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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
_____________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to            
Commission File Number 000-20288
 _________________________________________________________________________
COLUMBIA BANKING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
 _______________________________________________________________
Washington
 
91-1422237
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
1301 A Street
Tacoma, Washington 98402-2156
(Address of principal executive offices and zip code)
(253) 305-1900
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, No Par Value
 
COLB
 
The Nasdaq Stock Market LLC
(Title of each class)
 
(Trading symbol)
 
(Name of each exchange on which registered)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
 
 
Large accelerated filer
 
 
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes   No x
The number of shares of common stock outstanding at April 30, 2020 was 71,569,872.
 



TABLE OF CONTENTS
 
 
 
Page
 
PART I — FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II — OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


i


Glossary of Acronyms, Abbreviations, and Terms

The acronyms, abbreviations, and terms listed below are used in various sections of the Form 10-Q, including “Item 1. Financial Statements” and “Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations.”
ACL
Allowance for Credit Losses
 
EPS
Earnings Per Share
ALLL
Allowance for Loan and Lease Losses
 
FASB
Financial Accounting Standards Board
ASC
Accounting Standards Codification
 
FDIC
Federal Deposit Insurance Corporation
ASC 326
Codification related to measurement of credit losses on financial instruments
 
Federal Reserve
Federal Reserve System
ASU
Accounting Standards Update
 
FHLB
Federal Home Loan Bank of Des Moines
ATM
Automated Teller Machine
 
FRB
Federal Reserve Bank
B&O
Business and Occupation
 
GAAP
Generally Accepted Accounting Principles
Basel III
A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013
 
GDP
Gross Domestic Product
BOLI
Bank Owned Life Insurance
 
LIBOR
London Interbank Offering Rate
Cares Act
Coronavirus Aid Relief and Economic Security Act
 
NIM
Net Interest Margin
CDARS®
Certificate of Deposit Account Registry Service
 
OPPO
Other Personal Property Owned
CDI
Core Deposit Intangible
 
OREO
Other Real Estate Owned
CECL
Current Expected Credit Losses
 
Pacific Continental
Pacific Continental Corporation
CEO
Chief Executive Officer
 
PCI
Purchased Credit Impaired
CET1
Common Equity Tier 1
 
REASD
Real Estate Appraisal Services Department
CFO
Chief Financial Officer
 
SBA
Small Business Administration
COVID-19
Novel Coronavirus
 
SEC
Securities and Exchange Commission
DCF
Discounted Cash Flow
 
TDRs
Troubled Debt Restructurings
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
 
 
 



ii

Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
(Unaudited)
 
 
 
 
 
March 31,
2020
 
December 31,
2019
ASSETS
 
(in thousands)
Cash and due from banks
 
$
190,399

 
$
223,541

Interest-earning deposits with banks
 
25,357

 
24,132

Total cash and cash equivalents
 
215,756

 
247,673

Debt securities available for sale at fair value (amortized cost of $3,406,492 and $3,703,096, respectively)
 
3,553,128

 
3,746,142

FHLB stock at cost
 
38,280

 
48,120

Loans held for sale
 
9,701

 
17,718

Loans, net of unearned income
 
8,933,321

 
8,743,465

Less: ACL
 
122,074

 
83,968

Loans, net
 
8,811,247

 
8,659,497

Interest receivable
 
44,577

 
46,839

Premises and equipment, net
 
164,626

 
165,408

OREO
 
510

 
552

Goodwill
 
765,842

 
765,842

Other intangible assets, net
 
33,148

 
35,458

Other assets
 
401,688

 
346,275

Total assets
 
$
14,038,503

 
$
14,079,524

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing
 
$
5,323,908

 
$
5,328,146

Interest-bearing
 
5,488,848

 
5,356,562

Total deposits
 
10,812,756

 
10,684,708

FHLB advances and FRB borrowings
 
712,455

 
953,469

Securities sold under agreements to repurchase
 
29,252

 
64,437

Subordinated debentures
 
35,231

 
35,277

Revolving line of credit
 
5,000

 

Other liabilities
 
230,207

 
181,671

Total liabilities
 
11,824,901

 
11,919,562

Commitments and contingent liabilities (Note 10)
 


 


Shareholders’ equity:
 
 
 
 
 
 
 
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
(in thousands)
 
 
 
 
Preferred stock (no par value)
 
 
 
 
 
 
 
Authorized shares
2,000

 
2,000

 
 
 
 
Common stock (no par value)
 
 
 
 
 
 
 
Authorized shares
115,000

 
115,000

 
 
 
 
Issued
73,759

 
73,577

 
1,651,399

 
1,650,753

Outstanding
71,575

 
72,124

 
 
 
 
Retained earnings
 
495,830

 
519,676

Accumulated other comprehensive income
 
137,207

 
40,367

Treasury stock at cost
2,184

 
1,453

 
(70,834
)
 
(50,834
)
Total shareholders’ equity
 
2,213,602

 
2,159,962

Total liabilities and shareholders’ equity
 
$
14,038,503

 
$
14,079,524



 
See accompanying Notes to unaudited Consolidated Financial Statements.

1


Table of Contents

CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
 
 
(in thousands except per share amounts)
Interest Income
 
 
 
 
Loans
 
$
107,366

 
$
108,416

Taxable securities
 
21,088

 
17,415

Tax-exempt securities
 
2,302

 
2,969

Deposits in banks
 
141

 
88

Total interest income
 
130,897

 
128,888

Interest Expense
 
 
 
 
Deposits
 
3,642

 
4,498

FHLB advances and FRB borrowings
 
4,229

 
2,685

Subordinated debentures
 
468

 
468

Other borrowings
 
136

 
215

Total interest expense
 
8,475

 
7,866

Net Interest Income
 
122,422

 
121,022

Provision for credit losses
 
41,500

 
1,362

Net interest income after provision for credit losses
 
80,922

 
119,660

Noninterest Income
 
 
 
 
Deposit account and treasury management fees
 
7,788

 
8,980

Card revenue
 
3,518

 
3,662

Financial services and trust revenue
 
3,065

 
2,957

Loan revenue
 
4,590

 
2,389

Bank owned life insurance
 
1,596

 
1,519

Investment securities gains, net
 
249

 
1,847

Other
 
401

 
342

Total noninterest income
 
21,207

 
21,696

Noninterest Expense
 
 
 
 
Compensation and employee benefits
 
54,842

 
52,085

Occupancy
 
9,197

 
8,809

Data processing
 
4,840

 
4,669

Legal and professional fees
 
2,102

 
4,573

Amortization of intangibles
 
2,310

 
2,748

B&O taxes
 
624

 
1,876

Advertising and promotion
 
1,305

 
974

Regulatory premiums
 
34

 
984

Net cost of operation of OREO
 
12

 
113

Other
 
9,005

 
7,869

Total noninterest expense
 
84,271

 
84,700

Income before income taxes
 
17,858

 
56,656

Income tax provision
 
3,230

 
10,785

Net Income
 
$
14,628

 
$
45,871

Earnings per common share
 
 
 
 
Basic
 
$
0.20

 
$
0.63

Diluted
 
$
0.20

 
$
0.63

Weighted average number of common shares outstanding
 
71,206

 
72,521

Weighted average number of diluted common shares outstanding
 
71,264

 
72,524




See accompanying Notes to unaudited Consolidated Financial Statements.

2


Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Columbia Banking System, Inc.
(Unaudited) 
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
 
 
(in thousands)
Net income
 
$
14,628

 
$
45,871

Other comprehensive income, net of tax:
 
 
 
 
Unrealized gain from securities:
 
 
 
 
Net unrealized holding gain from available for sale debt securities arising during the period, net of tax of ($24,143) and ($9,713)
 
79,696

 
32,063

Reclassification adjustment of net loss (gain) from available for sale debt securities arising during the period, net of tax of $58 and ($430)
 
(191
)
 
1,417

Net unrealized gain from securities, net of reclassification adjustment
 
79,505

 
33,480

Pension plan liability adjustment:
 
 
 
 
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($24) and ($19)
 
80

 
61

Pension plan liability adjustment, net
 
80

 
61

Unrealized gain from cash flow hedging instruments:
 
 
 
 
Net unrealized gain in cash flow hedging instruments arising during the period, net of tax of ($5,446) and ($1,458)
 
17,977

 
4,810

Reclassification adjustment for net gain in cash flow hedging instruments included in income, net of tax of $218 and $0
 
(722
)
 

Net unrealized gain from cash flow hedging instruments, net of reclassification adjustment
 
17,255

 
4,810

Other comprehensive income
 
96,840

 
38,351

Total comprehensive income
 
$
111,468

 
$
84,222

 
 
 
 
 
See accompanying Notes to unaudited Consolidated Financial Statements.

3


Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia Banking System, Inc.
(Unaudited)
 
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock
 
Total
Shareholders’
Equity
 
 
Shares Outstanding
 
Amount
 
For the Three Months Ended March 31, 2020
 
(in thousands except per share amounts)
Balance at January 1, 2020
 
72,124

 
$
1,650,753

 
$
519,676

 
$
40,367

 
$
(50,834
)
 
$
2,159,962

Adjustment to opening retained earnings pursuant to adoption of ASU 2016-13
 

 

 
(2,457
)
 

 

 
(2,457
)
Net income
 

 

 
14,628

 

 

 
14,628

Other comprehensive income
 

 

 

 
96,840

 

 
96,840

Issuance of common stock - stock option and other plans
 
26

 
945

 

 

 

 
945

Activity in deferred compensation plan
 

 
3

 

 

 

 
3

Issuance of common stock - restricted stock awards, net of canceled awards
 
222

 
2,172

 

 

 

 
2,172

Purchase and retirement of common stock
 
(66
)
 
(2,474
)
 

 

 

 
(2,474
)
Cash dividends declared on common stock ($0.50 per share)
 

 

 
(36,017
)
 

 

 
(36,017
)
Purchase of treasury stock
 
(731
)
 

 

 

 
(20,000
)
 
(20,000
)
Balance at March 31, 2020
 
71,575

 
$
1,651,399

 
$
495,830

 
$
137,207

 
$
(70,834
)
 
$
2,213,602


 
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock
 
Total
Shareholders’
Equity
 
 
Shares Outstanding
 
Amount
 
For the Three Months Ended March 31, 2019
 
(in thousands except per share amounts)
Balance at January 1, 2019
 
73,249

 
$
1,642,246

 
$
426,708

 
$
(35,305
)
 
$

 
$
2,033,649

Adjustment to opening retained earnings pursuant to adoption of ASU 2016-02
 

 

 
782

 

 

 
782

Net income
 

 

 
45,871

 

 

 
45,871

Other comprehensive income
 

 

 

 
38,351

 

 
38,351

Issuance of common stock - stock option and other plans
 
25

 
878

 

 

 

 
878

Issuance of common stock - restricted stock awards, net of canceled awards
 
355

 
2,285

 

 

 

 
2,285

Purchase and retirement of common stock
 
(64
)
 
(2,432
)
 

 

 

 
(2,432
)
Cash dividends declared on common stock ($0.42 per share)
 

 

 
(30,764
)
 

 

 
(30,764
)
Balance at March 31, 2019
 
73,565

 
$
1,642,977

 
$
442,597

 
$
3,046

 
$

 
$
2,088,620


See accompanying Notes to unaudited Consolidated Financial Statements.

4


Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
14,628

 
$
45,871

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Provision for credit losses
 
41,500

 
1,362

Stock-based compensation expense
 
2,172

 
2,285

Depreciation, amortization and accretion
 
13,151

 
8,182

Investment securities gain, net
 
(249
)
 
(1,847
)
Net realized (gain) loss on sale of premises and equipment and OPPO
 
(25
)
 
1

Net realized loss on sale and valuation adjustments of OREO
 

 
209

Originations of loans held for sale
 
(58,199
)
 
(21,542
)
Proceeds from sales of loans held for sale
 
66,216

 
21,374

Net change in:
 
 
 
 
Interest receivable
 
2,262

 
(1,512
)
Interest payable
 
2,325

 
1,154

Other assets
 
(63,141
)
 
(5,244
)
Other liabilities
 
44,725

 
2,179

Net cash provided by operating activities
 
65,365

 
52,472

Cash Flows From Investing Activities
 
 
 
 
Loans originated, net of principal collected
 
(197,362
)
 
(80,407
)
Purchases of:
 
 
 
 
Debt securities available for sale
 
(37,472
)
 
(3,710
)
Loans held for investment
 

 
(49,039
)
Premises and equipment
 
(1,650
)
 
(1,788
)
FHLB stock
 
(51,240
)
 
(57,280
)
Proceeds from:
 
 
 
 
Sales of debt securities available for sale
 
194,105

 
83,968

Principal repayments and maturities of debt securities available for sale
 
134,641

 
100,876

Sales of premises and equipment
 
31

 
11

Redemption of FHLB stock
 
61,080

 
57,640

Sales of OREO and OPPO
 
50

 
150

Bank owned life insurance death benefit
 
1,050

 

Net cash provided by investing activities
 
103,233

 
50,421

Cash Flows From Financing Activities
 
 
 
 
Net increase (decrease) in deposits
 
128,059

 
(89,027
)
Net decrease in sweep repurchase agreements
 
(35,185
)
 
(38,076
)
Proceeds from:
 
 
 
 
FHLB advances
 
1,281,000

 
1,432,000

FRB borrowings
 
182,010

 

Other borrowings
 
5,000

 

Exercise of stock options
 
945

 
878

Payments for:
 
 
 
 
Repayment of FHLB advances
 
(1,527,000
)
 
(1,441,000
)
Repayment of FRB borrowings
 
(177,010
)
 

Common stock dividends
 
(35,860
)
 
(30,750
)
Purchase of treasury stock
 
(20,000
)
 

Purchase and retirement of common stock
 
(2,474
)
 
(2,432
)
Net cash used in financing activities
 
(200,515
)
 
(168,407
)
Decrease in cash and cash equivalents
 
(31,917
)
 
(65,514
)
Cash and cash equivalents at beginning of period
 
247,673

 
277,587

Cash and cash equivalents at end of period
 
$
215,756

 
$
212,073

 
 
 
 
 
Supplemental Information:
 
 
 
 
Interest paid
 
$
6,150

 
$
6,712

Income taxes paid, net of refunds
 
$
12

 
$
(146
)
Non-cash investing and financing activities
 
 
 
 
Loans transferred to OREO
 
$

 
$
386

Premises and equipment expenditures incurred but not yet paid
 
$
238

 
$
35

Change in dividends payable on unvested shares included in other liabilities
 
$
157

 
$
14



See accompanying Notes to unaudited Consolidated Financial Statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
1.
Basis of Presentation, Significant Accounting Policies and Reclassifications
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, 2020 are not necessarily indicative of results to be anticipated for the year ending December 31, 2020. The accompanying interim unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2019 Annual Report on Form 10-K.
Significant Accounting Policies
The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2019 Annual Report on Form 10-K. In addition to the changes already disclosed in the Annual Report on Form 10-K regarding ASC 326, this ASC also made changes to the accounting for available for sale securities. One such change is to require credit losses to be presented as an allowance rather than a write-down on available for sale securities, which refers to securities management does not intend to sell or with respect to which management believes that it is more likely than not they will not be required to sell. With the exception of that change, there have not been any changes in our significant accounting policies compared to those contained in our 2019 Form 10-K disclosure for the year ended December 31, 2019.
Reclassifications
Certain amounts reported in prior periods have been reclassified in the Consolidated Financial Statements to conform to the current presentation. The reclassifications have no effect on net income or shareholders’ equity as previously reported.
2.
Accounting Pronouncements Recently Adopted or Issued
Accounting Standards Adopted in 2020
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU clarify certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-01, 2016-13, and 2017-12). Many of the amendments reflect decisions reached at FASB meetings or meetings of the Board’s credit losses transition resource group. Topics covered in this ASU include: accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures, extension and renewal options, etc. As the ASU focused on clarifying certain aspects of accounting, adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The amendments included in this ASU require an entity to reflect its current estimate of all expected credit losses for assets held at an amortized cost basis. For available for sale debt securities, credit losses will be measured in a manner similar to current GAAP, however, this ASU requires that credit losses be presented as an allowance rather than as a write-down. In November 2019, the FASB subsequently issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in the update require entities to include expected recoveries of the amortized cost basis previously written-off or expected to be written-off in the valuation account for purchased financial assets with credit deterioration. In addition, the amendments in this update clarify and improve various aspects of the guidance for ASU 2016-13.

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Table of Contents

Unlike the incurred loss models, the CECL model in ASU 2016-13 does not specify a threshold for the recognition of an impairment allowance. Rather, the Company recognizes an impairment allowance equal to its estimate of lifetime expected credit losses, adjusted for prepayments, for in-scope financial instruments. Accordingly, the impairment allowance measured under the CECL model is expected to change significantly from the impairment allowance measured under the Company’s incurred loss model. The Company engaged a third-party vendor to assist in the CECL calculation and has developed and implemented an internal governance framework. The amendments in ASU 2016-13 and the above ASUs related to credit losses are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period. The Company adopted the new standards, using a modified retrospective approach, effective January 1, 2020, which resulted in an increase of $1.6 million to its allowance for credit losses, an increase of $1.6 million to its allowance for unfunded commitments and letters of credit and a net-of-tax cumulative-effect adjustment of $2.5 million to decrease the beginning balance of retained earnings.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adds, eliminates and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the added disclosure requirements until their effective date. The Company adopted the new standard effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.
Recently Issued Accounting Standards, Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of the cessation of LIBOR, the amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this ASU are elective and are effective March 12, 2020 for all entities. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The guidance issued in this ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The ASU is effective for interim and annual reporting periods beginning after December 15, 2020; early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

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Table of Contents

3.
Securities
The following table summarizes the amortized cost, gross unrealized gains and losses, the allowance for credit losses and the resulting fair value of debt securities available for sale:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Allowance for Credit
Losses
 
Fair Value
March 31, 2020
 
(in thousands)
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
2,643,659

 
$
123,926

 
$
(1,448
)
 
$

 
$
2,766,137

Other asset-backed securities
 
196,250

 
7,309

 
(47
)
 

 
203,512

State and municipal securities
 
437,957

 
10,387

 
(284
)
 

 
448,060

U.S. government agency and government-sponsored enterprise securities
 
128,626

 
6,793

 

 

 
135,419

Total
 
$
3,406,492

 
$
148,415

 
$
(1,779
)
 
$

 
$
3,553,128

December 31, 2019
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
2,864,949

 
$
47,223

 
$
(19,222
)
 
$

 
$
2,892,950

Other asset-backed securities
 
194,563

 
2,476

 
(989
)
 

 
196,050

State and municipal securities
 
478,366

 
10,660

 
(224
)
 

 
488,802

U.S. government agency and government-sponsored enterprise securities
 
165,218

 
3,127

 
(5
)
 

 
168,340

Total
 
$
3,703,096

 
$
63,486

 
$
(20,440
)
 
$

 
$
3,746,142


Accrued interest receivable for securities available for sale is included in “Interest receivable” on the Company’s Consolidated Balance Sheet and is not reflected in the balances in the table above. At March 31, 2020 and December 31, 2019, accrued interest receivable for securities was $12.3 million and $13.9 million, respectively. The Company does not measure an allowance for credit losses for accrued interest receivable.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income. There were no amounts of accrued interest reversed against interest income for the three months ended March 31, 2020 and 2019.
The following table provides the proceeds and both gross realized gains and losses on sales of debt securities available for sale as well as other securities gains and losses for the periods indicated:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Proceeds from sales of debt securities available for sale
 
$
194,105

 
$
83,968

 
 
 
 
 
Gross realized gains from sales of debt securities available for sale
 
$
435

 
$
1,847

Gross realized losses from sales of debt securities available for sale
 
(186
)
 

Investment securities gains, net
 
$
249

 
$
1,847



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Table of Contents

The scheduled contractual maturities of debt securities available for sale at March 31, 2020 are presented as follows:
 
 
March 31, 2020
 
 
Amortized Cost
 
Fair Value
 
 
(in thousands)
Due within one year
 
$
34,642

 
$
34,693

Due after one year through five years
 
361,355

 
372,492

Due after five years through ten years
 
1,892,926

 
1,996,364

Due after ten years
 
1,117,569

 
1,149,579

Total debt securities available for sale
 
$
3,406,492

 
$
3,553,128


The following table summarizes the carrying value of securities pledged as collateral to secure public funds, borrowings and other purposes as permitted or required by law:
 
 
March 31, 2020
 
 
(in thousands)
To secure public funds
 
$
317,706

To secure borrowings
 
109,060

Other securities pledged
 
155,647

Total securities pledged as collateral
 
$
582,413


The following table shows the gross unrealized losses and fair value of the Company’s debt securities available for sale for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019:
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2020
 
(in thousands)
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
5,653

 
$
(73
)
 
$
69,916

 
$
(1,375
)
 
$
75,569

 
$
(1,448
)
Other asset-backed securities
 
15,105

 
(44
)
 
626

 
(3
)
 
15,731

 
(47
)
State and municipal securities
 
43,187

 
(281
)
 
1,632

 
(3
)
 
44,819

 
(284
)
Total
 
$
63,945

 
$
(398
)
 
$
72,174

 
$
(1,381
)
 
$
136,119

 
$
(1,779
)
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations
 
$
1,055,903

 
$
(12,424
)
 
$
491,539

 
$
(6,798
)
 
$
1,547,442

 
$
(19,222
)
Other asset-backed securities
 
89,508

 
(880
)
 
6,799

 
(109
)
 
96,307

 
(989
)
State and municipal securities
 
12,363

 
(142
)
 
12,587

 
(82
)
 
24,950

 
(224
)
U.S. government agency and government-sponsored enterprise securities
 

 

 
10,495

 
(5
)
 
10,495

 
(5
)
Total
 
$
1,157,774

 
$
(13,446
)
 
$
521,420

 
$
(6,994
)
 
$
1,679,194

 
$
(20,440
)

At March 31, 2020, there were 64 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligation securities in an unrealized loss position. 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 concluded an allowance for credit losses is unnecessary at March 31, 2020.
At March 31, 2020, there were five other asset-backed securities in an unrealized loss position. 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 concluded an allowance for credit losses is unnecessary at March 31, 2020.

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Table of Contents

At March 31, 2020, there were 41 state and municipal government securities in an unrealized loss position. 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, 2020, 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 concluded an allowance for credit losses is unnecessary at March 31, 2020.
At March 31, 2020, there were no U.S. government agency and government-sponsored enterprise securities in an unrealized loss position.
Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into publicly traded Visa Class A common shares. This conversion will not occur until the settlement of certain litigation which is indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account not be sufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Visa Class B conversion ratio to unrestricted Visa Class A shares. At March 31, 2020, the Company owned 95,043 shares of Visa Class B shares which are carried at a zero cost basis.
4.
Loans
The Company’s loan portfolio includes originated and purchased loans. The following is an analysis of the loan portfolio by segment and class (net of unearned income):
 
 
March 31, 2020
 
December 31, 2019
 
 
(dollars in thousands)
Commercial loans:
 
 
 
 
Commercial real estate
 
$
3,969,974

 
$
3,945,853

Commercial business
 
3,169,668

 
2,989,613

Agriculture
 
754,491

 
765,371

Construction
 
308,186

 
361,533