Columbia Banking System Announces Strong Earnings for Fourth Quarter and Full Year 2011

Highlights

- Fourth quarter 2011: Net income of $14.8 million, or $0.37 per diluted common share, compared to net income applicable to common shareholders of $12.6 million, or $0.32 per diluted common share, for 4th quarter 2010.

- Full year 2011: Net income of $48.0 million, or $1.21 per diluted common share, compared to a net income applicable to common shareholders of $25.8 million for the year 2010, or $0.72 per diluted common share for full year 2010.

- Noncovered loans increased 4% or approximately $90 million in the 4th quarter.

- Branch network of 102 branches in Washington and Oregon, up 21% from year-end 2010.

- Columbia Bank named best bank in Washington State by Forbes.

- President & CEO Melanie Dressel honored as 2011 Community Banker of the Year by American Banker.

Jan 26, 2012, 09:15 ET from Columbia Banking System, Inc.

TACOMA, Wash., Jan. 26, 2012 /PRNewswire / -- Columbia Banking System, Inc. (NASDAQ: COLB) ("Columbia") today announced net income applicable to common shareholders of $14.8 million for the quarter ended December 31, 2011, an increase of 17% compared to net income of $12.6 million for the same quarter of 2010.  On a diluted earnings per common share basis, net income rose 16% to $0.37 for the fourth quarter, compared with net income of $0.32 per share a year earlier.

Net income applicable to common shareholders for the year ended December 31, 2011 was $48.0 million, an increase of 86% from net income of $25.8 million for 2010.  On a diluted per common share basis, net income for 2011 was $1.21 compared with a $0.72 a year earlier.

"2011 was an exceptional year of growth and opportunity for us," said Melanie Dressel, President and Chief Executive Officer. "We continued to make significant progress in our often-stated goal of being a leading Pacific Northwest regional community bank.  Our total assets increased by about 13% from a year ago as a result of organic growth as well as the FDIC-assisted acquisitions of First Heritage Bank and Summit Bank during the second quarter, and Bank of Whitman during the third quarter of 2011.  These transactions increased the number of our branches by 21%, extended our geographic footprint further into eastern Washington, and helped us fill in our branch network in northwest Washington.  The integration of First Heritage and Summit are complete; the Bank of Whitman integration will be accomplished by the end of the first quarter."

Significant Influences on the Quarter Ended December 31, 2011

Impact of Acquired Loan Accounting

We account for loans under three general models which impact the way income and credit losses are recorded in our financial statements:  Originated Loans, Discounted Loans, and Pooled Loans. Originated and discounted loans are presented as "Noncovered Loans."  Pooled loans are presented as "Covered Loans." Please refer to Note 1 in the accompanying financial statements for further explanation of each of these models.

The following table illustrates the significant financial statement impacts associated with Columbia's acquired loan portfolios:

Acquired Loan Portfolio Activity

Three Months Ended

Year Ended

(in thousands)

December 31, 2011

December 31, 2011

Accretion income on pooled loans in excess of stated loan rates

$

17,222

$

53,079

Accretion income on discounted loans

9,184

14,281

Change in FDIC loss sharing asset

(17,448)

(49,496)

Claw back liability

(362)

(3,656)

Pre-tax earnings impact

$

8,596

$

14,208

The accretion income on pooled loans represents the amount of income recorded on the pooled 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.

As of December 31, 2011, the unamortized discount from the Bank of Whitman transaction was $11.3 million.  It is anticipated that this discount will continue to accrete to earnings from normal amortization, early loan payoffs and contractual maturities.

The change in the FDIC loss sharing asset recognizes the decreased amount that Columbia expects to collect from the FDIC under the terms of its loss sharing agreements. The $17.4 million change in the FDIC loss sharing asset affected noninterest income, and resulted in a reported noninterest loss of $9.6 million for the current quarter.  The FDIC loss sharing asset was $175.1 million as of December 31, 2011.  The pooled loan portfolio had a remaining accretable yield of $260.0 million as of year-end 2011.  

The pooled loan portfolios continue to perform better than originally expected, requiring us to increase our clawback liability from $3.3 million to $3.7 million during the fourth quarter through a charge to noninterest expense of $362 thousand.  The $3.7 million represents the net present value of management's clawback liability estimate of $5.5 million.  The clawback liability is calculated by evaluating each individual portfolio covered by a loss sharing agreement with the FDIC.   The liability is adjusted upward or downward according to the total expected losses over the loss share period.

Balance Sheet

At December 31, 2011, Columbia's total assets were $4.79 billion, an increase of 13% from $4.26 billion at December 31, 2010.  Total shareholders' equity at December 31, 2011 was $759.6 million, an increase of 7% from $706.9 million at December 31, 2010.

Loans not covered under the FDIC loss-sharing agreements "noncovered loans" were $2.35 billion at December 31, 2011, up 23% from $1.92 billion at December 31, 2010.  The average yield on loans for the quarter ended December 31, 2011 was 9.5%, including additional accretion from the acquired loan portfolios.  Net noncovered loan growth for the fourth quarter 2011 was approximately $90 million.  

The loan portfolio includes 44% commercial business loans, 4% total construction including commercial and residential, 3% one-to-four family residential real estate, and 8% consumer.  The remaining 41% of the portfolio is commercial real estate, which consists of 57% income property and 43% owner occupied.   Net loans covered under the FDIC loss sharing agreements which provide protection against credit risk, totaled $531.9 million at December 31, 2011.  Our noncovered loans continue to be diversified, mitigating risk by avoiding concentration in any one segment within the major loan categories.

Total deposits at December 31, 2011 increased 15% to $3.82 billion from $3.33 billion at December 31, 2010.  Core deposits (defined as demand, savings, money market accounts and certificates of deposit under $100,000) comprised 92% of total deposits, and were $3.51 billion at December 31, 2011, an increase of 17% from $3.0 billion at December 31, 2010.  The average cost of deposits for the quarter ended December 31, 2011 was 0.30%, down from 0.38% for the third quarter ended September 30, 2011.

Net Interest Margin

Columbia's net interest margin increased to 7.14% in the fourth quarter of 2011, up from 4.35% for the same quarter last year, 6.53% in the third quarter 2011, and 5.80% and 5.49% for the first and second quarter of 2011, respectively.   The net interest margin, excluding the additional accretion income from acquired loans, improved during the year due to reduced funding expense, increased loan originations, and the redeployment of interest earning deposits with banks into the investment portfolio.  However, the increase in the net interest margin was tempered by lower prevailing loan origination rates.

The table below shows the effect on the net interest margin of the increased yield from the additional accretion of income over the stated contractual loan rate on the acquired loan portfolios for the fourth quarter and the full year 2011.

Three Months Ended

Year Ended

(in thousands)

December 31, 2011

December 31, 2011

Acquired Loan Effective Yield Income

$

38,722

$

109,581

Less:

Additional Accretion of Income

(26,406)

(67,360)

Stated Interest Income at Loan Note Rate

$

12,316

$

42,221

Net Interest Margin Excluding Additional Accretion Income

4.68%

4.53%

Reported Net Interest Margin

7.14%

6.29%

Asset Quality

Nonperforming assets reflected a modest improvement for the quarter; with credit metrics continuing their positive trend. At December 31, 2011, nonperforming assets were $85.4 million, down from $89.3 million at September 30, 2011, and $120.2 million at December 31, 2010.  The decrease in nonperforming assets for the quarter was primarily centered in commercial real estate assets.  For the quarter, the Company added $5.1 million in new nonperforming assets, experienced charge-offs associated with nonperforming assets of $3.2 million, and received payments of $2.6 million. We also reduced other real estate owned (OREO) and other property owned (OPPO) by $2.6 million and placed $586 thousand of previously nonperforming loans back on accrual status.  For the quarter ended December 31, 2011, net loan charge-offs were $2.1 million, compared to $5.1 million for the same period a year ago.  Net charge-offs were primarily centered in commercial permanent real estate and commercial business loans.

The table below sets forth information with respect to nonaccrual loans, total nonperforming loans and total nonperforming assets.  

(in thousands)

December 31, 2011

September 30, 2011

December 31, 2010

Nonaccrual noncovered loans:

Commercial business

$

10,243

$

9,893

$

32,367

Real estate:

One-to-four family residential

2,696

2,159

2,996

Commercial and multifamily residential

19,485

20,956

23,192

   Total real estate

22,181

23,115

26,188

Real estate construction:

One-to-four family residential

10,785

11,008

18,004

Commercial and multifamily residential

7,067

7,623

7,584

   Total real estate construction

17,852

18,631

25,588

Consumer

3,207

3,544

5,020

Total nonaccrual loans

53,483

55,183

89,163

Noncovered other real estate owned and other personal property owned

31,905

34,069

30,991

Total nonperforming noncovered assets

$

85,388

$

89,252

$

120,154

Allowance for loan losses to period-end nonperforming noncovered loans

99.17%

91.37%

68.41%

Allowance for loan losses to period-end nonperforming noncovered assets

62.12%

56.49%

50.76%

The following table provides an analysis of the Company's allowance for originated and discounted loan and lease losses at the dates and the periods indicated.

Three Months Ended December 31,

Year Ended December 31,

(in thousands)

2011

2010

2011

2010

Beginning balance

$

50,422

$

62,334

$

60,993

$

53,478

Charge-offs:

Commercial business

(1,758)

(3,452)

(7,909)

(14,879)

One-to-four family residential real estate

(302)

(717)

(406)

Commercial and multifamily residential real estate

(1,325)

(1,215)

(3,687)

(6,173)

One-to-four family residential real estate construction

(72)

(1,900)

(2,487)

(10,856)

Commercial and multifamily residential real estate construction

(503)

(28)

(2,213)

(3,107)

Consumer

(620)

(1,039)

(3,918)

(3,982)

   Total charge-offs

(4,278)

(7,936)

(20,931)

(39,403)

Recoveries:

Commercial business

1,441

1,612

2,598

2,389

One-to-four family residential real estate

2

80

15

Commercial and multifamily residential real estate

363

79

459

126

One-to-four family residential real estate construction

168

191

2,091

1,673

Commercial and multifamily residential real estate construction

775

775

Consumer

173

147

351

649

   Total recoveries

2,147

2,804

5,579

5,627

Net charge-offs

(2,131)

(5,132)

(15,352)

(33,776)

Provision charged to expense

4,750

3,791

7,400

41,291

Ending balance

$

53,041

$

60,993

$

53,041

$

60,993

For the fourth quarter of 2011, the Company made a provision of $4.75 million for noncovered loans.  For the comparable quarter last year, the Company made a provision of $3.8 million.  The provision for noncovered loan losses was predominately driven by the company's organic loan growth and the establishment of a reserve for discounted loans acquired in the Bank of Whitman transaction.

The allowances for noncovered loan losses, including originated and discounted loans, to period-end noncovered loans, was 2.26% at December 31, 2011 compared to 2.23% at September 30, 2011. The allowance for originated loan losses to originated period-end loans was 2.31% compared to 2.43% at September 30, 2011 and 3.18% at December 31, 2010.  The decrease is due primarily to the previously mentioned loan growth and improved asset quality.

Fourth Quarter 2011 Operating Results

Quarter ended December 31, 2011

Net Interest Income

Net interest income for the fourth quarter of 2011 was $72.1 million, an increase of 86% from $38.8 million for the same quarter in 2010, primarily due to the impact of our FDIC-assisted transactions.  The Company's net interest margin increased to 7.14% in the fourth quarter of 2011, from 4.35% for the same quarter last year. The net interest margin in the fourth quarter was positively impacted by approximately 200 basis points (a basis point equals 1/100 of 1%) due to the $17.4 million accretion of the discount on the loan portfolios acquired in the five FDIC-assisted transactions. 

Average interest-earning assets were $4.10 billion during the fourth quarter, an increase of 11% compared with $3.68 billion during the same quarter of 2010.   The yield on average interest-earning assets increased to 7.42% during the fourth quarter compared with 4.84% in the same quarter of 2010.  During the same period, average interest-bearing liabilities increased to $2.81 billion from $2.63    billion in the fourth quarter of 2010.  The average cost of interest bearing deposits for the quarter ended December 31, 2011 was less than 0.30%.

Noninterest Income (Loss)

Total noninterest income (loss) for the fourth quarter of 2011 was a loss of $9.6 million.  The noninterest loss was driven by the $17.4 million change in the FDIC loss sharing asset and the $3.0 million impairment charge on investment securities.  Other components of noninterest income were generally higher in the fourth quarter of 2011 when compared with the same period in the previous year.  These increases are attributed to the additional transaction volumes resulting from the FDIC assisted transactions which occurred during the second and third quarters of 2011.  

Noninterest Expense

Total noninterest expense for the fourth quarter of 2011 was $41.3 million, an increase of 18% from $35.0 million for the same quarter in 2010.   The increase is attributable to the operating expenses of the three banks acquired since May, 2011 and the FDIC clawback liability.  

The efficiency ratio at December 31, 2011 was 69.56%, compared to 65.33% for the same quarter last year.  Ms. Dressel commented, "Our efficiency ratio continues to be elevated, reflecting the impact of the FDIC-assisted transactions which include the related additions of 18 branches and credit-related expenses. Of course, this ratio is also greatly impacted by the challenging revenue growth environment presented by the current economy.  Nevertheless, we are not satisfied with our ratio; we are very focused on controlling expenses and enhancing revenue wherever possible.

Organizational Update

Ms. Dressel commented, "To underscore our commitment to our customers in the Clallam County, Washington area, we are relocating our Sequim and Port Angeles branches to new full service locations allowing for increased convenience and expanded services."

Ms. Dressel continued, "We were very gratified that our commitment to providing a strong, secure and customer-focused community bank was reflected in our ranking as the best bank headquartered in Washington State by the Forbes list of America's Best Banks.  We were also listed as second in the Northwest, and 34th in the nation."  The list ranked 100 of the largest publicly traded banks in the Country, and gauged their health based on eight key financial metrics.  

2011 Community Banker of the Year

In December, Melanie Dressel was named by American Banker magazine as one of its Community Bankers of the Year for 2011.  The magazine cited her "confidence to stick with a traditional community banking approach" resulting in the strength to acquire failed banks in the region, as well as achieving strong organic growth.  

Conference Call

Columbia's management will discuss the fourth quarter and year 2011 results on a conference call scheduled for Thursday, January 26, 2012 at 1:00. PST.  Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #43775618.    

A conference call replay will be available from approximately 4:00 p.m. PST on January 26, 2012 through midnight PST on February 2, 2012.  The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #43775618.

Annual Meeting of Shareholders

Columbia Banking System's Annual Meeting of Shareholders will be held at 1:00 PDT on April 25, 2012, at the William W. Philip Hall at the University of Washington Tacoma., 1900 Commerce Street, Tacoma, Washington 98402.  The Hall is named in honor of William W. "Bill" Philip, who had a seminal role in establishing UW Tacoma, and was a co-founder of Columbia Bank.

Directions and parking information are available at www.tacoma.washington.edu/conference.  

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 which was again awarded one of Seattle Business Magazine's 100 Best Companies to Work For 2011 and was designated one of  Puget Sound Business Journal's "Washington's Best Workplaces 2011".  

Including the recent acquisitions of Bank of Whitman, Summit Bank and First Heritage Bank, Columbia Banking System has 102 banking offices, including 77 branches in Washington State and 25 branches in Oregon. Columbia Bank does business under the Bank of Astoria name in Astoria, Warrenton, Seaside, Cannon Beach, Manzanita and Tillamook in Oregon. 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

Gary R. Schminkey, Executive Vice President and Chief Financial Officer (253) 305-1966

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Three Months Ended

Year Ended

Unaudited

December 31,

December 31,

2011

2010

2011

2010

Earnings

(dollars in thousands except per share)

Net interest income

$

72,124

$

38,816

$

236,736

$

164,787

Provision for loan and lease losses, noncovered loans

$

4,750

$

3,791

$

7,400

$

41,291

Noninterest income (loss)

$

(9,602)

$

15,888

$

(9,283)

$

52,781

Noninterest expense

$

41,314

$

34,985

$

155,759

$

137,147

Net income

$

14,754

$

12,608

$

48,037

$

30,784

Net income applicable to common shareholders

$

14,754

$

12,608

$

48,037

$

25,837

Per Common Share

Net income (basic)

$

0.37

$

0.32

$

1.22

$

0.73

Net income (diluted)

$

0.37

$

0.32

$

1.21

$

0.72

Averages

Total assets

$

4,755,222

$

4,354,890

$

4,509,010

$

4,248,590

Interest-earning assets

$

4,098,603

$

3,682,951

$

3,871,424

$

3,583,728

Loans, including covered loans

$

2,817,279

$

2,450,793

$

2,607,266

$

2,485,650

Securities

$

957,727

$

726,470

$

928,891

$

720,152

Deposits

$

3,791,169

$

3,343,920

$

3,541,399

$

3,270,923

Core deposits

$

3,472,023

$

2,992,417

$

3,218,425

$

2,828,246

Interest-bearing deposits

$

2,664,133

$

2,458,466

$

2,557,179

$

2,452,602

Interest-bearing liabilities

$

2,808,497

$

2,627,804

$

2,717,243

$

2,626,044

Noninterest-bearing deposits

$

1,127,036

$

885,454

$

984,220

$

818,321

Shareholders' equity

$

757,696

$

707,319

$

730,726

$

668,469

Financial Ratios

Return on average assets

1.23%

1.15%

1.07%

0.72%

Return on average common equity

7.73%

7.07%

6.57%

4.15%

Average equity to average assets

15.93%

16.24%

16.21%

15.73%

Net interest margin

7.14%

4.35%

6.27%

4.76%

Efficiency ratio (tax equivalent)(1)

69.56%

65.33%

70.68%

67.56%

December 31,

Period end

2011

2010

Total assets

$

4,790,994

$

4,256,363

Covered assets, net

$

560,055

$

531,504

Loans, excluding covered loans

$

2,348,371

$

1,915,754

Allowance for loan and lease losses

$

53,041

$

60,993

Restructured loans accruing interest

$

8,378

$

6,505

Securities

$

1,050,325

$

781,774

Deposits

$

3,815,529

$

3,327,269

Core deposits

$

3,510,435

$

2,998,482

Shareholders' equity

$

759,558

$

706,878

Book value per common share

$

19.23

$

17.97

Nonperforming, noncovered assets

Nonaccrual loans

$

53,483

$

89,163

Other real estate owned and other personal property owned

31,905

30,991

Total nonperforming, noncovered assets

$

85,388

$

120,154

Nonperforming loans to period-end noncovered loans

2.28%

4.65%

Nonperforming assets to period-end noncovered assets

2.02%

3.23%

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

2.26%

3.18%

Allowance for loan and lease losses to nonperforming noncovered loans

99.17%

68.41%

Allowance for loan and lease losses to nonperforming noncovered assets

62.12%

50.76%

Net noncovered loan charge-offs

$

15,352

(2)

$

33,776

(3)

(1)  Noninterest expense, excluding net cost of operation of other real estate and FDIC clawback liability expense, divided by the sum of net interest income and noninterest income on a tax equivalent basis, excluding gain/loss on sale of investment securities, impairment charge on investment securities, gain on bank acquisition, incremental accretion income on the acquired loan portfolio and the change in FDIC indemnification asset.

(2)  For the year ended December 31, 2011.

(3)  For the year ended December 31, 2010.

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

December 31,

December 31,

2011

2010

Loan Portfolio Composition

(dollars in thousands)

Noncovered loans:

Commercial business

$

1,031,721

43.9%

$

795,369

41.5%

Real estate:

One-to-four family residential

64,491

2.8%

49,383

2.6%

Commercial and multifamily residential

998,165

42.5%

794,329

41.5%

Total real estate

1,062,656

45.3%

843,712

44.1%

Real estate construction:

One-to-four family residential

50,208

2.1%

67,961

3.5%

Commercial and multifamily residential

36,768

1.6%

30,185

1.6%

Total real estate construction

86,976

3.7%

98,146

5.1%

Consumer

183,235

7.8%

182,017

9.5%

Subtotal loans

2,364,588

100.7%

1,919,244

100.2%

Less:  Net unearned income

(16,217)

(0.7)%

(3,490)

(0.2)%

Total noncovered loans, net of unearned income

2,348,371

100.0%

1,915,754

100.0%

Less:  Allowance for loan and lease losses

(53,041)

(60,993)

Noncovered loans, net

2,295,330

1,854,761

Covered loans, net of allowance for loan losses of ($4,944) and ($6,055), respectively

531,929

517,061

Total loans, net

$

2,827,259

$

2,371,822

Loans held for sale

$

2,148

$

754

December 31,

December 31,

2011

2010

Deposit Composition

(dollars in thousands)

Core deposits:

Demand and other non-interest bearing

$

1,156,611

30.3%

$

895,671

26.9%

Interest bearing demand

735,340

19.3%

672,307

20.2%

Money market

1,031,663

27.0%

920,831

27.7%

Savings

283,416

7.4%

210,995

6.3%

Certificates of deposit less than $100,000

303,405

8.0%

298,678

9.0%

Total core deposits

3,510,435

92%

2,998,482

90.0%

Certificates of deposit greater than $100,000

262,731

6.9%

266,708

8.0%

Certificates of deposit insured by CDARS®

42,080

1.1%

38,312

1.2%

Wholesale certificates of deposit

—%

23,155

0.7%

Subtotal

3,815,246

100.0%

3,326,657

100.0%

Premium resulting from acquisition date fair value adjustment

283

612

Total deposits

$

3,815,529

$

3,327,269

QUARTERLY FINANCIAL STATISTICS

Columbia Banking System, Inc.

Three Months Ended

Unaudited

December 31,

September 30,

June 30,

March 31,

December 31,

2011

2011

2011

2011

2010

(dollars in thousands except per share)

Earnings

Net interest income

$

72,124

$

64,788

$

49,375

$

50,449

$

38,816

Provision for loan and lease losses, noncovered loans

$

4,750

500

$

2,150

$

$

3,791

Noninterest income (loss)

$

(9,602)

$

2,196

$

3,542

$

(5,419)

$

15,888

Noninterest expense

$

41,314

$

39,935

$

37,164

$

37,346

$

34,985

Net income

$

14,754

$

18,872

$

8,632

$

5,779

$

12,608

Net income applicable to common shareholders

$

14,754

$

18,872

$

8,632

$

5,779

$

12,608

Per Common Share

Earnings (basic)

$

0.37

$

0.48

$

0.22

$

0.15

$

0.32

Earnings (diluted)

$

0.37

$

0.48

$

0.22

$

0.15

$

0.32

Book value

$

19.23

$

18.99

$

18.43

$

18.09

$

17.97

Averages

Total assets

$

4,755,222

$

4,680,901

$

4,324,390

$

4,268,348

$

4,354,890

Interest-earning assets

$

4,098,603

$

4,028,029

$

3,719,558

$

3,632,663

$

3,682,951

Loans, including covered loans

$

2,817,279

$

2,777,681

$

2,439,439

$

2,388,076

$

2,450,793

Securities

$

957,727

$

998,775

$

988,839

$

767,360

$

726,470

Deposits

$

3,791,169

$

3,678,931

$

3,382,486

$

3,306,168

$

3,343,920

Core deposits

$

3,472,023

$

3,332,234

$

3,073,068

$

2,989,825

$

2,992,417

Interest-bearing deposits

$

2,664,133

$

2,651,664

$

2,479,485

$

2,429,821

$

2,458,466

Interest-bearing liabilities

$

2,808,497

$

2,813,396

$

2,647,990

$

2,596,833

$

2,627,804

Noninterest-bearing deposits

$

1,127,036

$

1,027,268

$

903,001

$

876,347

$

885,454

Shareholders' equity

$

757,696

$

735,192

$

719,165

$

710,282

$

707,319

Financial Ratios

Return on average assets

1.23%

1.60%

0.80%

0.55%

1.15%

Return on average common equity

7.73%

10.18%

4.81%

3.30%

7.07%

Average equity to average assets

15.93%

15.71%

16.63%

16.64%

16.24%

Net interest margin

7.14%

6.53%

5.49%

5.80%

4.35%

Efficiency ratio (tax equivalent)

69.56%

69.17%

69.49%

73.33%

65.33%

Period end

Total assets

$

4,790,994

$

4,755,832

$

4,429,143

$

4,264,319

$

4,256,363

Covered assets, net

$

560,055

$

595,640

$

631,549

$

499,872

$

531,504

Noncovered loans

$

2,348,371

$

2,257,899

$

1,987,474

$

1,884,206

$

1,915,754

Allowance for loan and lease losses

$

53,041

$

50,422

$

54,057

$

55,315

$

60,993

Restructured loans accruing interest

$

8,378

$

8,749

$

6,681

$

6,739

$

6,505

Securities

$

1,050,325

$

1,018,069

$

1,008,559

$

906,096

$

781,774

Deposits

$

3,815,529

$

3,795,499

$

3,475,167

$

3,336,213

$

3,327,269

Core deposits

$

3,510,435

$

3,464,705

$

3,142,975

$

3,027,898

$

2,998,482

Shareholders' equity

$

759,558

$

749,966

$

727,680

$

714,083

$

706,878

Nonperforming, noncovered assets

Nonaccrual loans

$

53,483

$

55,183

$

59,404

$

78,692

$

89,163

Other real estate owned and other personal property owned

31,905

34,069

37,116

29,315

30,991

Total nonperforming, noncovered assets

$

85,388

$

89,252

$

96,520

$

108,007

$

120,154

Nonperforming loans to period-end noncovered loans

2.28%

2.44%

2.99%

4.18%

4.65%

Nonperforming assets to period-end noncovered assets

2.02%

2.15%

2.54%

2.87%

3.23%

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

2.26%

2.23%

2.72%

2.94%

3.18%

Allowance for loan and lease losses to nonperforming noncovered loans

99.17%

91.37%

91.00%

70.29%

68.41%

Allowance for loan and lease losses to nonperforming noncovered assets

62.12%

56.49%

56.01%

51.21%

50.76%

Net noncovered loan charge-offs

$

2,131

$

4,135

$

3,408

$

5,678

$

5,132

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

Columbia Banking System, Inc.

Three Months Ended

Year Ended

(Unaudited)

December 31,

December 31,

2011

2010

2011

2010

(in thousands except per share)

Interest Income

Loans

$

66,974

$

36,523

$

218,420

$

157,292

Taxable securities

5,169

4,163

21,870

18,276

Tax-exempt securities

2,659

2,360

10,142

9,348

Federal funds sold and deposits in banks

117

323

839

963

Total interest income

74,919

43,369

251,271

185,879

Interest Expense

Deposits

1,909

3,451

10,478

16,733

Federal Home Loan Bank advances

765

710

2,980

2,841

Long-term obligations

260

579

1,029

Other borrowings

121

132

498

489

Total interest expense

2,795

4,553

14,535

21,092

Net Interest Income

72,124

38,816

236,736

164,787

Provision for loan and lease losses

4,750

3,791

7,400

41,291

Provision (recapture) for losses on covered loans

(3,960)

5,602

(1,648)

6,055

Net interest income after provision (recapture)

71,334

29,423

230,984

117,441

Noninterest Income (Loss)

Service charges and other fees

6,886

6,314

26,632

24,698

Gain on bank acquisitions, net of tax

1,830

9,818

Merchant services fees

1,992

1,797

7,385

7,502

Gain on sale of investment securities, net

134

134

58

Impairment charge on investment securities

(2,950)

(2,950)

Bank owned life insurance

632

500

2,188

2,041

Change in FDIC loss sharing asset

(17,448)

6,045

(49,496)

4,908

Other

1,152

1,232

4,994

3,756

Total noninterest income (loss)

(9,602)

15,888

(9,283)

52,781

Noninterest Expense

Compensation and employee benefits

21,780

17,723

81,552

69,780

Occupancy

5,363

4,260

18,963

16,814

Merchant processing

934

925

3,698

4,364

Advertising and promotion

636

828

3,686

3,081

Data processing and communications

2,452

1,846

8,484

8,769

Legal and professional fees

1,618

1,100

6,486

5,684

Taxes, licenses and fees

1,463

803

4,446

2,858

Regulatory premiums

784

1,575

4,337

6,485

Net cost of operation of other real estate

(599)

1,589

(1,022)

787

Amortization of intangibles

1,203

1,036

4,319

3,922

FDIC clawback liability

362

3,656

Other

5,318

3,300

17,154

14,603

Total noninterest expense

41,314

34,985

155,759

137,147

Income before income taxes

20,418

10,326

65,942

33,075

Income tax expense (benefit)

5,664

(2,282)

17,905

2,291

Net Income

$

14,754

$

12,608

$

48,037

$

30,784

Net Income Applicable to Common Shareholders

$

14,754

$

12,608

$

48,037

$

25,837

Earnings per common share

Basic

$

0.37

$

0.32

$

1.22

$

0.73

Diluted

$

0.37

$

0.32

$

1.21

$

0.72

Dividends paid per common share

$

0.13

$

0.01

$

0.27

$

0.04

Weighted average number of common shares outstanding

39,135

38,981

39,103

35,209

Weighted average number of diluted common shares outstanding

39,222

39,109

39,180

35,392

CONSOLIDATED CONDENSED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)

December 31,

December 31,

2011

2010

(in thousands)

ASSETS

Cash and due from banks

$

91,364

$

55,492

Interest-earning deposits with banks and federal funds sold

202,925

458,638

Total cash and cash equivalents

294,289

514,130

Securities available for sale at fair value (amortized cost of $987,559 and $743,928, respectively)

1,028,110

763,866

Federal Home Loan Bank stock at cost

22,215

17,908

Loans held for sale

2,148

754

Noncovered loans, net of unearned income of ($16,217) and ($3,490), respectively

2,348,371

1,915,754

Less: allowance for loan and lease losses

53,041

60,993

   Noncovered loans, net

2,295,330

1,854,761

Covered loans, net of allowance for loan losses of ($4,944) and ($6,055), respectively

531,929

517,061

Total loans, net

2,827,259

2,371,822

FDIC loss sharing asset

175,071

205,991

Interest receivable

15,287

11,164

Premises and equipment, net

107,899

93,108

Other real estate owned ($28,126 and $14,443 covered by Federal Deposit Insurance Corporation loss share, respectively)

51,019

45,434

Goodwill

118,434

109,639

Core deposit intangible, net

20,166

18,696

Other assets

129,097

103,851

Total assets

$

4,790,994

$

4,256,363

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest-bearing

$

1,156,610

$

895,671

Interest-bearing

2,658,919

2,431,598

Total deposits

3,815,529

3,327,269

Federal Home Loan Bank advances

119,009

119,405

Securities sold under agreements to repurchase

25,000

25,000

Other borrowings

642

Long-term subordinated debt

25,735

Other liabilities

71,898

51,434

Total liabilities

4,031,436

3,549,485

Commitments and contingent liabilities

December 31,

December 31,

2011

2010

Common stock (no par value)

Authorized shares

63,033

63,033

Issued and outstanding

39,506

39,338

579,356

576,905

Retained earnings

155,069

117,692

Accumulated other comprehensive income

25,133

12,281

Total shareholders' equity

759,558

706,878

Total liabilities and shareholders' equity

$

4,790,994

$

4,256,363

Note 1.    Loan Portfolio Accounting

We account for loans under three general models.  It is important to understand these models as they impact the way income and credit losses are recorded in our financial statements.  

Originated Loans:  The majority of our loans are originated loans.  These loans are originated through our lending departments and branch network.   Originated loans are recorded at their unpaid principal balance upon origination, net of deferred fees and costs.   Interest income is recognized on these loans through the accrual of interest at the loans' stated rates, plus the accretion or amortization of the net deferred fee or origination cost.  Credit losses are recorded through the provision for loan losses when we estimate that a loss on loans has been incurred.   For more detail regarding our allowance methodology please refer to Note 8 to the financial statements in our annual report on Form 10-K.

Discounted Loans:   Discounted loans are the loans acquired through acquisitions or direct purchase for which we believe a credit loss is not probable at the time of acquisition.  Generally these loans as a group do not exhibit pervasive indications of declines in credit quality from the time of initial origination.  Currently none of our discounted loans are covered by indemnification agreements with the FDIC.  Discounted loans are recorded at fair value at the time of acquisition.  The estimate of fair value includes a discount related to credit risk and a premium or discount related to interest rates that is recorded for each loan separately.   Interest income is recognized through the accrual of interest at the loans' stated rates, plus accretion or amortization of the discount or premium recorded at acquisition.  The average discount upon acquisition was approximately 12% and will be recognized over the remaining term of these loans.    Credit losses for discounted loans are recorded through the provision for loan losses using a similar methodology as originated loans.  However, the amount of expected incurred loss of unpaid principal must be compared to the net carrying value which includes the remaining discount or premium.   As significant discounts were recorded upon acquisition we believe our exposure to credit losses on these loans has been significantly reduced.   

Pooled Loans:  Pooled loans, which we previously referred to as "acquired" or "covered" loans, are loans acquired through acquisitions or purchases for which we believe there was significant and pervasive credit deterioration subsequent to origination.    The majority of these loans are initially covered by indemnification agreements from the FDIC that generally indemnify us for 80% of potential credit losses.  Over time we may renew or modify loans that meet our underwriting standards and risk profile at which time the loan would no longer be covered by the FDIC indemnification, but would still be accounted for as a pooled loan.  Currently, approximately 98% of our investment in pooled loans is covered by indemnification agreements with the FDIC.  These loans are grouped into pools with similar characteristics at the time of acquisition and recorded at fair value.  The estimated fair value is comprised of the loans' unpaid principal balance and contractual interest, a non-accretable difference representing expected credit losses, and an accretable yield representing the amount of interest income expected to be recognized over the life of the pool.  As our estimates of credit losses or prepayment speeds change, the amount of accretable yield recognized as interest income in the period can change significantly.   When expected credit losses for a pool increase above the remaining non-accretable difference a provision for loan losses is recorded.   For additional detail regarding our loan portfolio please refer to Note 7 to the financial statements in our annual report on Form 10-K.

SOURCE Columbia Banking System, Inc.



RELATED LINKS

http://www.columbiabank.com