Columbia Banking System Announces Second Quarter 2014 Earnings And Revised Conference Call Time

Highlights

- Net income of $21.2 million and diluted earnings per share of $0.40, net of a reduction in net income of $850 thousand, or $0.02 per diluted share, associated with acquisition-related expenses and FDIC acquired loan accounting

- Record loan production of over $250 million during the quarter

- Compared to the first quarter of 2014, both net interest margin and operating net interest margin expanded to 4.86% and 4.27%, respectively

- Nonperforming assets to period end noncovered assets reduced to 0.65%, a decrease of 19 basis points from year end and a decrease of 10 basis points from March 31, 2014

Jul 23, 2014, 20:30 ET from Columbia Banking System, Inc.

TACOMA, Wash., July 23, 2014 /PRNewswire/ -- Melanie Dressel, President and Chief Executive Officer of Columbia Banking System and Columbia Bank (NASDAQ: COLB) ("Columbia") said today upon the release of Columbia's second quarter 2014 earnings, "We had a very solid quarter driven by record loan production that resulted in over 14% annualized noncovered loan growth for the period.  Our reported earnings per share of $0.40 was negatively impacted by $0.02 due to the combination of acquisition related expense and the impact of our FDIC acquired loan accounting." Ms. Dressel continued, "The second quarter marked the one year anniversary of the closing of our acquisition of West Coast Bancorp, and we have achieved the anticipated cost saves and expected earnings accretion."

Significant Influences on the Quarter Ended June 30, 2014

Balance Sheet

Noncovered loans were $4.45 billion at June 30, 2014, up $155.6 million, or 4% from $4.30 billion at March 31, 2014. The increase in noncovered loans was driven by originations, which were over $250 million during the current quarter. Securities were $1.62 billion at June 30, 2014, a decrease of $49.7 million, or 3% from $1.67 billion at March 31, 2014.

Total deposits at June 30, 2014 were $5.99 billion, a decrease of $59.3 million, or 1% from $6.04 billion at March 31, 2014 due largely to seasonal deposit fluctuations. Compared to year end 2013, total deposits have increased $25.6 million. Core deposits comprised 96% of total deposits and were $5.74 billion at June 30, 2014.

Asset Quality

At June 30, 2014, nonperforming assets to noncovered assets were 0.65% or $45.8 million, down from 0.75%, or $52.3 million, at March 31, 2014.  Nonaccrual loans decreased $5.8 million during the second quarter driven by payments of $3.7 million, the return of $3.5 million of nonaccrual loans to accrual status, charge-offs of $1.8 million, and $2.1 million of loans transferred to other real estate owned ("OREO"), partially offset by $5.3 million of new nonaccrual loans. Noncovered OREO and other personal property owned ("OPPO") decreased by $721 thousand during the second quarter, primarily due to $2.1 million in sales and $636 thousand in write-downs, partially offset by the previously mentioned $2.1 million transferred from loans. 

The following table sets forth, at the dates indicated, information regarding noncovered nonaccrual loans and total noncovered nonperforming assets:

June 30, 2014

March 31, 2014

December 31, 2013

(in thousands)

Nonaccrual noncovered loans:

Commercial business

$

11,484

$

14,541

$

12,609

Real estate:

One-to-four family residential

3,024

2,900

2,667

Commercial and multifamily residential

11,039

11,050

11,043

Total real estate

14,063

13,950

13,710

Real estate construction:

One-to-four family residential

1,040

3,026

3,705

Total real estate construction

1,040

3,026

3,705

Consumer

4,026

4,880

3,991

Total nonaccrual loans

30,613

36,397

34,015

Noncovered other real estate owned and other personal property owned

15,203

15,924

23,918

Total nonperforming noncovered assets

$

45,816

$

52,321

$

57,933

The following table provides an analysis of the Company's allowance for loan and lease losses ("ALLL") at the dates and the periods indicated:

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

(in thousands)

Beginning balance

$

50,442

$

51,119

$

52,280

$

52,244

Charge-offs:

Commercial business

(1,717)

(961)

(1,950)

(2,275)

One-to-four family residential real estate

(28)

(207)

(144)

Commercial and multifamily residential real estate

(1,963)

(614)

(2,986)

(1,397)

One-to-four family residential real estate construction

(133)

Consumer

(909)

(638)

(1,636)

(809)

Total charge-offs

(4,589)

(2,241)

(6,779)

(4,758)

Recoveries:

Commercial business

1,712

352

2,202

465

One-to-four family residential real estate

12

141

40

141

Commercial and multifamily residential real estate

537

84

576

177

One-to-four family residential real estate construction

442

49

484

2,188

Consumer

338

194

591

241

Total recoveries

3,041

820

3,893

3,212

Net charge-offs

(1,548)

(1,421)

(2,886)

(1,546)

Provision for loan and lease losses

600

2,000

100

1,000

Ending balance

$

49,494

$

51,698

$

49,494

$

51,698

Columbia's allowance for loan losses to nonperforming, noncovered loans ratio was 162% at June 30, 2014, up from 139% at March 31, 2014. The increase in this ratio was caused by a decrease in nonperforming, noncovered loans. The allowance for noncovered loan losses to period end loans was 1.11% at June 30, 2014 compared to 1.17% at March 31, 2014. Excluding acquired loans, the allowance at June 30, 2014 represented 1.34% of noncovered loans, compared to 1.58% of noncovered loans at December 31, 2013. The allowance to noncovered loans, excluding acquired loans is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of the allowance to noncovered loans, excluding acquired loans. The decline reflects strong organic loan growth as well as continued improvement in the Company's asset quality metrics.

For the second quarter of 2014, Columbia had a provision of $600 thousand for noncovered loans. For the comparable quarter last year the company had a provision of $2.0 million. The provision recorded during the current quarter was driven by net loan charge-offs experienced in the quarter, partially offset by improving asset quality metrics.

Andy McDonald, Columbia's Chief Credit Officer stated, "Our credit metrics continue to improve and we are moving closer to our long-term average for nonperforming assets.  With the credit challenges of the economic downturn largely in the rearview mirror, our charge-off and nonaccrual loan activity has been in the normal course of business and is not the result of any troubled portfolio sectors."

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) of 4.86% for the second quarter of 2014 was consistent with the linked quarter margin of 4.85%. Compared to the second quarter of 2013, Columbia's net interest margin decreased 33 basis points from 5.19%, primarily due to lower incremental accretion on acquired loans, which was $18.1 million for the prior year quarter, and only $11.3 million for the current quarter.

Columbia's operating net interest margin (tax equivalent)(1) increased to 4.27% for the second quarter of 2014, compared to the linked quarter margin of 4.19%. The increase was primarily due to  higher average loan balances. Compared to the second quarter of 2013, the operating net interest margin decreased 7 basis points from 4.34% primarily due to the continuing low interest rate environment.

The following table shows the impact to interest income resulting from accretion of income on acquired loan portfolios as well as the net interest margin and operating net interest margin for the periods presented:

Three Months Ended

Six Months Ended

June 30, 2014

June 30, 2013

June 30, 2014

June 30, 2013

(dollars in thousands)

Incremental accretion income due to:

FDIC acquired impaired loans

$

5,734

$

7,837

$

12,223

$

16,212

Other FDIC acquired loans

95

638

299

1,708

Other acquired loans

5,481

9,635

11,096

9,635

Incremental accretion income

$

11,310

$

18,110

$

23,618

$

27,555

Net interest margin (tax equivalent)

4.86

%

5.19

%

4.86

%

5.13

%

Operating net interest margin (tax equivalent) (1)

4.27

%

4.34

%

4.23

%

4.28

%

(1) Operating net interest margin (tax equivalent) is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of operating net interest margin to net interest margin.

Impact of FDIC Acquired Loan Accounting

The following table illustrates the impact to earnings associated with Columbia's FDIC acquired loan portfolios:

FDIC Acquired Loan Activity

Three Months Ended

Six Months Ended

June 30, 2014

June 30, 2013

June 30, 2014

June 30, 2013

(in thousands)

Incremental accretion income on FDIC acquired impaired loans

$

5,734

$

7,837

$

12,223

$

16,212

Incremental accretion income on other FDIC acquired loans

95

638

299

1,708

Recapture (provision) for losses on covered loans

(1,517)

1,712

(3,939)

732

Change in FDIC loss-sharing asset

(5,050)

(13,137)

(9,869)

(23,620)

FDIC clawback liability benefit (expense)

103

(199)

(101)

(430)

Pre-tax earnings impact

$

(635)

$

(3,149)

$

(1,387)

$

(5,398)

The incremental accretion income on FDIC acquired impaired loans in the table above represents the amount of income recorded on acquired loans above the contractual rate stated in the individual loan notes and stems from the discount established at the time these loan portfolios were acquired. At June 30, 2014, the accretable yield on acquired impaired loans was $92.5 million. The accretable yield represents income to be recorded by Columbia over the remaining life of the acquired loans. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis. 

The $1.5 million net provision for losses on covered loans in the current period is substantially offset by an 80%, or $1.2 million, benefit to the change in the FDIC loss-sharing asset, resulting in a negative net pre-tax earnings impact of $303 thousand. The provision for losses on covered loans was primarily due to decreased expected future cash flows as remeasured during the current quarter when compared to the prior quarter's remeasurement. 

The $5.1 million change in the FDIC loss-sharing asset in the current quarter negatively affected noninterest income and consists of $5.8 million of amortization expense and approximately $500 thousand of expense related to covered other real estate owned, partially offset by the $1.2 million adjustment described above.

Second Quarter 2014 Results

Net Interest Income

Net interest income for the second quarter of 2014 was $75.1 million, an increase of $1.2 million compared to the first quarter of 2014. This increase was due to higher average noncovered loan balances during the current quarter. Compared to the second quarter of 2013, net interest income decreased by $4.9 million from $80.0 million. The decrease from the prior year period is primarily due to the $4.2 million decrease in loan accretion income related to the West Coast acquisition. For additional information regarding net interest income, see "Average Balances and Rates" tables.

Noninterest Income

Total noninterest income was $14.6 million for the second quarter of 2014, compared to $6.8 million for the second quarter of 2013. The increase from the prior year period was due to the expense recorded for the change in FDIC loss-sharing asset, which was $8.1 million less in the current quarter compared to the second quarter of 2013. Compared to the first quarter of 2014, noninterest income before change in loss-sharing asset increased $850 thousand, from $18.8 million to $19.7 million, primarily due to an increase of $854 thousand in service charges and other fees.

The change in the FDIC loss-sharing asset is a significant component of noninterest income. The following table reflects the income statement components of the change in the FDIC loss-sharing asset for the three and six month periods indicated:

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

(in thousands)

Adjustments reflected in income

Amortization, net

(5,764)

(9,801)

(12,216)

(19,580)

Loan impairment (recapture)

1,214

(1,370)

3,151

(585)

Sale of other real estate

(965)

(2,251)

(1,721)

(3,597)

Write-downs of other real estate

276

102

792

154

Other

189

183

125

(12)

Change in FDIC loss-sharing asset

$

(5,050)

$

(13,137)

$

(9,869)

$

(23,620)

Noninterest Expense

Total noninterest expense for the second quarter of 2014 was $57.8 million, a decrease of $6.7 million, or 10% from $64.5 million for the same quarter in 2013. The decrease from the prior year period was primarily due to lower acquisition-related expenses of $672 thousand for the current quarter compared to $9.2 million for the prior year period. This reduction in acquisition-related costs was partially offset by the reduction in OREO benefit, which went from $2.8 million in the second quarter of 2013 to only $97 thousand in the current quarter.

Compared to the first quarter of 2014, noninterest expense increased $378 thousand. The slight increase was primarily due to an increase in other noninterest expense of $391 thousand related to branch consolidation expenses.

Organizational Update

Melanie Dressel commented, "We continually review our branch system to ensure that we are running effectively and efficiently, while providing the best possible customer service. We currently operate 139 branches throughout our Washington and Oregon footprint, down from 142 at year-end 2013.  During the second quarter, we merged two of our downtown Tacoma, Washington branches, and announced we have entered into an agreement to sell three Olympic Peninsula branches to Sound Community Bank; the transaction is expected to close during the third quarter this year. Also during the third quarter, our Clackamas, Oregon branch will relocate to a more convenient new location."

Ms. Dressel continued, "We are very gratified that our employees enjoy being a part of the Columbia family. For the eighth consecutive year, we have been named one of "Washington's Best Workplaces" for 2014."

Revised Conference Call Information

Columbia's management will discuss the second quarter 2014 results on a conference call scheduled for Thursday, July 24, 2014 at 9:00 a.m. PDT (12:00 pm EDT). Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #71565968.

A conference call replay will be available from approximately 12:00 p.m. PDT on July 24, 2014 through midnight PDT on July 31, 2014. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #71565968.

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding Company of Columbia State Bank, a Washington state-chartered full-service commercial bank, with 79 branches in Washington and 60 in Oregon. For the eighth consecutive year, the bank was named in 2014 as one of Puget Sound Business Journal's "Washington's Best Workplaces."

More information about Columbia can be found on its website at www.columbiabank.com.

Note Regarding Forward-Looking Statements

This news release includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These forward looking statements describe Columbia's management's expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia's style of banking and the strength of the local economy. The words "will," "believe," "expect," "intend," "should," and "anticipate" and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely.  In addition to discussions about risks and uncertainties set forth from time to time in Columbia's filings with the Securities and Exchange Commission, available at the SEC's website at www.sec.gov and the Company's website at www.columbiabank.com, including the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q, factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following:  (1) local, national and international economic conditions may be less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates may reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (4) costs or difficulties related to the integration of acquisitions may be greater than expected; (5) competitive pressure among financial institutions may increase significantly; and (6) legislation or regulatory requirements or changes may adversely affect the businesses in which Columbia is engaged. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The factors noted above and the risks and uncertainties described in our SEC filings should be considered when reading any forward-looking statements in this release.

Contacts:

Melanie J. Dressel,

President and

Chief Executive Officer

(253) 305-1911

Clint E. Stein,

Executive Vice President

and Chief Financial Officer

(253) 593-8304

 

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Three Months Ended

Six Months Ended

Unaudited

June 30,

June 30,

2014

2013

2014

2013

Earnings

(dollars in thousands except per share amounts)

Net interest income

$

75,124

$

79,989

$

149,064

$

133,471

Provision for loan and lease losses

$

600

$

2,000

$

100

$

1,000

Provision for losses on covered loans, net (1)

$

1,517

$

(1,712)

$

3,939

$

(732)

Noninterest income

$

14,627

$

6,808

$

28,635

$

8,466

Noninterest expense

$

57,764

$

64,504

$

115,150

$

102,553

Acquisition-related expense (included in noninterest expense)

$

672

$

9,234

$

1,638

$

9,957

Net income

$

21,227

$

14,591

$

41,071

$

26,767

Per Common Share

Earnings (basic)

$

0.40

$

0.28

$

0.79

$

0.59

Earnings (diluted)

$

0.40

$

0.28

$

0.77

$

0.58

Book value

$

20.71

$

20.07

$

20.71

$

20.07

Averages

Total assets

$

7,229,187

$

7,110,957

$

7,186,709

$

5,987,243

Interest-earning assets

$

6,339,102

$

6,284,281

$

6,292,157

$

5,316,008

Loans, including covered loans

$

4,646,356

$

4,571,181

$

4,592,033

$

3,771,314

Securities

$

1,645,993

$

1,665,180

$

1,664,081

$

1,360,114

Deposits

$

5,968,881

$

5,824,802

$

5,935,544

$

4,912,533

Interest-bearing deposits

$

3,807,710

$

3,986,581

$

3,790,137

$

3,366,784

Interest-bearing liabilities

$

3,901,016

$

4,161,095

$

3,884,628

$

3,470,257

Noninterest-bearing deposits

$

2,161,171

$

1,838,221

$

2,145,407

$

1,545,749

Shareholders' equity

$

1,084,927

$

1,051,380

$

1,076,189

$

910,667

Financial Ratios

Return on average assets

1.17

%

0.82

%

1.14

%

0.89

%

Return on average common equity

7.83

%

5.56

%

7.64

%

5.88

%

Average equity to average assets

15.01

%

14.79

%

14.97

%

15.21

%

Net interest margin (tax equivalent)

4.86

%

5.19

%

4.86

%

5.13

%

Efficiency ratio (tax equivalent) (2)

62.61

%

72.60

%

63.06

%

70.35

%

Operating efficiency ratio (tax equivalent) (3)

63.80

%

64.13

%

64.49

%

64.99

%

June 30,

December 31,

Period end

2014

2013

2013

Total assets

$

7,297,458

$

7,070,465

$

7,161,582

Covered assets, net

$

255,151

$

351,545

$

289,790

Loans, excluding covered loans, net

$

4,452,674

$

4,181,018

$

4,219,451

Allowance for noncovered loan and lease losses

$

49,494

$

51,698

$

52,280

Securities

$

1,621,929

$

1,541,039

$

1,696,640

Deposits

$

5,985,069

$

5,747,861

$

5,959,475

Core deposits

$

5,735,047

$

5,467,899

$

5,696,357

Shareholders' equity

$

1,092,151

$

1,030,674

$

1,053,249

Nonperforming, noncovered assets

Nonaccrual loans

$

30,613

$

43,610

$

34,015

Other real estate owned ("OREO") and other personal property owned("OPPO")

15,203

24,423

23,918

   Total nonperforming, noncovered assets

$

45,816

$

68,033

$

57,933

Nonperforming assets to period-end noncovered loans + OREO and OPPO

1.03

%

1.62

%

1.37

%

Nonperforming loans to period-end noncovered loans

0.69

%

1.04

%

0.81

%

Nonperforming assets to period-end noncovered assets

0.65

%

1.01

%

0.84

%

Allowance for loan and lease losses to period-end noncovered loans

1.11

%

1.24

%

1.24

%

Allowance for loan and lease losses to nonperforming noncovered loans

161.68

%

118.55

%

153.70

%

Net noncovered loan charge-offs

$

2,886

(4)

$

1,546

(5)

$

3,124

(6)

(1) Provision(recapture) for losses on covered loans was partially offset by $1.2 million in income and $1.4 million in expense recorded to Change in FDIC loss-sharing asset in the Consolidated Statements of Income for the three months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, provision(recapture) for losses on covered loans was partially offset by $3.2 million in income and $586 thousand in expense, respectively.

(2) Noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income on a tax equivalent basis.

(3) The operating efficiency ratio (tax equivalent) is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of the operating efficiency ratio (tax equivalent) to the efficiency ratio (tax equivalent). During the second quarter of 2014, the methodology was changed to now exclude Washington state Business and Occupation ("B&O") taxes. Amounts presented in prior periods have been adjusted to conform with the current methodology.

(4)  For the six months ended June 30, 2014.

(5)  For the six months ended June 30, 2013.

(6)  For the twelve months ended December 31, 2013.

 

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

June 30,

December 31,

2014

2013

Loan Portfolio Composition

(dollars in thousands)

Noncovered loans:

Commercial business

$

1,735,588

39.0

%

$

1,561,782

37.0

%

Real estate:

One-to-four family residential

102,632

2.3

%

108,317

2.6

%

Commercial and multifamily residential

2,127,520

47.8

%

2,080,075

49.2

%

   Total real estate

2,230,152

50.1

%

2,188,392

51.8

%

Real estate construction:

One-to-four family residential

61,481

1.4

%

54,155

1.3

%

Commercial and multifamily residential

134,140

3.0

%

126,390

3.0

%

   Total real estate construction

195,621

4.4

%

180,545

4.3

%

Consumer

348,439

7.8

%

357,014

8.5

%

Subtotal loans

4,509,800

101.3

%

4,287,733

101.6

%

Less:  Net unearned income

(57,126)

(1.3)%

(68,282)

(1.6)%

Total noncovered loans, net of unearned income

4,452,674

100.0

%

4,219,451

100.0

%

Less:  Allowance for loan and lease losses

(49,494)

(52,280)

Noncovered loans, net

4,403,180

4,167,171

Covered loans, net of allowance for loan losses of ($19,801) and ($20,174), respectively

242,100

277,671

Total loans, net

$

4,645,280

$

4,444,842

Loans held for sale

$

750

$

735

June 30,

December 31,

2014

2013

Deposit Composition

(dollars in thousands)

Core deposits:

Demand and other non-interest bearing

$

2,190,161

36.6

%

$

2,171,703

36.4

%

Interest bearing demand

1,189,620

19.9

%

1,170,006

19.6

%

Money market

1,553,269

26.0

%

1,569,261

26.3

%

Savings

532,276

8.9

%

496,444

8.3

%

Certificates of deposit less than $100,000

269,721

4.4

%

288,943

4.9

%

Total core deposits

5,735,047

95.8

%

5,696,357

95.5

%

Certificates of deposit greater than $100,000

182,697

3.1

%

201,498

3.5

%

Certificates of deposit insured by CDARS®

18,690

0.3

%

19,488

0.3

%

Brokered money market accounts

48,408

0.8

%

41,765

0.7

%

Subtotal

5,984,842

100.0

%

5,959,108

100.0

%

   Premium resulting from acquisition date fair value adjustment

227

367

Total deposits

$

5,985,069

$

5,959,475

 

 

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

June 30,

December 31,

2014

2013

OREO

OPPO

OREO

OPPO

OREO and OPPO Composition

(in thousands)

Covered

$

13,051

$

$

12,093

$

26

Noncovered

15,203

23,834

84

Total

$

28,254

$

$

35,927

$

110

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

OREO and OPPO Earnings Impact

(in thousands)

Net cost of operation of noncovered OREO

$

730

$

393

$

1,057

$

339

Net benefit of operation of covered OREO

(827)

(3,221)

(1,008)

(5,668)

Net cost (benefit) of operation of OREO

$

(97)

$

(2,828)

$

49

$

(5,329)

Noncovered OPPO cost (benefit), net

$

$

8

$

(125)

$

(96)

Covered OPPO benefit, net

(20)

(19)

OPPO benefit, net (1)

$

(20)

$

8

$

(144)

$

(96)

(1) OPPO cost (benefit), net is included in Other noninterest expense in the Consolidated Statements of Income.

The following table shows a summary of FDIC acquired loan accounting for the five most recent quarters:

 

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(in thousands)

Expense to pre-tax earnings (1)

$

(635)

$

(752)

$

(1,248)

$

(3,362)

$

(3,149)

Balance sheet components:

Covered loans, net of allowance

$

242,100

$

260,158

$

277,671

$

302,160

$

338,661

Covered OREO

13,051

14,712

12,093

12,730

12,854

FDIC loss-sharing asset

27,981

36,837

39,846

53,559

67,374

(1) For details of the components of expense to pre-tax earnings related to FDIC acquired loan accounting, see previous table entitled "FDIC Acquired Loan Activity."

 

QUARTERLY FINANCIAL STATISTICS

Columbia Banking System, Inc.

Three Months Ended

Unaudited

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(dollars in thousands except per share)

Earnings

Net interest income

$

75,124

$

73,940

$

77,209

$

80,415

$

79,989

Provision (recapture) for loan and lease losses

$

600

$

(500)

$

(2,100)

$

4,260

$

2,000

Provision (recapture) for losses on covered loans

$

1,517

$

2,422

$

(1,582)

$

(947)

$

(1,712)

Noninterest income

$

14,627

$

14,008

$

10,612

$

7,622

$

6,808

Noninterest expense

$

57,764

$

57,386

$

63,619

$

64,714

$

64,504

Acquisition-related expense (included in noninterest expense)

$

672

$

966

$

7,910

$

7,621

$

9,234

Net income

$

21,227

$

19,844

$

19,973

$

13,276

$

14,591

Per Common Share

Earnings (basic)

$

0.40

$

0.38

$

0.39

$

0.26

$

0.28

Earnings (diluted)

$

0.40

$

0.37

$

0.38

$

0.25

$

0.28

Book value

$

20.71

$

20.39

$

20.50

$

20.35

$

20.07

Averages

Total assets

$

7,229,187

$

7,143,759

$

7,192,084

$

7,048,864

$

7,110,957

Interest-earning assets

$

6,339,102

$

6,244,692

$

6,269,894

$

6,101,960

$

6,284,281

Loans, including covered loans

$

4,646,356

$

4,537,107

$

4,504,587

$

4,504,040

$

4,571,181

Securities

$

1,645,993

$

1,682,370

$

1,662,720

$

1,512,292

$

1,665,180

Deposits

$

5,968,881

$

5,901,838

$

6,003,657

$

5,837,018

$

5,824,802

Interest-bearing deposits

$

3,807,710

$

3,772,370

$

3,839,060

$

3,805,260

$

3,986,581

Interest-bearing liabilities

$

3,901,016

$

3,868,060

$

3,886,126

$

3,898,997

$

4,161,095

Noninterest-bearing deposits

$

2,161,171

$

2,129,468

$

2,164,597

$

2,031,758

$

1,838,221

Shareholders' equity

$

1,084,927

$

1,067,353

$

1,056,694

$

1,036,134

$

1,051,380

Financial Ratios

Return on average assets

1.17

%

1.11

%

1.11

%

0.75

%

0.82

%

Return on average common equity

7.83

%

7.45

%

7.57

%

5.13

%

5.56

%

Average equity to average assets

15.01

%

14.94

%

14.69

%

14.70

%

14.79

%

Net interest margin (tax equivalent)

4.86

%

4.85

%

5.03

%

5.37

%

5.19

%

Period end

Total assets

$

7,297,458

$

7,237,053

$

7,161,582

$

7,150,297

$

7,070,465

Covered assets, net

$

255,151

$

274,896

$

289,790

$

314,898

$

351,545

Loans, excluding covered loans, net

$

4,452,674

$

4,297,076

$

4,219,451

$

4,193,732

$

4,181,018

Allowance for noncovered loan and lease losses

$

49,494

$

50,442

$

52,280

$

55,844

$

51,698

Securities

$

1,621,929

$

1,671,594

$

1,696,640

$

1,602,484

$

1,541,039

Deposits

$

5,985,069

$

6,044,416

$

5,959,475

$

5,948,967

$

5,747,861

Core deposits

$

5,735,047

$

5,768,434

$

5,696,357

$

5,662,958

$

5,467,899

Shareholders' equity

$

1,092,151

$

1,074,491

$

1,053,249

$

1,045,797

$

1,030,674

Nonperforming, noncovered assets

Nonaccrual loans

$

30,613

$

36,397

$

34,015

$

35,961

$

43,610

OREO and OPPO

15,203

15,924

23,918

23,641

24,423

Total nonperforming, noncovered assets

$

45,816

$

52,321

$

57,933

$

59,602

$

68,033

Nonperforming assets to period-end noncovered loans + OREO and OPPO

1.03

%

1.21

%

1.37

%

1.41

%

1.62

%

Nonperforming loans to period-end noncovered loans

0.69

%

0.85

%

0.81

%

0.86

%

1.04

%

Nonperforming assets to period-end noncovered assets

0.65

%

0.75

%

0.84

%

0.87

%

1.01

%

Allowance for loan and lease losses to period-end noncovered loans

1.11

%

1.17

%

1.24

%

1.33

%

1.24

%

Allowance for loan and lease losses to nonperforming noncovered loans

161.68

%

138.59

%

153.70

%

155.29

%

118.55

%

Net noncovered loan charge-offs

$

1,548

$

1,338

$

1,464

$

114

$

1,421

 

CONSOLIDATED STATEMENTS OF INCOME

Columbia Banking System, Inc.

Three Months Ended

Six Months Ended

Unaudited

June 30,

June 30,

2014

2013 (1)

2014

2013 (1)

(in thousands except per share)

Interest Income

Loans

$

67,004

$

74,837

$

132,545

$

122,865

Taxable securities

6,382

4,890

13,134

9,124

Tax-exempt securities

2,671

2,508

5,289

4,806

Federal funds sold and deposits in banks

30

33

44

234

Total interest income

76,087

82,268

151,012

137,029

Interest Expense

Deposits

729

1,054

1,481

2,143

Federal Home Loan Bank advances

115

(699)

229

(628)

Prepayment charge on Federal Home Loan Bank advances

1,548

1,548

Other borrowings

119

376

238

495

Total interest expense

963

2,279

1,948

3,558

Net Interest Income

75,124

79,989

149,064

133,471

Provision for loan and lease losses

600

2,000

100

1,000

Provision (recapture) for losses on covered loans, net

1,517

(1,712)

3,939

(732)

Net interest income after provision (recapture) for loan and lease losses

73,007

79,701

145,025

133,203

Noninterest Income

Service charges and other fees

13,790

13,560

26,726

21,154

Merchant services fees

2,040

2,013

3,910

3,864

Investment securities gains, net

296

92

519

462

Bank owned life insurance

976

1,008

1,941

1,706

Change in FDIC loss-sharing asset

(5,050)

(13,137)

(9,869)

(23,620)

Other

2,575

3,272

5,408

4,900

Total noninterest income

14,627

6,808

28,635

8,466

Noninterest Expense

Compensation and employee benefits

31,064

35,657

62,402

57,310

Occupancy

8,587

7,543

16,831

12,296

Merchant processing

998

852

1,978

1,709

Advertising and promotion

950

1,160

1,719

2,030

Data processing and communications

3,680

3,638

7,200

6,218

Legal and professional fees

2,303

5,504

4,472

7,554

Taxes, licenses and fees

1,051

1,204

2,231

2,591

Regulatory premiums

1,073

1,177

2,249

2,034

Net cost (benefit) of operation of other real estate

(97)

(2,828)

49

(5,329)

Amortization of intangibles

1,480

1,693

3,060

2,722

Other (1)

6,675

8,904

12,959

13,418

Total noninterest expense

57,764

64,504

115,150

102,553

Income before income taxes

29,870

22,005

58,510

39,116

Provision for income taxes

8,643

7,414

17,439

12,349

Net Income

$

21,227

$

14,591

$

41,071

$

26,767

Earnings per common share

Basic

$

0.40

$

0.28

$

0.79

$

0.59

Diluted

$

0.40

$

0.28

$

0.77

$

0.58

Dividends paid per common share

$

0.24

$

0.10

$

0.36

$

0.20

Weighted average number of common shares outstanding

52,088

50,788

51,600

45,099

Weighted average number of diluted common shares outstanding

52,494

52,125

52,463

45,758

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

 

CONSOLIDATED BALANCE SHEETS

Columbia Banking System, Inc.

Unaudited

June 30,

December 31,

2014

2013

(in thousands)

ASSETS

Cash and due from banks

$

193,816

$

165,030

Interest-earning deposits with banks

30,646

14,531

Total cash and cash equivalents

224,462

179,561

Securities available for sale at fair value (amortized cost of $1,581,989 and $1,680,491, respectively)

1,590,017

1,664,111

Federal Home Loan Bank stock at cost

31,912

32,529

Loans held for sale

750

735

Loans, excluding covered loans, net of unearned income of ($57,126) and ($68,282), respectively

4,452,674

4,219,451

Less: allowance for loan and lease losses

49,494

52,280

Loans, excluding covered loans, net

4,403,180

4,167,171

Covered loans, net of allowance for loan losses of ($19,801) and ($20,174), respectively

242,100

277,671

Total loans, net

4,645,280

4,444,842

FDIC loss-sharing asset

27,981

39,846

Interest receivable

22,183

22,206

Premises and equipment, net

156,645

154,732

Other real estate owned ($13,051 and $12,093 covered by FDIC loss-share, respectively)

28,254

35,927

Goodwill

343,952

343,952

Other intangible assets, net

22,792

25,852

Other assets

203,230

217,289

Total assets

$

7,297,458

$

7,161,582

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest-bearing

$

2,190,161

$

2,171,703

Interest-bearing

3,794,908

3,787,772

Total deposits

5,985,069

5,959,475

Federal Home Loan Bank advances

110,587

36,606

Securities sold under agreements to repurchase

25,000

25,000

Other liabilities

84,651

87,252

Total liabilities

6,205,307

6,108,333

Commitments and contingent liabilities

June 30,

December 31,

2014

2013

Preferred stock (no par value)

Authorized shares

2,000

2,000

Issued and outstanding

9

9

2,217

2,217

Common stock (no par value)

Authorized shares

63,033

63,033

Issued and outstanding

52,635

51,265

861,609

860,562

Retained earnings

224,765

202,514

Accumulated other comprehensive income (loss)

3,560

(12,044)

Total shareholders' equity

1,092,151

1,053,249

Total liabilities and shareholders' equity

$

7,297,458

$

7,161,582

 

AVERAGE BALANCES AND RATES

Columbia Banking System, Inc.

Unaudited

Three Months Ended June 30,

Three Months Ended June 30,

2014

2013

Average Balances

Interest Earned / Paid

Average Rate

Average Balances

Interest Earned / Paid

Average Rate

(dollars in thousands)

ASSETS

Loans, excluding covered loans, net (1) (3)

$

4,373,439

$

56,807

5.20

%

$

4,192,519

$

60,881

5.81

%

Covered loans, net (2)

272,917

10,622

15.57

%

378,662

14,074

14.87

%

Taxable securities

1,281,753

6,382

1.99

%

1,328,806

4,890

1.47

%

Tax exempt securities (3)

364,240

4,192

4.60

%

336,375

3,890

4.63

%

Interest-earning deposits with banks and federal funds sold

46,753

30

0.26

%

47,919

33

0.27

%

Total interest-earning assets

6,339,102

$

78,033

4.92

%

6,284,281

$

83,768

5.33

%

Other earning assets

130,462

113,403

Noninterest-earning assets

759,623

713,273

Total assets

$

7,229,187

$

7,110,957

LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit

$

480,459

$

325

0.27

%

$

590,261

$

535

0.36

%

Savings accounts

527,370

14

0.01

%

477,574

28

0.02

%

Interest-bearing demand

1,187,274

115

0.04

%

1,059,772

153

0.06

%

Money market accounts

1,612,607

275

0.07

%

1,858,974

338

0.07

%

Total interest-bearing deposits

3,807,710

729

0.08

%

3,986,581

1,054

0.11

%

Federal Home Loan Bank advances (4)

68,306

115

0.67

%

106,309

849

3.19

%

Other borrowings

25,000

119

1.90

%

68,205

376

2.21

%

Total interest-bearing liabilities

3,901,016

$

963

0.10

%

4,161,095

$

2,279

0.22

%

Noninterest-bearing deposits

2,161,171

1,838,221

Other noninterest-bearing liabilities

82,073

60,261

Shareholders' equity

1,084,927

1,051,380

Total liabilities & shareholders' equity

$

7,229,187

$

7,110,957

Net interest income (tax equivalent)

$

77,070

$

81,489

Net interest margin (tax equivalent)

4.86

%

5.19

%

(1)

Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on certain acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.2 million and $840 thousand for the three months ended June 30, 2014 and 2013, respectively. The accretion of net unearned discounts on certain acquired loans was $5.6 million and $10.3 million for the three months ended June 30, 2014 and 2013, respectively.

(2)

Incremental accretion on acquired impaired loans is included in covered loan interest earned. The incremental accretion income on acquired impaired loans was $5.7 million and $7.8 million for the three months ended June 30, 2014 and 2013, respectively.

(3)

Yields on a fully tax equivalent basis. The tax equivalent yield adjustment to interest earned on noncovered loans was $425 thousand and $118 thousand for the three months ended June 30, 2014 and 2013, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and $1.4 million for the three months ended June 30, 2014 and 2013, respectively.

(4)

Federal Home Loan Bank advances includes a prepayment charge of $1.5 million during the three months ended June 30, 2013. As a result of the prepayment, the Company recorded $874 thousand in premium amortization, which partially offset the impact of the prepayment charge.

 

AVERAGE BALANCES AND RATES

Columbia Banking System, Inc.

Unaudited

Six Months Ended June 30,

Six Months Ended June 30,

2014

2013

Average Balances

Interest Earned / Paid

Average Rate

Average Balances

Interest Earned / Paid

Average Rate

(dollars in thousands)

ASSETS

Loans, excluding covered loans, net (1) (3)

$

4,311,118

$

111,753

5.18

%

$

3,380,360

$

94,045

5.56

%

Covered loans, net (2)

280,915

21,574

15.36

%

390,954

29,066

14.87

%

Taxable securities

1,305,584

13,134

2.01

%

1,056,992

9,124

1.73

%

Tax exempt securities (3)

358,497

8,301

4.63

%

303,122

7,457

4.92

%

Interest-earning deposits with banks and federal funds sold

36,043

44

0.24

%

184,581

234

0.25

%

Total interest-earning assets

6,292,157

$

154,806

4.92

%

5,316,009

$

139,926

5.26

%

Other earning assets

128,703

97,094

Noninterest-earning assets

765,849

574,140

Total assets

$

7,186,709

$

5,987,243

LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit

$

491,731

$

687

0.28

%

$

536,750

$

1,115

0.42

%

Savings accounts

520,678

28

0.01

%

402,584

44

0.02

%

Interest-bearing demand

1,178,042

223

0.04

%

950,352

331

0.07

%

Money market accounts

1,599,686

543

0.07

%

1,477,098

653

0.09

%

Total interest-bearing deposits

3,790,137

1,481

0.08

%

3,366,784

2,143

0.13

%

Federal Home Loan Bank advances (4)

69,491

229

0.66

%

56,751

920

3.24

%

Other borrowings

25,000

238

1.90

%

46,722

495

2.12

%

Total interest-bearing liabilities

3,884,628

$

1,948

0.10

%

3,470,257

$

3,558

0.21

%

Noninterest-bearing deposits

2,145,407

1,545,749

Other noninterest-bearing liabilities

80,485

60,570

Shareholders' equity

1,076,189

910,667

Total liabilities & shareholders' equity

$

7,186,709

$

5,987,243

Net interest income (tax equivalent)

$

152,858

$

136,368

Net interest margin (tax equivalent)

4.86

%

5.13

%

(1)

Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on certain acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $2.1 million and $1.5 million for the six months ended June 30, 2014 and 2013, respectively. The accretion of net unearned discounts on certain acquired loans was $11.4 million and $11.3 million for the six months ended June 30, 2014 and 2013, respectively.

(2)

Incremental accretion on acquired impaired loans is included in covered loan interest earned. The incremental accretion income on acquired impaired loans was $12.2 million and $16.2 million for the six months ended June 30, 2014 and 2013, respectively.

(3)

Yields on a fully tax equivalent basis. The tax equivalent yield adjustment to interest earned on noncovered loans was $782 thousand and $246 thousand for the six months ended June 30, 2014 and 2013, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.0 million and $2.7 million for the six months ended June 30, 2014 and 2013, respectively.

(4)

Federal Home Loan Bank advances includes a prepayment charge of $1.5 million during the six months ended June 30, 2013. As a result of the prepayment, the Company recorded $874 thousand in premium amortization, which partially offset the impact of the prepayment charge.

Non-GAAP Financial Measures

The Company considers its operating net interest margin and operating efficiency ratios to be important measurements as they more closely reflect the ongoing operating performance of the Company. Despite the importance of the operating net interest margin and operating efficiency ratio to the Company, there are no standardized definitions for them and, as a result, the Company's calculations may not be comparable with other organizations. Also, there may be limits in the usefulness of these measure to investors. As a result, the Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following tables reconcile the Company's calculation of the operating net interest margin and operating efficiency ratio:

 

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Operating net interest margin non-GAAP reconciliation:

(dollars in thousands)

Net interest income (tax equivalent) (1)

$

77,070

$

81,489

$

152,858

$

136,368

Adjustments to arrive at operating net interest income (tax equivalent):

Incremental accretion income on FDIC acquired impaired loans

(5,734)

(7,837)

(12,223)

(16,212)

Incremental accretion income on other FDIC acquired loans

(95)

(638)

(299)

(1,708)

Incremental accretion income on other acquired loans

(5,481)

(9,635)

(11,096)

(9,635)

Premium amortization on acquired securities

1,554

3,054

3,179

3,054

Interest reversals on nonaccrual loans

392

145

680

394

Prepayment charges on FHLB advances

1,548

1,548

Operating net interest income (tax equivalent) (1)

$

67,706

$

68,126

$

133,099

$

113,809

Average interest earning assets

$

6,339,102

$

6,284,281

$

6,292,157

$

5,316,009

Net interest margin (tax equivalent) (1)

4.86

%

5.19

%

4.86

%

5.13

%

Operating net interest margin (tax equivalent) (1)

4.27

%

4.34

%

4.23

%

4.28

%

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Operating efficiency ratio non-GAAP reconciliation:

(dollars in thousands)

Noninterest expense (numerator A)

$

57,764

$

64,504

$

115,150

$

102,553

Adjustments to arrive at operating noninterest expense:

Acquisition-related expenses

(672)

(9,234)

(1,638)

(9,957)

Net  benefit of operation of OREO and OPPO

117

2,820

95

5,425

FDIC clawback liability benefit  (expense)

103

(199)

(101)

(430)

Loss on asset disposals

(431)

(8)

(450)

(33)

State of Washington Business and Occupation ("B&O") taxes

(972)

(1,120)

(2,047)

(2,455)

Operating noninterest expense (numerator B)

$

55,909

$

56,763

$

111,009

$

95,103

Net interest income (tax equivalent) (1)

$

77,070

$

81,489

$

152,858

$

136,368

Noninterest income

14,627

6,808

28,635

8,466

Bank owned life insurance tax equivalent adjustment

556

556

1,105

941

Total revenue (tax equivalent) (denominator A)

$

92,253

$

88,853

$

182,598

$

145,775

Operating net interest income (tax equivalent) (1)

$

67,706

$

68,126

$

133,099

$

113,809

Adjustments to arrive at operating noninterest income (tax equivalent):

Investment securities gains, net

(296)

(92)

(519)

(462)

Gain on asset disposals

(18)

(21)

(50)

(41)

Change in FDIC loss-sharing asset

5,050

13,137

9,869

23,620

Operating noninterest income (tax equivalent)

19,919

20,388

39,040

32,524

Total operating revenue (tax equivalent) (denominator B)

$

87,625

$

88,514

$

172,139

$

146,333

Efficiency ratio (tax equivalent) (numerator A/denominator A)

62.61

%

72.60

%

63.06

%

70.35

%

Operating efficiency ratio (tax equivalent) (numerator B/denominator B)

63.80

%

64.13

%

64.49

%

64.99

%

(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of  $1.9 million and $1.5 million for the three months ended June 30, 2014 and 2013, respectively, and $3.8 million and $2.9 million for the six months ended June 30, 2014 and 2013, respectively.

Non-GAAP Financial Measures - Continued

The Company considers its ratio of allowance for loan and lease losses to period-end noncovered loans, excluding acquired loans to be an important measurement it more closely reflects the ongoing allowance coverage and provides a ratio that is more comparable to other bank holding companies that have not had similar acquisitions. Despite the importance of this ratio to the Company, there are no standardized definitions for it and, as a result, the Company's calculations may not be comparable with other organizations. Also, there may be limits in the usefulness of this measure to investors. As a result, the Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following table reconciles the Company's calculation of the allowance for loan and lease losses to period-end noncovered loans, excluding acquired loans:

June 30,

December 31,

2014

2013

(dollars in thousands)

Allowance for loan and lease losses (numerator a)

$

49,494

$

52,280

Less: Allowance for loan and lease losses attributable to acquired loans

(3,626)

(4,188)

Equals: Allowance for noncovered loans, excluding acquired loans (numerator b)

$

45,868

48,092

Loans, excluding covered loans, net of unearned income (denominator a)

$

4,452,674

$

4,219,451

Less: Acquired loans, net of unearned income

(1,031,516)

(1,181,542)

Equals: Loans, excluding covered loans and acquired loans, net of unearned income (denominator b)

$

3,421,158

$

3,037,909

Allowance for loan and lease losses to period-end noncovered loans (numerator a/denominator a)

1.11

%

1.24

%

Allowance for loan and lease losses to period-end noncovered loans, excluding acquired loans (numerator b/denominator b)

1.34

%

1.58

%

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SOURCE Columbia Banking System, Inc.



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