 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. In
addition, recent political developments, including the change in the presidential administration in the United States, have added
additional uncertainty to the implementation, scope and timing of regulatory reforms. However, our continued efforts
monitor and comply with new regulatory requirements add to the complexity and cost of our business.
to
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5
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
(the “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,yy 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.
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,yy 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 (the “CRA”), the applicant’s compliance with
fair housing and other consumer protection laws and the effectiveness
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.
of all organizations involved in combating money
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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,yy 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 so closely related to
the business of banking as to be a proper incident thereto, such as Columbia Trust.
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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,yy 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 resources, as
necessary,yy 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.
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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. Furthermore, under the
Federal Deposit Insurance Act (“FDIA”), insurance of deposits may be terminated by the FDIC if the FDIC finds that the
insured depository institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law,ww regulation, rule, order or condition imposed by the FDIC. 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.
6
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. Columbia Bank has
established a compliance management system designed to ensure consumer protection.
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.
Anti-Money Laundering and Anti-Terrorism.
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The Bank Secrecy Act (the “BSA”) requires all financial institutions,
including banks 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. An institution that fails to meet these standards may be subject
to regulatory sanctions, including limitations on growth. Columbia Bank has established compliance programs designed to
comply with the BSA and the Patriot Act.
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Transactions with Affiliates;
Insider Credit Transactions. Transactions between the Bank and its subsidiaries, on the
one hand, and the Company or any other subsidiary,yy 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.
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.
In addition, subsidiary banks of a bank holding company are subject to restrictions on
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Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive
directors, principal shareholders or any related interests of such persons. Extensions of credit (i) must be made on
officers,
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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. The Columbia Bank board
has established controls to ensure compliance with regulatory expectations around affiliated
transactions.
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Regulation of Management. Federal law (i) sets forth circumstances under which officers
ff
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.
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7
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,yy earnings and stock valuation. An
institution that fails to meet these standards may be subject to regulatory sanctions, including limitations on growth. Columbia
Bank has established policies and risk management activities designed to ensure the safety and soundness of the Bank.
Interstate Banking and Branching
The Riegle-Neal Interstate Banking and Branching Efficiency
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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 and Stress Testing
Columbia is a legal entity separate and distinct from the Bank and its other subsidiaries. As a bank holding company,yy
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.
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 over a specified period of time 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. In May 2018, the
Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”)PP
Federal Reserve issued proposed rules to amend its stress testing requirements. This followed a similar proposal issued by the
FDIC on December 18, 2018. Under the proposed rules, consistent with the requirements imposed by the EGRRCPA,PP
minimum threshold requiring bank holding companies and state-chartered banks to conduct company-run stress tests would be
increased from $10 billion to $250 billion, and would generally require firms above the threshold to conduct company-run
stress tests once every other year. We are unable to predict at this time what impact the amendment will have on the Company
or the Bank, and any such impact will depend on the final form of the proposed rules. Although the proposed rules would
increase the asset size requirement to above our current asset size, we do intend to continue to perform stress testing.
was enacted. On January 8, 2019, the
the
Regulatory Capital Requirements
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 standards currently applicable to the Company and the Bank, parts of which are subject to phase-in, are based on the
December 2010 final capital framework for strengthening international capital standards, known as Basel III, of the Basel
Committee on Banking Supervision (the “Basel Committee”). We believe that, as of December 31, 2018, we and the Bank
would meet all capital adequacy requirements under the Capital Rules, as described below,ww on a fully phased-in basis as if such
requirements were then in effect.
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8
Prior to January 1, 2015, the risk-based capital standards applicable to the Company and the Bank were based on the 1988
Capital Accord, known as Basel I, of the Basel Committee. In July 2013, the federal bank regulators approved final rules
implementing Basel III and various provisions of the Dodd-Frank Act (the “Capital Rules”). The Capital Rules substantially
revised 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
and addressed other issues affecting
weights and other issues affecting
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 Capital Rules also implemented 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 Capital Rules, became effective
January 1, 2015.
the numerator in regulatory capital ratio calculations. The Capital Rules also addressed risk
the denominator in regulatory capital ratio calculations, including by replacing the prior risk-
at December 31, 2014. The Capital Rules revised the components of capital
for us and for the Bank on
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The Capital Rules, among other things (i) include a capital measure called Common Equity Tier 1 (“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 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.
Subject to a transition schedule that was fully phased in on January 1, 2019, the Capital Rules also require an institution
to establish a capital conservation buffer
“adequately capitalized” institutions equal to 2.5% of total risk-weighted assets. Banking institutions with a ratio of CET1 to
risk-weighted assets above the minimum but below the capital conservation buffer
ff will face constraints on dividends, equity
repurchases and compensation based on the amount of the shortfall and the institution’s “eligible retained income” (that is, four
quarter trailing net income, net of distributions and tax effects
of CET1 in an amount above the minimum risk-based capital requirements for
not reflected in net income).
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The 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 was fully phased in as of January 1, 2019. The 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
Capital Rules.
The 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.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-
crisis regulatory reforms. The standards are commonly referred to as “Basel IV.”VV Among other things, these standards revise the
Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital
requirements for certain “unconditionally cancellable commitments,” such as home equity lines of credit) and provides a new
on
standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective
January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules,
operational risk capital requirements and a capital floor apply only to advanced approach institutions. The impact of Basel IV
on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulators.
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With respect to the Bank, the Capital Rules also revise the prompt corrective action regulations pursuant to Section 38 of
the FDIA. See “Prompt Corrective Action Framework.”
9
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,yy subject to a narrow exception, the FDIA requires the regulator to appoint a receiver or conservator for an institution
that is critically undercapitalized.
Under the rules currently in effect
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and as modified by the Capital Rules, an insured depository institution generally would
be classified in the following categories based on the capital measures indicated:
“Well-capitalized”
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Total capital ratio of at least 10%,
Tier 1 capital ratio of at least 8%,
CET1 ratio of at least 6.5%
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 6%
CET1 ratio of at least 4.5%, and
Tier 1 leverage ratio of at least 4%.
“Undercapitalized”
Total capital ratio of less than 8%,
Tier 1 capital ratio of less than 6%
CET1 ratio of less than 4.5%, 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 4%
CET1 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.
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, 2018, we and the Bank met the capital requirements to be well-capitalized with CET1 capital ratios
of 12.7401% and 12.9576%, respectively,yy Tier 1 capital ratios of 12.7401% and 12.9576%, respectively,yy total capital ratios of
13.9920% and 13.8494%, respectively,yy and Tier 1 leverage ratios of 10.2444% and 10.4185%, respectively.
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,yy 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
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.
voting stock to become adequately capitalized, requirements to reduce total assets
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10
Brokered Deposits
The FDIA prohibits an insured depository institution from accepting brokered deposits or offering
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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.
On December 18, 2018, the FDIC issued an advance notice of proposed rulemaking in connection with the FDIC’s
comprehensive review of its regulatory approach to brokered deposits to solicit comment on all aspects of the FDIC’s brokered
deposit regulations. The Company is not able to predict at this time whether any regulatory changes will be adopted as a result
of the FDIC’s notice, or what impact if any,yy such changes would have on the Bank.
Regulatory Oversight and Examination
The Federal Reserve conducts periodic inspections of bank holding companies. 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
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subsidiaries and its subsidiary banks.
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,yy FDIC safety and soundness examinations for a bank of our size are
completed on an annual basis through the execution of a quarterly focal review process. The FDIC and state bank regulatory
agencies complete these examinations on a combined schedule.
The Consumer Financial Protection Bureau (the “CFPB”) has primary examination and enforcement authority over
institutions with assets of $10 billion or more, including the Bank, with respect to various federal consumer protection laws,
and we are subject to continued examination by the FDIC on certain consumer regulations. State authorities are also
responsible for monitoring our compliance with all state consumer laws.
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.
Corporate Governance and Accounting
The Sarbanes-Oxley Act of 2002 (“SOX”) addresses, among other things, corporate governance, auditing and accounting,
ff
and chief financial officers
enhanced and timely disclosure of corporate information, and penalties for non-compliance. Generally,yy SOX (i) requires chief
executive officers
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
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.
to certify to the accuracy of periodic reports filed with the SEC; (ii) imposes
and whether the
ff
ff
11
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. Under the FDIC’s assessment system for determining payments to the
Deposit Insurance Fund (the “DIF”), insured depository institutions with more than $10 billion in assets (“large IDIs”) are
assessed under a complex “scorecard” methodology that seeks to capture both the probability that an individual large IDI will
fail and the magnitude of the impact on the DIF if such a failure occurs. The assessment base of a large IDI is its total assets
less tangible equity. 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 (the “DIF”) from 1.15% to 1.35%; required that the DIF meet that
minimum ratio of insured deposits by 2020; and eliminated the requirement that the FDIC pay dividends to insured depository
institutions when the reserve ratio exceeds certain thresholds. The rule imposed a surcharge on the assessments of depository
institutions with $10 billion or more in assets beginning in the third quarter of 2016. The surcharge continued through
September 30, 2018, when the reserve ratio reached 1.36% of insured deposits, exceeding the statutorily required minimum
reserve ratio of 1.35%.
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
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.
the lending, deposit, investment, trading and operating
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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.
Risk Committee. The Dodd-Frank Act required bank holding companies with in excess of $10 billion in total
consolidated assets to establish a dedicated risk committee of the board of directors responsible for overseeing enterprise wide
risk management policies. The Company has established such a risk committee; however, the EGRRCPAPP amended the risk
committee provision to require risk committees for bank holding companies with $50 billion or more in total consolidated
assets.
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 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.
Consumer Financial Protection Bureau. As described above, we are subject to oversight and examination by the CFPB
because our total consolidated assets exceed $10 billion.
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.
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.” The Volcker Rule does not significantly impact the operations of the Company and the Bank, as we do not have any
significant engagement in the businesses prohibited by the Volcker Rule.
VV
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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.
12
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 one 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
ff
or prepaid product.
networks for routing transactions on each debit
ff
two unaffiliated
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
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.
, employee, director or principal
ff
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
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
governance, including active and effective
the risk profile of an organization, either individually or as part of a group, is based upon the key
internal controls and risk management and (iii) be supported by strong corporate
oversight by the organization’s board of directors.
ff
ff
ff
During the second quarter of 2016, the U.S. financial regulators, including the Federal Reserve and the SEC, proposed
revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets.
The proposed revised rules would establish general qualitative requirements applicable to all covered entities, which would
include (i) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation; (ii)
prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss; (iii)
establishing requirements for performance measures to appropriately balance risk and reward; (iv) requiring board of director
oversight of incentive arrangements; and (v) mandating appropriate record-keeping. Under the proposed rule, larger financial
institutions with total consolidated assets of at least $50 billion would also be subject to additional requirements applicable to
such institutions’ “senior executive officers”
If the rules are adopted in the form proposed, they may restrict our flexibility with respect to the manner in which we structure
compensation and adversely affect
our ability to compete for talent.
and “significant risk-takers.”
ff
ff
The Federal Reserve will review,ww 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
ff
soundness and the organization is not taking prompt and effective
measures to correct the deficiencies.
ff
Proposed Legislation
Proposed legislation relating to the banking industry is introduced in almost every legislative session. Certain of such
the regulation of the banking industry. We cannot predict if any such legislation will be
legislation could dramatically affect
adopted or if it is adopted how it would affect
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.
the business of Columbia Bank or the Company. Recent history has demonstrated
ff
ff
13
Effects of Government Monetary Policy
Our earnings and growth are affected
ff
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
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.
interest rates charged on
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14
ITEM 1A.
RISK FACTORS
The following is a discussion of what we currently believe are the most significant risks and uncertainties that may affect
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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, changes in government monetary and fiscal policies and inflation, foreign policy,yy and financial market volatility,yy
all of which are beyond our control. Global economies continue to face significant challenges to achieving normalized
economic growth rates 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 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
ff
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.
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 businesses and individuals in Washington, Oregon and Idaho, and
soft economies in these market areas could have a material adverse effect
operations and prospects. 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:
on our business, financial condition, results of
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•
•
•
•
•
•
loan delinquencies may increase;
problem assets and foreclosures may increase;
collateral for loans made may decline 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.yy
While our loan portfolio is diversified across business sectors, it 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,
business, financial condition, results of operations and prospects.
any of which would have an adverse impact, which could be material, on our
ff
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.
At December 31, 2018, 60% 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
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
which could be material, on our business, financial condition, results of operations and prospects.
losses on defaulted loans, any or all of which would have an adverse impact,
on both borrowers’ ability to repay
ff
ff
15
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 may not be able to anticipate, detect, or
implement effective
criminals change frequently,yy often are not recognized until launched and can be initiated from a variety of sources. 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.
preventative measures against all potential threats, particularly because the techniques used by cyber
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Due to the complexity and interconnectedness of information technology systems, the process of enhancing our systems
can itself create a risk of systems disruptions and security issues. Additionally,yy 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.
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,yy the process for determining the ALLL requires
different,
ability of borrowers to repay their loans. As a result, future significant increases to the ALLL may be necessary.
subjective and complex judgments about the future impact from current economic conditions that might impair the
ff
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,yy 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,
operations.
which could be material, on our financial condition and results of
ff
ff
Nonperforming assets take significant time to resolve and could adversely affect our results of operations and financial
condition.
ff
Our nonperforming assets adversely affect
our net income in various ways. We do not record interest income on
our income and increasing loan administration costs. Assets acquired by
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nonaccrual loans, thereby adversely affecting
foreclosure or similar proceedings are recorded at fair value less estimated costs to sell. The valuation of these foreclosed assets
is periodically updated and resulting losses, if any,yy 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,ff which can be detrimental to performance of their other responsibilities. We
may experience increases in nonperforming loans in the future.
16
Acquisitions and the integration of acquired businesses subject us to various risks and may not result in all of the
benefits anticipated, future acquisitions may be dilutive to current shareholders and future acquisitions may be delayed,
impeded or prohibited due to regulatory issues.
We have in the past and expect 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.
In addition, unexpected contingent liabilities can arise from the businesses we acquire. Integration of an acquired business
can be complex and costly,yy sometimes including combining relevant accounting and data processing systems, financial
reporting and management and internal 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
these systems, processes or controls and our operations or results.
ff
ff
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
our ability to maintain relationships with clients, customers, depositors and employees. The
policies that could adversely affect
our ability to successfully conduct our business.
loss of key employees in connection with an acquisition could adversely affect
ff
ff
We may engage in additional 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
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.
on earnings per share, book value per share or the
ff
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 and other factors. Among other things, acquisitions by financial institutions are subject to approval by a variety
of federal and state regulatory agencies. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied
due to existing or new regulatory issues we have, or may have, with regulatory agencies. In addition, the Northwest is
experiencing intensified consolidation and we face significant competition from numerous other financial services institutions
for attractive acquisition candidates, as many of these 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 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
economic conditions or adverse developments in the acquired loan portfolio. Any increase in future loan
respond to different
losses could have a material adverse impact on our business, financial condition, results of operations and prospects.
ff
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,yy 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
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.
capital resources and liquidity to meet our commitments and fund
ff
17
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.
ff
ff
Conditions in the financial markets may limit access to additional funding to meet liquidity needs.
We may need or want to raise additional capital in the future to provide us with sufficient
capital resources and liquidity
to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly. Our
ability to raise additional capital will depend on, among other things, conditions in the capital markets at that time, which are
outside of our control, and our financial performance. Economic conditions and any loss of confidence in financial institutions
generally may increase our cost of funding and limit access to certain customary sources of capital.
ff
There can be no assurance that capital will be available on acceptable terms or at all. Any occurrence that may limit our
access to the capital markets, such as a decline in the confidence of equity or debt purchasers, or counterparties participating in
capital markets, may adversely affect
our capital costs and our ability to raise capital and, potentially,yy our liquidity. Also, 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 have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms
when needed could have a materially adverse effect
on our business, financial condition and results of operations.
ff
ff
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.yy
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-downs, 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
ff
both our ability to originate new loans and our ability to grow. Conversely,yy decreases in interest rates could result in an
acceleration of loan prepayments. An increase in market interest rates could also adversely affect
borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and
charge offs,
ff which could adversely affect
the ability of our floating-rate
our business.
ff
ff
Further, our profitability is dependent to a large extent upon net interest income, which is the difference
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(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
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,yy fluctuations in interest rates could
adversely affect
in maturities and repricing characteristics of our interest-
our interest rate spread, and, in turn, our profitability.
ff
ff
Interest rates on our outstanding financial instruments might be subject to change based on regulatory developments,
which could adversely affect our revenue, expenses, and the value of those financial instruments.
LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and
proposals for reform. These reforms may cause such benchmarks to perform differently
consequences which cannot be predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority,yy which
regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.
It is unclear whether, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established. If
LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason, interest rates on
our loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses
associated with those financial instruments, may be adversely affected.
and reliability of LIBOR as a benchmark interest rate could adversely affect
other financial instruments tied to LIBOR rates.
Further, any uncertainty regarding the continued use
the value of our loans, deposits, derivatives, and
ff
than in the past or have other
ff
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18
Our business depends on our ability to successfully manage credit risk.
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to ensure repayment. In addition, there are risks inherent in making any loan, including risks with respect to
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,yy may
not be sufficient
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
our loan portfolio, may result in loan defaults, foreclosures and additional charge-offsff
ALLL, each of which could adversely affect
have a material adverse effect
borrowers and the quality of
and may necessitate that we increase our
our net income. As a result, our inability to successfully manage credit risk could
on our business, financial condition, results of operations and prospects.
ff
ff
ff
We operate in a highly regulated environment and changes to or increases in, or supervisory enforcement of, banking or
other laws and regulations or governmental fiscal or monetary policies could adversely affect us.
ff
our powers, authority and operations may be enacted or adopted in the future, which
ff
on our business, financial condition, results of operations and prospects. Failure to
We are subject to extensive regulation, supervision and examination by federal and state banking authorities. In addition,
as a publicly-traded company,yy 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
could have a material adverse effect
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
Dodd-Frank Act was enacted in July 2010. Among other provisions, the legislation (i) created the 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.
our business, financial condition or results of operations. For example, the
ff
The Capital Rules implementing Basel III were fully phased in as of January 1, 2019. The Capital Rules could have an
adverse impact on our financial position and future earnings due to, among other things, the increased capital requirements. In
addition, if we fail to maintain appropriate levels of capital or liquidity,yy we could become subject to formal or informal enforcement
actions that may impose restrictions on our business, including limiting our lending activities or our ability to expand, requiring
us to raise additional capital (which may be dilutive to shareholders) or requiring regulatory approval to pay dividends or otherwise
return capital to shareholders.
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. 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,yy our business is affected
monetary policies of the U.S. federal government and its agencies, including the Federal Reserve.
significantly by the fiscal and
ff
We cannot accurately predict the full effects
ff
of recent legislation or the various other governmental, regulatory,yy 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.
ff
19
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, 2018, gross unrealized
losses in our securities portfolio were $56.0 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. There can be no assurance, however, that future evaluations of the securities portfolio will not
require us to recognize 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 and 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 may have liquidity issues, which could impact the pricing of deposits, loans and other
financial products in our markets. Our inability to effectively
on our business, financial condition, results of operations and prospects.
compete in our market areas could have a material adverse impact
ff
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
ff
and employees. We expect our future success to be driven in large part by the relationships maintained
motivate key officers
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 or other departures 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. In addition, the scope and content of U.S. banking regulators' regulations and policies on incentive
compensation, as well as changes to these regulations and policies, could adversely affect
motivate our key employees.
our ability to hire, retain and
ff
Changes in accounting standards could materially impact our financial statements.
From time to time, the Financial Accounting Standards Board (the “FASB”)
FF
and the SEC change the financial accounting
and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we
record and report our financial condition and results of operations.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement
rr
rr
of Credit
Losses on
Financial Instruments. The amendments in this ASU introduce a new impairment model based on current expected credit losses
(“CECL”) rather than incurred losses. The CECL model would apply to most debt instruments, including loan receivables and
loan commitments.
Unlike the incurred loss models in existing GAAP,PP the CECL model does not specify a threshold for the recognition of an
impairment allowance. Rather, the Company would recognize an impairment allowance equal to its current estimate of
expected credit losses for financial instruments as of the end of the reporting period. Measuring expected credit losses will most
likely be a significant challenge for all entities, including the Company. In addition, to estimate expected credit losses, the
Company could incur one-time and recurring costs, some of which may be related to system changes and data collection.
20
Further, the impairment allowance measured under a CECL model could differ
ff materially from the impairment allowance
measured under the Company’s incurred loss model. To initially apply the proposed amendments, for most debt instruments,
adjustment to its Consolidated Balance Sheets as of the beginning of the first
the Company would record a cumulative-effect
reporting period in which the guidance is effective
(a modified retrospective approach).The amendments in ASU 2016-13 are
effective
ff
required to be adopted through a modified retrospective approach, with a cumulative-effect
of the beginning of the first reporting period in which the ASU is effective.
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and are
adjustment to retained earnings as
ff
ff
ff
ff
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.
ff
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-
ff
driven products and services. The effective
and enables financial institutions to better
use of technology increases efficiency
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
implement new technology-driven products and services or be
ff
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.
in our operations. We may not be able to effectively
ff
ff
We may be exposed to environmental liabilities in connection with real properties acquired.
During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so,
there is a risk that hazardous or toxic substances could be found on these properties. If previously unknown or undisclosed hazardous
or toxic substances are discovered, we may be liable for remediation costs, as well as for personal injury and property damage.
property’s value or
Environmental laws may require us to incur substantial expenses which may materially reduce the affected
limit our ability to use or sell the affected
property. In addition, future laws or more stringent interpretations or enforcement polices
with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to
perform an environmental review at the time of underwriting a loan secured by real property,yy and also before initiating any
to detect all potential environmental hazards. The remediation
ff
foreclosure action on real property,yy these reviews may not be sufficient
costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect
on our
financial condition and results of operations.
ff
ff
ff
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
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. Because we primarily serve individuals and
businesses located in the Northwest, any negative impact resulting from reputational harm, including any impact on our ability
to attract and retain customers and employees, likely would be greater than if our business were more geographically diverse.
our business, prospects, results of operations and financial condition. Substantial legal liability or
ff
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
ff
significant regulatory consequences, reputational damage and financial loss. Such mishandling or
misused, we could suffer
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, 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.
ff
22
Failure to maintain effective internal control over financial reporting or disclosure controls and procedures may
adversely affect our business and results of operations.
Management regularly reviews and updates our internal control over financial reporting, disclosure controls and
procedures, and corporate governance policies and procedures. We maintain controls and procedures to mitigate risks such as
processing system failures or errors and customer or employee fraud, and we maintain insurance coverage for certain of these
risks. Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and
provides only reasonable, not absolute, assurances that the objectives of the system are met. Events could occur which are not
prevented or detected by our internal controls, are not insured against, or are in excess of our insurance limits. Any failure or
circumvention of our controls and procedures, or failure to comply with regulations related to controls and procedures, could
have an adverse effect
on our business, financial condition, results of operations and prospects.
ff
Our business is subject to the risks of earthquakes, tsunamis, floods, fires and other natural catastrophic events.
A major catastrophe, such as an earthquake, tsunami, flood, fire or other natural disaster could result in a prolonged
interruption of our business. For example, our headquarters are located in Tacoma, Washington and we have operations
throughout the Northwest, a geographical region that has been or may be affected
Because we primarily serve individuals and businesses in the Northwest, a natural disaster likely would have a greater impact
on our business, operations and financial condition than if our business were more geographically diverse. The occurrence of
any of these natural disasters could negatively impact our performance by disrupting our operations or the operations of our
customers, which could have a material adverse effect
on our financial condition, results of operations and cash flows.
by earthquake, tsunami and flooding activity.
ff
ff
We have various anti-takeover measures that could impede a takeover.rr
ff
ff
Our articles of incorporation include certain provisions that could make it more difficult
to acquire us by means of a
, a proxy contest, merger or otherwise. These provisions include certain non-monetary factors that our board of
tender offer
directors may consider when evaluating a takeover offer
the affirmative
provisions may have the effect
proxy contest or otherwise, and may deter any potentially hostile offers
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.
vote of no less than 66 2/3% of the total shares attributable to persons other than a “Control Person.” These
,
of lengthening the time required for a person to acquire control of us through a tender offer
to obtain control of us. This could
, and a requirement that any “Business Combination” be approved by
or other efforts
ff
ff
ff
ff
ff
ff
ITEM 1B.
UNRESOLVEDLL
STAFFTT
COMMENTS
None.
23
ITEM 2.
PROPERTIES
RR
The Company’s principal properties include our corporate headquarters which is located at 13th & A Street, Tacoma,
Washington, two operations facilities in Pierce County,yy Washington, one operations facility in Vancouver, Washington, and one
operations facility in Wilsonville, Oregon.
The Company’s branch network as of December 31, 2018 is made up of 150 branches located throughout several
Washington, Oregon and Idaho counties compared to 155 branches at December 31, 2017. The number of branches per state, as
well as whether they are owned or operated under a lease agreement is detailed in the following table:
Number of
Branches
Occupancy Type
Owned
Leased
Washington branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Columbia Bank branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
62
14
150
56
34
10
100
18
28
4
50
For additional information concerning our premises and equipment and lease obligations, see Notes 8 and 17
respectively,yy to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
ITEM 3.
LEGAL PROCEEDINGS
The Company and its subsidiaries are party to routine litigation arising in the ordinary course of business. Management
believes that, based on information currently known to it, any liabilities arising from such litigation will not have a material
adverse impact on the Company’s financial conditions, results of operations or cash flows.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
24
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,YY RELATEDAA
ISSUER PURCHASES OF EQUITY SECURITIES
STOCKHOLDER MATTERS
AA
AND
Common Stock and Dividends
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “COLB.” At
January 31, 2019, the number of shareholders of record was 3,217. 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, 2018, a total of 5,514 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.
Equity Compensation Plan Information
The following table provides information as of December 31, 2018, regarding securities issued and to be issued under our
equity compensation plans that were in effect
ff
during 2018:
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . . . .
__________
Year Ended December 31, 2018
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)
5,514
$
—
9.91
—
3,376,314
—
(1) Includes shares to be issued upon exercise of options under the West Coast Bancorp (‘WestWW Coast”) plan, which was
assumed as a result of the 2013 West Coast acquisition.
(2) Includes 3,015,957 shares available for future issuance under the current stock option and equity compensation plan and
360,357 shares available for purchase under the Employee Stock Purchase Plan as of December 31, 2018.
The following table provides information about repurchases of common stock by the Company during the quarter ended
December 31, 2018:
Total Number of
Common Shares
Purchased (1)
115
—
305
420
Average Price Paid
per Common Share
36.26
$
—
40.68
39.47
$
Total Number of Shares
Purchased as Part of
Publicly Announced
Plan (2) (3)
—
—
—
—
Maximum Number
of Remaining Shares
That May Be
Purchased at Period
End Under the Plan
(2) (3)
2,900,000
2,900,000
—
Period
10/1/2018 - 10/31/2018 . . . . . .
11/1/2018 - 11/30/2018 . . . . . .
12/1/2018 - 12/31/2018 . . . . . .
__________
(1) Common shares repurchased by the Company during the quarter relate to shares withheld to pay taxes due upon vesting
of restricted stock.
(2) On September 27, 2017, the board of directors approved a stock repurchase program. The program, which expired on
November 30, 2018, authorized the Company to repurchase up to 2.9 million shares of its outstanding common stock.
(3) On November 14, 2018, as modified on January 23, 2019, the board of directors approved a stock repurchase program
to repurchase up to 2.9 million shares, up to a maximum aggregate purchase price of $100.0 million.
25
Five-YearYY
Stock Performance Graph
The following graph shows a five-year
ff
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 KBW Regional Banking Index (comprised of 50 banks and bank holding companies
headquartered throughout the country, iyy ncluding Columbia).
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 and the KBW Regional Banking Index was $100 on December 31, 2013, and that all dividends were reinvested.
Total Return Performance
e
u
l
aa
a
V
x
e
d
n
I
200
180
160
140
120
100
80
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
Period Ending
Columbia Banking System, Inc.
NASDAQ Composite
KBW Regional Banking Index
Index
Columbia Banking System, Inc.. . . . .
NASDAQ Composite. . . . . . . . . . . . .
KBW Regional Banking Index. . . . . .
12/31/2013
100.00
100.00
100.00
12/31/2014
104.17
114.75
102.42
12/31/2015
128.05
122.74
108.48
12/31/2016
185.13
133.62
150.80
12/31/2017
183.94
173.22
153.45
12/31/2018
158.09
168.30
126.59
Period Ending
Source: Bloomberg LP, New York City, Nyy Y
26
ITEM 6.
SELECTED FINANCIAL DATAAA
Five-YearYY
Summary of Selected Consolidated Financial Data (1)
For the Year
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to common shareholders . . . . . . . . . . .
Per Common Share
Earnings (Basic). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (Diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Averages
2018
2017 (2)
2016
2015
2014 (3)
(dollars in thousands except per share amounts)
$
$
$
$
$
$
$
$
$
$
$
497,069
18,230
478,839
14,769
88,256
340,490
172,882
172,882
2.36
2.36
27.76
$
$
$
$
$
$
$
$
$
$
$
374,746
6,757
367,989
8,631
109,642
291,017
112,828
112,828
1.86
1.86
26.70
$
$
$
$
$
$
$
$
$
$
$
337,969
4,350
333,619
10,778
88,082
261,142
104,866
104,709
1.81
1.81
21.52
$
$
$
$
$
$
$
$
$
$
$
328,891
4,004
324,887
8,591
91,473
266,149
98,827
98,690
1.71
1.71
21.48
$
$
$
$
$
$
$
$
$
$
$
308,042
3,994
304,048
6,727
59,750
239,286
81,574
81,478
1.53
1.52
21.34
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,725,086
$ 10,134,306
$ 9,311,621
$ 8,655,243
$ 7,468,091
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,241,321
$ 9,098,276
$ 8,363,309
$ 7,685,734
$ 6,561,047
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,409,373
$ 6,682,259
$ 6,052,389
$ 5,609,261
$ 4,782,369
Securities, including Federal Home Loan Bank stock. . . . . . .
$ 2,790,700
$ 2,350,844
$ 2,269,121
$ 2,031,859
$ 1,708,575
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,410,404
$ 8,482,350
$ 7,774,309
$ 7,146,828
$ 6,187,342
Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,969,179
$ 1,410,056
$ 1,269,801
$ 1,246,952
$ 1,109,581
Financial Ratios
Net interest margin (tax equivalent) . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . .
Average equity to average assets . . . . . . . . . . . . . . . . . . . . . . .
At Year End
4.33%
1.36%
8.78%
15.47%
4.18%
1.11%
8.00%
13.91%
4.12%
1.13%
8.26%
13.64%
4.35%
1.14%
7.93%
14.41%
4.76%
1.09%
7.36%
14.86%
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,095,145
$ 12,716,886
$ 9,509,607
$ 8,951,697
$ 8,578,846
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,391,511
$ 8,358,657
$ 6,213,423
$ 5,815,027
$ 5,445,378
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . .
$
83,369
$
75,646
$
70,043
$
68,172
$
69,569
Securities, including Federal Home Loan Bank stock. . . . . . .
$ 3,193,408
$ 2,753,271
$ 2,288,817
$ 2,170,416
$ 2,131,622
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,458,126
$ 10,532,085
$ 8,059,415
$ 7,438,829
$ 6,924,722
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,973,840
$ 10,039,557
$ 7,749,568
$ 7,238,713
$ 6,753,142
Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,033,649
$ 1,949,922
$ 1,251,012
$ 1,242,128
$ 1,228,175
Nonperforming Assets
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned and other personal property owned. .
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans to year end loans . . . . . . . . . . . . . . . . . .
Nonperforming assets to year end assets . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses to year end loans . . . . . .
$
$
54,842
6,049
60,891
$
$
66,189
13,298
79,487
$
$
27,756
5,998
33,754
$
$
21,464
13,738
35,202
$
$
31,352
22,225
53,577
%
%
0.99%
0.79%
0.63%
0.91%
0.45%
0.35%
1.13%
0.37%
0.39%
1.17%
0.58%
0.62%
1.28%
Net loan charge-offsff
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,046
$
3,028
$
8,907
$
9,988
$
9,612
Other nonfinancial data
Full-time equivalent employees. . . . . . . . . . . . . . . . . . . . . . . .
Banking branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,137
150
2,120
155
1,819
143
1,868
149
1,934
154
__________
(1) These unaudited schedules were derived from our audited financial statements and 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) During 2017, Columbia acquired Pacific Continental Corporation. 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.
(3) During 2014, Columbia acquired Intermountain Community Bancorp.
27
Consolidated Five-YearYY
Financial Data (1)
Interest Income:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities . . . . . . . . . . . . . . . . . .
Deposits in banks . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . .
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . .
Subordinated debentures. . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . .
Net Interest Income . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . .
Net interest income after provision for
loan and lease losses . . . . . . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . .
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Dividends on preferred stock . . . .
Net Income Applicable to Common
Shareholders . . . . . . . . . . . . . . . . . . . . . .
Per Common Share
Earnings basic . . . . . . . . . . . . . . . . . . . .
Earnings 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,
2018
2017 (2)
2016
2015
2014 (3)
(in thousands, except per share amounts)
$
428,197
55,969
$
702
497,069
12,105
3,750
1,871
504
18,230
14,769
464,070
88,256
340,490
211,836
38,954
172,882
—
172,882
2.36
2.36
$
$
$
$
$
$
$
$
324,229
38,659
11,045
813
374,746
4,800
1,078
304
575
6,757
367,989
8,631
359,358
109,642
291,017
177,983
65,155
112,828
—
112,828
1.86
1.86
$
$
$
$
$
291,465
35,167
11,121
216
337,969
3,134
671
—
545
4,350
333,619
10,778
322,841
88,082
261,142
149,781
44,915
104,866
157
104,709
1.81
1.81
$
$
$
$
$
286,166
30,774
11,842
109
328,891
2,977
474
—
553
4,004
324,887
8,591
316,296
91,473
266,149
141,620
42,793
98,827
137
98,690
1.71
1.71
$
$
$
$
$
268,279
28,754
10,830
179
308,042
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
59,882
57,184
57,019
52,618
59,888
57,193
57,032
53,183
3,095,145
5,462
$ 12,716,886
35,647
$
$ 9,509,607
$
— $
$ 8,951,697
$ 8,578,846
—
— $
$
1.14
$
0.88
$
1.53
$
1.34
$
0.94
__________
(1) These unaudited schedules were derived from our audited financial statements and 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) During 2017, Columbia acquired Pacific Continental Corporation. 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.
(3) During 2014, Columbia acquired Intermountain Community Bancorp.
28
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS
AA
OPERATIONS
LL
OF FINANCIAL CONDITION AND RESULTSLL OF
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
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.
our reported results of operations and financial position for the periods
ff
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (the “allowance”) is an accounting estimate of incurred credit losses in our loan
portfolio at the balance sheet date. The primary components of the allowance are 1) loans collectively evaluated for impairment
in accordance with the FASB Accounting Standards Codification (“ASC”) Topic 450, Contingencies (ASC 450), 2) loans
individually determined to be impaired in accordance with the FASB ASC Subtopic 310-10, Receivables: Overall (ASC
310-10) and 3) loans acquired with deteriorated credit quality in accordance with FASB ASC Subtopic 310-30, Receivables:
Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30).
The measure of estimated credit losses for the ASC 450 component is based upon the loss experience over a historical
base period adjusted for a loss emergence period. The loss emergence period is an estimate of the period that it takes, on
average, for us to identify the amount of loss incurred for a loan that has suffered
a loss-causing event. Management then
considers the effects
portfolio:
of the following qualitative factors to ensure our allowance reflects the inherent losses in the loan
ff
ff
• Economic and business conditions;
• Concentration of credit;
• Lending management and staff;ff
• Lending policies and procedures;
• Loss and recovery trends;
• Nature and volume of the portfolio;
• Trends
TT
• Quality of internal loan review; and
• External factors.
in problem loans, loan delinquencies and nonaccrual loans;
These qualitative factors have a high degree of subjectivity and changes in any of the factors could have a significant
impact on our calculation of the allowance. The qualitative adjustment by loan segment is based upon management's
assessment of inherent losses within a range between the weighted historical loss factor by segment and the maximum
consecutive quarterly losses in the relevant loss emergence period by segment over the historical base period.
The measure of estimated credit losses for the ASC 310-10 component begins if, based upon current information and
events, we believe it is probable that we 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. When a loan has been identified as impaired, the
amount of impairment will be measured 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,yy the Company uses the fair value of collateral approach
based upon a reliable valuation.
Our allowance 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.
29
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 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.
Valuation and Recoverability of Goodwill
Goodwill represented $765.8 million of our $13.10 billion in total assets as of December 31, 2018. The Company has a
single reporting unit. We review goodwill for impairment annually,yy 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,yy 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.
ff
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 and the growth and
earnings prospects of the Bank. Changes in these judgments, either individually or collectively,yy may have a significant effect
the estimated fair values.
ff
on
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, 2018, 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.
Please refer to Note 9 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary
Data” of this report for further discussion.
30
2018 Financial Summary
Income Statement
•
Consolidated net income for 2018 was $172.9 million, or $2.36 per diluted common share, compared with net income
of $112.8 million, or $1.86 per diluted common share, in 2017.
◦ Net interest income for 2018 increased 30% to $478.8 million compared to $368.0 million for 2017. Interest
income was $497.1 million in 2018, compared to $374.7 million in 2017. The increase was primarily due to
income from higher average loan and securities balances acquired in the 2017 Pacific Continental acquisition.
Interest expense increased $11.5 million compared to 2017, due to higher rates on interest-bearing liabilities
and higher borrowing balances.
◦
Provision for loan and lease losses was $14.8 million in 2018, compared to $8.6 million in 2017. Provision
expense for the current year was driven by net charge-offsff
and growth in the loan portfolio.
◦ Noninterest income was $88.3 million for 2018, a decrease from $109.6 million for 2017. Noninterest income
was lower in 2018 than in 2017 primarily due to the $14.0 million one-time gain on the sale of our merchant
card services portfolio in 2017. The decrease was also attributable to lower card revenue.
◦ Noninterest expense increased $49.5 million, or 17% to $340.5 million for 2018 due primarily to higher
compensation and employee benefits resulting from the Pacific Continental acquisition.
Balance Sheet
•
•
assets at December 31, 2018 were $13.10 billion, up 3%, or $378.3 million from $12.72 billion at the end of
TotalTT
2017.
The Company is well-capitalized with a total risk-based capital ratio of 13.9920% at December 31, 2018.
◦
◦
◦
Investment securities at December 31, 2018 were $3.17 billion, up 15% from $2.74 billion at December 31,
2017.
Loans were $8.39 billion, an increase of $32.9 million from $8.36 billion at the end of 2017.
The allowance for loan and lease losses increased to $83.4 million at December 31, 2018 compared to $75.6
million at December 31, 2017 due to management’s on-going assessment of the credit quality of the loan
portfolio. The Company’s allowance was 0.99% of total loans, compared with 0.91% at the end of 2017.
◦ Nonperforming assets totaled $60.9 million at December 31, 2018, down from $79.5 million at December 31,
2017. The decrease in nonperforming assets was due to a decrease of $11.3 million in nonaccrual loans and a
decrease in Other Real Estate Owned (“OREO”) compared to December 31, 2017. Nonperforming assets to
year end assets decreased to 0.46% at December 31, 2018 compared to 0.63% at December 31, 2017.
◦ Deposits totaled $10.46 billion at December 31, 2018 compared to $10.53 billion at December 31, 2017.
◦ Core deposits totaled $9.97 billion at December 31, 2018, compared to $10.04 billion at December 31, 2017.
Core deposits represented 95% of total deposits at December 31, 2018 and 2017.
◦
Federal Home Loan Bank (“FHLB”) advances were $399.5 million at December 31, 2018, an increase of
$387.9 million compared to December 31, 2017.
31
Business Combinations
On November 1, 2017, the Company completed its acquisition of Pacific Continental. The Company acquired
approximately $2.94 billion in assets, including $1.87 billion in loans measured at fair value and $2.12 billion 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 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.
RESULTSLL OF OPERATIONS
AA
Summary
A summary of the Company’s results of operations for each of the last three years ended December 31 follows:
Year ended
Increase
(Decrease)
Year ended
Increase
(Decrease)
Year ended
2018
Amount
%
2017
Amount
%
2016
(dollars in thousands, except per share amounts)
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
497,069
$ 122,323
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense:
Compensation and employee benefits . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . .
18,230
478,839
14,769
88,256
200,199
140,291
340,490
11,473
110,850
6,138
33
170
30
71
(21,386)
(20)
30,525
18,948
49,473
33,853
18
16
17
19
$
374,746
$
36,777
6,757
367,989
8,631
109,642
169,674
121,343
291,017
177,983
65,155
2,407
34,370
(2,147)
21,560
19,392
10,483
29,875
28,202
20,240
Provision for income taxes. . . . . . . . . . . . . . . . . . . .
38,954
(26,201)
(40)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
172,882
$
60,054
Less: earnings allocated to participating
securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to common shareholders . . .
Earnings per common share, diluted . . . . . . . . . . . .
1,892
170,990
2.36
388
$
$
59,666
0.50
$
$
53
26
54
27
$
$
$
112,828
$
7,962
1,504
111,324
1.86
(52)
8,014
0.05
$
$
Net Interest Income
11
55
10
(20)
24
13
9
11
19
45
8
(3)
8
3
$
337,969
4,350
333,619
10,778
88,082
150,282
110,860
261,142
149,781
44,915
104,866
1,556
103,310
1.81
$
$
$
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.
ff
ff
32
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 cost of 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:
Net Interest Income Summary
2018
Interest
Earned/
Paid
Average
Balances
Average
Rate
Average
Balances
2017
Interest
Earned/
Paid
Average
Rate
Average
Balances
2016
Interest
Earned/
Paid
Average
Rate
(dollars in thousands)
ASSETS
Loans, net (1)(2)(3) . . . . . . . . . . . . . . . .
$ 8,409,373
$432,781
5.15% $ 6,682,259
$330,400
4.94% $6,052,389
$296,283
Taxable securities (4) . . . . . . . . . . . . . . .
2,275,892
Tax exempt securities (3) . . . . . . . . . . . .
Interest-earning deposits with banks . . .
514,808
41,248
55,969
15,445
702
Total interest-earning assets . . . . .
11,241,321
504,897
2.46%
3.00%
1.70%
4.49%
1,886,128
464,716
65,173
38,659
16,992
813
2.05% 1,804,004
3.66%
1.25%
465,117
41,799
35,167
17,109
216
9,098,276
386,864
4.25% 8,363,309
348,775
Other earning assets . . . . . . . . . . . . . . . .
224,595
Noninterest-earning assets . . . . . . . . . . .
1,259,170
Total assets. . . . . . . . . . . . . . . . . . .
$12,725,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
181,792
854,238
$10,134,306
156,871
791,441
$9,311,621
$
452,756
$
2,206
0.49% $
406,406
$
Certificates of deposit. . . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . .
1,256,205
2,773,208
138
2,562
7,199
Total interest-bearing deposits. . . .
5,367,602
12,105
Federal Home Loan Bank and
Federal Reserve Bank advances. . . . .
Subordinated debentures . . . . . . . . . . . .
Other borrowings and interest-
166,577
35,553
3,750
1,871
bearing liabilities . . . . . . . . . . . . . . . .
45,095
504
Total interest-bearing liabilities. . .
5,614,827
18,230
Noninterest-bearing deposits . . . . . . . . .
5,042,802
Other noninterest-bearing liabilities . . . .
Shareholders’ equity . . . . . . . . . . . . . . . .
Total liabilities & shareholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . .
98,278
1,969,179
$12,725,086
0.02%
0.20%
0.26%
0.23%
2.25%
5.26%
1.12%
0.32%
774,340
1,031,719
2,158,656
4,371,121
79,788
5,905
55,913
4,512,727
4,111,229
100,294
1,410,056
$10,134,306
656
96
950
3,098
4,800
1,078
304
575
6,757
522
71
695
1,846
3,134
671
—
545
4,350
0.16% $ 426,296
$
0.01%
0.09%
698,687
952,135
0.14% 1,993,283
0.11% 4,070,401
1.35%
5.15%
79,673
—
1.03%
77,022
0.15% 4,227,096
3,703,908
110,816
1,269,801
$9,311,621
4.90%
1.95%
3.68%
0.52%
4.17%
0.12%
0.01%
0.07%
0.09%
0.08%
0.84%
—%
0.71%
0.10%
Net interest income (tax equivalent) . . . . . . . . . . . . . . . .
$486,667
$380,107
$344,425
Net interest spread (tax equivalent). . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (tax equivalent) . . . . . . . . . . . . . . . . . . . . . . . . . .
4.17%
4.33%
Average interest-earning assets to average interest-bearing
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200.21%
4.10%
4.18%
201.61%
4.07%
4.12%
197.85%
__________
(1) Nonaccrual loans have been included in the table as loans carrying a zero yield. Amortized net deferred loan fees and unearned net discounts on acquired
loans were included in the interest income calculations. The amortization of net deferred loan fees was $9.3 million in 2018, $7.1 million in 2017 and
$5.3 million in 2016. The accretion of net unearned discounts on certain acquired loans was $10.9 million in 2018, $8.7 million in 2017, and $12.0
million in 2016.
Incremental accretion on purchased credit impaired loans is also included in loan interest earned. The incremental accretion income on purchased credit
impaired loans was $1.6 million in 2018, $4.1 million in 2017 and $6.0 million in 2016.
(2)
(3) Yields on fully taxable equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $4.6 million, $6.2 million and $4.8 million
for the years ended December 31, 2018, 2017, and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was
$3.2 million, $5.9 million and $6.0 million for the years ended December 31, 2018, 2017, and 2016, respectively.
(4) During the twelve months ended December 31, 2017, the Company recorded a $1.8 million adjustment to premium amortization, which decreased
interest income on taxable securities.
33
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 2018 and 2017, as well as between 2017 and 2016
broken down between volume and rate. Changes attributable to the combined effect
allocated proportionately to the changes due to volume and the changes due to interest rates:
of volume and interest rates have been
ff
Changes in Net Interest Income
Interest Income
Loans, net (1) . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities (1) . . . . . . . . . . . . . . .
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. . . . . . .
Subordinated debentures . . . . . . . . . . . . . . .
Other borrowings and interest-bearing
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
2018 Compared to 2017 Increase
(Decrease) Due to
2017 Compared to 2016
Increase (Decrease) Due to
Volume
Rate
Total
Volume
Rate
Total
(in thousands)
$ 88,408
8,800
$ 13,973
8,510
$ 102,381
17,310
$ 31,116
1,640
1,709
(3,256)
(1,547)
(15)
$
3,001
(353)
$ 98,564
242
$ 19,469
(111)
$ 118,033
169
$ 32,910
$
$
83
$
1,467
$
1,550
$
(25)
$
245
1,069
1,412
1,657
1,560
(130)
27
1,367
3,032
5,893
1,015
7
59
4,499
$
$ 94,065
6,974
$
$ 12,495
42
1,612
4,101
7,305
2,672
1,567
(71)
$ 11,473
$ 106,560
8
62
164
209
1
304
(45)
469
$
$ 32,441
$
$
$ 34,117
3,492
(117)
597
$ 38,089
$
134
25
255
1,252
1,666
407
304
30
2,407
$
$ 35,682
1,852
(102)
428
5,179
159
17
193
1,088
1,457
406
—
75
1,938
3,241
__________
(1) For tax exempt loans and tax exempt securities, the amount of our tax equivalent adjustment for 2018 was impacted by the
lower federal corporate tax rate. As a result, our tax equivalent adjustments for tax exempt loans and tax exempt securities
were $4.7 million and $3.3 million lower, respectively,yy than they would have been utilizing the prior federal corporate tax
rate. This change in federal corporate tax rate negatively impacted our current year net interest margin (tax equivalent) by 7
basis points.
34
Incremental accretion income represents the amount of interest income recorded on acquired loans above the contractual
rate stated in the individual loan notes. The additional interest income stems from the net discount established at the time these
loan portfolios were acquired. 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, 2018
Year Ended
December 31, 2017
Year Ended
December 31, 2016
(in thousands)
Incremental accretion income due to:
Federal Deposit Insurance Corporation purchased credit
impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other acquired loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total incremental accretion income . . . . . . . . . . . . . . . . . . . . . . . .
$
1,635
10,921
12,556
$
$
4,107
8,689
12,796
$
$
Net interest margin (tax equivalent) . . . . . . . . . . . . . . . . . . . . . . . .
Operating net interest margin (tax equivalent) (1) . . . . . . . . . . . . .
4.33%
4.30%
4.18%
4.15%
5,972
11,983
17,955
4.12%
4.01%
__________
(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 of Financial Conditions and Results of Operations.”
Comparison of 2018 with 2017
Taxable-equivalent net interest income totaled $486.7 million in 2018, compared with $380.1 million for 2017. The
increase in net interest income during 2018 resulted from the increase in the size of the loan and securities portfolios, primarily
due to the Pacific Continental acquisition. The increase in net interest income was partially offset
on interest-bearing liabilities combined with higher balances of interest-bearing liabilities due to the acquisition.
by higher interest rates paid
ff
The Company’s net interest margin (tax equivalent) increased from 4.18% for the year ended December 31, 2017 to
4.33% for the current year due primarily to higher yields on loans as well as higher loan volumes, partially offset
by both the
rise in the rates paid on deposits and other interest-bearing liabilities as well as the balance in these liabilities. The Company’s
operating net interest margin (tax equivalent) increased from 4.15% for the year ended December 31, 2017 to 4.30% for the
current year due to higher volumes and rates on loans.
ff
For a discussion of the methodologies used by management in recording interest income on loans, please see Note 1 to
the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Comparison of 2017 with 2016
Taxable-equivalent net interest income totaled $380.1 million in 2017, compared with $344.4 million for 2016. The
increase in net interest income during 2017 resulted from the increase in the size of the loan and securities portfolios, primarily
due to the Pacific Continental acquisition, partially offset
by lower incremental accretion income from acquired loans.
ff
The Company’s net interest margin (tax equivalent) increased from 4.12% for the year ended December 31, 2016 to
4.18% for the year ended December 31, 2017 due primarily to higher yields on loans as well as higher loan volumes, partially
offset
by the decreased impact of accretion income on the loan portfolio. The Company’s operating net interest margin (tax
ff
equivalent) increased from 4.01% for the year ended December 31, 2016 to 4.15% for 2017 due to higher volumes and rates on
loans.
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.
35
The Company recorded provision expense of $14.8 million, $8.6 million and $10.8 million in 2018, 2017 and 2016,
respectively. The provision recorded in 2018 included a large charge-offff on an agricultural loan as well as management’s
ongoing assessment of the credit quality of the Company’s loan portfolio. Factors affecting
offs,
ff
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.
credit quality migration, and size and composition of the loan portfolio and changes in the economic environment during
the provision include net charge-
ff
For the years ended December 31, 2018, 2017 and 2016, net loan charge-offsff
amounted to $7.0 million, $3.0 million, and
$8.9 million, respectively.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage
change from period to period:
Deposit account and treasury
management fees . . . . . . . . . . . . . .
Card revenue (1). . . . . . . . . . . . . . . . .
Financial services and trust
revenue . . . . . . . . . . . . . . . . . . . . . .
Loan revenue . . . . . . . . . . . . . . . . . . .
Merchant processing revenue. . . . . . .
Bank owned life insurance (BOLI) . .
Investment securities gains
(losses), net . . . . . . . . . . . . . . . . . . .
Change in Federal Deposit
Insurance Corporation loss-
sharing asset . . . . . . . . . . . . . . . . . .
Gain on sale of merchant card
services portfolio . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . .
2018
$
Change
%
Change
2017
$
Change
%
Change
2016
Years ended December 31,
(dollars in thousands)
$ 36,072
$
5,691
(5,908)
657
(533)
(4,283)
627
12,135
11,866
—
6,007
19 % $ 30,381
25,627
(23)%
6 %
(4)%
(100)%
12 %
11,478
12,399
4,283
5,380
$
1,881
2,007
212
1,432
(4,449)
834
7 % $ 28,500
23,620
8 %
2 %
13 %
(51)%
18 %
11,266
10,967
8,732
4,546
(89)
(78)
709 %
(11)
(1,192)
(101)%
1,181
47
(100)%
(447)
2,138
(83)%
(2,585)
—
(14,000)
2,546
$ 88,256
(4,006)
$ (21,386)
14,000
(100)%
(61)%
6,552
(20)% $ 109,642
14,000
4,697
$ 21,560
—
100 %
253 %
1,855
24 % $ 88,082
__________
(1) Beginning January 1, 2018 and pursuant to the adoption of new revenue recognition accounting guidance interchange
revenue, included in “Card revenue” above, is presented net of related payment card network expenses. For the year ended
December 31, 2018, $5.0 million of such expenses were netted from “Card revenue.”
Comparison fof 2018
hwith
2017
7
The $21.4 million decrease in noninterest income was principally from the $14.0 million one-time gain on sale of the
merchant card services portfolio in 2017. As a result of the merchant card services portfolio sale, we now share with the buyer
in merchant services revenue and include such amounts in “Card revenue.” The decrease was also attributable to lower card
revenue as we became subject to the interchange fee cap imposed under the Dodd-Frank Act on July 1, 2018, and the change to
net presentation of interchange revenue pursuant to the adoption of new revenue recognition accounting guidance, which
became effective
historically been presented in “other noninterest expense” are now presented in “card revenue.” Partially offsetting
decreases to noninterest income was an increase in deposit account and treasury management fees of $5.7 million, or 19%.
on January 1, 2018. Specifically,yy $5.0 million of payment card network expenses for 2018 that would have
these
ff
ff
36
Comparison of 2017 with 2016
The $21.6 million increase in noninterest income was principally from the $14 million gain on sale of the merchant card
services portfolio on July 1, 2017. With that sale, we transitioned the delivery of those services from in-house to an outsourced
model to better serve our business clients via a broader selection of competitive, best-in-class payment processing solutions.
Subsequent to the sale, we ceased recording revenue in “Merchant processing revenue” and began recording our share of net
merchant services revenue in “Card revenue.” For the year ended December 31, 2017, that revenue share was $1.1 million.
Also contributing to the increase was higher other noninterest income, principally from a BOLI benefit of $4.2 million in 2017,
compared to a BOLI benefit of $254 thousand in 2016. Finally,yy as a result of our termination of loss-sharing in 2017, the
change in FDIC loss-sharing asset improved from a charge of $2.6 million in 2016 to a charge of $447 thousand in 2017.
However, we also recognized in noninterest expense a $2.4 million charge related to loss-sharing termination.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage
change from period to period:
Compensation and employee benefits . . .
All other noninterest expense:
Occupancy. . . . . . . . . . . . . . . . . . . . . . .
Merchant processing expense . . . . . . . .
Advertising and promotion . . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . . .
Legal and professional services . . . . . .
Taxes, license and fees . . . . . . . . . . . . .
Regulatory premiums . . . . . . . . . . . . . .
Net cost of operation of other real
estate owned . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . .
Total all other noninterest
2018
$
Change
%
Change
2017
$
Change
%
Change
2016
Years ended December 31,
(dollars in thousands)
$ 200,199
$
30,525
18 % $ 169,674
$19,392
13 % $ 150,282
36,576
—
5,584
20,235
18,044
6,061
3,710
1,218
12,236
36,627
4,169
(2,196)
1,118
2,030
2,893
1,288
527
750
5,903
2,466
13 %
(100)%
25 %
11 %
19 %
27 %
17 %
160 %
93 %
7 %
32,407
2,196
4,466
18,205
15,151
4,773
3,183
468
6,333
34,161
(1,327)
(2,134)
(132)
1,717
7,262
(412)
(594)
(83)
387
5,799
(4)%
(49)%
(3)%
10 %
92 %
(8)%
(16)%
(15)%
7 %
20 %
33,734
4,330
4,598
16,488
7,889
5,185
3,777
551
5,946
28,362
expense . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . .
140,291
,
$ 340,490
$
18,948
,
49,473
121,343
16 %
,
17 % $ 291,017
10,483
,
$29,875
110,860
9 %
,
11 % $ 261,142
__________
(1) In the first quarter of 2018, there was a change to net presentation of interchange revenue pursuant to the adoption of new
revenue recognition accounting guidance on January 1, 2018. As a result, card revenue for the twelve months ended
December 31, 2018 includes $5.0 million of payment card network expenses that would have historically been presented in
other noninterest expense.
37
The following table shows the impact of the acquisition-related expenses for the periods indicated to the various
components of noninterest expense:
Acquisition-related expenses:
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, licenses and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact of acquisition-related costs to noninterest expense . . . . . . . . . . . . .
Acquisition-related expenses by transaction:
Intermountain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pacific Continental (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact of acquisition-related costs to noninterest expense . . . . . . . . . . . . .
$
$
$
2018
Years ended December 31,
2017
(in thousands)
2016
3,620
1,619
537
963
1,028
—
894
,
8,661
—
8,661
,
8,661
$
$
$
8,014
1,912
467
1,555
4,618
10
620
,
17,196
—
17,196
,
17,196
$
$
$
35
2,383
—
18
291
—
—
,
2,727
2,436
291
,
2,727
__________
(1) The Company completed the acquisition of Pacific Continental on November 1, 2017. 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.
Comparison of 2018 with 2017
Noninterest expense was $340.5 million in 2018, an increase of $49.5 million, or 17%, over 2017. Included in noninterest
expense were $8.7 million of acquisition-related expenses compared to $17.2 million in 2017. After removing the effect
acquisition-related expenses, noninterest expense increased $58.0 million due to higher compensation and employee benefits,
amortization of intangibles, legal and professional fees, and other expenses. The increases in compensation and employee
benefits and amortization of intangibles were driven by increases in salaries, benefits, and payroll taxes and amortization of
core deposit intangibles. These increases were primarily due to the Pacific Continental acquisition, as 2018 included the full
year of the acquired bank expenses compared to the inclusion of only two months of expenses in 2017. The increase in legal
and professional fees was driven mainly by an increase in treasury management and legal fees related to nonperforming loans.
Other noninterest expenses increased due to increases in software expense and sponsorships and other charitable contributions.
by a decrease in merchant processing expense. As a result of the 2017 sale of our merchant
These increases were partially offset
card services portfolio, we no longer directly incur merchant processing costs.
of
ff
ff
Comparison of 2017 with 2016
Noninterest expense was $291.0 million in 2017, an increase of $29.9 million, or 11%, over 2016. This increase was
driven by higher acquisition-related expenses in 2017 of $17.2 million compared to $2.7 million in 2016. After removing the
effect
of acquisition-related expenses, noninterest expense increased $15.4 million due to higher compensation and employee
ff
benefits stemming from additional personnel costs associated with the Pacific Continental acquisition. Also contributing to the
increase was a $2.4 million charge related to termination of FDIC loss-sharing agreements which was recognized in other
noninterest expense. Finally,yy legal and professional fees were higher due to costs from our investment in a customer
relationship management application and the search to fill certain executive level positions. These increases were partially
offset
ff
longer directly incur merchant processing costs.
by a decrease in merchant processing expense. As a result of the 2017 sale of our merchant card services portfolio, we no
38
Income Tax
For the years ended December 31, 2018, 2017 and 2016, we recorded income tax provisions of $39.0 million, $65.2
ff
ff
tax rate was 18% in 2018, 37% in 2017 and 30% in 2016. Our effective
million and $44.9 million, respectively. The effective
tax rate for 2018 was positively impacted by the Tax Cuts and Jobs Act which was enacted on December 22, 2017. On January
1, 2018, the Tax Cuts and Jobs Act reduced the federal tax rate for corporations from 35% to 21% and changed or limited
certain deductions. Our effective
the enactment of the Tax Cuts and Jobs Act. As a result of the lower corporate tax rate, during 2017, we recorded a re-
measurement charge of $12.2 million to reduce our deferred tax assets. For 2018 and 2016, our effective
than the 21% and 35% federal statutory rates, respectively,yy primarily due to tax-exempt municipal investment securities
income, tax-exempt earnings from bank owned life insurance, and income from loans with favorable tax attributes. For
additional information, see Note 23 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data” of this report.
tax rate for 2017 was impacted by the re-measurement of our deferred tax assets pursuant to
tax rates were less
ff
ff
Financial Condition
Our total assets increased 3% to $13.10 billion at December 31, 2018 from $12.72 billion at December 31, 2017.
by decreases in cash and cash
Increases in debt securities available for sale, loans and FHLB stock were partially offset
equivalents and other intangible assets. Our available-for-sale debt securities portfolio increased $429.7 million as a result of
purchases of securities throughout the year. The loan portfolio, net of the allowance for loan losses, increased $25.1 million as
and our FHLB stock increased $15.5 million as a result of the required purchase of
new loan production outpaced loan payoffsff
FHLB stock related to the increase in our FHLB advances. Partially offsetting
these increases were decreases in cash and cash
equivalents and other intangible assets of $64.9 million and $12.2 million, respectively. Cash and cash equivalents decreased
$64.9 million while other intangible assets decreased $12.2 million due to the amortization of the of the core deposit intangible
resulting from the acquisition of Pacific Continental Bank.
ff
ff
FHLB advances increased $387.9 million to $399.5 million to supplement the growth in our loan and securities
portfolios. Deposit balances decreased $74.0 million, or 1%, to $10.46 billion and securities sold under agreements to
repurchase decreased $18.0 million, or 23% to $61.1 million. Total shareholders’ equity increased $83.7 million to $2.03
billion.
Investment Portfolio
We invest in securities to generate revenue for the Company,yy 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, 2018 gross unrealized losses in our securities portfolio were $56.0 million related to 892 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 securities in a loss position nor does available evidence suggest it is more likely than not that
management will be required to sell any securities currently in a loss position before the recovery of the amortized cost basis.
We review these investments for other-than-temporary impairment on an ongoing basis.
Our investment portfolio increased $429.7 million from the prior year due to purchases of $965.6 million offset
maturities, repayments and sales of $498.0 million, $20.3 million in premium amortization and a $17.6 million increase in net
unrealized loss of the investment portfolio.
by
ff
At December 31, 2018, U.S. government agency and government-sponsored enterprise mortgage-backed securities
(“MBS”) and collateralized mortgage obligations (“CMO”) comprised 69% of our investment portfolio, state and municipal
securities were 18%, and government agency and government-sponsored enterprise securities were 13%. 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 4 years and 7 months at December 31, 2018. This duration takes into account calls,
where appropriate, and consensus prepayment speeds.
39
The following table presents the contractual maturities and weighted average yield of our investment portfolio:
December 31, 2018
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,377
148,173
1,080,202
992,769
$ 2,222,521
$
1,374
145,168
1,075,363
966,385
$ 2,188,290
$
$
$
$
$
$
65,240
174,650
217,128
122,737
579,755
63,724
243,559
100,805
408,088
251
251
$
$
$
$
$
$
65,438
174,088
215,092
119,705
574,323
63,181
240,344
101,062
404,587
248
248
0.37%
2.95%
3.59%
3.27%
3.40%
3.51%
2.58%
2.88%
3.34%
2.96%
1.40%
2.13%
2.86%
2.20%
1.39%
1.39%
__________
(1) The maturities reported for mortgage-backed securities, collateralized mortgage obligations, government agency,yy
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 to the Consolidated Financial Statements in “Item 8.
Financial Statements and Supplementary Data” of this report.
Federal Home Loan Bank Stock
The FHLB of Des Moines stock is composed of two sub-classes: membership stock and activity based stock.
Membership stock is stock we are required to purchase and hold as a condition of membership in the FHLB. The Company’s
membership stock purchase requirement is measured as a percentage of our year-end assets, subject to a $10 million cap.
Activity based stock is stock we are required to purchase and hold in order to obtain an advance or participate in FHLB
mortgage programs. The Company’s activity based stock purchase requirement is measured as a percentage of our advance
proceeds. At December 31, 2018 the Company held $26.0 million of FHLB Class B stock, $10.0 million of which was
membership stock and the remaining $16.0 million was activity based. The FHLB stock is issued, transferred, redeemed, and
repurchased at a par value of $100.
40
Loan Portfolio
on
The Bank is a full service commercial bank, which originates a wide variety of loans, and focuses its lending efforts
originating commercial business and commercial real estate loans. The following table sets forth our loan portfolio by type of
loan for the dates indicated:
ff
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 . . . . . . . . . . . . . . . . . .
2018
% of
Total
2017
% of
Total
2016
% of
Total
2015
% of
Total
2014
% of
Total
(dollars in thousands)
$ 3,438,422
41.0 % $ 3,377,324
40.4 % $ 2,551,054
41.1 % $ 2,362,575
40.6 % $ 2,119,565
38.9 %
December 31,
238,367
2.8 %
188,396
2.3 %
170,331
2.7 %
176,295
3.0 %
175,571
3.2 %
3,846,027
45.8 %
3,825,739
45.8 %
2,719,830
43.7 %
2,491,736
42.9 %
2,363,541
4,084,394
48.6 %
4,014,135
48.1 %
2,890,161
46.4 %
2,668,031
45.9 %
2,539,112
43.5 %
46.7 %
217,790
2.6 %
200,518
2.4 %
121,887
2.0 %
135,874
2.3 %
116,866
2.1 %
Purchased credit impaired . . . .
89,760
284,394
502,184
3.4 %
6.0 %
3.8 %
1.1 %
371,931
572,449
334,190
112,670
4.4 %
6.8 %
4.0 %
1.3 %
209,118
331,005
329,261
145,660
3.4 %
5.4 %
5.3 %
2.3 %
167,413
303,287
342,601
180,906
2.9 %
5.2 %
5.9 %
3.1 %
134,443
251,309
364,182
230,584
2.5 %
4.6 %
6.7 %
4.2 %
Subtotal . . . . . . . . . . . . . . . . . . . .
Less: Net unearned income . . . . .
Loans, net of unearned income
(before Allowance for Loan
and Lease Losses) . . . . . . . . . .
8,433,705
100.5 %
8,410,768
100.6 %
6,247,141
100.5 %
5,857,400
100.7 %
5,504,752
101.1 %
(42,194)
(0.5)%
(52,111)
(0.6)%
(33,718)
(0.5)%
(42,373)
(0.7)%
(59,374)
(1.1)%
$ 8,391,511
100.0 % $ 8,358,657
100.0 % $ 6,213,423
100.0 % $ 5,815,027
100.0 % $ 5,445,378
100.0 %
Loans held for sale . . . . . . . . . . . .
$
3,849
$
5,766
$
5,846
$
4,509
$
1,116
At December 31, 2018, total loans, gross of the ALLL were $8.39 billion compared with $8.36 billion in the prior year,
an increase of $32.9 million, or 0.4% from the previous year. The increase in the loan portfolio was the result of organic loan
by contractual payments and prepayments. Total loans, net of the ALLL represented 63% and 65%
production, partially offset
of total assets at December 31, 2018 and 2017, respectively.
ff
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,yy 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.
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.
41
Purchased Credit Impaired Loans (“PCI Loans”): PCI 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. PCI loans are generally accounted for under ASC
Topic 310-30, Loans and Debt Securities Acquiredrr with Deteriorated Credit
Quality (“ASC 310-30”). The Company did not
rr
acquire any loans accounted for under ASC 310-30 during 2018 or 2017.
Net unearned income: The following table provides additional detail related to the net discount of acquired and
purchased loans, excluding PCI loans, by acquisition for the periods indicated:
Acquisition:
Pacific Continental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intermountain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West Coast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net discount at period end . . . . . . . . . . . . . . . . . . . . .
(in thousands)
18,526
$
24,556
$
2,303
4,578
725
3,892
7,995
(134)
$
26,132
$
36,309
$
—
6,599
13,957
(315)
20,241
2018
2017
2016
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, 2018:
Maturing
Due
Through 1
Year
Over 1
Through 5
Years
Over 5
Years
Total
(in thousands)
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,172,226
276,663
$ 1,448,889
Fixed rate loans due after 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable rate loans due after 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,024,819
65,474
$ 1,090,293
727,902
$
362,391
$ 1,090,293
$ 1,250,617
160,734
$ 1,411,351
947,788
$
463,563
$ 1,411,351
$ 3,447,662
502,871
$ 3,950,533
$ 1,675,690
825,954
$ 2,501,644
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,ww 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,yy 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,yy 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 “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.
42
Loan policies, credit quality criteria, portfolio guidelines and other controls are established under the guidance of our
ff
and approved, as appropriate, by the board of directors. Credit Administration, together with the
Chief Credit Officer
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.
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) OREO, and (iii) OPPO, if applicable. Nonperforming assets totaled $60.9 million, or 0.46%
of year end assets at December 31, 2018, compared to $79.5 million, or 0.63% of year end assets at December 31, 2017.
The following table sets forth information with respect to our nonaccrual loans, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . .
Nonperforming loans to year end loans. . . . . . . . . . . . . .
Nonperforming assets to year end assets. . . . . . . . . . . . .
December 31,
2018
2017
2016
2015
2014
(dollars in thousands)
$ 35,513
$ 45,460
$ 11,555
$
9,437
$ 16,799
1,158
14,904
318
—
2,949
54,842
785
13,941
1,854
—
4,149
66,189
568
11,187
563
—
3,883
27,756
820
9,513
928
—
766
21,464
2,822
7,847
465
480
2,939
31,352
— $
$ 60,891
$
$ 3,615
$ 1,138
$ 26,613
$ 83,369
13,298
$ 79,487
581
$ 2,400
$
971
$ 41,642
$ 75,646
13,738
$ 35,202
5,998
$ 33,754
$
1,919
$
$
237
$ 31,744
$ 70,043
22,225
$ 53,577
1,386
— $
2,196
$
1,327
$
$
7,846
$ 69,569
— $
1,287
$
$
202
$ 23,654
$ 68,172
0.65%
0.46%
0.79%
0.63%
0.45%
0.35%
0.37%
0.39%
0.58%
0.62%
At December 31, 2018, nonperforming loans decreased to 0.65% of year end loans, down from 0.79% of year end loans
at December 31, 2017. The largest decrease in nonperforming loans was in commercial business loans, which decreased from
$45.5 million, or 69% of nonperforming loans at December 31, 2017 to $35.5 million, or 65% of nonperforming loans at year
end 2018.
43
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-offsff
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans returned to accrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments (including interest applied to principal) . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to Other Real Estate Owned/Other Personal Property Owned . . . . . . . . . .
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Years Ended December 31,
2018
2017
(in thousands)
66,189
—
55,384
(9,025)
(11,483)
(47,036)
(472)
54,842
$
$
27,756
9,413
62,450
412
(2,182)
(8,566)
(23,022)
(72)
66,189
Loans are considered impaired when based on current information and events, it is probable that the Company will be
ff
that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that
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
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,yy 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.
The following table summarizes impaired loan financial data at December 31, 2018 and 2017:
December 31,
2018
2017
(in thousands)
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impaired loans with specific allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of the specific allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
49,104
13,351
2,132
$
$
$
69,205
12,848
2,360
Impaired loans with a carrying amount of $49.1 million at December 31, 2018 were subject to specific allocations of
allowance for loan and lease losses of $2.1 million and partial charge-offsff of $1.6 million during the year. Collateral dependent
impaired loans without specific allocations at December 31, 2018 and 2017 either had collateral which exceeded the carrying
value of the loans or reflected a partial charge-offff to the market value of collateral (less costs to sell), as of the most recent
appraisal date. Restructured loans accruing interest totaled $15.3 million and $16.4 million at December 31, 2018 and 2017,
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,yy the Company uses the fair value of collateral approach based upon a
reliable valuation.
44
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-staffff appraiser. Subsequently,yy the asset will be appraised annually by a third-party appraiser or the
Company’s on-staffff 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-offff 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 the Consolidated Financial Statements in “Item 8.
Financial Statements and Supplementary Data” of this report.
Other Real Estate Owned and Other Personal Property Owned: As of December 31, 2018, there was $6.0 million in
OREO and OPPO, which was primarily comprised of property from foreclosed real estate loans which decreased $7.3 million
from $13.3 million at December 31, 2017. The decrease was primarily driven by $7.8 million in OREO sales. 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.
ff
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 $26.6 million at year end 2018, compared to $41.6 million at year end 2017.
Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit
The allowance for loan and lease losses (“ALLL”) is an accounting estimate of incurred credit losses in our loan portfolio
at the balance sheet date. The provision for loan and lease losses is the expense recognized in the Consolidated Statements of
Income to adjust the allowance to the levels deemed appropriate by management, as measured by the Company’s credit loss
estimation methodologies. The allowance for unfunded commitments and letters of credit is maintained at a level believed by
management to be sufficient
to absorb estimated probable losses related to these unfunded credit facilities at the balance sheet
date.
ff
45
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, loans excluding PCI loans. . . . . .
$
68,739
$
59,528
2018
2017
December 31,
2016
(dollars in thousands)
$
54,446
$
Beginning balance, PCI loans
Beginning balance
ff
Charge-offs:
6,907
75,646
10,515
70,043
13,726
68,172
2015
2014
53,233
16,336
69,569
$
52,280
20,174
72,454
Commercial business . . . . . . . . . . . . . . . . . . . . .
(11,719)
(7,613)
(10,068)
(8,266)
(4,289)
Real estate:
One-to-four family residential . . . . . . . . . .
Commercial and multifamily residential . .
Real estate construction:
One-to-four family residential . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charge-offsff
. . . . . . . . . . . . . . . . . . . . .
Recoveries:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recoveries. . . . . . . . . . . . . . . . . . . . . .
Net charge-offsff
. . . . . . . . . . . . . . . . .
Provision for loan and lease losses, loans excluding
PCI loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan and lease losses, PCI
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . . . . . . . . .
Ending balance, loans excluding PCI loans . . . . . . . .
Ending balance, PCI loans . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
—
(780)
—
(1,194)
(4,862)
(18,555)
3,427
408
1,031
1,616
—
1,180
3,847
11,509
)
17,050
(2,281)
14,769
79,758
3,611
83,369
(460)
(287)
(14)
(1,474)
(6,812)
(35)
(89)
(88)
(1,238)
(9,944)
(16,660)
(21,462)
4,836
568
675
178
1
1,187
6,187
13,632
(3,028)
11,614
(2,983)
8,631
68,739
6,907
75,646
$
$
$
$
$
2,645
171
1,402
291
109
933
7,004
12,555
(8,907)
11,049
(271)
10,778
59,528
10,515
70,043
$
$
$
$
$
(376)
(505)
—
(2,066)
(13,854)
(25,067)
2,336
307
3,975
193
8
931
7,329
15,079
(9,988)
4,676
3,915
8,591
54,446
13,726
68,172
$
$
$
$
$
(230)
(2,993)
—
(2,774)
(14,436)
(24,722)
3,007
159
940
1,930
—
1,353
7,721
15,110
(9,612)
3,850
2,877
6,727
53,233
16,336
69,569
$
$
$
$
$
Loans outstanding at end of period (1) . . . . . . . . . . . .
$ 8,391,511
$ 8,358,657
$ 6,213,423
$ 5,815,027
$ 5,445,378
Average amount of loans outstanding (1) . . . . . . . . . .
Allowance for loan and lease losses to period-end
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offsff
Allowance for unfunded commitments and
to average loans outstanding. . . . . . .
letters of credit
$ 8,409,373
$ 6,682,259
$ 6,052,389
$ 5,609,261
$ 4,782,369
0.99%
0.08%
0.91%
0.05%
1.13%
0.15%
1.17%
0.18%
1.28%
0.20%
Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in the allowance for unfunded
commitments and letters of credit. . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,130
1,200
4,330
$
$
2,705
425
3,130
$
$
2,930
(225)
2,705
$
$
2,655
275
2,930
$
$
2,505
150
2,655
__________
(1) Excludes loans held for sale.
46
At December 31, 2018, our ALLL was $83.4 million, or 0.99% of total loans (excluding loans held for sale). This
compares with an allowance of $75.6 million, or 0.91% of total loans (excluding loans held for sale) at December 31, 2017.
We have used the same methodology for ALLL calculations during 2018, 2017 and 2016. 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. We 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:
2018
2017
December 31,
2016
2015
2014
Balance at End of
Period Applicable to:
% of
Total
Loans*
% of
Total
Loans*
% of
Total
Loans*
Amount
% of
Total
Loans*
% of
Total
Loans*
Amount
Amount
Amount
Amount
(dollars in thousands)
Commercial business. . . . . . . .
$ 45,814
40.8% $ 31,341
40.2% $ 37,010
41.0% $ 33,620
40.5% $ 26,850
38.8%
Real estate and
construction:
One-to-four family
residential. . . . . . . . . .
Commercial and
multifamily
residential. . . . . . . . . .
6,678
5.4%
5,373
4.6%
1,584
4.7%
1,988
5.3%
5,338
5.3%
20,912
48.9%
26,862
49.9%
Consumer. . . . . . . . . . . . . . . . .
Purchase credit impaired . . . . .
Unallocated . . . . . . . . . . . . . . .
3,611
1,053
3.8%
1.1%
—%
5,163
6,907
—
4.0%
1.3%
—%
17,174
3,534
10,515
226
46.8%
5.2%
2.3%
—%
14,738
3,531
13,726
569
45.4%
5.7%
3.1%
—%
16,021
3,180
16,336
1,844
45.4%
6.3%
4.2%
—%
Total. . . . . . . . . . . . . . . . . . . . .
$ 83,369
100.0% $ 75,646
100.0% $ 70,043
100.0% $ 68,172
100.0% $ 69,569
100.0%
__________
* Represents the total of all outstanding loans in each category as a percent of total loans outstanding.
47
Deposits
The following table sets forth the composition of the Company’s deposits by significant category:
Core deposits:
Demand and other noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit, less than $250,000 . . . . . . . . . . . . . . . . . . . . . . . .
Total core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit, $250,000 or more . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit insured by CDARS®(1) . . . . . . . . . . . . . . . . . . . . .
Brokered certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reciprocal money market accounts (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment resulting from acquisition accounting . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
December 31,
2017
(in thousands)
2016
$ 5,227,216
$ 5,081,901
$ 3,944,495
2,367,964
890,557
243,849
89,473
23,580
57,930
1,265,212
2,543,712
861,941
286,791
985,293
1,791,283
723,667
304,830
10,039,557
7,749,568
100,399
25,374
78,481
79,424
22,039
—
208,348
8,059,379
36
313,692
10,458,515
289,031
10,532,842
(389)
(757)
$ 10,458,126
$ 10,532,085
$ 8,059,415
_________
(1) For periods prior to June 30, 2018, CDARS and reciprocal money market accounts were considered to be brokered deposits
by regulatory authorities and were reported as such on quarterly Call Reports. With the passage of the EGRRCPAPP in May
2018, these items are no longer considered brokered deposits.
Deposits totaled $10.46 billion at December 31, 2018 compared to $10.53 billion at December 31, 2017. Core deposits,
which include noninterest-bearing deposits and interest-bearing deposits, excluding time deposits of $250,000 and over,
brokered deposits, and reciprocal money market accounts, provide a stable source of low cost funding. Core deposits decreased
to $9.97 billion at December 31, 2018 compared with $10.04 billion at December 31, 2017. We anticipate growth in our core
deposits through both the addition of new customers and our current client base.
At December 31, 2018, brokered deposits, other wholesale deposits, and reciprocal money market accounts (excluding
public deposits) totaled $395.2 million or 3.8% of total deposits compared to $392.9 million or 3.7% of total deposits, at year-
end 2017. The brokered certificates of deposit were assumed in our acquisition of Pacific Continental. The reciprocal 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
These extended deposit insurance programs are generally available only to existing customers and are not used as a means of
generating additional liquidity.
extended FDIC deposit insurance coverage on time deposits.
ff
At December 31, 2018, public deposits held by the Company totaled $456.6 million compared to $467.3 million at
December 31, 2017. Uninsured public deposit balances decreased from $405.8 million at December 31, 2017 to $394.8 million
at December 31, 2018. The Company is required to collateralize 50% of Washington state and 40% of Oregon state public
deposits. For additional information regarding the collateral for these deposits, see Note 4 to the Consolidated Financial
Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
48
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 and brokered time deposits) 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, 2018
Time Certificates of Deposit
of $100,000 or More
Other Time Deposits of
$100,000 or More
Amount
$
74,858
17,495
29,850
$ 159,921
Percent of
Total
Deposits
Amount
Percent of
Total
Deposits
(dollars in thousands)
0.7% $
0.2%
0.3%
0.3%
1.5% $
22,175
14,632
11,824
31,930
80,561
0.2%
0.1%
0.1%
0.4%
0.8%
The following table sets forth the average amount of and the average rate paid on each significant deposit category:
2018
Years ended December 31,
2017
2016
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. . . . . . . . . . . . . .
$ 1,256,205
2,773,208
885,433
5,367,602
5,042,802
$ 10,410,404
(dollars in thousands)
0.20% $ 1,031,719
2,158,656
0.26%
774,340
0.02%
406,406
0.49%
4,371,121
0.23%
4,111,229
$ 8,482,350
0.09% $
0.14%
0.01%
0.16%
0.11%
952,135
1,993,283
698,687
426,296
4,070,401
3,703,908
$ 7,774,309
Rate
0.07%
0.09%
0.01%
0.12%
0.08%
Borrowings
Borrowed funds provide an additional source of funding for loan growth. Our borrowed funds consist primarily of
borrowings from the FHLB Des Moines 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. For additional information on our borrowings, see Notes 11, 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
ff
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
ff
sheet loan commitments aggregating $2.62 billion at both December 31, 2018 and 2017.
Standby letters of credit were $28.3 million at December 31, 2018, a decrease from $51.3 million at December 31, 2017. In
addition, there were no commitments under commercial letters of credit used to facilitate customers’ trade transactions and
ff
other off-balance
sheet liabilities at December 31, 2018, while there were $159 thousand at December 31, 2017.
49
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:
Operating & equipment leases . . . . . . . . . . .
Total deposits (1) . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances (1) . . . .
Subordinated debentures (1) . . . . . . . . . . . . .
Other borrowings (1) . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments due within time period at December 31, 2018
0-12
Months
1-3
Years
$
10,947
$
10,335,628
392,000
—
18,495
95,010
—
—
—
4-5
Years
(in thousands)
14,898
$
23,581
2,000
—
—
Due after
Five
Years
Total
$
18,703
$
63,043
3,907
5,000
35,000
—
10,458,126
399,000
35,000
61,094
$ 10,799,669
$ 113,505
$
40,479
$
62,610
$ 11,016,263
__________
(1) In the banking industry,yy 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 the Consolidated Financial Statements
in “Item 8. Financial Statements and Supplementary Data” of this report.
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 $1.62 billion and $107.1 million, respectively,yy at December 31, 2018, 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.
In addition, we have a shelf registration statement on file with the SEC registering an unspecified amount of any
combination of debt or equity securities, depositary shares, purchase contracts, units and warrants in one or more offerings.
Specific information regarding the terms of and the securities being offered
Proceeds from any future offerings
repayment of debt, repurchasing or redeeming outstanding securities, working capital, funding future acquisitions or other
purposes identified at the time of any offering.
are expected to be used for general corporate purposes, including, but not limited to, the
will be provided at the time of any offering.
ff
ff
ff
ff
ff
50
Capital
Our shareholders’ equity increased to $2.03 billion at December 31, 2018, from $1.95 billion at December 31, 2017.
Shareholders’ equity was 15.53% and 15.33% of total assets at December 31, 2018 and 2017. Dividends per common share
were $1.14 and $0.88, for the years ended December 31, 2018 and 2017.
Regulatory Capital. In July 2013, the federal bank regulators approved the Capital Rules (as discussed in “Item 1.
Business—Supervision and Regulation and —Regulatory Capital Requirements”), which implement the Basel III capital
framework and various provisions of the Dodd-Frank Act. We and the Bank were required to comply with these rules as of
January 1, 2015, subject to the phase-in of certain provisions, which was completed as of January 1, 2019. We believe that, as
of December 31, 2018, we and the Bank would meet all capital adequacy requirements under the Capital Rules on a fully
phased-in basis as if all such requirements were then in effect.
ff
Basel III also introduced a new capital conservation buffer
ff
, composed entirely of CET1, on top of the minimum risk-
ff
weighted asset ratios. The capital conservation buffer
is designed to absorb losses during periods of economic stress. Banking
institutions with a ratio of CET1 to risk-weighted assets, Tier 1 to risk-weighted assets or total capital to risk-weighted assets
above the minimum but below the capital conservation buffer
compensation based on the amount of the shortfall. The implementation of the capital conservation buffer
2016 at a 0.625% level and increased by 0.625% on each subsequent January 1 until reaching 2.5% on January 1, 2019. The
Company and the Bank will be required to maintain such additional capital conservation buffer
of 2.5% of CET1, effectively
resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at
least 8.5%, and (iii) total capital to risk-weighted assets of at least 10.5%.
ff will face constraints on dividends, equity repurchases and
began on January 1,
ff
ff
ff
FDIC regulations set forth the qualifications necessary for a bank to be classified as “well-capitalized,” primarily for
assignment of FDIC insurance premium rates. Failure to qualify as “well-capitalized” can negatively impact a bank’s ability to
expand and to engage in certain activities. The Company and the Bank qualified as “well-capitalized” at December 31, 2018
and 2017.
The following table sets forth the Company’s and the Bank’s capital ratios at December 31, 2018 and 2017:
Company
Columbia Bank
Requirements
Common Equity Tier 1 risk-based capital ratio. . . . . . . . . . .
12.7401% 11.7421% 12.9576% 12.0133%
Tier 1 risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . . . .
12.7401% 11.8196% 12.9576% 12.0133%
Total risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . .
13.9920% 12.9796% 13.8494% 12.8123%
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.2444% 10.9611% 10.4185% 10.8186%
2018
2017
2018
2017
Adequately
Capitalized
Well-
Capitalized
4.50%
6.00%
8.00%
4.00%
6.50%
8.00%
10.00%
5.00%
Stock Repurchase
rr
Program
rr
On November 14, 2018, as modified on January 23, 2019, the board of directors approved a stock repurchase program to
repurchase up to 2.9 million shares, up to a maximum aggregate purchase price of $100.0 million.
Dividends
The following table sets forth the dividends paid per common share and the dividend payout ratio (dividends paid per
common share divided by diluted earnings per share):
Dividends paid per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout ratio (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2018
2017
2016
$
1.14
$
0.88
$
1.53
%
47%
85%
______________
(1) Dividends paid per common share as a percentage of earnings per diluted common share
For additional information regarding dividends declared during 2018 and 2017, including special dividends declared, see
“Item 5. Market for Registrant’s Common Equity,yy Related Stockholder Matters and Issuer Purchases of Equity Securities” of
this report.
51
Subsequent to year end, on January 24, 2019 the Company declared a quarterly cash dividend of $0.28 per share and a
special cash dividend of $0.14 payable on February 20, 2019, to shareholders of record at the close of business on February 6,
2019.
Applicable federal and Washington state regulations restrict capital distributions, including dividends, by the Company’s
to distributions. Our ability to
banking subsidiary. Such restrictions are tied to the institution’s capital levels after giving effect
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.
ff
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.
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators, the Company considers various measures when evaluating
capital utilization and adequacy,yy including:
•
•
Tangible
TT
TT
Tangible
common equity to tangible assets, and
common equity to risk-weighted assets.
The Company believes these measures are useful because they reflect the level of capital available to withstand
unexpected market conditions. Additionally,yy presentation of these measures allows readers to compare certain aspects of the
Company’s capitalization to other organizations. These ratios differ
principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of
which varies across organizations. Additionally,yy 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.
from capital measures defined by banking regulators
ff
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.PP
Despite the importance of these measures to the Company,yy there are no standardized definitions for them and, as a result,
the Company’s calculations may not be comparable with other organizations. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets, determined in accordance with prescribed regulatory
December 31,
2018
2017
(dollars in thousands)
$ 2,033,649
(765,842)
$ 1,949,922
(765,842)
(45,937)
(58,173)
1,221,870
13,095,145
1,125,907
12,716,886
(765,842)
(765,842)
(45,937)
$ 12,283,366
(58,173)
$ 11,892,871
requirements (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,838,148
$ 9,864,129
Ratios
Tangible common equity to tangible assets (a)/(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets (a)/(c) . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.95%
12.42%
9.47%
11.41%
52
The Company also considers operating net interest margin (tax equivalent) to be a useful measurement as it closely
reflects the ongoing operating performance of the Company. Additionally,yy presentation of the operating net interest margin
allows readers to compare certain aspects of the Company’s net interest margin to other organizations that may not have had
significant acquisitions. Despite the usefulness of the operating net interest margin to the Company,yy there is no standardized
definition for it and, as a result, the Company’s calculations may not be comparable with other organizations. 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:
Operating net interest margin non-GAAP reconciliation:
Years ended December 31,
2018
2017
2016
(dollars in thousands)
Net interest income (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
486,667
$
380,107
$
344,425
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on FDIC purchased credit impaired loans . . . . . . . . . . . .
Incremental accretion income on other acquired loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium amortization on acquired securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,635)
(10,921)
7,736
Correction of immaterial error - securities premium amortization . . . . . . . . . . . . . . . . .
Interest reversals on nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,107)
(8,689)
6,636
,771
1,766
(5,972)
(11,983)
7,738
—
1,072
Operating net interest income (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
483,411
$
377,484
$
335,280
Average interest earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,241,321
$ 9,098,276
$ 8,363,309
Net interest margin (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating net interest margin (tax equivalent) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.33%
4.30%
4.18%
4.15%
4.12%
4.01%
__________
(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 $7.8 million, $12.1 million and $10.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. The
amount of our tax equivalent adjustment for 2018 was impacted by the lower federal corporate tax rate. As a result, for the twelve
months ended December 31, 2018, our tax equivalent adjustments for tax exempt loans was lower by $4.7 million and tax exempt
securities was lower by $3.3 million, than they would have been utilizing the prior federal corporate tax rate. This change in federal
corporate tax rate negatively impacted our year-to-date net interest margin (tax equivalent) by 7 basis points.
53
ITEM 7A.
QUANTITATTT IVE AND QUALITATTT IVE 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
times or in different
assets,
amounts. Generally,yy there are four sources of interest
ff
ff
liabilities, capital, income and expenses at different
rate risk as described below:
ff
because of differences
in the timing of when those interest rate changes affect
ff
an institution’s assets and liabilities.
risk is the risk of adverse consequences from a change in interest rates that arises
kk
Repricing risk—Repricing
ff
kk
Basis risk—Basis
two or more rates for different
ff
risk is the risk of adverse consequence resulting from unequal changes in the spread between
instruments with the same maturity.
between two or more rates for different
Yield curve risk—Ykk
ieldYY
ff
maturities for the same instrument.
curve risk is the risk of adverse consequence resulting from unequal changes in the spread
Option risk—In
kk
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,yy 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
market conditions and management strategies, among other factors.
from simulated results due to timing, magnitude and frequency of interest rate changes and changes in
ff
Based on the results of the simulation model as of December 31, 2018, we would expect decreases in net interest income
of $7.1 million and $31.3 million in year one and year two, respectively,yy if interest rates gradually decrease from current rates
by 100 basis points. We would expect an increase in net interest income of $6.2 million and $31.0 million in year one and year
two, respectively,yy if interest rates gradually increase from current rates by 200 basis points.
On January 23, 2019, the Company entered into an interest rate collar derivative transaction with a $500.0 million
notional based on one month LIBOR. The Company has designated this as a cash flow hedge. This transaction was entered into
to minimize the decrease in net interest income if interest rates decline over the next five years.
The analysis of an institution’s interest rate gap (the difference
ff
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
should be used in conjunction with other methods of evaluating interest rate risk.
earnings performance, it
ff
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, 2018. 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.
54
The estimates for net interest income sensitivity and interest rate gap could be significantly affected
ff
by external factors
such as changes in prepayment assumptions, early withdrawal of deposits and competition. For example, although certain
degrees to changes in
assets and liabilities may have similar maturities or periods to repricing, they may react in different
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.
ff
Additionally,yy 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,yy the
ability of many borrowers to service their adjustable-rate debt may decrease in the event of a substantial increase in market
interest rates.
Estimated Maturity or Repricing
0-3
months
4-12
months
Over 1 year
through
5 years
(dollars in thousands)
Due after
5 years
Total
$
17,407
$
— $
— $
— $
17,407
3,082,077
986,472
—
3,239,351
—
1,083,611
—
December 31, 2018
Interest-Earning Assets
Interest-earning deposits . . . . . . . . . . . . . .
Loans, net of deferred fees . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-earning assets . . . . . . . .
8,391,511
3,849
3,193,408
11,606,175
260,180
168,788
1,143,371
$ 13,095,145
35,462
460,617
5,726,989
5,334,507
11,061,496
2,033,649
$ 13,095,145
218,867
$ 3,322,200
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,482,294
$ 4,721,645
1,123,340
$ 2,206,951
368,907
$1,355,379
Interest-Bearing Liabilities
Interest-bearing non-maturity deposits . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . . .
$ 4,816,467
137,504
—
$
— $
— $
154,774
—
118,258
35,462
— $ 4,816,467
414,443
3,907
—
453,094
$ 5,407,065
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ 154,774
155,720
9,430
2,000
5,523
$
$
Interest-bearing liabilities as a percent of
total interest-earning assets. . . . . . . . . . . . . .
Rate sensitivity gap . . . . . . . . . . . . . . . . . . . . .
Cumulative rate sensitivity gap . . . . . . . . . . . .
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
46.59 %
1.33 %
1.34%
0.08%
$(2,084,865)
$(2,084,865)
$1,200,605
$ (884,260)
$ 4,565,925
$ 3,681,665
$ 2,197,521
$ 5,879,186
)%
10.34 %
39.34%
18.93%
(17.96)%
(7.62)%
31.72%
50.66%
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
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.
of general levels of inflation. Although interest rates do not
ff
55
ITEM 8.
FINANCIAL STATTT EMENTS AND SUPPLEMENTARTT YRR DATAAA
REPORTRR OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Columbia Banking System, Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Columbia Banking System, Inc. and its subsidiaries
(the “Company”) as of December 31, 2018 and 2017, the related Consolidated Statements of Income, Comprehensive Income,
Changes in Shareholders’ Equity,yy and Cash Flows for each of the three years in the period ended December 31, 2018, and the
related notes. In our opinion, the financial statements present fairly,yy in all material respects, the financial position of the
Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2018, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Controlrr
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 27, 2019, expressed an unqualified opinion on the Company’s internal
control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
February 27, 2019
Seattle, Washington
We have served as the Company’s auditor since 1997.
56
COLUMBIA BANKING SYSTEM, INC.
BALANCE SHEETS
CONSOLIDATEDAA
December 31,
2018
2017
(in thousands)
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities available for sale at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingent liabilities (Note 17)
Shareholders’ equity:
December 31,
2018
2017
(in thousands)
Preferred stock (no par value)
Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000
2,000
Common stock (no par value)
Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . .
115,000
73,020
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115,000
73,249
$
260,180
17,407
277,587
3,167,448
—
25,960
3,849
8,391,511
83,369
8,308,142
45,323
168,788
6,019
765,842
45,937
280,250
,
$ 13,095,145
,
$
244,615
97,918
342,533
2,737,751
5,080
10,440
5,766
8,358,657
75,646
8,283,011
40,881
169,490
13,298
765,842
58,173
284,621
,
$ 12,716,886
,
$ 5,227,216
5,230,910
10,458,126
399,523
61,094
35,462
—
107,291
11,061,496
$ 5,081,901
5,450,184
10,532,085
11,579
79,059
35,647
8,248
100,346
10,766,964
1,642,246
(35,305)
2,033,649
,
,
$ 13,095,145
1,634,705
337,442
(22,225)
1,949,922
,
,
$ 12,716,886
See accompanying Notes to Consolidated Financial Statements.
57
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATEDAA
STATTT EMENTS OF INCOME
Years ended December 31,
2018
2017
(in thousands except per share amounts)
2016
$
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits in banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan and lease losses . . . . . . . . . . . . . . . . . .
Noninterest Income
Deposit account and treasury management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services and trust revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of merchant card services portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Federal Deposit Insurance Corporation ("FDIC") loss-sharing asset . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, licenses and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cost of operation of other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Common Share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of diluted common shares outstanding . . . . . . . . . . . . . . . . . .
$
428,197
55,969
12,201
702
497,069
12,105
3,750
1,871
504
18,230
478,839
14,769
36,072
12,135
—
6,007
—
—
2,546
88,256
200,199
36,576
—
5,584
20,235
18,044
6,061
3,710
1,218
12,236
36,627
340,490
211,836
38,954
,
72,882
2.36
.36
72,385
$
$
$
$
$
$
$
$
324,229
38,659
11,045
813
374,746
4,800
1,078
304
575
6,757
367,989
8,631
359,358
30,381
25,627
11,478
12,399
4,283
5,380
(11)
14,000
(447)
6,552
109,642
169,674
32,407
2,196
4,466
18,205
15,151
4,773
3,183
468
6,333
34,161
291,017
177,983
65,155
,
112,828
1.86
1.86
59,882
59,888
291,465
35,167
11,121
216
337,969
3,134
671
—
545
4,350
333,619
10,778
322,841
28,500
23,620
11,266
10,967
8,732
4,546
1,181
—
(2,585)
1,855
88,082
150,282
33,734
4,330
4,598
16,488
7,889
5,185
3,777
551
5,946
28,362
261,142
149,781
44,915
,
104,866
1.81
1.81
57,184
57,193
See accompanying Notes to Consolidated Financial Statements.
58
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATEDAA
STATTT EMENTS OF COMPREHENSIVE INCOME
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax:
Unrealized loss from securities:
Net unrealized holding loss from available for sale securities arising
during the period, net of tax of $4,067, $1,932 and $7,025. . . . . . . . .
Reclassification adjustment of net gain (loss) from sale of available
for sale securities included in income, net of tax of $25, ($4) and
$429 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss from securities, net of reclassification
Years ended December 31,
2018
2017
2016
$
172,882
(in thousands)
112,828
$
$
104,866
(13,425)
(3,391)
(12,338)
(81)
7
(752)
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,506)
(3,384)
(13,090)
Pension plan liability adjustment:
Unrecognized net actuarial gain (loss) and plan amendments during
the period, net of tax of ($7), ($2,287) and $22. . . . . . . . . . . . . . . . . .
Less: amortization of unrecognized net actuarial losses included in
net periodic pension cost, net of tax of ($74), ($127) and ($243) . . . .
Pension plan liability adjustment, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,017
223
4,240
856
(39)
425
386
(12,704)
245
269
(13,237)
$
159,645
$
113,684
$
92,162
See accompanying Notes to Consolidated Financial Statements.
59
CONSOLIDATEDAA
STATTT EMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
COLUMBIA BANKING SYSTEM, INC.
Preferred Stock
Common Stock
Number
of
Shares
Number
of
Shares
Amount
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance at January 1, 2016. . . . . . . . . . . .
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 . . .
Activity in deferred compensation plan . . .
Tax benefit associated with share-based
compensation . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common stock .
Preferred dividends ($1.53 per common
share equivalent) . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common
stock ($1.53 per share) . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . .
Adjustment to opening retained earnings
pursuant to adoption of ASU 2016-09. . . . .
Adjustment pursuant to adoption of ASU
2018-02 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . .
Issuance of common stock - acquisition
related . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock - stock
option and other plans. . . . . . . . . . . . . . .
Issuance of common stock - restricted
stock awards, net of canceled awards . . .
Preferred stock conversion to common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity in deferred compensation plan . . .
Purchase and retirement of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash settlement of acquired equity
awards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common
stock ($0.88 per share) . . . . . . . . . . . . . .
9
—
—
—
—
—
—
—
—
—
9
—
—
—
—
—
(9)
—
—
—
—
Balance at December 31, 2017 . . . . . . . . .
— $
Adjustment to opening retained earnings
pursuant to adoption of ASU 2016-01. . . . .
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 . . .
Activity in deferred compensation plan . . .
Purchase and retirement of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common
stock ($1.14 per share) . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
Balance at December 31, 2018 . . . . . . . . .
— $
(in thousands, except per share amounts)
$
2,217
57,724
$
990,281
$ 255,925
$
(6,295)
$
1,242,128
—
—
—
—
—
—
—
—
—
—
—
50
306
—
—
(38)
—
—
—
—
1,349
5,009
(11)
334
(1,125)
104,866
—
—
—
—
—
—
—
—
(157)
(88,677)
—
(12,704)
104,866
(12,704)
—
—
—
—
—
—
—
1,349
5,009
(11)
334
(1,125)
(157)
(88,677)
$
2,217
58,042
$
995,837
$ 271,957
$
(18,999)
$
1,251,012
184
(117)
—
—
—
—
—
14,642
636,385
49
241
102
—
1,980
7,745
2,217
1
(56)
(2,299)
4,082
112,828
—
—
—
—
—
—
—
—
—
—
(7,345)
—
(51,308)
—
(4,082)
—
856
—
—
—
—
—
—
—
—
67
—
112,828
856
636,385
1,980
7,745
—
1
(2,299)
(7,345)
(51,308)
73,020
$ 1,634,705
$ 337,442
$
(22,225)
$
1,949,922
—
—
—
46
246
—
(63)
—
—
—
—
1,857
8,354
7
(2,677)
(157)
172,882
—
—
—
—
—
—
(83,459)
157
—
(13,237)
—
—
—
—
—
—
172,882
(13,237)
1,857
8,354
7
(2,677)
(83,459)
73,249
$ 1,642,246
$ 426,708
$
(35,305)
$
2,033,649
—
—
—
—
—
(2,217)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying Notes to Consolidated Financial Statements.
60
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATEDAA
STATTT EMENTS OF CASH FLOWS
Years Ended December 31,
2018
2017
2016
(in thousands)
Cash Flows From Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
172,882
$
112,828
$
104,866
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities loss (gain), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized loss (gain) on sale of premises and equipment and loans held for investment . . . . . .
Net realized loss on sale and valuation adjustments of other real estate owned . . . . . . . . . . . . . . .
Gain on sale of merchant card services portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bank owned life insurance death benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,769
8,354
32,971
89
316
1,218
Termination of FDIC loss share agreements charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(133,945)
135,862
108
Net change in:
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,442)
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,176
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
237,201
Cash Flows From Investing Activities
8,631
7,745
31,101
11
(139)
495
14,000)
4,193)
2,409
10,778
5,009
34,542
(1,181)
157
629
—
—
—
(133,460)
(110,467)
133,540
22,431
(2,980)
131
(25,471)
(10,554)
128,525
109,130
1,846
(2,197)
(93)
(15,917)
8,745
145,847
Loans originated, net of principal collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,069
(273,927)
(402,146)
Purchases of:
Debt securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(965,585)
(355,607)
(569,825)
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from:
FDIC reimbursement on loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of debt securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal repayments and maturities of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . .
Sales of premises and equipment and loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of merchant card services portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of other real estate and other personal property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance death benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment to FDIC to terminate loss-sharing agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to FDIC related to loss-sharing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash received in business combinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(46,969)
(11,328)
(197,440)
—
32,330
4,808
465,747
16,030
—
7,261
5,074
—
—
—
(6,495)
(92,040)
26
30,403
—
283,874
12,422
14,000
98,924
2,590
10,745
4,666)
(210)
80,472
—
(4,520)
(59,599)
927
124,142
—
284,218
9,643
—
62,081
8,158
—
—
(1,632)
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(506,083)
(199,489)
(548,553)
Cash Flows From Financing Activities
Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(73,591)
353,797
620,785
61
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATEDAA
STATTT EMENTS OF CASH FLOWS, CONTINUED
Net increase (decrease) in sweep repurchase agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from:
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2018
2017
2016
(in thousands)
(3,380)
(18,877)
1,980
1,349
7,035
1,857
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,936,000
2,301,000
1,392,000
Federal Reserve Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,010
10
10
Payments for:
Repayment of Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of Federal Reserve Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of term repurchase agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash settlement of acquired equity awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
)
)
—
(83,440)
(8,248)
(25,000)
—
(2,677)
—
203,936
(64,946)
342,533
(2,397,000)
(1,454,000)
(10)
—
(51,308)
(6,186)
—
(7,345)
(2,299)
—
189,259
118,295
224,238
(10)
(157)
(88,677)
—
—
—
(1,125)
344
451,642
48,936
175,302
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
277,587
$
342,533
$
224,238
Supplemental Information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing activities
Loans transferred to other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based consideration issued in business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment expenditures incurred but not yet paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in dividends payable on unvested shares included in other liabilities . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
18,066
24,067
1,200
$
$
$
6,626
59,071
106
— $
636,385
$
$
$
$
195
19
$
$
— $
— $
4,444
32,723
1,047
—
—
—
See accompanying Notes to Consolidated Financial Statements.
62
COLUMBIA BANKING SYSTEM, INC.
NOTES TO CONSOLIDATEDAA
FINANCIAL STATTT EMENTS
For the Years Ended December 31, 2018, 2017 and 2016
1. Summary of Significant Accounting Policies and Reclassifications
Organization
r
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 Columbia Trust
provides a full range of financial services through 150 branch locations, including 74 in the State of Washington, 62 in Oregon
provides fiduciary,yy agency,yy trust and related services, and life insurance products. Because the
and 14 in Idaho. Columbia Trust
Bank comprises substantially all of the business of the Corporation, references to the “Company” mean the Corporation, the
Bank and Columbia Trust
together. The Corporation is approved as a bank holding company pursuant to the Gramm-Leach-
Bliley Act of 1999.
Company (“Columbia Trust”).
The Bank
rr
rr
r
rr
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,PP 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
estimates. The most significant estimates included in the financial statements relate to the allowance for loan and lease losses,
business combinations and goodwill impairment.
ff
from our
ff
ff
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).
Consolidation
The Consolidated Financial Statements of the Company include the accounts of the Corporation and its subsidiaries,
including the Bank and Columbia Trust.
rr
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 (“FRB”). 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.
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,yy is recognized in “Other comprehensive income (loss),
between the cost basis of the security and the present value of cash flows expected to
net of tax.” A credit loss is the difference
be collected, discounted at the security’s effective
interest rate at the date of acquisition. The cost basis of an other-than-
ff
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
flows expected to be collected is accreted as interest income. The total other-than-temporary impairment, if any,yy 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.
between the new amortized cost basis and the cash
ff
ff
63
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 holds shares of Class B stock issued by the Federal Home Loan Bank (“FHLB”) of Des Moines, which has
been designated as FHLB membership stock or FHLB activity based stock in accordance with the capital plan of the FHLB.
Membership stock is stock we are required to purchase and hold as a condition of membership in the FHLB. The Company’s
membership stock purchase requirement is measured as a percentage of our year-end assets, subject to a $10 million cap. Class
B stock may be redeemed, subject to certain limitations, on five years’ written notice to the FHLB. Activity based stock is stock
we are required to purchase and hold in order to obtain an advance or participate in FHLB mortgage programs. The Company’s
activity based stock purchase requirement is measured as a percentage of our advance proceeds. Our FHLB stock is carried at
par value because the shares are issued, transferred, redeemed, and repurchased by the FHLB at a par value of $100. The FHLB
stock is subject to recoverability testing per the Financial Services-Depository and Lending topic of the Financial Accounting
Standards Board (“FASB”)
Accounting Standards Codification (“ASC”).
FF
Loans
Loans, excluding purchased credit impaired loans, are generally carried at the unpaid principal balance, net of purchase
premiums, purchase discounts and net deferred loan fees. Net deferred loan fees include nonrefundable loan origination fees
less direct loan origination costs. Net deferred loan fees, purchase premiums and purchase 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 interest method is used 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 amortization of net deferred loan fees, premiums and discounts ceases. The interest payments received on
nonaccrual loans are generally accounted for on the cost-recovery method whereby the interest payment is applied to the
principal balances. Loans may be returned to accrual status when improvements in credit quality eliminate the doubt as to the
full collectability of both interest and principal and a period of sustained performance has occurred.
Impairedrr
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.
ff
Restructuredrr
Loans—A loan is classified as a troubled debt restructuring when a borrower is experiencing financial
that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that
difficulties
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,yy 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
rr
rr
Credit
Impairedrr
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 Acquiredrr with Deteriorated Credit
associated with certain of the acquired loan portfolios, the Company elected to account for those certain acquired loans under
ASC 310-30.
Quality. In addition, because of the significant discounts
rr
64
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, “Commitments and Contingent Liabilities.”
ff
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (the “allowance”) is an accounting estimate of incurred credit losses in our loan
portfolio at the balance sheet date. The provision for loan and lease losses is the expense recognized in the Consolidated
Statements of Income to adjust the allowance to the levels deemed appropriate by management, as measured by the Company’s
credit loss estimation methodologies.
Loans Collectively Evaluated for Impairment—This
measure of estimated credit losses is based upon the loss experience
over a historical base period adjusted for a loss emergence period. The loss emergence period is an estimate of the period that it
takes, on average, for us to identify the amount of loss incurred for a loan that has suffered
then considers the effects
portfolio:
of the following qualitative factors to ensure our allowance reflects the inherent losses in the loan
a loss-causing event. Management
ff
ff
tt
• Economic and business conditions;
• Concentration of credit;
• Lending management and staff;ff
• Lending policies and procedures;
• Loss and recovery trends;
• Nature and volume of the portfolio;
TT
• Trends
• Quality of internal loan review; and
• External factors.
in problem loans, loan delinquencies and nonaccrual loans;
These qualitative factors have a high degree of subjectivity and changes in any of the factors could have a significant
impact on our calculation of the allowance. The qualitative adjustment by loan segment is based upon management's
assessment of inherent losses within a range between the weighted historical loss factor by segment and the maximum
consecutive quarterly losses in the relevant loss emergence period by segment over the historical base period.
Loan and lease losses are charged against the allowance when management believes the collectability of a loan balance is
unlikely. Subsequent recoveries, if any,yy are credited to the allowance.
Loans Individually Evaluated for Impairment—This
tt
measure of estimated credit losses begins if, based upon current
information and events, we believe it is probable that we 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. When a loan has been identified
as impaired, the amount of impairment will be measured 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,yy the Company uses the fair value of
collateral approach based upon a reliable valuation. When the measurement of the impaired loan is less than the recorded
amount of the loan, an impairment is recognized by recording a charge-offff to the allowance or by designating a specific
reserve.
65
Purchased
rr
rr
Credit
Impairedrr
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,yy 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 re-measurement
date. Loss severity factors are based upon either actual charge-offff 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.
tt
Unfunded Commitments and Letters of Credit
rr —The
allowance for unfunded commitments is maintained at a level
ff
believed by management to be sufficient
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.
to absorb estimated probable losses related to these unfunded credit facilities. The
Premises
rr
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 “Occupancy” in the
Consolidated Statements of Income. 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 . . . . . . . . . . . . . . . . .
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
to 39 years
Softwarerr
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
Other real estate owned (“OREO”) is composed of real estate acquired by the Company through either foreclosure or
deed in lieu of foreclosure in satisfaction of debt. At acquisition, OREO is recorded at fair value less estimated costs to sell.
Any fair value adjustments at acquisition are charged to the allowance, or in the event of a write-up without previous losses
charged to the allowance, a credit to earnings is recorded. The fair value of the OREO is based upon a current appraisal or a
letter of intent to purchase. 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.
Goodwill and Intangibles
Net assets of companies acquired in a business combination are recorded at fair value at the date of acquisition. Any
excess of the purchase price over the fair value of net assets acquired, including identified intangible assets, is recognized as
goodwill. Goodwill is reviewed for potential impairment annually,yy during the third quarter, or, more frequently,yy 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.
66
Identified intangible assets are amortized on an accelerated basis over the period benefited. Intangible assets are also
evaluated for impairment if events and circumstances indicate a possible impairment. Such evaluation is based on undiscounted
cash flow projections. At December 31, 2018, intangible assets included in the Consolidated Balance Sheets principally
consisted of core deposit intangibles with an original estimated life of 10 years.
Income Taxesaa
ff
such as interest income from state and municipal securities and investments in affordable
between the financial reporting and tax reporting basis of assets and liabilities using enacted tax laws and rates. The
The provision for income taxes includes current and deferred income tax expense on net income adjusted for temporary
and permanent differences
housing
tax credits. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing temporary
differences
ff
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
ff
effect
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.
ff
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 Sharerr
The Company’s capital structure includes common shares, restricted common share awards, common share options, and,
during 2016 and a portion of 2017, convertible preferred shares. Restricted common share awards participate in dividends
declared on common shares at the same rate as common shares. Convertible preferred shares participated in dividends declared
on common shares on an “as if converted” basis. Restricted common share awards and convertible preferred shares are
considered participating securities under the Earnings per Share topic of the FASB ASC.
The Company calculates earnings per common share (“EPS”) using the two-class method. 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. 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. 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 common share options 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
rr
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 common share awards which generally vest over a four-year period and have full voting
rights. Pursuant to our new equity incentive plan approved in 2018, for any awards issued under the new plan, the holder
accrues dividends, which are paid out when the shares vest. For any awards granted prior to the new plan, the holder receives
dividends whether or not the shares have vested. Restricted stock is valued at the closing price of the Company’s stock on the
date of an award.
67
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.
ff
rr
Accounting Pronouncements
Recently Issued
In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, Customer’s Accounting for
in a Cloud Computing Arrangement That is a Service Contract. The amendments in this ASU
Implementation Costs Incurredrr
align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments
also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over
the term of the hosting arrangement, including reasonably certain renewal periods. The amendments in ASU 2018-15 are
effective
for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is
ff
permitted, including adoption in any interim period. The Company is assessing the impact that this guidance will have on its
Consolidated Financial Statements.
TT
815): Targeted Improvements
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic
to
Accounting for Hedging Activities. The amendments in this ASU better align an entity’s risk management activities and
financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying
hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge
accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects
of the
hedging instrument and the hedged item in the financial statements. The amendments in this ASU also make certain targeted
improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge
documentation requirements and assessing hedge effectiveness.
beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted, including
adoption in any interim period. The Company will follow the amendments in this ASU for its new hedge activity as described
in Note 28, “Subsequent Events.”
The amendments in ASU 2017-12 are effective
for fiscal years
rr
ff
ff
ff
In June 2016, the FASB issued ASU 2016-13, Measurement
Losses on Financial Instruments. The amendments
included in this ASU require an entity to reflect its current estimate of all expected credit losses for assets held at an amortized
cost basis. For available for sale debt securities, credit losses will be measured in a manner similar to current GAAP,PP however,
this ASU will require that credit losses be presented as an allowance rather than as a write-down. The amendments in ASU
2016-13 are effective
and are required to be adopted through a modified retrospective approach, with a cumulative-effect
earnings as of the beginning of the first reporting period in which the ASU is effective.
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years,
adjustment to retained
rr
of Credit
rr
ff
ff
ff
Currently,yy the Company cannot reasonably estimate the impact that adoption of ASU 2016-13 will have on its
Consolidated Financial Statements; however, the impact may be significant. That assessment is based upon the fact that, unlike
the incurred loss models in existing GAAP,PP the current expected credit loss (“CECL”) model in ASU 2016-13 does not specify
a threshold for the recognition of an impairment allowance. Rather, the Company will recognize an impairment allowance
equal to its estimate of lifetime expected credit losses, adjusted for prepayments, for in-scope financial instruments as of the
end of the reporting period. Accordingly,yy the impairment allowance measured under the CECL model could increase
significantly from the impairment allowance measured under the Company’s existing incurred loss model. The Company has
engaged a third-party vendor to assist in the CECL calculation and has an internal governance framework to oversee the CECL
implementation. Other significant CECL implementation matters being addressed by the Company include selecting loss
estimation methodologies, identifying, sourcing and storing data, addressing data gaps, defining a reasonable and supportable
forecast period, selecting historical loss information which will be reverted to, documenting the CECL estimation process,
assessing the impact to internal controls over financial reporting, capital planning and seeking process approval from audit and
regulatory stakeholders.
68
In February 2016, the FASB issued ASU 2016-02, Leases. The amendments included in this ASU create a new accounting
ff
ff
for the first interim or annual period beginning after December 15,
from the current lease accounting model, which does not require such lease liabilities and
model for both lessees and lessors. The new guidance requires lessees to recognize lease liabilities, initially measured as the
present value of future lease payments, and corresponding right-of-use assets for all leases with lease terms greater than 12
months. This model differs
corresponding right-of-use assets to be recorded for operating leases. The amendments in ASU 2016-02 must be adopted using
the modified retrospective approach and will be effective
2018. The FASB has subsequently issued ASU 2018-11, which allows for an additional (optional) transition method, and ASU
2018-20, which provides additional guidance on implementations issues for lessors. Early adoption is permitted. During 2017,
the Company selected a third-party lease accounting application to assist in the implementation of this new guidance. During
2018, the Company assessed the impact to our internal controls over financial reporting and documented the new lease
January 1, 2019 utilizing the transition method
accounting process. The Company will adopt the new standard effective
allowed under ASU 2018-11 and will not restate comparative periods. We will elect the package of practical expedients
permitted under the transition guidance, which allows us to carryforward our historical lease classification and our assessment
on whether a contract is or contains a lease. We will also elect to keep leases with an initial term of 12 months or less offff the
balance sheet. We expect the adoption of the new standard will result in an increase in other assets and an increase in other
liabilities of $49.2 million and $48.2 million, respectively,yy on January 1, 2019. Additionally,yy the Company will recognize a
cumulative effect
ff
1, 2019 for hthe
expect a material impact to our Consolidated Statement of Income as a result of this ASU.
adoption to iincrease hthe b i
l
igains on
beginning b lbalance of
i
transactions hi hwhich
i
earnings byb $1.0 million on January
i d
retained
occurred
d
iprior to hthe ddate of d
adjustment upon d
sale-leaseback
b k
remaining d f
i i
adoption. We do not
deferred
d
ff
i
l
i
i
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement
rr
of Financial Assets and Financial
Liabilities. The amendments in ASU 2016-01 require all equity investments to be measured at fair value with changes in the
fair value recognized through net income. The amendments in ASU 2016-01 also require an entity to present separately in other
comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-
specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for
financial instruments. In addition, the amendments in this update eliminate the requirement to disclose the method(s) and
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet for public business entities. The Company adopted the amendments of ASU 2016-01
effective
ff
unrealized holding losses on equity securities with readily determinable fair value included in accumulated other
comprehensive loss. The Company also added a separate line item on the Consolidated Balance Sheet for equity securities at
fair value and reclassified amounts previously included in securities available for sale at fair value to conform to current period
presentation. In addition, as required by the ASU, the fair value disclosure for loans is computed using an exit price notion and
deposits with no stated maturity are no longer included in the fair value disclosures in Note 20, “Fair Value Accounting and
Measurement.”
adjustment of $157 thousand to retained earnings related to the
January 1, 2018 and recorded a cumulative effect
ff
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides revenue
recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with
customers is shown in the income statement. The guidance requires that revenue from contracts with customers be recognized
when transfer of control over goods or services is passed to customers in the amount of consideration expected to be received.
Subsequent Accounting Standard Updates have been issued clarifying the original pronouncement (ASU 2016-08, ASU
2016-10, ASU 2016-12 and ASU 2016-20). The majority of the Company’s revenue is comprised of interest income from
financial assets, which is specifically outside the scope of ASU 2014-09.
On January 1, 2018, we adopted the accounting guidance in ASU 2014-09 and all the related amendments (“TopicTT
606”)
using the modified retrospective method for all contracts that have not been completed (i.e. open contracts). Therefore, the
comparative information has not been adjusted and continues to be reported under Topic 605. There was no cumulative effect
ff
adjustment as of January 1, 2018, and there were no material changes to the timing or amount of revenue recognized for the
year ended December 31, 2018; however, additional disclosures were incorporated in the footnotes upon adoption. See Note 27,
“Revenue from Contracts with Customers,” for more information.
Reclassifications
Certain amounts reported in prior periods have been reclassified in the Consolidated Financial Statements to conform to
the current presentation. The reclassifications have no effect
ff
on net income or stockholders’ equity as previously reported.
69
2. Business Combinations
Pacific Continental Corporation
On November 1, 2017, the Company completed its acquisition of Pacific Continental Corporation (“Pacific Continental”)
and its wholly-owned banking subsidiary Pacific Continental Bank. The Company acquired 100% of the equity interests of
Pacific Continental. The primary reasons for the acquisition were to expand in the Eugene, Oregon market and improve branch
ff
network efficiencies
in the Seattle and Portland markets.
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The
assets and liabilities, both tangible and intangible, were recorded at their fair values as of the November 1, 2017 acquisition
date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $383.1 million and a
core deposit intangible of $46.9 million, or 2.34% of core deposits. The goodwill represents the excess of the purchase price
over the 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:
Merger consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable net assets acquired, at fair value
Assets acquired
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fair value of identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 1, 2017
(in thousands)
$
637,103
$
81,190
449,291
7,084
7,827
27,343
10,279
46,875
50,638
(2,118,982)
(101,127)
(35,678)
(14,434)
(1,617)
(28,653)
2,554,514
(2,300,491)
254,023
83,080
See Note 9, “Goodwill and Other Intangible Assets,” for further discussion of the accounting for goodwill and other
intangible assets.
The operating results of the Company reported herein include the operating results produced by the acquired assets and
assumed liabilities for the period November 1, 2017 to December 31, 2018. Disclosure of the amount of Pacific Continental’s
revenue and net income (excluding integration costs) included in Columbia’s Consolidated Statements of Income is
impracticable due to the integration of the operations and accounting for this acquisition.
70
For illustrative purposes only,yy the following table presents certain unaudited pro forma information for the years ended
December 31, 2017 and 2016. This unaudited, estimated pro forma financial information was calculated as if Pacific
Continental had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma
information combines the historical results of Pacific Continental with the Company’s consolidated historical results and
includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro
forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year
prior to the acquisition. In particular, no adjustments have been made to eliminate the impact of other-than-temporary
impairment losses and losses recognized on the sale of securities that may not have been necessary had the investment
securities been recorded at fair value as of the beginning of the year prior to the date of acquisition. The unaudited pro forma
information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value.
Additionally,yy 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.
ff
Unaudited Pro Forma for the
Years Ended December 31,
2017
2016
Total revenues (net interest income plus noninterest income) . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except per share amounts)
520,419
$
571,944
$
$
$
$
149,859
2.23
2.23
$
$
$
124,550
1.86
1.86
The following table shows the impact of the acquisition-related expenses related to the acquisition of Pacific Continental
for the periods indicated to the various components of noninterest expense:
Years ended December 31,
2018
2017
2016
(in thousands)
Noninterest Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, licenses and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact of acquisition-related costs to noninterest expense . . . . .
$
$
3,620
1,619
537
963
1,028
—
894
$
8,014
1,912
467
1,555
4,618
10
620
$
8,661
$
17,196
$
—
—
—
—
291
—
—
291
3. Cash and Cash Equivalents
The Company is required to maintain an average reserve balance with the FRB or maintain such reserve balance in the
form of cash. The average required reserve balance for the years ended December 31, 2018 and 2017 was approximately
$110.2 million and $76.5 million, respectively,yy and was met by holding cash and maintaining an average balance with the FRB.
71
4. Securities
At December 31, 2018 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.
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of debt
securities available for sale:
December 31, 2018
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. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017
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. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(in thousands)
$ 2,222,521
$
579,755
408,088
251
9,236
2,328
1,235
—
$
(43,467)
$ 2,188,290
(7,760)
574,323
(4,736)
(3)
404,587
248
$ 3,210,615
$
12,799
$
(55,966)
$ 3,167,448
$ 1,752,236
$
593,940
416,894
251
1,815
6,023
642
—
$
(27,326)
$ 1,726,725
(3,959)
596,004
(2,762)
414,774
(3)
248
$ 2,763,321
$
8,480
$
(34,050)
$ 2,737,751
The following table provides the proceeds and both gross realized gains and losses on the sales and calls of debt securities
available for sale as well as other securities gains and losses for the periods indicated:
Proceeds from sales and calls of debt securities available for sale . . . . . . . .
Gross realized gains from sales of debt securities available for sale . . . . . .
Gross realized losses from sales of debt securities available for sale . . . . . .
Other securities losses, net (1)
Years Ended December 31,
2018
2017
2016
$
$
$
$
32,330
235
(129)
(195)
(in thousands)
30,403
111
(122)
—
$
$
124,142
1,181
—
—
Investment securities gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . $
(89) $
(11) $
1,181
__________
(1) Other securities losses, net includes net unrealized loss activity associated with equity securities.
72
The following table provides the unrealized gains and losses on equity securities at the reporting date:
Net gains and losses recognized during the period on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net gains and losses recognized during the period on equity securities sold during the period.. . . . . . . . . .
Unrealized gains and losses recognized during the reporting period on equity securities still held at the
reporting date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2018
(in thousands)
195
$
(195)
$
—
The scheduled contractual maturities of debt securities available for sale at December 31, 2018 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
Amortized Cost
Fair Value
(in thousands)
$
130,592
$
130,241
559,600
1,391,517
1,086,090
1,115,506
$
3,210,615
$
3,167,448
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,
2018
2017
(in thousands)
276,343
$
52,303
138,492
467,138
$
245,222
52,917
121,244
419,383
73
The following tables show the gross unrealized losses and fair value of the Company’s debt securities available for sale
with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position at December 31, 2018 and 2017:
Less than 12 Months
12 Months or More
TotalTT
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands)
December 31, 2018
U.S. government agency and government-
sponsored enterprise mortgage-backed securities
and collateralized mortgage obligations . . . . . . . . . .
$
154,622
$
(972)
$ 1,301,387
$
(42,495)
$ 1,456,009
State and municipal securities . . . . . . . . . . . . . . . . . . . .
106,292
(581)
280,496
(7,179)
386,788
U.S. government agency and government-
sponsored enterprise securities . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . . . .
—
(45)
—
291,435
(4,691)
306,827
247
(3)
247
(43,467)
(7,760)
(4,736)
(3)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
276,306
$
(1,598)
$ 1,873,565
$
(54,368)
$ 2,149,871
$
(55,966)
December 31, 2017
U.S. government agency and government-
sponsored enterprise mortgage-backed securities
and collateralized mortgage obligations . . . . . . . . . .
$
816,678
$
(6,710)
$
717,211
$
(20,616)
$ 1,533,889
$
(27,326)
State and municipal securities . . . . . . . . . . . . . . . . . . . .
220,019
(1,723)
75,172
(2,236)
295,191
(3,959)
U.S. government agency and government-sponsored
enterprise securities . . . . . . . . . . . . . . . . . . . . . . . . . .
184,046
(1,006)
155,983
(1,756)
340,029
U.S. government securities . . . . . . . . . . . . . . . . . . . . . .
249
(3)
—
—
249
(2,762)
(3)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,220,992
$
(9,442)
$
948,366
$
(24,608)
$ 2,169,358
$
(34,050)
At December 31, 2018, there were 442 U.S. government agency and government-sponsored enterprise mortgage-backed
securities and collateralized mortgage obligations securities in an unrealized loss position, of which 397 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,yy the Company does not consider these investments to be
other-than-temporarily impaired at December 31, 2018.
At December 31, 2018, there were 408 state and municipal government securities in an unrealized loss position, of which
313 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, 2018, none of the
rated obligations of state and local government entities held by the Company had a below investment grade credit rating.
Because the credit quality of these securities is 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,yy the Company does not consider these investments to be other-
than-temporarily impaired at December 31, 2018.
At December 31, 2018, there were 41 U.S. government agency and government-sponsored enterprise securities in an
unrealized loss position, of which 39 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,yy the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2018.
At December 31, 2018, there was one U.S. government security in an unrealized loss position, which was in a continuous
loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where this
investment falls within the yield curve and its individual characteristics. Because the Company does not currently intend to sell
this security nor does the Company consider it more likely than not that it will be required to sell this security before the
recovery of amortized cost basis, which may be upon maturity,yy the Company does not consider this investment to be other-
than-temporarily impaired at December 31, 2018.
74
5. Loans
The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which
there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all
contractually required payments are referred to collectively as loans, excluding purchased credit impaired loans. Purchased
loans for which there was, at acquisition date, evidence of credit deterioration since their origination and it was probable that
we would be unable to collect all contractually required payments are referred to as purchased credit impaired loans, or “PCI
loans.”
The following is an analysis of the loan portfolio by segment (net of unearned income):
December 31,
2018
2017
Loans,
excluding
PCI loans
PCI Loans
Total
Loans,
excluding
PCI loans
PCI Loans
Total
(in thousands)
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,438,422
$
9,240
$ 3,447,662
$
3,377,324
$
12,628
$ 3,389,952
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,846,027
4,084,394
284,394
502,184
Less: Net unearned income . . . . . . . . . . . . . . . . . . . .
(42,194)
8,017
62,910
70,927
246,384
3,908,937
4,155,321
153
534
687
8,906
—
217,943
284,928
502,871
327,851
188,396
3,825,739
4,014,135
200,518
371,931
572,449
334,190
(42,194)
(52,111)
12,395
75,594
87,989
177
607
784
11,269
—
200,791
3,901,333
4,102,124
200,695
372,538
573,233
345,459
(52,111)
Total loans, net of unearned income. . . . . . . . . . . . . . . . . .
89,760
8,391,511
8,245,987
112,670
8,358,657
Less: Allowance for loan and lease losses. . . . . . . . .
(79,758)
(3,611)
(83,369)
(68,739)
(6,907)
(75,646)
Total loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,221,993
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,849
$
$
86,149
$ 8,308,142
— $
3,849
$
$
8,177,248
5,766
$
$
105,763
$ 8,283,011
— $
5,766
At December 31, 2018 and 2017, the Company had no material foreign activities. Substantially all of the Company’s
loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington, Oregon
and Idaho.
The Company has made loans to executive officers
ff
and directors of the Company and related interests. These loans are
made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans
was $9.6 million and $10.0 million at December 31, 2018 and 2017, respectively. During 2018, advances on related party loans
totaled $14 thousand and repayments on related party loans totaled $342 thousand.
At December 31, 2018 and 2017, $3.22 billion and $2.25 billion of commercial and residential real estate loans were
pledged as collateral on FHLB advances. The Company has also pledged $82.0 million and $70.2 million of commercial loans
to the FRB for additional borrowing capacity at December 31, 2018 and 2017, respectively.
Nonaccrual loans totaled $54.8 million and $66.2 million at December 31, 2018 and 2017, respectively. The amount of
interest income foregone as a result of these loans being placed on nonaccrual status totaled $3.6 million for 2018, $2.4 million
for 2017 and $1.9 million for 2016. There were no loans 90 days past due and still accruing interest as of December 31, 2018
and 2017. At December 31, 2018 and 2017, there were $2.1 million and $2.0 million, respectively,yy of commitments of
additional funds for loans accounted for on a nonaccrual basis.
75
The following is an analysis of nonaccrual loans as of December 31, 2018 and 2017:
December 31,
2018
2017
Recorded
Investment
Nonaccrual
Loans
Unpaid Principal
Balance
Nonaccrual
Loans
Recorded
Investment
Nonaccrual
Loans
Unpaid Principal
Balance
Nonaccrual
Loans
(in thousands)
$
35,504
$
45,072
$
45,410
$
56,865
9
1,158
2,261
2,721
9,922
—
2,949
9
1,178
2,270
3,062
10,300
318
—
3,149
50
785
2,628
4,284
7,029
25
1,829
4,149
49
1,182
2,623
5,410
7,270
26
1,828
4,633
$
54,842
$
65,358
$
66,189
$
79,886
Commercial business:
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Loans, excluding purchased credit impaired loans
The following is an aging of the recorded investment of the loan portfolio as of December 31, 2018 and 2017:
December 31, 2018
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 . . . . . . . . . . . . . . . . . . .
$ 3,267,709
$
5,864
$
3,624
$
— $
9,488
$
35,504
$
3,312,701
Unsecured . . . . . . . . . . . . . . . . .
Real estate:
One-to-four family residential . . . . . .
233,941
Commercial and multifamily
residential:
Commercial land. . . . . . . . . . . .
283,416
Income property . . . . . . . . . . . .
1,910,505
Owner occupied . . . . . . . . . . . .
1,606,085
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . .
Residential construction . . . . . .
4,099
212,303
Commercial and multifamily
residential:
Income property . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . .
194,912
79,805
314,008
240
694
—
5,009
1,744
—
93
—
7,258
1,057
—
233
—
2,241
—
—
—
—
—
201
—
—
—
—
—
—
—
—
—
—
240
927
—
7,250
1,744
—
93
—
7,258
1,258
9
112,117
1,158
236,026
2,261
2,721
9,922
318
—
—
—
2,949
285,677
1,920,476
1,617,751
4,417
212,396
194,912
87,063
318,215
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,218,651
$
21,959
$
6,299
$
— $
28,258
$
54,842
$
8,301,751
December 31, 2017
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 . . . . . . . . . . . . . . . . . . .
$ 3,185,321
$
2,530
$
2,400
$
— $
4,930
$
45,410
$
3,235,661
Unsecured . . . . . . . . . . . . . . . . .
100
Real estate:
One-to-four family residential . . . . . .
184,256
1,111
Commercial and multifamily
residential:
Commercial land. . . . . . . . . . . .
292,680
Income property . . . . . . . . . . . .
1,898,655
Owner occupied . . . . . . . . . . . .
1,590,004
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . .
Residential construction . . . . . .
9,882
187,862
Commercial and multifamily
residential:
Income property . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . .
293,028
72,443
325,928
92
2,426
2,485
—
—
—
—
1,446
501
402
—
971
468
—
—
—
—
702
—
—
581
—
—
—
—
—
—
—
601
50
124,175
1,513
785
186,554
673
3,397
2,953
—
—
—
—
2,628
4,284
7,029
25
1,829
—
—
2,148
4,149
295,981
1,906,336
1,599,986
9,907
189,691
293,028
72,443
332,225
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,163,583
$
10,190
$
5,444
$
581
$
16,215
$
66,189
$
8,245,987
77
The following is an analysis of the impaired loans (see Note 1, “Summary of Significant Accounting Policies,”) as of
December 31, 2018 and 2017:
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
Recorded
Investment
of Loans
Individually
Measured for
Specific
Impairment
Impaired Loans With
Recorded Allowance
Impaired Loans Without
Recorded Allowance
Recorded
Investment
Unpaid
Principal
Balance
(in thousands)
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
December 31, 2018
Commercial business:
Secured . . . . . . . . . . . . . . . . . . . . . . . .
$
3,286,416
$
26,285
$
6,350
$ 8,460
$
2,023
$
19,935
$ 24,404
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 . . . . . . . . . . . . . . . . .
112,097
235,138
283,451
4,417
212,396
20
888
2,226
2,954
12,709
—
—
—
—
20
325
—
99
20
798
—
165
3,231
4,666
—
—
—
—
—
—
—
—
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
314,193
4,022
3,326
3,584
—
8
—
1
69
—
—
—
—
31
—
563
2,226
2,855
9,478
—
—
—
—
696
—
575
2,272
3,011
9,750
—
—
—
—
704
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,252,647
$
49,104
$
13,351
$ 17,693
$
2,132
$
35,753
$ 40,716
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, 2017
Commercial business:
Secured . . . . . . . . . . . . . . . . . . . . . . . .
$
3,195,649
$
40,012
$
3,808
$ 3,937
$
1,867
$
36,204
$ 42,314
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 . . . . . . . . . . . . . . . . .
124,150
185,659
293,694
9,907
188,481
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
325,210
25
895
2,287
5,023
8,688
—
1,210
—
4,050
7,015
25
24
867
1,408
—
2,768
77
—
3,328
80
—
—
—
—
—
—
—
—
3
103
—
185
3
—
—
—
—
5,303
5,568
199
—
28
2,287
2,255
8,611
—
1,210
—
4,050
1,712
—
337
2,282
2,601
10,077
—
1,210
—
4,050
1,864
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,176,782
$
69,205
$
12,848
$ 14,345
$
2,360
$
56,357
$ 64,735
78
The following table provides additional information on impaired loans for the years ended December 31, 2018, 2017 and
2016:
Years Ended December 31,
2018
2017
2016
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 . . . . . . . . . .
$
39,701
$
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
191
748
2,371
3,284
9,730
—
484
Owner occupied. . . .
3,240
Consumer. . . . . . . . . . . . . . . . . .
81
2
42
34
130
720
—
—
—
129
(in thousands)
$
20,282
$
5
730
2,079
4,314
5,335
3
309
1,620
5,973
Total . . . . . . . . . . . . . . . . . . . .
$
65,461
$
1,138
$
40,650
$
60
—
49
—
51
445
—
—
203
163
971
$
9,368
$
—
743
425
2,492
5,084
199
472
—
2,710
$
21,493
$
79
—
10
—
26
—
—
—
—
122
237
The following is an analysis of loans classified as troubled debt restructurings (“TDR”) for the years ended December 31,
2018, 2017 and 2016:
2018
2017
2016
Years Ended December 31,
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)
Commercial business:
Secured . . . . . . . . . . .
Unsecured. . . . . . . . .
Real estate:
One-to-four family
residential. . . . . . .
Commercial and
multifamily
residential:
Commercial land
Income property .
Owner occupied .
Commercial and
multifamily
residential:
Owner occupied .
Consumer . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . .
12
—
—
—
1
—
—
21
34
$
18,379
$
18,379
10
$
5,655
$
5,655
9
$
2,131
$
2,131
—
—
—
891
—
—
—
—
891
—
—
2,777
—
2,777
$
22,047
$
22,047
26
26
583
583
687
1,152
78
4,050
5,891
687
1,152
78
4,050
5,891
$
18,122
$
18,122
1
3
1
1
1
1
42
60
79
—
3
—
—
1
—
41
54
—
—
203
203
—
—
250
—
5,095
$
7,679
$
—
—
250
—
5,093
7,677
ff
The Company’s loans classified as TDR are loans that have been modified or the borrower has been granted special
that if not for the challenges of the borrower, the Company would not otherwise
concessions due to financial difficulties,
consider. The Company had $2.1 million of commitments to lend additional funds on loans classified as TDR as of
December 31, 2018 as compared to $506 thousand of similar commitments at December 31, 2017. 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. The concessions granted in the restructurings summarized in the table above largely consisted of
maturity extensions, interest rate modifications or a combination of both. In limited circumstances, a reduction in the principal
balance of the loan could also be made as a concession. 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(or
di
discounted
d
Company diddid not hhave any lloans
years
recorded iinvestment of hthat lloan. hThe
modified as TDR’s d iduring hthe
bl
price) of hthe i
i
observable
modified as TDR hthat d f
impaired lloan iis llower hthan hthe
December 31, 2018, 2017,
defaulted i hiwithin 12
hcash flflows or b
hmonths of b ibeing
kmarket
difi d
i d
l d
dand 2016.
ended
d d
difi d
d d
b
)
ff
Purchased CCr
iedit
Impaired Loans (“ C(“PCI
i
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 re-measures
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 re-measurement date. Loss severity factors
are based upon either actual charge-offff data within the loan pools or industry averages, and recovery lags are based upon the
collateral within the loan pools.
The excess of cash flows expected to be collected over the initial fair value of purchased credit 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.
ff
80
The following is an analysis of our PCI loans, net of related allowance for losses and remaining valuation discounts as of
December 31, 2018 and 2017:
December 31,
2018
2017
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:
(in thousands)
9,672
$
9,848
66,340
76,188
153
507
9,765
96,285
Valuation discount resulting from acquisition accounting . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans, net of valuation discounts and allowance for loan losses . . . . . . . . . . . . .
$
3,611
86,149
$
13,753
14,610
79,211
93,821
177
595
772
12,412
120,758
8,088
6,907
105,763
The following table shows the changes in accretable yield for acquired loans for the years ended December 31, 2018,
2017, and 2016:
Years Ended December 31,
2018
2017
(in thousands)
2016
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications from (to) nonaccretable difference
. . . . . . . . . . . . . . . .
ff
$
31,176
$
45,191
$
(8,194)
(387)
(646)
(12,357)
(158)
(1,500)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
21,949
$
31,176
$
58,981
(16,266)
(148)
2,624
45,191
The Company did not acquire any loans accounted for under ASC 310-30 during 2018 or 2017.
6. Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit
We record an allowance to recognize management’s estimate of credit losses incurred in the loan portfolio at each balance
sheet date. We have used the same methodology for the allowance calculation for the years ended December 31, 2018 and
2017.
81
The following tables show a detailed analysis of the allowance for loans for the years ended December 31, 2018, 2017
and 2016:
Year Ended December 31, 2018
Commercial business:
Beginning
Balance
Charge-offs
Recoveries
Provision
(Recapture)
Ending
Balance
Specific
Reserve
General
Allocation
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . .
$
29,341
$
(11,560) $
3,024
$
22,383
$
43,188
$
2,023
$
41,165
Unsecured . . . . . . . . . . . . . . . . . . . . .
2,000
(159)
Real estate:
One-to-four family residential . . . . . . . . . .
701
—
Commercial and multifamily
residential:
Commercial land . . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . .
Owner occupied. . . . . . . . . . . . . . . . .
4,265
5,672
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . .
Residential construction . . . . . . . . . .
963
3,709
Commercial and multifamily
residential:
Income property . . . . . . . . . . . . . . . .
7,053
Owner occupied. . . . . . . . . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,163
Purchased credit impaired . . . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(780)
—
—
—
—
—
(1,194)
(4,862)
—
403
408
99
912
20
726
890
—
—
1,180
3,847
—
382
2,626
(516)
593
(417)
(1,760)
(946)
(1,140)
937
(1,269)
(1,809)
152
(2,281)
1,053
3,947
4,044
4,533
549
5,536
5,784
2,604
5,301
3,611
1,053
—
8
—
1
69
—
—
—
—
31
—
—
2,626
585
3,947
4,043
4,464
549
5,536
5,784
2,604
5,270
3,611
1,053
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
75,646
$
(18,555) $
11,509
$
14,769
$
83,369
$
2,132
$
81,237
Year Ended December 31, 2017
Commercial business:
Beginning
Balance
Charge-offs
Recoveries
Provision
(Recapture)
Ending
Balance
Specific
Reserve
General
Allocation
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . .
$
36,050
$
(7,524) $
4,283
$
(3,468) $
29,341
$
1,867
$
27,474
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. . . . . . . . . . . . . . . . .
960
599
1,797
7,342
316
669
404
Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,534
Purchased credit impaired . . . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
226
(89)
(460)
—
(287)
—
(14)
—
—
—
(1,474)
(6,812)
—
553
568
53
498
124
72
106
1
—
1,187
6,187
—
576
2,000
3
1,997
(6)
701
103
598
2,415
(1,881)
(1,104)
589
2,934
6,648
3,221
1,916
(2,983)
(226)
4,265
5,672
5,459
963
3,709
7,053
4,413
5,163
6,907
—
—
185
3
—
—
—
—
199
—
—
4,265
5,487
5,456
963
3,709
7,053
4,413
4,964
6,907
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
70,043
$
(16,660) $
13,632
$
8,631
$
75,646
$
2,360
$
73,286
82
Year Ended December 31, 2016
Commercial business:
Beginning
Balance
Charge-offs
Recoveries
Provision
(Recapture)
Ending
Balance
Specific
Reserve
General
Allocation
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . . .
$
32,321
$
(9,993) $
2,483
$
11,239
$
36,050
$
664
$
35,386
Unsecured . . . . . . . . . . . . . . . . . . . . . .
1,299
Real estate:
One-to-four family residential . . . . . . . . . . .
916
Commercial and multifamily residential:
Commercial land. . . . . . . . . . . . . . . . .
Income property . . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . . .
Real estate construction:
One-to-four family residential:
Land and acquisition . . . . . . . . . . . . . .
Residential construction . . . . . . . . . . .
339
733
Commercial and multifamily residential:
Income property . . . . . . . . . . . . . . . . .
Owner occupied . . . . . . . . . . . . . . . . .
(75)
(35)
(26)
—
(63)
(88)
—
—
—
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired. . . . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,531
13,726
569
(1,238)
(9,944)
—
162
171
2
966
434
57
234
109
—
933
7,004
—
(426)
(453)
643
(240)
518
8
(298)
(93)
186
308
(271)
(343)
960
599
1,797
7,342
6,439
316
669
404
1,192
3,534
10,515
226
—
12
—
27
—
1
—
—
—
57
—
—
960
587
1,797
7,315
6,439
315
669
404
1,192
3,477
10,515
226
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
68,172
$
(21,462) $
12,555
$
10,778
$
70,043
$
761
$
69,282
Changes in the allowance for unfunded commitments and letters of credit, a component of “Other liabilities” in the
Consolidated Balance Sheets, 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,
2018
2017
2016
(in thousands)
3,130
1,200
4,330
$
$
2,705
425
3,130
$
$
2,930
(225)
2,705
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,ww 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 and 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,yy we assess whether an impairment of a loan warrants specific reserves or a write-down of
the loan.
Pass rated loans are generally considered to have sufficient
ff
sources of repayment in order to repay the loan in full in
accordance with all terms and conditions. Special Mention rated 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 reviewed 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. Loans risk rated as Substandard reflect loans
where a loss is possible if loan weaknesses are not corrected. Doubtful rated loans have a high probability of loss; however, the
amount of loss has not yet been determined. Loss rated loans are considered uncollectable and when identified, are charged off.ff
83
The following is an analysis of the credit quality of our loan portfolio, excluding PCI loans as of December 31, 2018 and
2017:
December 31, 2018
Loans, excluding PCI loans
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . . $ 3,160,910
112,091
Unsecured . . . . . . . . . . . . . . . . . . . . .
$ 48,779
21
$ 103,007
—
$
5
5
$ — $ 3,312,701
112,117
—
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:
234,416
—
1,610
276,348
1,876,925
1,556,852
5,082
36,998
14,964
4,247
6,553
45,935
4,099
212,225
—
—
318
171
194,912
87,063
313,817
,
$ 8,029,658
,
—
—
—
,
$ 105,844
—
—
4,398
,
$ 166,239
$
—
—
—
—
—
—
—
—
—
10
—
—
—
—
—
—
—
—
—
$ —
236,026
285,677
1,920,476
1,617,751
4,417
212,396
194,912
87,063
318,215
8,301,751
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,758
,
Loans, excluding PCI loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,221,993
,
December 31, 2017
Loans, excluding PCI loans
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . . $ 3,049,031
123,621
Unsecured . . . . . . . . . . . . . . . . . . . . .
$ 64,600
—
$ 122,030
554
$ — $ — $ 3,235,661
124,175
—
—
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:
183,312
1,186
2,056
283,673
1,857,832
1,546,775
5,204
17,181
7,380
7,104
31,323
45,831
9,882
187,863
—
—
25
1,828
—
—
—
—
—
—
—
—
—
—
—
—
293,028
68,393
323,129
,
$ 7,926,539
,
—
—
—
,
$ 95,551
—
4,050
9,096
,
$ 223,897
—
—
—
—
—
—
$ — $ —
186,554
295,981
1,906,336
1,599,986
9,907
189,691
293,028
72,443
332,225
8,245,987
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,739
,
Loans, excluding PCI loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,177,248
,
84
The following is an analysis of the credit quality of our PCI loan portfolio as of December 31, 2018 and 2017:
December 31, 2018
PCI loans:
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . . $
Unsecured. . . . . . . . . . . . . . . . . . . . .
$
8,041
692
— $
—
$
— $
—
— $
—
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:
9,633
10,363
19,680
35,944
151
—
—
—
—
—
—
—
507
—
9,326
,
94,337
$
$
—
—
—
— $
—
—
439
,
1,948
$
—
—
—
— $
Valuation discount resulting from acquisition accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2017
PCI loans:
Commercial business:
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
(in thousands)
Secured . . . . . . . . . . . . . . . . . . . . . . . $
Unsecured. . . . . . . . . . . . . . . . . . . . .
11,918
1,045
$
— $
—
$
— $
—
— $
—
12,641
1,112
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:
13,817
9,460
25,981
42,617
169
—
595
—
11,705
,
$ 117,307
$
—
349
—
—
—
—
—
—
—
349
—
—
707
,
3,102
$
$
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
8,881
791
9,848
10,363
19,680
36,297
153
—
507
—
9,765
96,285
6,525
3,611
,
86,149
—
—
—
—
—
—
—
—
—
—
14,610
9,809
26,016
43,386
177
—
595
—
12,412
120,758
840
99
215
—
—
353
2
—
723
67
793
—
35
769
8
—
—
—
—
—
—
—
—
—
—
—
—
—
Valuation discount resulting from acquisition accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,088
6,907
,
PCI loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,763
85
7. Other Real Estate Owned
The following table sets forth activity in OREO for the periods indicated:
Years Ended December 31,
2018
2017
(in thousands)
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Established through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers in. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of OREO property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of OREO, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
13,298
—
1,200
(698)
(7,261)
(520)
6,019
$
$
5,998
10,279
106
(364)
(2,590)
(131)
13,298
At December 31, 2018, the carrying amount of foreclosed residential real estate properties held as a result of obtaining
physical possession was $60 thousand and the recorded investment of consumer mortgage loans secured by residential real
estate properties for which formal foreclosure proceedings were in process was $514 thousand.
8. Premises and Equipment
Real and personal property and software, less accumulated depreciation and amortization, were as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2018
2017
(in thousands)
54,185
108,890
27,859
32,292
511
19,358
243,095
(74,307)
168,788
$
$
54,510
110,216
24,184
30,486
473
20,384
240,253
(70,763)
169,490
Total depreciation and amortization expense was $10.4 million, $9.8 million, and $11.8 million, for the years ended
December 31, 2018, 2017, and 2016, respectively.
9. 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 its annual impairment assessment as of July 31, 2018 and concluded that there was no
impairment. As of December 31, 2018, 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.
86
The following table sets forth activity for goodwill and other intangible assets for the periods indicated:
Goodwill, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Established through acquisitions (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
765,842
—
765,842
(in thousands)
382,762
$
383,080
765,842
$
382,762
—
382,762
Years Ended December 31,
2018
2017
2016
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 acquisition (1). . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . .
105,473
—
(12,236)
919
45,937
58,598
(41,886)
16,712
46,875
(6,333)
57,254
919
58,173
58,598
(35,940)
22,658
—
(5,946)
16,712
919
17,631
811,779
$
824,015
$
400,393
__________
(1) See Note 2, “Business Combinations,” for additional information regarding the goodwill related to the acquisition of
Pacific Continental on November 1, 2017.
The following table provides the estimated future amortization expense of core deposit intangibles for the succeeding five
years:
Years Ending December 31,
(in thousands)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,479
8,724
7,264
5,880
4,552
87
10. Deposits
Year-end deposits are summarized in the following table:
December 31,
2018
2017
(in thousands)
Core deposits:
Demand and other noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit, less than $250,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit, $250,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit insured by CDARS®(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokered certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reciprocal money market accounts (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment resulting from acquisition accounting . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
,227,216
1,244,254
2,367,964
890,557
243,849
9,973,840
23,580
57,930
313,692
10,458,515
$ 10,458,126
$
5,081,901
1,265,212
2,543,712
861,941
286,791
10,039,557
100,399
25,374
78,481
289,031
10,532,842
(757)
$ 10,532,085
(1) For periods prior to June 30, 2018, CDARS and reciprocal money market accounts were considered to be brokered deposits
by regulatory authorities and were reported as such on quarterly Call Reports. With the passage of the The Economic
Growth, Regulatory Relief and Consumer Protection Act in May 2018, these items are no longer considered brokered
deposits.
Overdrafts of $4.0 million and $1.6 million were reclassified as loan balances at December 31, 2018 and 2017,
respectively.
The following table shows the amount and maturity of time deposits:
Years Ending December 31,
(in thousands)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
292,334
71,405
23,604
12,761
10,820
3,908
414,832
88
11.
Federal Home Loan Bank and Federal Reserve Bank Borrowings
FEDERAL HOME LOAN BANK
The Company has entered into borrowing arrangements with the FHLB of Des Moines to borrow funds under a short-
term floating rate fed funds overnight advance program and fixed-term loan agreements. All borrowings are secured by stock of
the FHLB and a blanket pledge of qualifying loans receivable. The Company had a borrowing capacity with the FHLB of $1.62
billion and $1.43 billion for the years ended December 31, 2018 and 2017, respectively. See Note 5, “Loans,” for the carrying
value of pledged loans.
At December 31, 2018, FHLB advances were scheduled to mature as follows:
Federal Home Loan Bank Advances
Fixed rate advances
Weighted Average Rate
Amount
(dollars in thousands)
2.64% $
Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.85%
Over 1 through 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.37%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment from acquisition accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
392,000
2,000
5,000
399,000
523
399,523
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, 2018, 2017 and 2016:
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average balance during period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during period . . . . . . . . . . . . . . . . . . . . .
Weighted average rate during period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average rate at December 31 . . . . . . . . . . . . . . . . . . . . . . . . .
FEDERAL RESERVERR
BANK
Years ended December 31,
2018
2017
2016
(dollars in thousands)
$
$
$
399,523
166,563
399,523
$
$
$
11,579
79,788
317,480
$
$
$
6,493
79,673
250,515
2.29%
2.68%
1.33%
4.08%
0.80%
5.42%
The Company is also eligible to borrow under the FRB’s primary credit program, including the Term Auction Facility
auctions. All borrowings are secured by certain pledged available for sale investment securities. While the Company had no
borrowings as of December 31, 2018, or at the end of each month in 2018, there were overnight borrowings resulting in
average borrowings of $14 thousand for the year. The Company had no borrowings in 2017 or 2016. The Company pledges
securities and loans for borrowing capacity at the FRB and had a borrowing capacity with the FRB of $107.1 million and
$100.1 million for the years ended December 31, 2018 and 2017, respectively. See Note 4, “Securities,” for the carrying value
of pledged investment securities and Note 5, “Loans,” for the carrying value of pledged loans.
12. Securities Sold Under Agreements to Repurchase
Securities Sold Under Agreements
rr
rr
to Repurchase
- Term
The Company had previously entered into wholesale repurchase agreements with certain brokers. At December 31, 2017,
the Company held $25.0 million in wholesale repurchase agreements with an interest rate of 1.88%. These agreements were
settled on the repurchase date of March 19, 2018.
89
Securities Sold Under Agreements
rr
rr
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 $61.1 million and a weighted average interest rate of
1.99% at December 31, 2018. All of these repurchase agreements in existence at December 31, 2018 mature on a daily basis.
Securities available for sale with a carrying amount of $75.6 million at December 31, 2018 were pledged as collateral for the
sweep repurchase agreement borrowings.
13. Subordinated Debentures
On November 1, 2017, with its acquisition of Pacific Continental, the Company assumed $35.0 million in aggregate
principal amount of fixed-to-floating rate subordinated debentures (the “Notes”). The Notes are callable at par on June 30,
2021, have a stated maturity of June 30, 2026 and bear interest at a fixed annual rate of 5.875% per year, from and including
June 27, 2016, but excluding June 30, 2021. From and including June 30, 2021 through the maturity date or early redemption
date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR (“London
Interbank Offering
Rate”) plus 471.5 basis points.
ff
14. Junior Subordinated Debentures
On November 1, 2017, with its acquisition of Pacific Continental, the Company assumed $14.4 million of trust preferred
obligations. The Company redeemed $6.2 million of these obligations during 2017 and the remaining $8.2 million of
obligations were redeemed in January of 2018.
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 loan. 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, 2018 and 2017 was $366.7 million and $384.7 million, respectively. Mark-to-market gains
of $8 thousand for 2018 and $16 thousand for both 2017 and for 2016 were recorded to “Other” noninterest expense.
ff
ff
The following table presents the fair value and balance sheet classification of derivatives not designated as hedging
instruments at December 31, 2018 and 2017:
Asset Derivatives
Liability Derivatives
2018
2017
2018
2017
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
(in thousands)
Interest rate
contracts
Other assets
$
7,033 Other assets
$
6,707 Other liabilities
$
7,033 Other liabilities
$
6,714
90
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 cash or 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.
December 31, 2018
Assets
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
Interest rate contracts . . . . . . . . . . . . . . . . . . . . $
7,033
Liabilities
Interest rate contracts . . . . . . . . . . . . . . . . . . . . $
Repurchase agreements . . . . . . . . . . . . . . . . . .
7,033
61,094
December 31, 2017
Assets
Interest rate contracts . . . . . . . . . . . . . . . . . . . . $
6,707
Liabilities
Interest rate contracts . . . . . . . . . . . . . . . . . . . . $
Repurchase agreements . . . . . . . . . . . . . . . . . .
6,714
79,059
$
$
$
$
$
$
— $
7,033
— $
— $
7,033
61,094
— $
6,707
— $
— $
6,714
79,059
$
$
$
$
$
$
— $
7,033
(3,235) $
(61,094) $
3,798
—
— $
6,707
(6,714) $
(79,059) $
—
—
The following table presents the class of collateral pledged for repurchase agreements as well as the remaining
contractual maturity of the repurchase agreements:
Remaining contractual maturity of the agreements
Overnight and
continuous
Up to 30 days
30 - 90 days
(in thousands)
Greater than
90 days
Total
December 31, 2018
Class of collateral pledged for
repurchase agreements
U.S. government agency and
government-sponsored enterprise
mortgage-backed securities and
collateralized mortgage obligations . . .
Gross amount of recognized liabilities for repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts related to agreements not included in offsetting
ff
disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
61,094
$
— $
— $
— $
61,094
61,094
—
The collateral utilized for the Company’s repurchase agreements is subject to market fluctuations as well as prepayments
of principal. The Company monitors the risk of the fair value of its pledged collateral falling below acceptable amounts based
on the type of the underlying repurchase agreement. The pledged collateral related to the Company’s $61.1 million sweep
repurchase agreements, which mature on an overnight basis, is monitored on a daily basis as the underlying sweep accounts can
have frequent transaction activity and the amount of pledged collateral is adjusted as necessary.
91
16. Employee Benefit Plans
401(k) Plan
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 Columbia Bank
employees who are at least 18 years of age to contribute up to 75% of their eligible compensation to the 401(k) Plan starting on
the first day of the month following their hire date. 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 $3.3 million during
2018, $2.7 million during 2017, and $2.4 million during 2016, in matching funds to the 401(k) Plan. Additionally,yy as
determined annually by the board of directors of the Company,yy the 401(k) Plan provides for a non-matching discretionary profit
sharing contribution. The Company’s discretionary profit sharing contributions were $7.0 million during 2018, $5.7 million
during 2017 and $5.1 million during 2016.
Employee Stock Purchase
rr
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 50,750 shares for $2.0 million in 2018, 38,387 shares for $1.5 million in 2017 and 50,116 shares for $1.8
million in 2016. At December 31, 2018 there were 360,357 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 10 year period and provide a fixed annual benefit over the subsequent 10 year
period. At December 31, 2018 and 2017, the liability associated with these plans was $4.2 million and $4.6 million,
respectively. Expense associated with these plans for the years ended December 31, 2018, 2017 and 2016 was $337 thousand,
$452 thousand and $467 thousand, respectively.
Supplemental Executive Retirement
rr
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 a discount rate of 4.30% for 2018 and 3.80% for 2017. 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.
92
The following table reconciles the accumulated liability for the projected benefit obligation:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2018
2017
(in thousands)
20,553
(31)
—
1,701
(936)
21,287
$
$
26,263
(6,453)
148
1,600
(1,005)
20,553
The benefits expected to be paid in conjunction with the SERP are presented in the following table:
Years Ending December 31,
(in thousands)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 through 2028. . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
963
1,971
2,095
1,135
1,236
8,236
15,636
17. Commitments and Contingent Liabilities
Lease Commitments: The Company’s lease commitments consist primarily of leased locations under various non-
cancellable operating leases that expire between 2019 and 2043. 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, 2018, minimum future rental payments, exclusive of taxes and other charges, of these leases were:
Years Ending December 31,
(in thousands)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum payments. . . . . . . . . . . . . . .
$
$
10,947
9,766
8,729
8,102
6,796
18,703
63,043
Total rental expense on buildings and equipment, net of rental income of $1.2 million, $791 thousand and $992 thousand,
was $9.6 million, $7.9 million and $8.7 million, for the years ended December 31, 2018, 2017 and 2016, respectively.
Sale-leaseback transactions: On August 11, 2017, the Company sold one of its Idaho facilities and leased back the
portion of the facility utilized for branch operations. The lease term is through August 2027, with monthly payments of
approximately $26 thousand. The resulting gain on sale of $509 thousand was deferred in accordance with the Leases topic of
the FASB ASC and is being amortized over the life of the respective lease. At December 31, 2018, the deferred gain was $444
thousand and is included in “Other liabilities” on the Consolidated Balance Sheets.
On August 24, 2016, the Company sold one of its Washington facilities and leased back the portion of the facility utilized
for branch operations. The lease term is through August 2026, with monthly payments of approximately $12 thousand. The
resulting gain on sale of $742 thousand was deferred in accordance with the Leases topic of the FASB ASC and is being
amortized over the life of the respective lease. At December 31, 2018, the deferred gain was $575 thousand and is included in
“Other liabilities” on the Consolidated Balance Sheets.
93
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,yy 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 both December 31, 2018 and 2017, the Company’s loan
commitments were $2.62 billion. Standby letters of credit were $28.3 million and $51.3 million at December 31, 2018 and
2017, respectively. In addition, there were no commitments under commercial letters of credit used to facilitate customers’
trade transactions and other off-balance
sheet liabilities at December 31, 2018 and $159 thousand at December 31 2017.
ff
Legal Proceedings:
rr
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,yy if any,yy resulting from these pending or threatened actions and proceedings will not have a
material effect
on the financial statements of the Company.
ff
18. Shareholders’ Equity
Dividends.
The following summarizes the dividend activity for the year ended December 31, 2018:
Regular Cash Dividends
Per Common Share
Special Cash Dividends
Per Common Share
Declared
January 25, 2018
April 25, 2018
July 25, 2018
October 25, 2018
$
$
$
$
0.22
0.26
0.26
0.26
$
$
$
$
—
—
—
Record Date
February 7, 2018
Paid Date
February 21, 2018
May 9, 2018
May 23, 2018
August 8, 2018
August 22, 2018
0.14
November 7, 2018
November 21, 2018
Subsequent to year end, on January 24, 2019, the Company declared a regular quarterly cash dividend of $0.28 per share
and a special cash dividend of $0.14 per share payable on February 20, 2019, to shareholders of record at the close of business
on February 6, 2019.
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.
94
19. Accumulated Other Comprehensive Loss
The following table shows changes in accumulated other comprehensive income (loss) by component for the years ended
December 31, 2018, 2017 and 2016:
Year Ended December 31, 2018
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment pursuant to adoption of ASU 2016-01
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss (2)
Net current-period other comprehensive income (loss) . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2017
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications. . . . . . . . .
Amounts reclassified from accumulated other comprehensive loss (2)
Net current-period other comprehensive income (loss) . . . . . . . . . . . . . . .
Adjustment pursuant to adoption of ASU 2018-02 . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2016
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive loss (2)
Net current-period other comprehensive income (loss) . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
__________
(1) All amounts are net of tax. Amounts in parenthesis indicate debits.
(2) See following table for details about these reclassifications.
Unrealized Gains
and Losses on
Available for Sale
Securities (1)
Unrealized Gains
and Losses on
Pension Plan
Liability (1)
Total (1)
$
(19,779)
(in thousands)
$
(2,446)
$ (22,225)
157
(13,425)
(81)
(13,506)
(33,128)
(12,704)
(3,391)
7
(3,384)
(19,779)
386
(12,338)
(752)
(13,090)
$
$
$
$
—
24
245
269
157
(13,401)
164
(13,237)
(2,177)
$ (35,305)
(6,295)
$ (18,999)
4,017
223
4,240
626
230
856
(391)
(4,082)
(2,446)
$ (22,225)
(6,681)
$
(6,295)
(39)
425
386
(12,377)
(327)
(12,704)
(12,704)
$
(6,295)
$ (18,999)
$
$
$
$
$
In December 2017, the Company made an election to reclassify income tax effects
related to the Tax Cuts and Jobs Act of
$4.1 million from accumulated other comprehensive income to retained earnings. The Company uses the portfolio approach to
account for the tax consequences of amounts reported in OCI.
ff
95
The following table shows details regarding the reclassifications from accumulated other comprehensive income for the
years ended December 31, 2018, 2017 and 2016:
Amount Reclassified from Accumulated Other
Comprehensive Income
Affected line Item in the
Consolidated Statement of Income
Years Ended December 31,
2018
2017
2016
(in thousands)
Unrealized gains and losses on available for
sale debt securities . . . . . . . . . . . . . . . . . . . . .
$
$
(11) $
1,181
(losses), net
Investment securities gains
(11)
4
1,181 Total before tax
(429)
Income tax benefit (provision)
106
106
(25)
$
81
$
(7) $
752 Net of tax
Amortization of pension plan liability
Compensation and employee
actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
$
(319) $
(350) $
(668)
benefits
(319)
74
(245) $
(350)
127
(223) $
(668) Total before tax
Income tax benefit
243
(425) Net of tax
$
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,yy 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 and other securities, 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.
96
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, 2018 and 2017 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, 2018
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
(in thousands)
Assets
Debt 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. . . . . . . . . . . . . . .
Total debt securities available for sale. . . . . . . . . .
Other assets (Interest rate contracts) . . . . . . . . . . .
Liabilities
Other liabilities (Interest rate contracts) . . . . . . . .
$
$
$
$
2,188,290
$
574,323
404,587
248
3,167,448
7,033
7,033
$
$
$
— $
—
—
248
2,188,290
$
574,323
404,587
—
248
$
— $
3,167,200
7,033
— $
7,033
$
$
$
Fair value at
December 31, 2017
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
(in thousands)
Assets
Debt 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. . . . . . . . . . . . . . .
Total debt securities available for sale. . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (Interest rate contracts) . . . . . . . . . . .
Liabilities
Other liabilities (Interest rate contracts) . . . . . . . .
$
1,726,725
$
596,004
414,774
248
2,737,751
5,080
6,707
6,714
$
$
$
$
$
$
$
$
— $
—
—
248
248
$
5,080
$
— $
1,726,725
$
596,004
414,774
—
2,737,503
$
— $
$
6,707
— $
6,714
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
There were no transfers between Level 1 and Level 2 of the valuation hierarchy during the year ended December 31,
2018. During the year ended December 31, 2017, there was a transfer of $5.1 million out of Level 2 of the valuation hierarchy
and a corresponding transfer into Level 1 of the valuation hierarchy related to the Company’s equity securities. The Company
recognizes transfers between levels of the valuation hierarchy based on the valuation level at the end of the reporting period.
97
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
ff
the loan is a collateral-dependent loan. The impairment evaluations are performed in conjunction with the ALLL process on a
in the Special Credits group, which reports to the Chief Credit Officer
quarterly basis by officers
Services Department (“REASD”), which also reports to the Chief Credit Officer
third-parties or performing internal evaluations. If an appraisal is obtained from a third-party,yy the REASD reviews the appraisal
to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy,yy and reasonableness.
. The Real Estate Appraisal
, is responsible for obtaining appraisals from
ff
ff
ff
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 initially recorded at the fair value less estimated costs to sell. This amount becomes the property’s
new basis. Any fair value adjustments based on the property’s fair value less estimated costs to sell at the date of acquisition are
charged to the ALLL, or in the event of a write-up without previous losses charged to the ALLL, a credit to earnings is
recorded. Management periodically reviews OREO in an effort
ff
estimated costs to sell. Any fair value adjustments subsequent to acquisition are charged or credited to earnings. The initial and
subsequent evaluations are performed by officers
. The
REASD obtains appraisals from third-parties for OREO and performs internal evaluations. If an appraisal is obtained from a
third-party,yy the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods,
accuracy,yy and reasonableness.
in the Special Credits group, which reports to the Chief Credit Officer
to ensure the property is recorded at its fair value, net of
ff
ff
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, 2018 and 2017:
Fair value at
December 31, 2018
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
Losses During the
Year Ended
December 31, 2018
(in thousands)
Impaired loans . . . . . . . . . . . . .
$
$
11,555
,
11,555
$
$
— $
— $
— $
— $
11,555
,
11,555
$
$
1,821
,
1,821
Fair value at
December 31, 2017
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
Losses During the
Year Ended
December 31, 2017
(in thousands)
Impaired loans . . . . . . . . . . . . .
OREO . . . . . . . . . . . . . . . . . . . .
$
$
6,577
1,423
,
8,000
$
$
— $
—
— $
— $
—
— $
6,577
1,423
,
8,000
$
$
2,507
239
,
2,746
The losses on impaired loans disclosed above represent the amount of the specific reserve and/or charge-offsff during the
period applicable to loans 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 changes in any valuation allowances from updated appraisals that
were recorded to earnings.
98
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 2018 and 2017, along with the valuation techniques used, are shown in the following tables:
Impaired loans - collateral-dependent (2) . . . .
Impaired loans - other (3) . . . . . . . . . . . . . . . .
__________
Fair value at
December 31, 2018
Valuation Technique
Unobservable Input
Range (Weighted
WW
Average) (1)
(dollars in thousands)
$
$
8,394
3,161
Fair Market Value
of Collateral
Adjustment to
Stated Value
0.00% - 70.04%
(7.02%)
Discounted Cash
Flow
Discount Rate
0.34%
(1) Discount rate applied to discounted cash flow valuation or appraisal value and stated value (in the case of fixed assets and
inventory).
(2) Collateral consists of accounts receivable, inventory,yy fixed assets, real estate and cash.
(3) As there was only one impaired loan remeasured using discounted cash flows, a range of discounts could not be provided.
Fair value at
December 31, 2017
Valuation Technique
Unobservable Input
Range (Weighted
WW
Average) (1)
Impaired loans - collateral-dependent (3). .
$
3,519
(dollars in thousands)
Fair Market Value
of Collateral
Adjustment to
Stated Value
Impaired loans - other. . . . . . . . . . . . . . . . .
Discounted Cash
Flow
,058
Discount Rate
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,423
Fair Market Value
of Collateral
Adjustment to
Appraisal Value
N/A (2)
3.75% - 7.75%
(4.12%)
N/A (2)
__________
(1) Discount rate used in discounted cash flow valuation.
(2) Quantitative disclosures are not provided for collateral-dependent impaired loans and OREO because there were no
adjustments made to the appraisal values or stated values during the current period.
(3) Collateral consists of real property and a government agency guarantee.
99
The following tables summarize carrying amounts and estimated fair values of selected financial instruments for the
periods indicated:
Assets
December 31, 2018
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
(in thousands)
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
260,180
$
260,180
$
260,180
$
Interest-earning deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,407
17,407
17,407
— $
—
Debt securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,167,448
3,167,448
248
3,167,200
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,960
3,849
25,960
3,849
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,308,142
8,316,946
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,033
7,033
—
—
—
—
Liabilities
25,960
3,849
7,033
—
8,316,946
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
414,443
$
407,659
$
— $
407,659
$
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
399,523
400,085
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,094
35,462
7,033
61,094
34,897
7,033
—
—
—
—
400,085
61,094
34,897
7,033
December 31, 2017
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
(in thousands)
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
244,615
$
244,615
$
244,615
$
Interest-earning deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97,918
97,918
97,918
— $
—
Debt securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,737,751
2,737,751
248
2,737,503
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,080
10,440
5,766
5,080
10,440
5,766
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,283,011
8,055,817
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,707
6,707
5,080
—
—
—
—
Liabilities
—
10,440
5,766
6,707
—
8,055,817
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
490,288
$
483,095
$
— $
483,095
$
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,579
79,059
35,647
8,248
6,714
12,281
79,070
35,895
8,248
6,714
—
—
—
—
—
12,281
79,070
35,895
8,248
6,714
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.
100
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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 . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . .
of equity awards and warrants . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect
Weighted average diluted common shares outstanding . . . . . . . . . . . . . . . .
Diluted earnings per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ff
Potentially dilutive share options that were not included in the
computation of diluted EPS because to do so would be anti-dilutive . . .
22. Share-Based Payments
Years Ended December 31,
2018
2017
2016
(in thousands except per share amounts)
$
172,882
$
112,828
$
104,866
—
1,892
170,990
72,385
2.36
170,990
72,385
5
72,390
$
$
$
3
1,501
111,324
59,882
1.86
111,324
59,882
6
59,888
$
$
$
2.36
$
1.86
$
185
1,371
103,310
57,184
1.81
103,310
57,184
9
57,193
1.81
$
$
$
$
4
13
19
At December 31, 2018, 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 3,050,000 shares.
Sharerr Awards:
rr
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 and the holders of the restricted
shares have voting rights. For share awards issued under our new equity incentive plan approved in 2018, the holder accrues
dividends, which are paid out when the shares vest. For any awards granted prior to the new plan, the holder receives dividends
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.
101
A summary of changes in the Company’s nonvested shares and related information for the years ended December 31,
2018, 2017 and 2016 is presented below:
Nonvested at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Grant-Date
Fair Value
25.80
28.40
23.80
27.13
27.19
38.51
25.67
28.97
32.23
41.47
28.78
35.92
36.43
Shares
665,702
335,593
(153,235)
818,755
337,384
(253,509)
805,706
306,592
(237,146)
814,140
$
$
$
$
$
$
$
$
$
$
$
$
$
As of December 31, 2018, there was $20.5 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 2.3 years. The total fair value, as measured on the date of vesting, of shares vested during the years ended
December 31, 2018, 2017, and 2016 was $6.7 million, $6.5 million, and $3.6 million, respectively.
Sharerr 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.
ff
A summary of option activity under the Plan as of December 31, 2018, and changes during the year then ended is
presented below:
Balance at December 31, 2017. . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018. . . . . . . . . . . . . . . . .
Vested or expected to vest at December 31, 2018 . .
Total Exercisable at December 31, 2018 . . . . . . . . .
Shares
(11,700)
(1,112)
5,514
5,514
$
$
$
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000)
38.88
54.63
16.84
9.91
9.91
9.91
0.3
0.3
0.3
$
$
$
145
145
145
The total intrinsic value of options exercised during the years ended December 31, 2018, 2017, and 2016 was $29
thousand, $67 thousand, and $232 thousand, respectively. There were no options granted during the years ended December 31,
2018, 2017, and 2016. There were no options that vested during the years ended December 2018, 2017, and 2016.
102
As of December 31, 2018, outstanding stock options consist of the following:
Ranges of
Exercise Prices
$0.00 - $9.99
Number of
Option
Shares
5,514
Weighted Average
Remaining
Contractual Life
0.3
Weighted Average
Exercise Price of
Option Shares
$
9.91
Number of
Exercisable
Option Shares
Weighted Average
Exercise Price of
Exercisable Option
Shares
5,514
$
9.91
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 years ended
December 31, 2018, 2017 and 2016, the Company recognized pre-tax share-based compensation expense of $8.4 million, $7.7
million and $5.0 million, respectively.
23. Income Tax
The components of income tax expense are as follows:
Current expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
Years Ended December 31,
2018
2017
(in thousands)
2016
$
$
$
33,400
5,446
38,846
(291)
399
108
38,954
$
39,708
3,016
42,724
21,524
907
22,431
65,155
$
$
$
$
41,365
1,704
43,069
550
1,296
1,846
44,915
103
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets:
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options and restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses and credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ff
Deferred tax liabilities:
Asset purchase tax basis difference
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2018
2017
(in thousands)
20,578
9,501
1,850
288
446
10,129
5,356
733
48,881
(7,229)
(4,399)
(9,245)
(2,609)
(195)
(24,467)
24,414
$
$
18,315
9,539
1,438
521
163
5,992
7,259
985
44,212
(5,709)
(782)
(4,505)
(9,088)
(1,581)
(2,036)
(23,701)
20,511
A reconciliation of the Company’s effective
ff
income tax rate with the federal statutory tax rate is as follows:
Income tax based on statutory rate. . . . . . . . . . .
Increase (decrease) resulting from:
Tax exempt instruments . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . .
Acquisition costs. . . . . . . . . . . . . . . . . . . . .
Deferred tax asset revaluation . . . . . . . . . .
State income tax, net of federal benefit . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2018
2017
2016
Amount
Percent
Amount
Percent
Amount
Percent
(dollars in thousands)
$ 44,485
21 % $ 62,262
35 % $ 52,424
35 %
(6,423)
(1,261)
—
—
4,931
(2,778)
$ 38,954
(8,485)
(3)%
(3,351)
(1)%
825
— %
12,210
— %
2,550
2 %
(1)%
(856)
18 % $ 65,155
(7,433)
(5)%
(1,680)
(2)%
—
1 %
—
7 %
1,950
1 %
— %
(346)
37 % $ 44,915
(5)%
(1)%
— %
— %
1 %
— %
30 %
As of December 31, 2018 and 2017, we had no unrecognized tax benefits. Our policy is to recognize interest and
penalties on unrecognized tax benefits in “Provision for income taxes” in the Consolidated Statements of Income. There were
no amounts related to interest and penalties recognized for the years ended December 31, 2018 and 2017. As a result of recent
acquisitions, the Company has net operating loss carryforwards in the federal, Idaho and Oregon jurisdictions of $20.2 million,
$18.7 million and $132 thousand, respectively,yy which begin to expire in 2024, and no federal credit carryforwards.
The Tax Cuts and Jobs Act was signed into law on December 22, 2017. The law included significant changes to the U.S.
corporate tax system, including a Federal corporate rate reduction from 35% to 21%. In 2017, the Company applied the newly
enacted corporate federal income tax rate of 21% resulting in a $12.2 million increase in tax expense from the re-measurement
of its net deferred tax assets.
104
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
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.
sheet items as calculated under regulatory accounting practices. The
ff
ff
Basel III capital requirements became effective
ff
on January 1, 2015. The capital requirements, among other things (i)
specify that Tier 1 capital consists of “Common Equity Tier 1,” or CET1, and “Additional Tier 1 capital” instruments meeting
specified requirements, (ii) 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 (iii) expand the scope of the deductions/adjustments to capital
the minimum capital ratios are (i) 4.5%
as compared to existing regulations. Under the requirements that are now effective,
CET1 to risk-weighted assets, (ii) 6% Tier 1 capital to risk-weighted assets, (iii) 8% total capital to risk-weighted assets and
(iv) 4% Tier 1 capital to average total assets (Tier 1 leverage). The Company and the Bank have made the one-time election to
opt-out of including accumulated other comprehensive income items in regulatory capital calculations.
ff
The Capital Rules also require a capital conservation buffer
designed to absorb losses during periods of economic stress.
is composed entirely of CET1, on top of these minimum risk-weighted asset ratios. In addition,
ff
ff
The capital conservation buffer
the Capital Rules provide for a countercyclical capital buffer
the countercyclical capital buffer
ff
assets above the minimum but below the capital conservation buffer
countercyclical capital buffer
ff
compensation based on the amount of the shortfall.
ff
ff
to be applicable to us or the Bank. Banking institutions with a ratio of CET1 to risk-weighted
applicable only to certain covered institutions. We do not expect
(or below the combined capital conservation buffer
ff
and
, when the latter is applied) will face constraints on dividends, equity repurchases and
The implementation of the capital conservation buffer
ff
began on January 1, 2016 at the 0.625% level and was fully phased
in over a three-year period (increasing by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019). As
a result, the Company and the Bank are now required 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,
ff
and (iii) 10.5% total capital to risk-weighted assets. At December 31, 2018, the capital conservation buffer
for the Company
and the Bank was 5.9920% and 5.8494%, respectively. As of December 31, 2018, we and the Bank met all capital adequacy
requirements under the Capital Rules on a fully phased-in basis as if all such requirements were then in effect.
ff
ff
ff
FDIC regulations set forth the qualifications necessary for a bank to be classified as “well-capitalized,” primarily for
assignment of FDIC insurance premium rates. To qualify as “well-capitalized,” banks must have a CET1 risk-adjusted capital
ratio of 6.5%, a Tier I risk-adjusted capital ratio of at least 8%, 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.
As of December 31, 2018, 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 CET1 risk-based, Tier 1 risk-based, total risk-based and Tier 1 leverage
ratios as set forth in the following table. There are no conditions or events since the notification that management believes have
changed Columbia Bank’s category.
105
The Company and its banking subsidiary’s actual capital amounts and ratios as of December 31, 2018 and 2017 are
presented in the following table:
Minimum
Required
For Capital
Adequacy
Purposes
Minimum Required
Plus Capital
Conservation Buffer
Phase-In
Minimum Required
Plus Capital
Conservation Buffer
Fully Phased-In
To Be Well
Capitalized Under
Prompt
Corrective Action
Provision
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
December 31, 2018
CET1 Capital (to risk-
weighted assets):
The Company . . . . .
$ 1,253,394
12.7401% $ 442,717
4.50% $ 627,182
6.38% $ 688,670
7.00%
N/A
N/A
Columbia Bank . . . .
$ 1,274,317
12.9576% $ 442,552
4.50% $ 626,948
6.38% $ 688,414
7.00% $ 639,241
6.50%
Tier 1 Capital (to risk-
weighted assets):
The Company . . . . .
$ 1,253,394
12.7401% $ 590,289
6.00% $ 774,754
7.88% $ 836,243
8.50%
N/A
N/A
Columbia Bank . . . .
$ 1,274,317
12.9576% $ 590,069
6.00% $ 774,465
7.88% $ 835,931
8.50% $ 786,759
8.00%
Total Capital (to risk-
weighted assets):
The Company . . . . .
$ 1,376,555
13.9920% $ 787,052
8.00% $ 971,517
9.88% $ 1,033,006
10.50%
N/A
N/A
Columbia Bank . . . .
$ 1,362,016
13.8494% $ 786,759
8.00% $ 971,155
9.88% $ 1,032,621
10.50% $ 983,448
10.00%
Tier 1 Capital Leverage
(to average assets):
The Company . . . . .
$ 1,253,394
10.2444% $ 489,399
4.00% $ 489,399
4.00% $ 489,399
4.00%
N/A
N/A
Columbia Bank . . . .
$ 1,274,317
10.4185% $ 489,254
4.00% $ 489,254
4.00% $ 489,254
4.00% $ 611,567
5.00%
December 31, 2017
CET1 Capital (to risk-
weighted assets):
The Company . . . . .
$ 1,158,252
11.7421% $ 443,886
4.50% $ 567,187
5.75% $ 690,489
7.00%
N/A
N/A
Columbia Bank . . . .
$ 1,184,476
12.0133% $ 443,687
4.50% $ 566,933
5.75% $ 690,180
7.00% $ 640,881
6.50%
Tier 1 Capital (to risk-
weighted assets):
The Company . . . . .
$ 1,165,903
11.8196% $ 591,848
6.00% $ 715,149
7.25% $ 838,451
8.50%
N/A
N/A
Columbia Bank . . . .
$ 1,184,476
12.0133% $ 591,582
6.00% $ 714,829
7.25% $ 838,075
8.50% $ 788,777
8.00%
Total Capital (to risk-
weighted assets):
The Company . . . . .
$ 1,280,326
12.9796% $ 789,130
8.00% $ 912,432
9.25% $ 1,035,734
10.50%
N/A
N/A
Columbia Bank . . . .
$ 1,263,252
12.8123% $ 788,777
8.00% $ 912,023
9.25% $ 1,035,269
10.50% $ 985,971
10.00%
Tier 1 Capital Leverage
(to average assets):
The Company . . . . .
$ 1,165,903
10.9611% $ 425,469
4.00% $ 425,469
4.00% $ 425,469
4.00%
N/A
N/A
Columbia Bank . . . .
$ 1,184,476
10.8186% $ 437,939
4.00% $ 437,939
4.00% $ 437,939
4.00% $ 547,423
5.00%
106
25. Parent Company Financial Information
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Shareholders’ Equity
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
(in thousands)
$
$
$
$
945
7,226
8,171
2,049,855
5,312
4,729
1,595
2,069,662
35,462
—
36,013
2,033,649
2,069,662
$
$
$
$
533
8,765
9,298
1,971,788
5,157
4,729
3,426
1,994,398
35,647
8,248
581
44,476
1,949,922
1,994,398
Condensed Statements of Income— Parent Company Only
Income
Dividend from banking subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures interest expense . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax benefit and equity in undistributed
earnings of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in undistributed earnings of subsidiaries. . . . . . .
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2018
2017
(in thousands)
2016
$
85,250
$
66,800
$
83,500
12
56
2
8
4
8
85,318
66,810
83,512
978
1,871
4
2,058
4,911
80,407
(1,017)
81,424
732
304
60
3,090
4,186
62,624
(548)
63,172
49,656
543
—
—
1,608
2,151
81,361
(748)
82,109
22,757
$
172,882
$
112,828
$
104,866
107
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 earnings of subsidiaries . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in other assets and liabilities. . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . .
Investing Activities
Net cash paid in business combinations . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by investing activities . . . . . . . . . . . . . . . .
Financing Activities
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of junior subordinated debentures. . . . . . . . . . . . . . . . . . . .
Cash settlement of acquired equity awards . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . .
Supplemental disclosure of noncash investing and financing
activities
Years Ended December 31,
2018
2017
2016
(in thousands)
$
172,882
$
112,828
$
104,866
(91,458)
(49,656)
8,354
1,622
91,400
—
—
—
(83,459)
(8,248)
—
(2,677)
1,857
—
(92,527)
(1,127)
9,298
,171
$
7,745
1,672
72,589
(580)
(580)
—
(51,308)
(6,186)
(7,345)
(2,299)
1,980
—
(65,158)
6,851
2,447
9,298
$
(22,757)
5,009
(394)
86,724
—
—
(157)
(88,677)
—
—
(1,125)
1,349
344
(88,266)
(1,542)
3,989
2,447
Share-based consideration issued in business combinations . . . . . . . . .
$
— $
636,385
$
—
108
26. Summary of Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2018 and 2017 is summarized as follows:
Fourth
Quarter (1)
Third
Quarter (2)
Second
Quarter
First
Quarter
Year Ended
December 31,
(in thousands, except per share amounts)
2018
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 (3)
Earnings (basic) . . . . . . . . . . . . . . . .
Earnings (diluted). . . . . . . . . . . . . . .
2017
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 (3)
Earnings (basic) . . . . . . . . . . . . . . . .
Earnings (diluted). . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
129,801
5,913
123,888
1,789
87,019
55,482
10,734
44,748
0.61
0.61
108,841
2,617
106,224
3,327
85,627
40,851
25,123
15,728
0.23
0.23
$
$
$
$
$
$
$
$
127,575
4,779
122,796
3,153
21,019
82,841
57,821
11,406
46,415
0.63
0.63
90,303
1,374
88,929
(648)
37,067
67,537
59,107
18,338
40,769
0.70
0.70
$
$
$
$
$
$
$
$
120,549
3,875
116,674
3,975
23,692
84,643
51,748
9,999
41,749
0.57
0.57
87,786
1,625
86,161
3,177
24,135
68,867
38,252
11,120
27,132
0.47
0.47
$
$
$
$
$
$
$
$
119,144
3,663
115,481
5,852
23,143
85,987
46,785
6,815
39,970
0.55
0.55
87,816
1,141
86,675
2,775
24,859
68,986
39,773
10,574
29,199
0.50
0.50
$
$
$
$
$
$
$
$
497,069
18,230
478,839
14,769
88,256
340,490
211,836
38,954
172,882
2.36
2.36
374,746
6,757
367,989
8,631
109,642
291,017
177,983
65,155
112,828
1.86
1.86
__________
(1) During the fourth quarter of 2017, Columbia acquired Pacific Continental and also recorded a charge through provision for
income taxes related to the re-measurement of our deferred tax assets pursuant to the newly enacted Tax Cuts and Jobs Act.
See Note 2, “Business Combinations,” for further information regarding this acquisition. See Note 23, “Income Tax,” for
further information regarding the re-measurement of our deferred tax assets.
(2) During the third quarter of 2017, Columbia sold its merchant card services portfolio.
(3) Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year.
109
27. Revenue from Contracts with Customers
Revenue in the scope of Topic 606, Revenue fromrr
Contracts with Customers is measured based on the consideration
specified in the contract with a customer and excludes amounts collected on behalf of third parties. The vast majority of the
Company’s revenue is specifically outside the scope of Topic 606. For in-scope revenue, the following is a description of
principal activities, separated by the timing of revenue recognition from which the Company generates its revenue from
contracts with customers.
a. Revenue earned at a point in time - Examples of revenue earned at a point in time are ATM transaction fees, wire
transfer fees, overdraft fees, interchange fees and foreign exchange transaction fees. Revenue is primarily based
on the number and type of transactions and is generally derived from transactional information accumulated by
our systems and is recognized immediately as the transactions occur or upon providing the service to complete the
customer’s transaction. The Company is the principal in each of these contracts, with the exception of interchange
fees, in which case we are acting as the agent and record revenue net of expenses paid to the principal.
b. Revenue earned over time - The Company earns revenue from contracts with customers in a variety of ways
where the revenue is earned over a period of time - generally monthly. Examples of this type of revenue are
deposit account maintenance fees, investment advisory fees, merchant revenue and safe deposit box fees. Revenue
is generally derived from transactional information accumulated by our systems or those of third-parties and is
recognized as the related transactions occur or services are rendered to the customer.
The Company recognizes revenue from contracts with customers when it satisfies its performance obligations. The
Company’s performance obligations are typically satisfied as services are rendered and our contracts generally do not include
multiple performance obligations. As a result, there are no contract balances as payments and services are rendered
simultaneously. Payment is generally collected at the time services are rendered, monthly or quarterly. Unsatisfied performance
obligations at the report date are not material to our consolidated financial statements.
In certain cases, other parties are involved with providing products and services to our customers. If the Company is
principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received
from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the
transaction (arranging for another party to provide goods or services), the Company reports its net fee or commission retained
as revenue.
Rebates, waivers and reversals are recorded as a reduction of the transaction price either when the revenue is recognized
by the Company or at the time the rebate, waiver or reversal is earned by the customer.
Practical expedients
The Company applies the practical expedient in paragraph 606-10-32-18 and does not adjust the consideration from
of a significant financing component if at contract inception the period between when the entity
customers for the effects
transfers the goods or services and when the customer pays for that good or service will be one year or less.
ff
The Company pays sales commissions to its employees in accordance with certain incentive plans and in connection with
obtaining certain contracts with customers. The Company applies the practical expedient in paragraph 340-40-25-4 and
expenses such sales commissions when incurred if the amortization period of the asset the Company otherwise would have
recognized is one year or less. Sales commissions are included in compensation and employee benefits expense.
For the Company’s contracts that have an original expected duration of one year or less, the Company uses the practical
expedient in paragraph 606-10-50-14 and has not disclosed the amount of the transaction price allocated to unsatisfied
performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue.
110
The following table shows the disaggregation of revenue from contracts with customers for the period indicated:
Noninterest income:
Revenue from contracts with customers:
Deposit account and treasury management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services and trust revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue from contracts with customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other sources of noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
28. Subsequent Events
Year Ended December 31, 2018
(dollars in thousands)
36,072
,
12,135
67,926
,
20,330
,
88,256
On January 23, 2019, as part of its interest rate sensitivity management, the Company entered into an interest rate collar
derivative transaction with a $500.0 million notional based on 1 month LIBOR. The Company has designated this as a cash
flow hedge transaction.
On November 14, 2018, as modified on January 23, 2019, the board of directors approved a stock repurchase program to
repurchase up to 2.9 million shares, up to a maximum aggregate purchase price of $100.0 million.
111
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
FINANCIAL DISCLOSURE
TT
ON ACCOUNTING AND
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
ff
(“CEO”) and Chief Financial Officer
An evaluation was carried out under the supervision and with the participation of the Company’s management, including
of our disclosure controls and
the Chief Executive Officer
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
ff
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 Security Exchange Commission’s rules and forms.
(“CFO”), of the effectiveness
ff
ff
Internal Control Over Financial Reporting
Management’s Annual Report On Internal Controlrr 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
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.
on the Company’s financial statements would be prevented or detected on a timely
ff
ff
The Company’s management assessed the effectiveness
of the Company’s internal control over financial reporting as of
December 31, 2018. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on such evaluation,
management has concluded that the Company’s internal control over financial reporting is effective
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 quarter that materially affected
ff
affect
internal control over financial reporting.
or are reasonably likely to materially
as of December 31, 2018.
ff
ff
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.
112
REPORTRR OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Columbia Banking System, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Columbia Banking System, Inc. and its subsidiaries (the
“Company”) as of December 31, 2018, based on criteria established in Internal Control—Integrated
Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 Federal Financial Institutions Examination Council Instructions for Consolidated Reports of Condition and
Income for Schedules RC, RI, and RI-A. In our opinion, the Company maintained, in all material respects, effective
control over financial reporting as of December 31, 2018, based on criteria established in Internal Controlrr
Framework (2013) issued by COSO.
- Integrated
internal
rr
ff
We have not examined and, accordingly,yy 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) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018 of the Company and
our report dated February 27, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective
ff
internal control over financial reporting and for its
ff
of internal control over financial reporting, included in the accompanying Management’s
assessment of the effectiveness
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. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
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
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.
internal control over financial reporting was
of internal
ff
ff
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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.
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
to future periods are subject to the risk that controls may become
ff
/s/ Deloitte & Touche LLP
February 27, 2019
Seattle, Washington
113
ITEM 9B.
OTHER INFORMATION
AA
None.
114
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEAA GOVERNANCE
PART III
Information regarding “Directors, Executive Officers
and Corporate Governance” will be set forth in the Company’s
2019 Annual Proxy Statement (the “Proxy Statement”), which will be filed with the SEC within 120 days of the end of our
2018 fiscal year and is incorporated herein by reference.
ff
ITEM 11.
EXECUTIVE COMPENSATION
AA
Information regarding “Executive Compensation” will be set forth in the Proxy Statement and is incorporated herein by
reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTARR IN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATEDAA
STOCKHOLDER MATTERS
AA
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,yy Related Stockholder Matters and Issuer Purchases of Equity
Securities.”
ITEM 13.
AA
CERTARR IN RELATIONSHIPS
INDEPENDENCE
AND RELATEDAA
TRANSACTIONS, AND DIRECTOR
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.
PRINCIPALPP
ACCOUNTING FEES AND SERVICES
RR
Information regarding “Principal Accounting Fees and Services” will be set forth in the Proxy Statement and is
incorporated herein by reference.
115
ITEM 15.
EXHIBITS, FINANCIAL STATTT EMENT 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.”
ITEM 16.
FORM 10-K SUMMARYRR
None.
116
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 2019.
AA
SIGNATURES
COLUMBIA BANKING SYSTEM, INC.
(Registrant)
By:
/s/ HADLEY S. ROBBINS
Hadley S. Robbins
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 2019.
Principal Executive Officer:
ff
By:
/s/ HADLEY S. ROBBINS
Hadley S. Robbins
President and
Chief Executive Officer
Principal Financial Officer:
ff
By:
/s/ GREGORYRR A. SIGRIST
Gregory A. Sigrist
Executive Vice President and
Chief Financial Officer
Principal Accounting Officer:
ff
By:
/s/ BROCK M. LAKELYLL
Brock M. Lakely
Senior Vice President and
Chief Accounting Officer
Hadley S. Robbins, 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, 2019 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]
[Eric S. Forrest]
[Thomas M. Hulbert]
/s/ HADLEY S. ROBBINS
Hadley S. Robbins
Attorney-in-fact
February 27, 2019
[Michelle M. Lantow]
[Randal L. Lund]
[S. Mae Fujita Numata]
[Elizabeth W. Seaton]
[Janine T. Terrano]
[WilliamW
T. Weyerhaeuser]
117
Exhibit No.
2.1 *
3.1
3.2
3.3
3.4
3.5
4.1
4.2
INDEX TO EXHIBITS
Exhibit
Agreement and Plan of Merger, by and among Columbia Banking System, Inc., Pacific Continental
Corporation and Coast Merger Sub, Inc., dated January 9 2017 (1)
Amended and Restated Articles of Incorporation (2)
Articles of Amendment of the Amended and Restated Articles of Incorporation (3)
Articles of Amendment of the Amended and Restated Articles of Incorporation (4)
Articles of Amendment of the Amended and Restated Articles of Incorporation (5)
Amended and Restated Bylaws (6)
Specimen of common stock certificate (7)
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 (8)
10.2**
Form of Stock Option Agreement (9)
10.3**
Form of Restricted Stock Agreement (9)
10.4**
Form of Stock Appreciation Right Agreement (9)
10.5**
Form of Restricted Stock Unit Agreement (9)
10.6**
Form of Long-TermTT
Restricted Stock Agreement (10)
10.7**
Amended and Restated Employee Stock Purchase Plan (11)
10.8
ff
Office
Lease, dated as of December 15, 1999, between the Company and Haub Brothers Enterprises Trust
r
(12)
10.9**
Employment Agreement between the Bank, the Company and Hadley S. Robbins effective
ff
June 28, 2017 (13)
10.10**
Employment Agreement between the Bank, the Company and Melanie J. Dressel effective
ff
August 1, 2004 (14)
10.11**
Amendment to Employment Agreement between the Bank, the Company and Melanie J. Dressel effective
February 1, 2009 (15)
ff
10.12**
Amendment to Employment Agreement effective
Melanie J. Dressel (16)
ff
December 31, 2008 among the Bank, the Company and
10.13**
Amendment to Employment Agreement effective
Melanie J. Dressel (17)
ff
February 27, 2015 among the Bank, the Company and
10.14**
10.15**
10.16**
Change in Control Agreement between the Bank and Kent L. Roberts dated December 4, 2011 (18)
Change in Control Agreement between the Bank and Mark W. Nelson dated as of October 23, 2012 (19)
Change in Control Agreement between the Bank and Clint E. Stein dated as of October 24, 2012 (19)
118
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
Exhibit
10.17**
Form of Long-TermTT
Folsom, Mr. Hulbert, Mr. Matson, Mr. Rodman, Mr. Weyerhaeuser and Mr. Will (20)
Care Agreement between the Bank, the Company,yy and each of the following directors: Mr.
10.18**
Second Amended and Restated Executive Supplemental Compensation Agreements dated as of May 27, 2009
among the Company,yy Columbia State Bank and Melanie J. Dressel (21)
10.19**
Second Amended and Restated Executive Supplemental Compensation Agreements dated as of May 27, 2009
among the Company,yy Columbia State Bank and Mark W. Nelson (21)
10.20**
First Amendment to the Second Amended and Restated Executive Supplemental Compensation Agreement, by
and between the Bank and Melanie J. Dressel, effective
February 27, 2015 (17)
ff
10.21**
Amended and Restated 401 Plus Plan (Deferred Compensation Plan) dated December 14, 2011 for directors
and key employees (18)
10.22**
Form of Supplemental Compensation Agreement between the Bank and Mssrs. Andrew L. McDonald and
Clint E. Stein, respectively (9)
10.23**
Form of Indemnification Agreement between the Company and its directors (16)
10.24**
10.25**
First Amended and Restated Columbia State Bank Supplemental Executive Retirement Plan Agreement, by
and between the Bank and Clint E. Stein, effective
February 27, 2015 (17)
ff
First Amended and Restated Columbia State Bank Supplemental Executive Retirement Plan Agreement, by
and between the Bank and Andrew L. McDonald, effective
February 27, 2015 (17)
ff
10.26**
Change in Control Agreement between the Bank and Hadley S. Robbins dated February 4, 2014 (effective
March 1, 2014) (22)
ff
10.27**
West Coast Bancorp 2002 Stock Incentive Plan (23)
10.28**
West Coast Bancorp 2012 Omnibus Incentive Plan (23)
10.29**
2014 Stock Option and Equity Compensation Plan (24)
10.30**
2014 Form of Restricted Stock Agreement (24)
10.31**
2014 Form of Stock Option Agreement (24)
10.32**
2014 Form of Stock Appreciation Rights Agreement (24)
10.33**
2014 Form of Restricted Stock Unit Agreement (24)
10.34**
2014 Form of Cash Award Agreement (24)
10.35**
First Amended and Restated Columbia State Bank Supplemental Executive Retirement Plan Agreement, by
and between the Bank and David C. Lawson, effective
February 27, 2015 (17)
ff
10.36**
Change in Control Agreement between the Bank and Andrew L. McDonald dated June 1, 2014 (25)
10.37**
Employment Agreement among the Bank, the Company and Hadley S. Robbins dated September 25, 2012 (26)
First Amendment to the Restated and Amended West Coast Bank Supplemental Executive Retirement Plan
Agreement, by and among the Company (as successor-in-interest to the West Coast Bancorp), Bank (as
successor-in-interest to West Coast Bank) and Hadley S. Robbins, effective
February 27, 2015 (17)
ff
10.39**
119
INDEX TO EXHIBITS, CONTINUED
Exhibit
Columbia State Bank Supplemental Executive Retirement Plan Agreement, by and between the Bank and
Hadley S. Robbins, effective
February 27, 2015 (17)
ff
Columbia State Bank Supplemental Executive Retirement Plan Agreement, by and between the Bank and
Kumi Baruffi,ff
February 27, 2015 (17)
ff
effective
Exhibit No.
10.40**
10.41**
10.42**
Columbia State Bank Endorsement Method Split Dollar Agreement (Base Salary Benefit), dated October 30,
2015, by and between Columbia State Bank and Melanie J. Dressel (27)
10.43**
Columbia State Bank Endorsement Method Split Dollar Agreement (SERP Benefit), dated October 30, 2015
by and between Columbia State Bank and Melanie J. Dressel (27)
10.44**
Change in Control Agreement between the Bank and Kumi Baruffiff dated September 1, 2014 (28)
10.45**
Amended and Restated Columbia Banking System, Inc. 2005 401 Plus Plan (Deferred Compensation Plan),
dated October 26, 2016 for directors and key employees (29)
10.46**
Columbia Banking System, Inc. 2016 401 Plus Plan (Deferred Compensation Plan), dated October 26, 2016
for directors and key employees (29)
10.47**
10.48**
10.49**
10.50**
10.51**
First Amendment to the Columbia State Bank Supplemental Executive Retirement Plan Agreement, by and
between the Bank and Kumi Baruffi,ff
November 15, 2017 (31)
ff
effective
First Amendment to the First Amended and Restated Columbia State Bank Supplemental Executive Retirement
Plan Agreement, by and between the Bank and David Lawson, effective
November 15, 2017 (31)
ff
First Amendment to the First Amended and Restated Columbia State Bank Supplemental Executive Retirement
Plan Agreement, by and between the Bank and Andrew L. McDonald, effective
November 15, 2017 (31)
ff
First Amendment to the Columbia State Bank Supplemental Executive Retirement Plan Agreement, by and
between the Bank and Hadley S. Robbins, effective
November 15, 2017 (31)
ff
First Amendment to the First Amended and Restated Columbia State Bank Supplemental Executive Retirement
Plan Agreement, by and between the Bank and Clinton E. Stein, effective
November 15, 2017 (31)
ff
10.52**
Employment Offer
ff
(Greg Sigrist), dated April 20, 2018 (32)
10.53**
2018 Equity Incentive Plan (33)
10.54**
Employment Offer
ff
(Lisa Dow), dated January 3, 2018 (34)
10.55**
Change in Control Agreement between the Bank and Greg Sigrist dated as of June 4, 2018 (34)
10.56**
Change in Control Agreement between the Bank and Lisa Dow dated as of January 24, 2018 (34)
10.57**
Columbia State Bank Endorsement Method Split Dollar Agreement (SERP Benefit), dated July 25, 2018 by
and between Columbia State Bank and Gregory A. Sigrist (35)
10.58**
Columbia State Bank Endorsement Method Split Dollar Agreement (Base Salary Benefit), dated July 25, 2018
by and between Columbia State Bank and Gregory A. Sigrist (35)
10.59**
Columbia State Bank Supplemental Executive Retirement Plan Agreement, by and between the Bank and
Gregory A. Sigrist, effective
July 25th, 2018 (35)
ff
120
INDEX TO EXHIBITS, CONTINUED
Exhibit
First Amendment to Amended and Restated Employee Stock Purchase Plan (35)
Exhibit No.
10.60**
10.61**+
Change in Control Agreement between the Bank and David C. Lawson, dated December 11, 2018
10.62**+
Amended and Restated Executive Supplemental Income Agreement, by and between the Company and Lisa
Dow,ww dated December 26, 2018
14
21+
23+
24+
Code of Ethics (30)
Subsidiaries of the Company
Consent of Deloitte & Touche LLP
Power of Attorney
31.1+
Certification of Chief Executive Officer
ff
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+
Certification of Chief Financial Officer
ff
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32+
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, 2018 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,yy (v) Audited Consolidated
Statements of Cash Flows, and (vi) Notes to Audited Consolidated Financial Statements.
101+
121
__________
(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 January 10, 2017
Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005
Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed November 21, 2008
Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed April 2, 2013
Incorporated by reference to Exhibit 4.4 of the Company’s S-3 Registration Statement (File No. 333-206125) filed August 6, 2015
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
(10)
Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 5, 2010
(11)
Incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010
(12)
Incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000
(13)
Incorporated by reference to Exhibits 10.1 of the Company’s 8-K filed June 29, 2017
(14)
Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
(15)
Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed February 19, 2009
(16)
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
(17)
Incorporated by reference to Exhibits 10.1-10.8 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
(18)
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
(19)
Incorporated by reference to Exhibits 10.1 and 10.2 of the Company’s Current Report on Form 8-K filed October 29, 2012
(20)
Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
(21)
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
(22)
Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013
(23)
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
(24)
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
(25)
Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014
(26)
Incorporated by reference to Exhibit 10.33 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014
(27)
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, 2015
(28)
(29)
Incorporated by reference to Exhibit 10.42 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015
Incorporated by reference to Exhibits 10.1 and 10.2 of the Company’s Current Report on Form 8-K filed October 28, 2016
(30)
Incorporated by reference to Exhibit 14 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003
(31)
Incorporated by reference to Exhibits 10.47-10.51 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017
(32)
Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 4, 2018
(33)
Incorporated by reference to Exhibit 99.1 of the Company’s S-8 Registration Statement (File No. 333-225955) filed June 28, 2018
(34)
Incorporated by reference to Exhibits 10.1, 10.3, and 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018
(35)
Incorporated by reference to Exhibits 10.1-10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018
* The schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or
exhibit will be furnished supplementally to the SEC upon request; provided, however, that the registrant may request confidential treatment of
omitted items.
** Management contract or compensatory plan or arrangement
+ Filed herewith
122
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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 Global Select market 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 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 PR Newswire at www.prnewswire.com
1301 A Street, Tacoma, WA 98402
253-305-1900 / 1-800-305-1905
ColumbiaBank.com
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1301 A Street, Tacoma, WA 98402
253-305-1900 / 800-305-1905
ColumbiaBank.com
Member FDIC