NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
|
|
|
|
1.
|
Basis of Presentation and Significant Accounting Policies
|
Basis of Presentation
The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of Columbia Banking System, Inc. (“we”, “our”, “Columbia” or the “Company”) and its subsidiaries, including its wholly owned banking subsidiary Columbia State Bank (“Columbia Bank” or the “Bank”) and Columbia Trust Company (“Columbia Trust”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the
three
months ended
March 31, 2016
are not necessarily indicative of results to be anticipated for the year ending
December 31, 2016
. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s
2015
Annual Report on Form 10-K.
Because of reclassifications, changes occurred in the manner in which certain comparative period noninterest income items were presented in the unaudited consolidated statements of income. Specifically, fee revenue previously presented as ‘Service charges and other fees’ and certain fee revenue previously presented as ‘Other’ were reclassified to conform to the current period presentation. The Company made these presentation changes to provide additional information about its sources of noninterest income. There was no change to total noninterest income as previously reported as a result of these reclassifications.
Significant Accounting Policies
The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our
2015
Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our
2015
Form 10-K disclosure for the year ended
December 31, 2015
.
|
|
|
|
2.
|
Accounting Pronouncements Recently Issued
|
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The amendments included in this ASU simplify several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The amendments in ASU 2016-09 are effective for the first interim or annual period beginning after December 15, 2016. Early adoption is permitted. The Company is assessing the impact that this guidance will have on its consolidated financial statements as well as whether to early adopt this ASU.
In February 2016, the FASB issued ASU 2016-02,
Leases
. The amendments included in this ASU create a new accounting model for both lessees and lessors. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The amendments in ASU 2016-02 must be adopted using the modified retrospective approach and will be effective for the first interim or annual period beginning after December 15, 2018. Early adoption is permitted. The Company is assessing the impact that this guidance will have on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. The amendments in ASU 2016-01 require all equity investments to be measured at fair value with changes in the fair value recognized through net income. The amendments in ASU 2016-01 also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments in ASU 2016-01 are effective for the first interim or annual period beginning after December 15, 2017. The Company is assessing the impact that this guidance will have on its consolidated financial statements but does not expect the impact to be material.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this update was to be effective for interim and annual periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year and permits companies to voluntarily adopt the new standard as of the original effective date. In March 2016, the FASB issued ASU 2016-08 and ASU 2016-10 to provide implementation guidance for ASU 2014-09. The Company is assessing the impact that this guidance will have on its consolidated financial statements but does not expect the impact to be material.
3. Securities
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
|
|
$
|
1,319,714
|
|
|
$
|
14,247
|
|
|
$
|
(3,861
|
)
|
|
$
|
1,330,100
|
|
|
State and municipal securities
|
|
477,544
|
|
|
14,257
|
|
|
(414
|
)
|
|
491,387
|
|
|
U.S. government agency and government-sponsored enterprise securities
|
|
353,910
|
|
|
5,031
|
|
|
—
|
|
|
358,941
|
|
|
U.S. government securities
|
|
547
|
|
|
—
|
|
|
—
|
|
|
547
|
|
|
Other securities
|
|
5,284
|
|
|
53
|
|
|
(146
|
)
|
|
5,191
|
|
|
Total
|
|
$
|
2,156,999
|
|
|
$
|
33,588
|
|
|
$
|
(4,421
|
)
|
|
$
|
2,186,166
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
|
|
$
|
1,296,955
|
|
|
$
|
4,525
|
|
|
$
|
(14,991
|
)
|
|
$
|
1,286,489
|
|
|
State and municipal securities
|
|
480,417
|
|
|
12,690
|
|
|
(938
|
)
|
|
492,169
|
|
|
U.S. government agency and government-sponsored enterprise securities
|
|
354,515
|
|
|
1,113
|
|
|
(1,846
|
)
|
|
353,782
|
|
|
U.S. government securities
|
|
20,439
|
|
|
—
|
|
|
(302
|
)
|
|
20,137
|
|
|
Other securities
|
|
5,284
|
|
|
24
|
|
|
(191
|
)
|
|
5,117
|
|
|
Total
|
|
$
|
2,157,610
|
|
|
$
|
18,352
|
|
|
$
|
(18,268
|
)
|
|
$
|
2,157,694
|
|
Proceeds from sales of securities available for sale were
$38.9 million
and
$57.2 million
for the
three
months ended
March 31, 2016
and
2015
, respectively. The following table provides the gross realized gains and losses on the sales of securities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Gross realized gains
|
|
$
|
373
|
|
|
$
|
730
|
|
|
Gross realized losses
|
|
—
|
|
|
(9
|
)
|
|
Net realized gains
|
|
$
|
373
|
|
|
$
|
721
|
|
The scheduled contractual maturities of investment securities available for sale at
March 31, 2016
are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Amortized Cost
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Due within one year
|
|
$
|
39,056
|
|
|
$
|
39,243
|
|
|
Due after one year through five years
|
|
435,423
|
|
|
440,733
|
|
|
Due after five years through ten years
|
|
711,190
|
|
|
723,977
|
|
|
Due after ten years
|
|
966,046
|
|
|
977,022
|
|
|
Other securities with no stated maturity
|
|
5,284
|
|
|
5,191
|
|
|
Total investment securities available-for-sale
|
|
$
|
2,156,999
|
|
|
$
|
2,186,166
|
|
The following table summarizes the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
(in thousands)
|
|
Washington and Oregon State to secure public deposits
|
|
$
|
339,424
|
|
|
Federal Reserve Bank to secure borrowings
|
|
48,879
|
|
|
Other securities pledged
|
|
156,551
|
|
|
Total securities pledged as collateral
|
|
$
|
544,854
|
|
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
|
|
$
|
95,313
|
|
|
$
|
(533
|
)
|
|
$
|
190,975
|
|
|
$
|
(3,328
|
)
|
|
$
|
286,288
|
|
|
$
|
(3,861
|
)
|
|
State and municipal securities
|
|
25,702
|
|
|
(125
|
)
|
|
19,010
|
|
|
(289
|
)
|
|
44,712
|
|
|
(414
|
)
|
|
U.S. government agency and government-sponsored enterprise securities
|
|
4,063
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
4,563
|
|
|
—
|
|
|
Other securities
|
|
—
|
|
|
—
|
|
|
2,810
|
|
|
(146
|
)
|
|
2,810
|
|
|
(146
|
)
|
|
Total
|
|
$
|
125,078
|
|
|
$
|
(658
|
)
|
|
$
|
213,295
|
|
|
$
|
(3,763
|
)
|
|
$
|
338,373
|
|
|
$
|
(4,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
|
|
$
|
664,509
|
|
|
$
|
(7,610
|
)
|
|
$
|
214,325
|
|
|
$
|
(7,381
|
)
|
|
$
|
878,834
|
|
|
$
|
(14,991
|
)
|
|
State and municipal securities
|
|
48,261
|
|
|
(358
|
)
|
|
31,383
|
|
|
(580
|
)
|
|
79,644
|
|
|
(938
|
)
|
|
U.S. government agency and government-sponsored enterprise securities
|
|
193,400
|
|
|
(1,128
|
)
|
|
40,034
|
|
|
(718
|
)
|
|
233,434
|
|
|
(1,846
|
)
|
|
U.S. government securities
|
|
10,343
|
|
|
(136
|
)
|
|
9,794
|
|
|
(166
|
)
|
|
20,137
|
|
|
(302
|
)
|
|
Other securities
|
|
2,300
|
|
|
(15
|
)
|
|
2,780
|
|
|
(176
|
)
|
|
5,080
|
|
|
(191
|
)
|
|
Total
|
|
$
|
918,813
|
|
|
$
|
(9,247
|
)
|
|
$
|
298,316
|
|
|
$
|
(9,021
|
)
|
|
$
|
1,217,129
|
|
|
$
|
(18,268
|
)
|
At
March 31, 2016
, there were
74
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which
45
were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at
March 31, 2016
.
At
March 31, 2016
, there were
40
state and municipal government securities in an unrealized loss position, of which
20
were in a continuous loss position for 12 months or more. The unrealized losses on state and municipal securities were caused by interest rate changes or widening of market spreads subsequent to the purchase of the individual securities. Management monitors published credit ratings of these securities for adverse changes. As of
March 31, 2016
, none of the rated obligations of state and local government entities held by the Company had a below investment grade credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at
March 31, 2016
.
At
March 31, 2016
, there were
two
U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, of which
one
was in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at
March 31, 2016
.
At
March 31, 2016
, there was
one
other security in an unrealized loss position, which was in a continuous unrealized loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates and the additional risk premium investors are demanding for investment securities with these characteristics. The Company does not consider this investment to be other-than-temporarily impaired at
March 31, 2016
as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.
4. Loans
The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments are referred to collectively as loans, excluding purchased credit impaired loans. Purchased loans for which there was, at acquisition date, evidence of credit deterioration since their origination and it was probable that we would be unable to collect all contractually required payments are referred to as purchased credit impaired loans, or “PCI loans.”
The following is an analysis of the loan portfolio by segment (net of unearned income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
Loans, excluding PCI loans
|
|
PCI Loans
|
|
Total
|
|
Loans, excluding PCI loans
|
|
PCI Loans
|
|
Total
|
|
|
|
(in thousands)
|
|
Commercial business
|
|
$
|
2,401,193
|
|
|
$
|
34,474
|
|
|
$
|
2,435,667
|
|
|
$
|
2,362,575
|
|
|
$
|
34,848
|
|
|
$
|
2,397,423
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
175,050
|
|
|
22,720
|
|
|
197,770
|
|
|
176,295
|
|
|
23,938
|
|
|
200,233
|
|
|
Commercial and multifamily residential
|
|
2,520,352
|
|
|
93,979
|
|
|
2,614,331
|
|
|
2,491,736
|
|
|
99,389
|
|
|
2,591,125
|
|
|
Total real estate
|
|
2,695,402
|
|
|
116,699
|
|
|
2,812,101
|
|
|
2,668,031
|
|
|
123,327
|
|
|
2,791,358
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
133,447
|
|
|
2,163
|
|
|
135,610
|
|
|
135,874
|
|
|
2,278
|
|
|
138,152
|
|
|
Commercial and multifamily residential
|
|
183,548
|
|
|
1,618
|
|
|
185,166
|
|
|
167,413
|
|
|
1,630
|
|
|
169,043
|
|
|
Total real estate construction
|
|
316,995
|
|
|
3,781
|
|
|
320,776
|
|
|
303,287
|
|
|
3,908
|
|
|
307,195
|
|
|
Consumer
|
|
329,902
|
|
|
18,247
|
|
|
348,149
|
|
|
342,601
|
|
|
18,823
|
|
|
361,424
|
|
|
Less: Net unearned income
|
|
(39,410
|
)
|
|
—
|
|
|
(39,410
|
)
|
|
(42,373
|
)
|
|
—
|
|
|
(42,373
|
)
|
|
Total loans, net of unearned income
|
|
5,704,082
|
|
|
173,201
|
|
|
5,877,283
|
|
|
5,634,121
|
|
|
180,906
|
|
|
5,815,027
|
|
|
Less: Allowance for loan and lease losses
|
|
(56,200
|
)
|
|
(13,064
|
)
|
|
(69,264
|
)
|
|
(54,446
|
)
|
|
(13,726
|
)
|
|
(68,172
|
)
|
|
Total loans, net
|
|
$
|
5,647,882
|
|
|
$
|
160,137
|
|
|
$
|
5,808,019
|
|
|
$
|
5,579,675
|
|
|
$
|
167,180
|
|
|
$
|
5,746,855
|
|
|
Loans held for sale
|
|
$
|
3,681
|
|
|
$
|
—
|
|
|
$
|
3,681
|
|
|
$
|
4,509
|
|
|
$
|
—
|
|
|
$
|
4,509
|
|
At
March 31, 2016
and
December 31, 2015
, the Company had no material foreign activities. Substantially all of the Company’s loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington, Oregon and Idaho.
The Company has made loans to executive officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans was
$9.9 million
at
March 31, 2016
and
$10.0 million
at
December 31, 2015
. During the first
three
months of
2016
, there were
$55 thousand
in advances and
$96 thousand
in repayments.
At
March 31, 2016
and
December 31, 2015
,
$2.21 billion
and
$2.22 billion
of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank of Des Moines (“FHLB”) borrowings and additional borrowing capacity. The Company has also pledged
$50.2 million
and
$50.1 million
of commercial loans to the Federal Reserve Bank for additional borrowing capacity at
March 31, 2016
and
December 31, 2015
, respectively.
The following is an analysis of nonaccrual loans as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
Recorded
Investment
Nonaccrual
Loans
|
|
Unpaid Principal
Balance
Nonaccrual
Loans
|
|
Recorded
Investment
Nonaccrual
Loans
|
|
Unpaid Principal
Balance
Nonaccrual
Loans
|
|
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
22,452
|
|
|
$
|
31,039
|
|
|
$
|
9,395
|
|
|
$
|
15,688
|
|
|
Unsecured
|
|
107
|
|
|
331
|
|
|
42
|
|
|
256
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
730
|
|
|
1,702
|
|
|
820
|
|
|
1,866
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
238
|
|
|
247
|
|
|
349
|
|
|
332
|
|
|
Income property
|
|
2,897
|
|
|
3,185
|
|
|
2,843
|
|
|
3,124
|
|
|
Owner occupied
|
|
4,982
|
|
|
7,473
|
|
|
6,321
|
|
|
8,943
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
205
|
|
|
231
|
|
|
362
|
|
|
385
|
|
|
Residential construction
|
|
563
|
|
|
563
|
|
|
566
|
|
|
679
|
|
|
Consumer
|
|
4,717
|
|
|
4,985
|
|
|
766
|
|
|
990
|
|
|
Total
|
|
$
|
36,891
|
|
|
$
|
49,756
|
|
|
$
|
21,464
|
|
|
$
|
32,263
|
|
Loans, excluding purchased credit impaired loans
The following is an aging of the recorded investment of the loan portfolio as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Loans
|
|
30 - 59
Days
Past Due
|
|
60 - 89
Days
Past Due
|
|
Greater
than 90
Days Past
Due
|
|
Total
Past Due
|
|
Nonaccrual
Loans
|
|
Total Loans
|
|
March 31, 2016
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
2,277,121
|
|
|
$
|
4,148
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
4,459
|
|
|
$
|
22,452
|
|
|
$
|
2,304,032
|
|
|
Unsecured
|
|
91,785
|
|
|
684
|
|
|
—
|
|
|
—
|
|
|
684
|
|
|
107
|
|
|
92,576
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
170,846
|
|
|
686
|
|
|
62
|
|
|
—
|
|
|
748
|
|
|
730
|
|
|
172,324
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
218,925
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
238
|
|
|
219,163
|
|
|
Income property
|
|
1,321,566
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,897
|
|
|
1,324,463
|
|
|
Owner occupied
|
|
946,635
|
|
|
4,577
|
|
|
—
|
|
|
—
|
|
|
4,577
|
|
|
4,982
|
|
|
956,194
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
12,915
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
205
|
|
|
13,120
|
|
|
Residential construction
|
|
119,125
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
563
|
|
|
119,688
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
86,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86,584
|
|
|
Owner occupied
|
|
94,743
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
94,743
|
|
|
Consumer
|
|
314,197
|
|
|
1,541
|
|
|
740
|
|
|
—
|
|
|
2,281
|
|
|
4,717
|
|
|
321,195
|
|
|
Total
|
|
$
|
5,654,442
|
|
|
$
|
11,636
|
|
|
$
|
1,113
|
|
|
$
|
—
|
|
|
$
|
12,749
|
|
|
$
|
36,891
|
|
|
$
|
5,704,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Loans
|
|
30 - 59
Days
Past Due
|
|
60 - 89
Days
Past Due
|
|
Greater
than 90
Days Past
Due
|
|
Total
Past Due
|
|
Nonaccrual
Loans
|
|
Total Loans
|
|
December 31, 2015
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
2,241,069
|
|
|
$
|
11,611
|
|
|
$
|
617
|
|
|
$
|
—
|
|
|
$
|
12,228
|
|
|
$
|
9,395
|
|
|
$
|
2,262,692
|
|
|
Unsecured
|
|
94,867
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
42
|
|
|
94,948
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
170,913
|
|
|
1,637
|
|
|
66
|
|
|
—
|
|
|
1,703
|
|
|
820
|
|
|
173,436
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
212,740
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
69
|
|
|
349
|
|
|
213,158
|
|
|
Income property
|
|
1,305,502
|
|
|
1,750
|
|
|
684
|
|
|
—
|
|
|
2,434
|
|
|
2,843
|
|
|
1,310,779
|
|
|
Owner occupied
|
|
939,396
|
|
|
599
|
|
|
—
|
|
|
—
|
|
|
599
|
|
|
6,321
|
|
|
946,316
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
14,388
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
362
|
|
|
14,750
|
|
|
Residential construction
|
|
119,809
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
566
|
|
|
120,375
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
83,634
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83,634
|
|
|
Owner occupied
|
|
81,671
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,671
|
|
|
Consumer
|
|
328,219
|
|
|
2,597
|
|
|
780
|
|
|
—
|
|
|
3,377
|
|
|
766
|
|
|
332,362
|
|
|
Total
|
|
$
|
5,592,208
|
|
|
$
|
18,302
|
|
|
$
|
2,147
|
|
|
$
|
—
|
|
|
$
|
20,449
|
|
|
$
|
21,464
|
|
|
$
|
5,634,121
|
|
The following is an analysis of impaired loans as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
|
|
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
|
|
Impaired Loans With
Recorded Allowance
|
|
Impaired Loans Without
Recorded Allowance
|
|
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
March 31, 2016
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
2,285,351
|
|
|
$
|
18,681
|
|
|
$
|
11,861
|
|
|
$
|
11,996
|
|
|
$
|
2,500
|
|
|
$
|
6,820
|
|
|
$
|
12,314
|
|
|
Unsecured
|
|
92,576
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
171,660
|
|
|
664
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
664
|
|
|
1,093
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
219,163
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income property
|
|
1,322,410
|
|
|
2,053
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,053
|
|
|
2,257
|
|
|
Owner occupied
|
|
951,216
|
|
|
4,978
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,978
|
|
|
7,390
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
12,810
|
|
|
310
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
310
|
|
|
334
|
|
|
Residential construction
|
|
119,126
|
|
|
562
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
562
|
|
|
562
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
86,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Owner occupied
|
|
94,743
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Consumer
|
|
319,628
|
|
|
1,567
|
|
|
15
|
|
|
15
|
|
|
15
|
|
|
1,552
|
|
|
1,634
|
|
|
Total
|
|
$
|
5,675,267
|
|
|
$
|
28,815
|
|
|
$
|
11,876
|
|
|
$
|
12,011
|
|
|
$
|
2,515
|
|
|
$
|
16,939
|
|
|
$
|
25,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment
of Loans
Collectively Measured
for Contingency
Provision
|
|
Recorded Investment
of Loans
Individually
Measured for
Specific
Impairment
|
|
Impaired Loans With
Recorded Allowance
|
|
Impaired Loans Without
Recorded Allowance
|
|
|
|
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
December 31, 2015
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
2,257,168
|
|
|
$
|
5,524
|
|
|
$
|
690
|
|
|
$
|
718
|
|
|
$
|
321
|
|
|
$
|
4,834
|
|
|
$
|
6,455
|
|
|
Unsecured
|
|
94,948
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
172,150
|
|
|
1,286
|
|
|
314
|
|
|
339
|
|
|
314
|
|
|
972
|
|
|
1,397
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
213,158
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income property
|
|
1,308,673
|
|
|
2,106
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,106
|
|
|
2,311
|
|
|
Owner occupied
|
|
940,261
|
|
|
6,055
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,055
|
|
|
8,528
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
14,283
|
|
|
467
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
467
|
|
|
490
|
|
|
Residential construction
|
|
119,813
|
|
|
562
|
|
|
335
|
|
|
335
|
|
|
3
|
|
|
227
|
|
|
227
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
83,634
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Owner occupied
|
|
81,671
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Consumer
|
|
332,282
|
|
|
80
|
|
|
15
|
|
|
15
|
|
|
15
|
|
|
65
|
|
|
139
|
|
|
Total
|
|
$
|
5,618,041
|
|
|
$
|
16,080
|
|
|
$
|
1,354
|
|
|
$
|
1,407
|
|
|
$
|
653
|
|
|
$
|
14,726
|
|
|
$
|
19,547
|
|
The following table provides additional information on impaired loans for the
three
month periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
Average Recorded
Investment
Impaired Loans
|
|
Interest Recognized
on
Impaired Loans
|
|
Average Recorded
Investment
Impaired Loans
|
|
Interest Recognized
on
Impaired Loans
|
|
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
12,103
|
|
|
$
|
17
|
|
|
$
|
10,698
|
|
|
$
|
7
|
|
|
Unsecured
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
975
|
|
|
6
|
|
|
3,162
|
|
|
13
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
—
|
|
|
—
|
|
|
235
|
|
|
—
|
|
|
Income property
|
|
2,080
|
|
|
3
|
|
|
4,168
|
|
|
10
|
|
|
Owner occupied
|
|
5,516
|
|
|
7
|
|
|
7,938
|
|
|
234
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
388
|
|
|
1
|
|
|
544
|
|
|
1
|
|
|
Residential construction
|
|
562
|
|
|
—
|
|
|
446
|
|
|
—
|
|
|
Consumer
|
|
824
|
|
|
2
|
|
|
404
|
|
|
2
|
|
|
Total
|
|
$
|
22,448
|
|
|
$
|
36
|
|
|
$
|
27,596
|
|
|
$
|
267
|
|
The following is an analysis of loans classified as troubled debt restructurings (“TDR”) during the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
Three months ended March 31, 2015
|
|
|
|
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
|
|
3
|
|
|
$
|
1,370
|
|
|
$
|
1,370
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
1
|
|
|
250
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Consumer
|
|
4
|
|
|
497
|
|
|
497
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
8
|
|
|
$
|
2,117
|
|
|
$
|
2,117
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s loans classified as TDR are loans that have been modified or the borrower has been granted special concessions due to financial difficulties that, if not for the challenges of the borrower, the Company would not otherwise consider. The 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 discounted cash flows or observable market price) of the impaired loan is lower than the recorded investment of that loan.
The Company had commitments to lend
$7 thousand
of additional funds on loans classified as TDR as of
March 31, 2016
. The Company had
no
such commitments at
December 31, 2015
. The Company did not have any loans modified as TDR that defaulted within twelve months of being modified as TDR during the
three
month periods ended
March 31, 2016
and
2015
.
Purchased Credit Impaired Loans
Purchased credit impaired (“PCI”) loans are accounted for under ASC 310-30 and initially measured at fair value based on expected future cash flows over the life of the loans. Loans that have common risk characteristics are aggregated into pools. The Company remeasures contractual and expected cash flows, at the pool-level, on a quarterly basis.
Contractual cash flows are calculated based upon the loan pool terms after applying a prepayment factor. Calculation of the applied prepayment factor for contractual cash flows is the same as described below for expected cash flows.
Inputs to the determination of expected cash flows include cumulative default and prepayment data as well as loss severity and recovery lag information. Cumulative default and prepayment data are calculated via a transition matrix. The transition matrix is a matrix of probability values that specifies the probability of a loan pool transitioning into a particular delinquency state (e.g. 0-30 days past due, 31 to 60 days, etc.) given its delinquency state at the remeasurement date. Loss severity factors are based upon either actual charge-off data within the loan pools or industry averages and recovery lags are based upon the collateral within the loan pools.
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.
The following is an analysis of our PCI loans, net of related allowance for losses and remaining valuation discounts as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
(in thousands)
|
|
Commercial business
|
|
$
|
38,209
|
|
|
$
|
38,784
|
|
|
Real estate:
|
|
|
|
|
|
One-to-four family residential
|
|
25,766
|
|
|
27,195
|
|
|
Commercial and multifamily residential
|
|
100,384
|
|
|
106,308
|
|
|
Total real estate
|
|
126,150
|
|
|
133,503
|
|
|
Real estate construction:
|
|
|
|
|
|
One-to-four family residential
|
|
2,200
|
|
|
2,326
|
|
|
Commercial and multifamily residential
|
|
1,809
|
|
|
1,834
|
|
|
Total real estate construction
|
|
4,009
|
|
|
4,160
|
|
|
Consumer
|
|
20,226
|
|
|
20,903
|
|
|
Subtotal of PCI loans
|
|
188,594
|
|
|
197,350
|
|
|
Less:
|
|
|
|
|
|
Valuation discount resulting from acquisition accounting
|
|
15,393
|
|
|
16,444
|
|
|
Allowance for loan losses
|
|
13,064
|
|
|
13,726
|
|
|
PCI loans, net of allowance for loan losses
|
|
$
|
160,137
|
|
|
$
|
167,180
|
|
The following table shows the changes in accretable yield for PCI loans for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
58,981
|
|
|
$
|
73,849
|
|
|
Accretion
|
|
(4,229
|
)
|
|
(6,319
|
)
|
|
Disposals
|
|
94
|
|
|
(1,093
|
)
|
|
Reclassifications from nonaccretable difference
|
|
1,761
|
|
|
2,289
|
|
|
Balance at end of period
|
|
$
|
56,607
|
|
|
$
|
68,726
|
|
5. Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit
Loans, excluding PCI loans
We maintain an allowance for loan and lease losses (“ALLL”) to absorb losses inherent in the loan portfolio. The size of the ALLL is determined through quarterly assessments of the probable estimated losses in the loan portfolio. Our methodology for making such assessments and determining the adequacy of the ALLL includes the following key elements:
|
|
|
|
1.
|
General valuation allowance consistent with the Contingencies topic of the FASB ASC.
|
|
|
|
|
2.
|
Classified loss reserves on specific relationships. Specific allowances for identified problem loans are determined in accordance with the Receivables topic of the FASB ASC.
|
|
|
|
|
3.
|
The unallocated allowance provides for other factors inherent in our loan portfolio that may not have been contemplated in the general and specific components of the allowance. This unallocated amount generally comprises less than
5%
of the allowance. The unallocated amount is reviewed quarterly based on trends in credit losses, the results of credit reviews and overall economic trends.
|
The general valuation allowance is calculated quarterly using quantitative and qualitative information about specific loan classes. The minimum required level with respect to which an entity develops a methodology to determine its ALLL is by general categories of loans, such as commercial business, real estate, and consumer. However, the Company’s methodology in determining its ALLL is prepared in a more detailed manner at the loan class level, utilizing specific categories such as commercial business secured, commercial business unsecured, real estate commercial land, and real estate income property multifamily. The quantitative information uses historical losses from a specific loan class and incorporates the loan’s risk rating migration from origination to the point of loss based upon the consideration of an appropriate look back period.
A loan’s risk rating is primarily determined based upon the borrower’s ability to fulfill its debt obligation from a cash flow perspective. In the event there is financial deterioration of the borrower, the borrower’s other sources of income or repayment are also considered, including recent appraisal values for collateral dependent loans. The qualitative information takes into account general economic and business conditions affecting our marketplace, seasoning of the loan portfolio, duration of the business cycle, etc. to ensure our methodologies reflect the current economic environment and other factors as using historical loss information exclusively may not give an accurate estimate of inherent losses within the Company’s loan portfolio.
When a loan is deemed to be impaired, the Company has to determine if a specific valuation allowance is required for that loan. The specific valuation allowance is a reserve, calculated at the individual loan level, for each loan determined to be both impaired and containing a value less than its recorded investment. The Company measures the impairment based on the discounted expected future cash flows, observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent or if foreclosure is probable. The specific reserve for each loan is equal to the difference between the recorded investment in the loan and its determined impairment value.
The ALLL is increased by provisions for loan and lease losses (“provision”) charged to expense, and is reduced by loans charged off, net of recoveries or a recovery of previous provisions. While the Company’s management believes the best information available is used to determine the ALLL, changes in market conditions could result in adjustments to the ALLL, affecting net income, if circumstances differ from the assumptions used in determining the ALLL.
We have used the same methodology for ALLL calculations during the
three
months ended
March 31, 2016
and
2015
. Adjustments to the percentages of the ALLL allocated to loan categories are made based on trends with respect to delinquencies and problem loans within each class of loans. The Company reviews the ALLL quantitative and qualitative methodology on a quarterly basis and makes adjustments when appropriate. The Company continues to make revisions to its ALLL as necessary to maintain adequate reserves. The Company carefully monitors the loan portfolio and continues to emphasize the importance of credit quality.
Once it is determined that all or a portion of a loan balance is uncollectable, and the amount can be reasonably estimated, the uncollectable portion of the loan is charged-off.
PCI Loans
Purchased credit impaired loans that have common risk characteristics are aggregated into loan pools. When required, we record impairment, at the pool-level, to adjust the pool’s carrying value to its net present value of expected future cash flows. Quarterly, we re-measure expected loan pool cash flows. If, due to credit deterioration, the present value of expected cash flows is less than carrying value, we reduce the loan pool’s carrying value by adjusting the ALLL with an impairment charge to earnings which is recorded as provision for loan losses. If credit quality improves and the present value of expected cash flows exceeds carrying value, we increase the loan pool’s carrying value by recapturing previously recorded ALLL, if any. See Note 4, Loans, for further discussion of the accounting for PCI loans.
Credit losses attributable to draws on purchased credit impaired loans, advanced subsequent to the loan purchase date, are accounted for under ASC 450-20 and those amounts are also subject to the Company’s internal and external credit review. An ALLL is estimated in a similar manner as loans, excluding PCI loans, and a provision for loan losses is charged to earnings as necessary.
The following tables show a detailed analysis of the ALLL for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Charge-offs
|
|
Recoveries
|
|
Provision (Recovery)
|
|
Ending
Balance
|
|
Specific
Reserve
|
|
General
Allocation
|
|
Three months ended March 31, 2016
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
32,321
|
|
|
$
|
(3,770
|
)
|
|
$
|
611
|
|
|
$
|
2,952
|
|
|
$
|
32,114
|
|
|
$
|
2,500
|
|
|
$
|
29,614
|
|
|
Unsecured
|
|
1,299
|
|
|
(3
|
)
|
|
51
|
|
|
(47
|
)
|
|
1,300
|
|
|
—
|
|
|
1,300
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
916
|
|
|
—
|
|
|
41
|
|
|
(303
|
)
|
|
654
|
|
|
—
|
|
|
654
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
1,178
|
|
|
—
|
|
|
—
|
|
|
84
|
|
|
1,262
|
|
|
—
|
|
|
1,262
|
|
|
Income property
|
|
6,616
|
|
|
—
|
|
|
61
|
|
|
725
|
|
|
7,402
|
|
|
—
|
|
|
7,402
|
|
|
Owner occupied
|
|
5,550
|
|
|
—
|
|
|
8
|
|
|
528
|
|
|
6,086
|
|
|
—
|
|
|
6,086
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
339
|
|
|
—
|
|
|
51
|
|
|
250
|
|
|
640
|
|
|
—
|
|
|
640
|
|
|
Residential construction
|
|
733
|
|
|
—
|
|
|
203
|
|
|
513
|
|
|
1,449
|
|
|
—
|
|
|
1,449
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
388
|
|
|
—
|
|
|
1
|
|
|
326
|
|
|
715
|
|
|
—
|
|
|
715
|
|
|
Owner occupied
|
|
1,006
|
|
|
—
|
|
|
—
|
|
|
204
|
|
|
1,210
|
|
|
—
|
|
|
1,210
|
|
|
Consumer
|
|
3,531
|
|
|
(266
|
)
|
|
165
|
|
|
(62
|
)
|
|
3,368
|
|
|
15
|
|
|
3,353
|
|
|
Purchased credit impaired
|
|
13,726
|
|
|
(2,866
|
)
|
|
1,551
|
|
|
653
|
|
|
13,064
|
|
|
—
|
|
|
13,064
|
|
|
Unallocated
|
|
569
|
|
|
—
|
|
|
—
|
|
|
(569
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
68,172
|
|
|
$
|
(6,905
|
)
|
|
$
|
2,743
|
|
|
$
|
5,254
|
|
|
$
|
69,264
|
|
|
$
|
2,515
|
|
|
$
|
66,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Charge-offs
|
|
Recoveries
|
|
Provision (Recovery)
|
|
Ending
Balance
|
|
Specific
Reserve
|
|
General
Allocation
|
|
Three months ended March 31, 2015
|
|
(in thousands)
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
25,923
|
|
|
$
|
(1,386
|
)
|
|
$
|
512
|
|
|
$
|
712
|
|
|
$
|
25,761
|
|
|
$
|
24
|
|
|
$
|
25,737
|
|
|
Unsecured
|
|
927
|
|
|
(40
|
)
|
|
106
|
|
|
19
|
|
|
1,012
|
|
|
—
|
|
|
1,012
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
2,281
|
|
|
(8
|
)
|
|
12
|
|
|
(921
|
)
|
|
1,364
|
|
|
115
|
|
|
1,249
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
799
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
827
|
|
|
—
|
|
|
827
|
|
|
Income property
|
|
9,159
|
|
|
—
|
|
|
3,252
|
|
|
(3,971
|
)
|
|
8,440
|
|
|
—
|
|
|
8,440
|
|
|
Owner occupied
|
|
5,007
|
|
|
—
|
|
|
9
|
|
|
596
|
|
|
5,612
|
|
|
24
|
|
|
5,588
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
1,197
|
|
|
—
|
|
|
2
|
|
|
(173
|
)
|
|
1,026
|
|
|
67
|
|
|
959
|
|
|
Residential construction
|
|
1,860
|
|
|
—
|
|
|
26
|
|
|
(96
|
)
|
|
1,790
|
|
|
—
|
|
|
1,790
|
|
|
Commercial & multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
622
|
|
|
—
|
|
|
3
|
|
|
202
|
|
|
827
|
|
|
—
|
|
|
827
|
|
|
Owner occupied
|
|
434
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
499
|
|
|
—
|
|
|
499
|
|
|
Consumer
|
|
3,180
|
|
|
(891
|
)
|
|
273
|
|
|
273
|
|
|
2,835
|
|
|
—
|
|
|
2,835
|
|
|
Purchased credit impaired
|
|
16,336
|
|
|
(4,100
|
)
|
|
1,686
|
|
|
2,609
|
|
|
16,531
|
|
|
—
|
|
|
16,531
|
|
|
Unallocated
|
|
1,844
|
|
|
—
|
|
|
—
|
|
|
1,866
|
|
|
3,710
|
|
|
—
|
|
|
3,710
|
|
|
Total
|
|
$
|
69,569
|
|
|
$
|
(6,425
|
)
|
|
$
|
5,881
|
|
|
$
|
1,209
|
|
|
$
|
70,234
|
|
|
$
|
230
|
|
|
$
|
70,004
|
|
Changes in the allowance for unfunded commitments and letters of credit, a component of other liabilities in the consolidated balance sheet, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
2,930
|
|
|
$
|
2,655
|
|
|
Net changes in the allowance for unfunded commitments and letters of credit
|
|
—
|
|
|
—
|
|
|
Balance at end of period
|
|
$
|
2,930
|
|
|
$
|
2,655
|
|
Risk Elements
The extension of credit in the form of loans or other credit products to individuals and businesses is one of our principal business activities. Our policies and applicable laws and regulations require risk analysis as well as ongoing portfolio and credit management. We manage our credit risk through lending limit constraints, credit review, approval policies and extensive, ongoing internal monitoring. We also manage credit risk through diversification of the loan portfolio by type of loan, type of industry 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, 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 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 reported as classified loans in our ALLL analysis. We review these loans to assess the ability of our borrowers to service all interest and principal obligations and, as a result, the risk rating may be adjusted accordingly. 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.
The following is an analysis of the credit quality of our loan portfolio, excluding PCI loans, as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
March 31, 2016
|
|
(in thousands)
|
|
Loans, excluding PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
2,185,283
|
|
|
$
|
54,957
|
|
|
$
|
63,792
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,304,032
|
|
|
Unsecured
|
|
91,737
|
|
|
277
|
|
|
562
|
|
|
—
|
|
|
—
|
|
|
92,576
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
170,788
|
|
|
461
|
|
|
1,075
|
|
|
—
|
|
|
—
|
|
|
172,324
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
213,936
|
|
|
4,804
|
|
|
423
|
|
|
—
|
|
|
—
|
|
|
219,163
|
|
|
Income property
|
|
1,306,718
|
|
|
6,394
|
|
|
11,351
|
|
|
—
|
|
|
—
|
|
|
1,324,463
|
|
|
Owner occupied
|
|
933,090
|
|
|
7,978
|
|
|
15,126
|
|
|
—
|
|
|
—
|
|
|
956,194
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
12,915
|
|
|
—
|
|
|
205
|
|
|
—
|
|
|
—
|
|
|
13,120
|
|
|
Residential construction
|
|
118,843
|
|
|
—
|
|
|
845
|
|
|
—
|
|
|
—
|
|
|
119,688
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
86,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86,584
|
|
|
Owner occupied
|
|
90,807
|
|
|
—
|
|
|
3,936
|
|
|
—
|
|
|
—
|
|
|
94,743
|
|
|
Consumer
|
|
313,249
|
|
|
—
|
|
|
7,946
|
|
|
—
|
|
|
—
|
|
|
321,195
|
|
|
Total
|
|
$
|
5,523,950
|
|
|
$
|
74,871
|
|
|
$
|
105,261
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
5,704,082
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
56,200
|
|
|
Loans, excluding PCI loans, net
|
|
$
|
5,647,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
December 31, 2015
|
|
(in thousands)
|
|
Loans, excluding PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
2,146,729
|
|
|
$
|
59,746
|
|
|
$
|
56,217
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,262,692
|
|
|
Unsecured
|
|
93,347
|
|
|
278
|
|
|
1,323
|
|
|
—
|
|
|
—
|
|
|
94,948
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
171,945
|
|
|
52
|
|
|
1,439
|
|
|
—
|
|
|
—
|
|
|
173,436
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
207,768
|
|
|
4,966
|
|
|
424
|
|
|
—
|
|
|
—
|
|
|
213,158
|
|
|
Income property
|
|
1,296,043
|
|
|
5,889
|
|
|
8,847
|
|
|
—
|
|
|
—
|
|
|
1,310,779
|
|
|
Owner occupied
|
|
918,986
|
|
|
9,668
|
|
|
17,662
|
|
|
—
|
|
|
—
|
|
|
946,316
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
14,388
|
|
|
—
|
|
|
362
|
|
|
—
|
|
|
—
|
|
|
14,750
|
|
|
Residential construction
|
|
119,243
|
|
|
—
|
|
|
1,132
|
|
|
—
|
|
|
—
|
|
|
120,375
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
83,634
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83,634
|
|
|
Owner occupied
|
|
81,270
|
|
|
—
|
|
|
401
|
|
|
—
|
|
|
—
|
|
|
81,671
|
|
|
Consumer
|
|
328,286
|
|
|
—
|
|
|
4,076
|
|
|
—
|
|
|
—
|
|
|
332,362
|
|
|
Total
|
|
$
|
5,461,639
|
|
|
$
|
80,599
|
|
|
$
|
91,883
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
5,634,121
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
54,446
|
|
|
Loans, excluding PCI loans, net
|
|
$
|
5,579,675
|
|
The following is an analysis of the credit quality of our PCI loan portfolio as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
March 31, 2016
|
|
(in thousands)
|
|
PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
31,706
|
|
|
$
|
99
|
|
|
$
|
5,297
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,102
|
|
|
Unsecured
|
|
1,106
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1,107
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
23,766
|
|
|
—
|
|
|
2,000
|
|
|
—
|
|
|
—
|
|
|
25,766
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
8,037
|
|
|
—
|
|
|
623
|
|
|
—
|
|
|
—
|
|
|
8,660
|
|
|
Income property
|
|
33,558
|
|
|
—
|
|
|
3,970
|
|
|
—
|
|
|
—
|
|
|
37,528
|
|
|
Owner occupied
|
|
52,487
|
|
|
—
|
|
|
1,709
|
|
|
—
|
|
|
—
|
|
|
54,196
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
1,143
|
|
|
—
|
|
|
315
|
|
|
—
|
|
|
—
|
|
|
1,458
|
|
|
Residential construction
|
|
414
|
|
|
—
|
|
|
328
|
|
|
—
|
|
|
—
|
|
|
742
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
1,283
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,283
|
|
|
Owner occupied
|
|
526
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
526
|
|
|
Consumer
|
|
19,531
|
|
|
—
|
|
|
695
|
|
|
—
|
|
|
—
|
|
|
20,226
|
|
|
Total
|
|
$
|
173,557
|
|
|
$
|
99
|
|
|
$
|
14,938
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
188,594
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation discount resulting from acquisition accounting
|
|
15,393
|
|
|
Allowance for loan losses
|
|
13,064
|
|
|
PCI loans, net
|
|
$
|
160,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
December 31, 2015
|
|
(in thousands)
|
|
PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
31,468
|
|
|
$
|
101
|
|
|
$
|
5,995
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,564
|
|
|
Unsecured
|
|
1,218
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
25,018
|
|
|
—
|
|
|
2,177
|
|
|
—
|
|
|
—
|
|
|
27,195
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial land
|
|
8,234
|
|
|
—
|
|
|
664
|
|
|
—
|
|
|
—
|
|
|
8,898
|
|
|
Income property
|
|
36,426
|
|
|
—
|
|
|
5,916
|
|
|
—
|
|
|
—
|
|
|
42,342
|
|
|
Owner occupied
|
|
53,071
|
|
|
261
|
|
|
1,736
|
|
|
—
|
|
|
—
|
|
|
55,068
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and acquisition
|
|
1,086
|
|
|
—
|
|
|
479
|
|
|
—
|
|
|
—
|
|
|
1,565
|
|
|
Residential construction
|
|
427
|
|
|
—
|
|
|
334
|
|
|
—
|
|
|
—
|
|
|
761
|
|
|
Commercial and multifamily residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income property
|
|
1,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,303
|
|
|
Owner occupied
|
|
531
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
531
|
|
|
Consumer
|
|
20,122
|
|
|
—
|
|
|
781
|
|
|
—
|
|
|
—
|
|
|
20,903
|
|
|
Total
|
|
$
|
178,904
|
|
|
$
|
362
|
|
|
$
|
18,084
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
197,350
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation discount resulting from acquisition accounting
|
|
16,444
|
|
|
Allowance for loan losses
|
|
13,726
|
|
|
PCI loans, net
|
|
$
|
167,180
|
|
6. Other Real Estate Owned (“OREO”)
The following tables set forth activity in OREO for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
13,738
|
|
|
$
|
22,190
|
|
|
Transfers in
|
|
105
|
|
|
4,692
|
|
|
Valuation adjustments
|
|
(137
|
)
|
|
(197
|
)
|
|
Proceeds from sale of OREO property
|
|
(1,326
|
)
|
|
(5,122
|
)
|
|
Gain on sale of OREO, net
|
|
47
|
|
|
1,736
|
|
|
Balance, end of period
|
|
$
|
12,427
|
|
|
$
|
23,299
|
|
At
March 31, 2016
, the carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession was
$2.2 million
and the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was
$1.3 million
.
7. FDIC Loss-sharing Asset and Covered Assets
We are a party to eight loss-sharing agreements with the FDIC relating to four FDIC-assisted acquisitions. Such agreements cover a substantial portion of losses incurred on acquired covered loans and OREO. The loss-sharing agreements relate to the acquisitions of (1) Columbia River Bank in January 2010, (2) American Marine Bank in January 2010, (3) Summit Bank in May 2011, and (4) First Heritage Bank in May 2011. Under the terms of the loss-sharing agreements, the FDIC will absorb
80%
of losses and share in
80%
of loss recoveries up to specified amounts. With respect to loss-sharing agreements for two acquisitions completed in 2010, after those specified amounts, the FDIC will absorb
95%
of losses and share in
95%
of loss recoveries. The loss-sharing provisions of the agreements for non-single family and single family mortgage loans are in effect for
five
and
ten
years, respectively and the loss recovery provisions are in effect for
eight
and
ten
years, respectively. The loss-sharing provisions for the Columbia River Bank and American Marine Bank non-single family covered assets were effective through the end of the first quarter of 2015. In addition, the loss-sharing provisions for the Summit Bank and First Heritage Bank non-single family covered assets will be expiring at the end of the second quarter of 2016. Accordingly, further activity will be limited to recoveries through the first quarter of 2018 and second quarter of 2019, respectively, for assets covered by these loss-sharing agreements.
Ten years and forty-five days after the applicable acquisition dates, the Bank must pay to the FDIC a clawback in the event the losses from the acquisitions fail to reach stated levels. The amount of the clawback is determined by a formula specified in each individual loss-sharing agreement. As of
March 31, 2016
, the net present value of the Bank’s estimated clawback liability was
$5.4 million
, which was included in other liabilities on the consolidated balance sheets.
At
March 31, 2016
, the FDIC loss-sharing asset was comprised of a
$4.6 million
FDIC indemnification asset and a
$1.4 million
FDIC receivable. The indemnification asset represents the net present value of cash flows the Company expects to collect from the FDIC under the loss-sharing agreements and the FDIC receivable represents amounts from the FDIC for which the Company has requested reimbursement but has not yet received reimbursement.
For PCI loans, the Company remeasures contractual and expected cash flows on a quarterly basis. When the quarterly remeasurement process results in a decrease in expected cash flows due to an increase in expected credit losses, impairment is recorded. As a result of this impairment, for loans covered by loss-sharing agreements with respect to which the loss-sharing provisions are still effective, the indemnification asset is increased to reflect anticipated future cash to be received from the FDIC. Consistent with the loss-sharing agreements between the Company and the FDIC, the amount of the increase to the indemnification asset is measured as
80%
of the resulting impairment.
Alternatively, when the quarterly remeasurement results in an increase in expected future cash flows due to a decrease in expected credit losses, the nonaccretable difference decreases and the effective yield of the related loan portfolio is increased. As a result of the improved expected cash flows, for loans covered by loss-sharing agreements with respect to which the loss-sharing provisions are still effective, the indemnification asset would be reduced first by the amount of any impairment previously recorded and, second, by increased amortization over the remaining life of the related loss-sharing agreement.
The following table shows a detailed analysis of the FDIC loss-sharing asset for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
6,568
|
|
|
$
|
15,174
|
|
|
Adjustments not reflected in income:
|
|
|
|
|
|
Cash (received from) paid to the FDIC, net
|
|
353
|
|
|
(659
|
)
|
|
FDIC reimbursable recoveries, net
|
|
136
|
|
|
(21
|
)
|
|
Adjustments reflected in income:
|
|
|
|
|
|
Amortization, net
|
|
(1,332
|
)
|
|
(2,294
|
)
|
|
Loan impairment
|
|
147
|
|
|
1,532
|
|
|
Sale of other real estate
|
|
144
|
|
|
(420
|
)
|
|
Write-downs of other real estate
|
|
18
|
|
|
1,071
|
|
|
Other
|
|
(80
|
)
|
|
261
|
|
|
Balance at end of period
|
|
$
|
5,954
|
|
|
$
|
14,644
|
|
The following table presents information about the composition of the FDIC loss-sharing asset, the clawback liability, and the non-single family and the single family covered assets as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Columbia River Bank
|
|
American Marine Bank
|
|
Summit Bank
|
|
First Heritage Bank
|
|
Total
|
|
|
|
(in thousands)
|
|
FDIC loss-sharing asset
|
|
$
|
537
|
|
|
$
|
2,404
|
|
|
$
|
1,799
|
|
|
$
|
1,214
|
|
|
$
|
5,954
|
|
|
Clawback liability
|
|
$
|
3,420
|
|
|
$
|
1,264
|
|
|
$
|
—
|
|
|
$
|
734
|
|
|
$
|
5,418
|
|
|
Non-single family covered assets
|
|
$
|
66,682
|
|
|
$
|
11,321
|
|
|
$
|
8,381
|
|
|
$
|
14,779
|
|
|
$
|
101,163
|
|
|
Single family covered assets
|
|
$
|
7,764
|
|
|
$
|
22,561
|
|
|
$
|
6,046
|
|
|
$
|
1,735
|
|
|
$
|
38,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-sharing expiration dates:
|
|
|
|
|
|
|
|
|
|
|
|
Non-single family
|
|
First Quarter 2015
|
|
First Quarter 2015
|
|
Second Quarter 2016
|
|
Second Quarter 2016
|
|
|
|
Single family
|
|
First Quarter 2020
|
|
First Quarter 2020
|
|
Second Quarter 2021
|
|
Second Quarter 2021
|
|
|
|
Loss recovery expiration dates:
|
|
|
|
|
|
|
|
|
|
|
|
Non-single family
|
|
First Quarter 2018
|
|
First Quarter 2018
|
|
Second Quarter 2019
|
|
Second Quarter 2019
|
|
|
|
Single family
|
|
First Quarter 2020
|
|
First Quarter 2020
|
|
Second Quarter 2021
|
|
Second Quarter 2021
|
|
|
8. 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 on July 31 and between annual tests in certain circumstances such as 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 core deposit intangible (“CDI”) is evaluated for impairment if events and circumstances indicate a possible impairment. The CDI is amortized on an accelerated basis over an estimated life of
10 years
.
The following table sets forth activity for goodwill and other intangible assets for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Goodwill
|
|
|
|
|
|
Total goodwill
|
|
$
|
382,762
|
|
|
$
|
382,537
|
|
|
Other intangible assets, net
|
|
|
|
|
|
Core deposit intangible:
|
|
|
|
|
|
Gross core deposit intangible balance at beginning of period
|
|
58,598
|
|
|
58,598
|
|
|
Accumulated amortization at beginning of period
|
|
(35,940
|
)
|
|
(29,058
|
)
|
|
Core deposit intangible, net at beginning of period
|
|
22,658
|
|
|
29,540
|
|
|
CDI current period amortization
|
|
(1,583
|
)
|
|
(1,817
|
)
|
|
Total core deposit intangible, net at end of period
|
|
21,075
|
|
|
27,723
|
|
|
Intangible assets not subject to amortization
|
|
919
|
|
|
919
|
|
|
Other intangible assets, net at end of period
|
|
21,994
|
|
|
28,642
|
|
|
Total goodwill and other intangible assets at end of period
|
|
$
|
404,756
|
|
|
$
|
411,179
|
|
The following table provides the estimated future amortization expense of core deposit intangibles for the remaining nine months ending
December 31, 2016
and the succeeding four years:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
Year ending December 31,
|
|
|
|
2016
|
|
$
|
4,363
|
|
|
2017
|
|
4,913
|
|
|
2018
|
|
3,855
|
|
|
2019
|
|
2,951
|
|
|
2020
|
|
2,048
|
|
9. Derivatives and Balance Sheet Offsetting
The Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively converts the customer’s variable rate loan into a fixed rate. The Company then enters into a corresponding swap agreement with a third-party in order to offset its exposure on the variable and fixed components of the customer agreement. As the interest rate swap agreements with the customers and third parties are not designated as hedges under the Derivatives and Hedging topic of the FASB ASC, the instruments are marked to market in earnings. The notional amount of open interest rate swap agreements at
March 31, 2016
and
December 31, 2015
was
$267.5 million
and
$264.4 million
, respectively. During the three months ended
March 31, 2016
and
2015
, mark-to-market losses of
$8 thousand
and
$5 thousand
, respectively were recorded to other noninterest expense.
The following table presents the fair value of derivatives not designated as hedging instruments at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
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
|
|
$
|
18,641
|
|
|
Other assets
|
|
$
|
12,438
|
|
|
Other liabilities
|
|
$
|
18,689
|
|
|
Other liabilities
|
|
$
|
12,478
|
|
The Company is party to interest rate contracts and repurchase agreements that are subject to enforceable master netting arrangements or similar agreements. Under these agreements, the Company may have the right to net settle multiple contracts with the same counterparty. The following tables show the gross interest rate swap agreements and repurchase agreements in the consolidated balance sheets and the respective collateral received or pledged in the form of other financial instruments, which are generally marketable securities. The collateral amounts in these tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of overcollateralization are not shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of Recognized Assets/Liabilities
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Amounts of Assets/Liabilities Presented in the Consolidated Balance Sheets
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
|
|
|
Collateral Posted
|
|
Net Amount
|
|
March 31, 2016
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
18,641
|
|
|
$
|
—
|
|
|
$
|
18,641
|
|
|
$
|
—
|
|
|
$
|
18,641
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
18,689
|
|
|
$
|
—
|
|
|
$
|
18,689
|
|
|
$
|
(18,689
|
)
|
|
$
|
—
|
|
|
Repurchase agreements
|
$
|
73,839
|
|
|
$
|
—
|
|
|
$
|
73,839
|
|
|
$
|
(73,839
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
12,438
|
|
|
$
|
—
|
|
|
$
|
12,438
|
|
|
$
|
—
|
|
|
$
|
12,438
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
12,478
|
|
|
$
|
—
|
|
|
$
|
12,478
|
|
|
$
|
(12,478
|
)
|
|
$
|
—
|
|
|
Repurchase agreements
|
$
|
99,699
|
|
|
$
|
—
|
|
|
$
|
99,699
|
|
|
$
|
(99,699
|
)
|
|
$
|
—
|
|
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
|
|
Greater than 90 days
|
|
Total
|
|
March 31, 2016
|
|
(in thousands)
|
|
Class of collateral pledged for repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
|
|
$
|
48,839
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,000
|
|
|
$
|
73,839
|
|
|
Gross amount of recognized liabilities for repurchase agreements
|
|
|
|
|
|
|
|
|
|
73,839
|
|
|
Amounts related to agreements not included in offsetting disclosure
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
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 term wholesale repurchase agreement, which matures in 2018, is monitored on a monthly basis and additional capital is pledged when necessary. The pledged collateral related to the Company’s 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.
10. Commitments and Contingent Liabilities
Lease Commitments:
The Company leases locations as well as equipment under various non-cancellable operating leases that expire between
2016
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.
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. At
March 31, 2016
and
December 31, 2015
, the Company’s loan commitments amounted to
$1.96 billion
and
$1.93 billion
, respectively.
Standby letters of credit commit the Company to make payments on behalf of customers under specified conditions. Historically, no significant losses have been incurred by the Company under standby letters of credit. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies, including collateral requirements, where appropriate. Standby letters of credit were
$46.9 million
and
$38.7 million
at
March 31, 2016
and
December 31, 2015
, respectively. In addition, commitments under commercial letters of credit used to facilitate customers’ trade transactions and other off-balance sheet liabilities amounted to
$5.6 million
and
$5.0 million
at
March 31, 2016
and
December 31, 2015
, respectively.
Legal Proceedings:
The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from their regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.
11. Shareholders’ Equity
Preferred Stock.
In conjunction with the 2013 acquisition of West Coast Bancorp, the Company issued
8,782
shares of mandatorily convertible cumulative participating preferred stock, Series B (“Series B Preferred Stock”). The Series B Preferred Stock is not subject to the operation of a sinking fund. The Series B Preferred Stock is not redeemable by the Company and is perpetual with no maturity. The holders of Series B Preferred Stock have no general voting rights. If the Company declares and pays a dividend to its common shareholders, it must declare and pay to its holders of Series B Preferred Stock, on the same date, a dividend in an amount per share of the Series B Preferred Stock that is intended to provide such holders dividends in the amount they would have received if shares of Series B Preferred Stock had been converted into common stock as of that date. The outstanding shares of Series B Preferred Stock are convertible into
102,363
shares of Company common stock.
Dividends.
On
January 28, 2016
, the Company declared a quarterly cash dividend of
$0.18
per common share and common share equivalent for holders of preferred stock, and a special cash dividend of
$0.20
per common share and common share equivalent for holders of preferred stock, both payable on
February 24, 2016
to shareholders of record at the close of business on
February 10, 2016
.
Subsequent to quarter end, on
April 27, 2016
, the Company declared a regular quarterly cash dividend of
$0.19
per common share and common share equivalent for holders of preferred stock, and a special cash dividend of
$0.18
per common share and common share equivalent for holders of preferred stock, both payable on
May 25, 2016
to shareholders of record at the close of business on
May 11, 2016
.
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.
12. Accumulated Other Comprehensive Income (Loss)
The following table shows changes in accumulated other comprehensive income (loss) by component for the
three
month periods ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains and Losses on Available-for-Sale Securities (1)
|
|
Unrealized Gains and Losses on Pension Plan Liability (1)
|
|
Total (1)
|
|
Three months ended March 31, 2016
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
386
|
|
|
$
|
(6,681
|
)
|
|
$
|
(6,295
|
)
|
|
Other comprehensive income before reclassifications
|
|
18,770
|
|
|
—
|
|
|
18,770
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(238
|
)
|
|
106
|
|
|
(132
|
)
|
|
Net current-period other comprehensive income
|
|
18,532
|
|
|
106
|
|
|
18,638
|
|
|
Ending balance
|
|
$
|
18,918
|
|
|
$
|
(6,575
|
)
|
|
$
|
12,343
|
|
|
Three months ended March 31, 2015
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,462
|
|
|
$
|
(1,841
|
)
|
|
$
|
5,621
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
9,376
|
|
|
(280
|
)
|
|
9,096
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(459
|
)
|
|
28
|
|
|
(431
|
)
|
|
Net current-period other comprehensive income (loss)
|
|
8,917
|
|
|
(252
|
)
|
|
8,665
|
|
|
Ending balance
|
|
$
|
16,379
|
|
|
$
|
(2,093
|
)
|
|
$
|
14,286
|
|
__________
(1) All amounts are net of tax. Amounts in parenthesis indicate debits.
The following table shows details regarding the reclassifications from accumulated other comprehensive income (loss) for the
three
month periods ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Affected line Item in the Consolidated
|
|
|
|
2016
|
|
2015
|
|
Statement of Income
|
|
|
|
(in thousands)
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
|
|
|
|
|
|
Investment securities gains
|
|
$
|
373
|
|
|
$
|
721
|
|
|
Investment securities gains, net
|
|
|
|
373
|
|
|
721
|
|
|
Total before tax
|
|
|
|
(135
|
)
|
|
(262
|
)
|
|
Income tax provision
|
|
|
|
$
|
238
|
|
|
$
|
459
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Amortization of pension plan liability
|
|
|
|
|
|
|
|
Actuarial losses
|
|
$
|
(167
|
)
|
|
$
|
(44
|
)
|
|
Compensation and employee benefits
|
|
|
|
(167
|
)
|
|
(44
|
)
|
|
Total before tax
|
|
|
|
61
|
|
|
16
|
|
|
Income tax benefit
|
|
|
|
$
|
(106
|
)
|
|
$
|
(28
|
)
|
|
Net of tax
|
13. Fair Value Accounting and Measurement
The Fair Value Measurements and Disclosures topic of the FASB ASC defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value. We hold fixed and variable rate interest-bearing securities, investments in marketable equity securities and certain other financial instruments, which are carried at fair value. Fair value is determined based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available.
The valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our own market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets that are accessible at the measurement date.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.
Fair values are determined as follows:
Securities at fair value are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors. These fair value calculations are considered a Level 2 input method under the provisions of the Fair Value Measurements and Disclosures topic of the FASB ASC for all securities other than U.S. Treasury Notes, which are considered a Level 1 input method.
Interest rate contract positions are valued in models, which use as their basis, readily observable market parameters and are classified within Level 2 of the valuation hierarchy.
The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at
March 31, 2016
and
December 31, 2015
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
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
March 31, 2016
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations
|
|
$
|
1,330,100
|
|
|
$
|
—
|
|
|
$
|
1,330,100
|
|
|
$
|
—
|
|
|
State and municipal debt securities
|
|
491,387
|
|
|
—
|
|
|
491,387
|
|
|
—
|
|
|
U.S. government agency and government-sponsored enterprise securities
|
|
358,941
|
|
|
—
|
|
|
358,941
|
|
|
—
|
|
|
U.S. government securities
|
|
547
|
|
|
547
|
|
|
—
|
|
|
—
|
|
|
Other securities
|
|
5,191
|
|
|
—
|
|
|
5,191
|
|
|
—
|
|
|
Total securities available for sale
|
|
$
|
2,186,166
|
|
|
$
|
547
|
|
|
$
|
2,185,619
|
|
|
$
|
—
|
|
|
Other assets (Interest rate contracts)
|
|
$
|
18,641
|
|
|
$
|
—
|
|
|
$
|
18,641
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other liabilities (Interest rate contracts)
|
|
$
|
18,689
|
|
|
$
|
—
|
|
|
$
|
18,689
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2015
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations
|
|
$
|
1,286,489
|
|
|
$
|
—
|
|
|
$
|
1,286,489
|
|
|
$
|
—
|
|
|
State and municipal debt securities
|
|
492,169
|
|
|
—
|
|
|
492,169
|
|
|
—
|
|
|
U.S. government agency and government-sponsored enterprise securities
|
|
353,782
|
|
|
—
|
|
|
353,782
|
|
|
—
|
|
|
U.S. government securities
|
|
20,137
|
|
|
20,137
|
|
|
—
|
|
|
—
|
|
|
Other securities
|
|
5,117
|
|
|
—
|
|
|
5,117
|
|
|
—
|
|
|
Total securities available for sale
|
|
$
|
2,157,694
|
|
|
$
|
20,137
|
|
|
$
|
2,137,557
|
|
|
$
|
—
|
|
|
Other assets (Interest rate contracts)
|
|
$
|
12,438
|
|
|
$
|
—
|
|
|
$
|
12,438
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other liabilities (Interest rate contracts)
|
|
$
|
12,478
|
|
|
$
|
—
|
|
|
$
|
12,478
|
|
|
$
|
—
|
|
There were
no
transfers between Level 1 and Level 2 of the valuation hierarchy during the
three
month periods ended
March 31, 2016
and
2015
. The Company recognizes transfers between levels of the valuation hierarchy based on the valuation level at the end of the reporting period.
Nonrecurring Measurements
Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and OREO. The following methods were used to estimate the fair value of each such class of financial instrument:
Impaired loans
—A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price, or the fair market value of the collateral less estimated costs to sell if the loan is a collateral-dependent loan. Generally, the Company utilizes the fair market value of the collateral to measure impairment. The impairment evaluations are performed in conjunction with the ALLL process on a quarterly basis by officers in the Special Credits group, which reports to the Chief Credit Officer. The Real Estate Appraisal Services Department (“REASD”), which also reports to the Chief Credit Officer, is responsible for obtaining appraisals from third-parties or performing internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy, and reasonableness.
Other real estate owned
—OREO is real property that the Bank has taken ownership of in partial or full satisfaction of a loan or loans. OREO is generally measured based on the property’s fair market value as indicated by an appraisal or a letter of intent to purchase. OREO is 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 to ensure the property is recorded at its fair value, net of 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 in the Special Credits group, which reports to the Chief Credit Officer. The REASD obtains appraisals from third-parties for OREO and performs internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy, and reasonableness.
The following tables set forth information related to the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the current and prior year quarterly periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at
March 31, 2016
|
|
Fair Value Measurements at Reporting Date Using
|
|
Losses During the Three Months Ended
March 31, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
(in thousands)
|
|
Impaired loans
|
|
$
|
10,681
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,681
|
|
|
$
|
2,676
|
|
|
OREO
|
|
2,553
|
|
|
—
|
|
|
—
|
|
|
2,553
|
|
|
137
|
|
|
|
|
$
|
13,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,234
|
|
|
$
|
2,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at
March 31, 2015
|
|
Fair Value Measurements at Reporting Date Using
|
|
Losses During the Three Months Ended
March 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
(in thousands)
|
|
OREO
|
|
$
|
1,429
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,429
|
|
|
$
|
197
|
|
|
|
|
$
|
1,429
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,429
|
|
|
$
|
197
|
|
The losses on impaired loans disclosed above represent the amount of the specific reserve and/or charge-offs during the period applicable to loans held at period end. 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.
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, along with the valuation techniques used, are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at
March 31, 2016
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted Average) (1)
|
|
|
|
(dollars in thousands)
|
|
Impaired loans
|
|
$
|
10,681
|
|
|
Fair Market Value of Collateral
|
|
Adjustment to Stated Value
|
|
0% - 7% (6%)
|
|
OREO
|
|
2,553
|
|
|
Fair Market Value of Collateral
|
|
Adjustment to Appraisal Value
|
|
N/A (2)
|
|
(1) Discount applied to appraisal value, letter of intent to purchase, or stated value (in the case of accounts receivable, inventory and equipment).
|
|
(2) Quantitative disclosures are not provided for impaired loans and OREO because there were no adjustments made to the appraisal values or stated values during the current period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at
March 31, 2015
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted Average) (1)
|
|
|
|
(dollars in thousands)
|
|
OREO
|
|
$
|
1,429
|
|
|
Fair Market Value of Collateral
|
|
Adjustment to Appraisal Value
|
|
N/A (2)
|
|
(1) Discount applied to appraisal value, letter of intent to purchase, or stated value (in the case of accounts receivable, inventory and equipment).
|
|
(2) Quantitative disclosures are not provided for OREO because there were no adjustments made to the appraisal value during the current period.
|
Fair value of financial instruments
Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and due from banks and interest-earning deposits with banks
—The fair value of financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value that approximates carrying value (Level 1).
Securities available for sale
—Securities at fair value, other than U.S. Treasury Notes, are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors (Level 2). U.S. Treasury Notes are priced using quotes in active markets (Level 1).
Federal Home Loan Bank stock
—The fair value is based upon the par value of the stock which equates to its carrying value (Level 2).
Loans held for sale
—The carrying amount of loans held for sale approximates their fair values due to the short period of time between the origination and sale dates (Level 2).
Loans
—Loans are not recorded at fair value on a recurring basis
.
Nonrecurring fair value adjustments are periodically recorded on impaired loans that are measured for impairment based on the fair value of collateral. For most performing loans, fair value is estimated using expected duration and lending rates that would have been offered on
March 31, 2016
or
December 31, 2015
, for loans which mirror the attributes of the loans with similar rate structures and average maturities. The fair values resulting from these calculations are reduced by an amount representing the change in estimated fair value attributable to changes in borrowers’ credit quality since the loans were originated. For nonperforming loans, fair value is estimated by applying a valuation discount based upon loan sales data from the FDIC. For PCI loans, fair value is estimated by discounting the expected future cash flows using a lending rate that would have been offered on
March 31, 2016
(Level 3).
FDIC loss-sharing asset
—The fair value of the FDIC loss-sharing asset is estimated based on discounting the expected future cash flows using an estimated market rate (Level 3).
Interest rate contracts
—Interest rate swap positions are valued in models, which use readily observable market parameters as their basis (Level 2).
Deposits
—For deposits with no contractual maturity, the fair value is equal to the carrying value (Level 1). The fair value of fixed maturity deposits is based on discounted cash flows using the difference between the deposit rate and current market rates for deposits of similar remaining maturities (Level 2).
FHLB advances
—The fair value of FHLB advances is estimated based on discounting the future cash flows using the market rate currently offered (Level 2).
Repurchase Agreements
—The fair value of term repurchase agreements is estimated based on discounting the future cash flows using the market rate currently offered. The carrying amount of sweep repurchase agreements approximates their fair values due to the short period of time between repricing dates (Level 2).
Other Financial Instruments
—The majority of our commitments to extend credit and standby letters of credit carry current market interest rates if converted to loans, as such, carrying value is assumed to equal fair value.
The following tables summarize carrying amounts and estimated fair values of selected financial instruments as well as assumptions used by the Company in estimating fair value at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
150,683
|
|
|
$
|
150,683
|
|
|
$
|
150,683
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest-earning deposits with banks
|
|
38,248
|
|
|
38,248
|
|
|
38,248
|
|
|
—
|
|
|
—
|
|
|
Securities available for sale
|
|
2,186,166
|
|
|
2,186,166
|
|
|
547
|
|
|
2,185,619
|
|
|
—
|
|
|
FHLB stock
|
|
10,241
|
|
|
10,241
|
|
|
—
|
|
|
10,241
|
|
|
—
|
|
|
Loans held for sale
|
|
3,681
|
|
|
3,681
|
|
|
—
|
|
|
3,681
|
|
|
—
|
|
|
Loans
|
|
5,808,019
|
|
|
5,889,840
|
|
|
—
|
|
|
—
|
|
|
5,889,840
|
|
|
FDIC loss-sharing asset
|
|
5,954
|
|
|
1,613
|
|
|
—
|
|
|
—
|
|
|
1,613
|
|
|
Interest rate contracts
|
|
18,641
|
|
|
18,641
|
|
|
—
|
|
|
18,641
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
7,596,949
|
|
|
$
|
7,593,830
|
|
|
$
|
7,162,893
|
|
|
$
|
430,937
|
|
|
$
|
—
|
|
|
FHLB Advances
|
|
6,521
|
|
|
7,459
|
|
|
—
|
|
|
7,459
|
|
|
—
|
|
|
Repurchase agreements
|
|
73,839
|
|
|
74,353
|
|
|
—
|
|
|
74,353
|
|
|
—
|
|
|
Interest rate contracts
|
|
18,689
|
|
|
18,689
|
|
|
—
|
|
|
18,689
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
166,929
|
|
|
$
|
166,929
|
|
|
$
|
166,929
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest-earning deposits with banks
|
|
8,373
|
|
|
8,373
|
|
|
8,373
|
|
|
—
|
|
|
—
|
|
|
Securities available for sale
|
|
2,157,694
|
|
|
2,157,694
|
|
|
20,137
|
|
|
2,137,557
|
|
|
—
|
|
|
FHLB stock
|
|
12,722
|
|
|
12,722
|
|
|
—
|
|
|
12,722
|
|
|
—
|
|
|
Loans held for sale
|
|
4,509
|
|
|
4,509
|
|
|
—
|
|
|
4,509
|
|
|
—
|
|
|
Loans
|
|
5,746,855
|
|
|
5,752,423
|
|
|
—
|
|
|
—
|
|
|
5,752,423
|
|
|
FDIC loss-sharing asset
|
|
6,568
|
|
|
921
|
|
|
—
|
|
|
—
|
|
|
921
|
|
|
Interest rate contracts
|
|
12,438
|
|
|
12,438
|
|
|
—
|
|
|
12,438
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
7,438,829
|
|
|
$
|
7,434,787
|
|
|
$
|
6,979,924
|
|
|
$
|
454,863
|
|
|
$
|
—
|
|
|
FHLB Advances
|
|
68,531
|
|
|
69,176
|
|
|
—
|
|
|
69,176
|
|
|
—
|
|
|
Repurchase agreements
|
|
99,699
|
|
|
100,346
|
|
|
—
|
|
|
100,346
|
|
|
—
|
|
|
Interest rate contracts
|
|
12,478
|
|
|
12,478
|
|
|
—
|
|
|
12,478
|
|
|
—
|
|
14. 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.
The following table sets forth the computation of basic and diluted earnings per share for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(in thousands except per share)
|
|
Basic EPS:
|
|
|
|
|
|
Net income
|
|
$
|
21,259
|
|
|
$
|
24,361
|
|
|
Less: Earnings allocated to participating securities:
|
|
|
|
|
|
Preferred shares
|
|
39
|
|
|
43
|
|
|
Nonvested restricted shares
|
|
247
|
|
|
225
|
|
|
Earnings allocated to common shareholders
|
|
$
|
20,973
|
|
|
$
|
24,093
|
|
|
Weighted average common shares outstanding
|
|
57,114
|
|
|
56,965
|
|
|
Basic earnings per common share
|
|
$
|
0.37
|
|
|
$
|
0.42
|
|
|
Diluted EPS:
|
|
|
|
|
|
Earnings allocated to common shareholders (1)
|
|
$
|
20,973
|
|
|
$
|
24,093
|
|
|
Weighted average common shares outstanding
|
|
57,114
|
|
|
56,965
|
|
|
Dilutive effect of equity awards
|
|
11
|
|
|
13
|
|
|
Weighted average diluted common shares outstanding
|
|
57,125
|
|
|
56,978
|
|
|
Diluted earnings per common share
|
|
$
|
0.37
|
|
|
$
|
0.42
|
|
|
Potentially dilutive share options that were not included in the computation of diluted EPS because to do so would be anti-dilutive
|
|
27
|
|
|
53
|
|
__________
|
|
|
|
(1)
|
Earnings allocated to common shareholders for basic and diluted EPS may differ under the two-class method as a result of adding common stock equivalents for options and warrants to dilutive shares outstanding, which alters the ratio used to allocate earnings to common shareholders and participating securities for the purposes of calculating diluted EPS.
|