Columbia Banking System Announces Strong Third Quarter 2011 Earnings Highlights for the Quarter

-- Net income increased to $18.9 million compared to net income of $2.5 million for the 3rd quarter 2010

-- Net income per diluted common share increased to $0.48, as compared to $0.06 per common share for the 3rd quarter 2010

-- Business loans and real estate loans increased 24% from year-end 2010

-- Stock repurchase program approved by Board of Directors

-- Strong core deposits at 91% of total deposits

-- Continued very strong capital and liquidity measures

-- Expanded presence by 9 locations in Eastern Washington through acquisition of all deposits and some assets of Bank of Whitman in an FDIC-assisted transaction in August, 2011

-- Retail network of 102 branches throughout Washington and Oregon

-- President & CEO Melanie Dressel named one of the Top 25 Most Powerful Women in Banking by American Banker magazine

TACOMA, Wash., Oct. 27, 2011 /PRNewswire/ -- Columbia Banking System, Inc. (NASDAQ: COLB) today announced net income applicable to common shareholders of $18.9 million for the third quarter of 2011 compared to $2.5 million for the same quarter of 2010.  On a diluted per common share basis, net income for the quarter rose to $0.48 compared with net income of $0.06 for the third quarter of 2010.  The significant increase in earnings is primarily due to the financial benefits derived from recent FDIC-assisted transactions, including a net bargain purchase gain of $1.8 million on the Bank of Whitman transaction.

Net income applicable to common shareholders for the nine months ended September 30, 2011 increased to $33.3 million, more than double net income of $13.2 million for the first nine months of 2010.  On a diluted per common share basis, net income for the first nine months of 2011 was $0.84 compared to $0.38 a year earlier.

Melanie Dressel, President & Chief Executive Officer commented, "We have made substantial progress in accomplishing several of our strategic goals. The Bank of Whitman transaction during the third quarter expanded our geographic footprint further into Eastern Washington.  Coupled with the May 2011 acquisitions of Summit Bank and First Heritage Bank, we were also able to significantly enhance our net income."

"We are encouraged with the trend of the past two quarters of solid loan growth despite the continuing weakness in the economy," Ms. Dressel continued.  "Our commercial business and real estate loans both increased approximately 24% since the end of last year, through organic growth as well as our acquisitions.  Through the efforts of our outstanding banking teams in all of our markets, we have been actively promoting our business loans to creditworthy borrowers throughout the communities we serve."

Significant Influences on the Quarter Ended September 30, 2011

Acquisition of Bank of Whitman

On August 5, 2011, Columbia State Bank acquired all of the deposits and a substantial amount of the assets of Bank of Whitman, headquartered in Colfax, Washington, from the Federal Deposit Insurance Corporation ("FDIC") which had been appointed receiver of the institution.  The acquisition was a modified whole bank purchase and assumption agreement without loss share, and included reopening 8 branches, located in Clarkston, Colfax, Othello, Pullman, Ritzville, Spokane (downtown and Wandermere) and Walla Walla.  After a detailed evaluation of the community, the Mattawa location was also reopened in September.

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





QTD

YTD

(in thousands)

September 30, 2011

September 30, 2011

Accretion income on pooled loans in excess of stated loan rates

$        14,604

$        35,858

Accretion income on discounted loans

$          5,096

$          5,096

Change in FDIC loss sharing asset

(10,855)

(32,048)

Claw back liability

(1,146)

(3,294)

Pre-tax earnings impact

$         7,699

$         5,612



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.  The additional income stems from the discount established at the time these loan portfolios were acquired and the net interest margin.

As of September 30, 2011, the unamortized discount from the Bank of Whitman transaction was $20.5 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 due to lower expected losses on covered loans and other real estate owned.  The change in FDIC loss sharing asset affects noninterest income, resulting in reduced reported noninterest income for the current quarter.  

The Columbia River Bank acquired loan portfolio continues to perform better than originally expected, requiring us to increase our clawback liability from $2.1 million to $3.3 million during the third quarter through a charge to noninterest expense of $1.2 million.  The $3.3 million represents the net present value of management's clawback liability estimate of $5.0 million.  The clawback liability is evaluated at the individual portfolio level each quarter and adjusted upward or downward according to the total expected losses over the loss share period.

Net Interest Margin

Columbia's net interest margin increased to 6.53% in the third quarter of 2011, up from 5.24% for the same quarter last year, 4.35% in the fourth quarter of 2010, and 5.80% and 5.49% for the first and second quarters of 2011, respectively.

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 third quarter and the first nine months of 2011.


Three Months Ended


Nine Months Ended

(in thousands)

September 30, 2011


September 30, 2011





Acquired Loan Effective Yield Income

$          31,543


$          70,859

Less:




Additional Accretion of Income and Discount

(19,700)


(40,954)





Stated Interest Income at Loan Note Rate

$          11,843


$          29,905









Net Interest Margin Excluding Additional Accretion Income

4.59%


4.52%





Reported Net Interest Margin

6.53%


5.96%



Balance Sheet

At September 30, 2011, the Company's total assets were $4.76 billion, a 12% increase from $4.26 billion at December 31, 2010.  Total shareholders' equity at September 30, 2011 was $750.0 million, an increase of 6% from $704.7 million at September 30, 2010, and 6% from $706.9 million at December 31, 2010.

Loans not covered under the FDIC loss-sharing agreements "noncovered loans" were $2.26 billion at September 30, 2011, up 17% from $1.93 billion at September 30, 2010, and 18% from $1.92 billion at December 31, 2010.  The average yield on loans for the quarter ended September 30, 2011 was 8.5%.

The noncovered loan portfolio continues to be diversified, mitigating risk by avoiding concentration in any one segment.  The 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 58% income property and 42% owner occupied.  Net loans covered under the FDIC loss sharing agreements ("acquired loans") which provide protection against credit risk, totaled $570.8 million at September 30, 2011.  

Total deposits at September, 2011 increased 15% to $3.80 billion from $3.31 billion at September 30, 2010, and 14% 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 91% of total deposits, and were $3.46 billion at September 30, 2011, an increase of 18% from $2.93 billion at September 30, 2010 and 15% from $3.0 billion at December 31, 2010.  The average cost of deposits for the quarter ended September 30, 2011 was 0.38%.

Asset Quality

At September 30, 2011, nonperforming assets were $89.3 million, down from $96.5 million at June 30, 2011, $108.0 million at March 31, 2011 and $114.7 million at September 30, 2010.  The $7.2 million decrease in nonperforming assets for the quarter was primarily centered in the Commercial Business portfolio.  For the quarter, the Company added $15.8 million in new nonperforming assets, experienced charge-offs associated with nonperforming assets of $1.5 million, and received payments of $6.2 million. We also reduced other real estate owned (OREO) and other property owned (OPPO) by $8.4 million and placed $9.6 million of previously nonperforming loans back on accrual status.

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

(in thousands)

September 30, 2011


December 31, 2010


September 30, 2010

Nonaccrual noncovered loans:






Commercial business

$              9,893


$          32,367


$           17,490

Real estate:






One-to-four family residential

2,159


2,996


3,063

Commercial and five or more family residential real estate

20,956


23,192


25,282

Total real estate

23,115


26,188


28,345

Real estate construction:






One-to-four family residential

11,008


18,004


25,653

Commercial and five or more family residential real estate

7,623


7,584


14,771

Total real estate construction

18,631


25,588


40,424

Consumer

3,544


5,020


5,147

Total nonaccrual loans

55,183


89,163


91,406







Total nonperforming noncovered loans

55,183


89,163


91,406

Noncovered real estate owned and other personal property owned

34,069


30,991


23,259

Total nonperforming noncovered assets

$            89,252


$        120,154


$         114,665

Allowance for loan losses to period-end nonperforming noncovered loans

91%


68%


65%

Allowance for loan losses to period-end nonperforming noncovered assets

56%


51%


52%



For the quarter ended September 30, 2011, net loan charge-offs were $4.1 million, compared to $6.4 million for the same period a year ago, and $5.7 million and $3.4 million during the first and second quarters of 2011, respectively.  Net charge-offs were primarily centered in consumer and commercial business loans.

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

Change in Allowance for Possible Loan Losses




Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2011

2010

2011

2010

Beginning balance

$               54,057

$               59,748

$               60,993

$               53,478

Charge-offs:






Commercial Business

(1,946)

(1,760)

(6,151)

(9,405)


One-to-four family residential perm

(53)

-

(717)

(104)


Commercial and five or more family residential real estate perm

(443)

(1,976)

(2,362)

(4,958)


One-to-four family residential construction

(183)

(1,291)

(2,415)

(8,955)


Commercial and five or more family residential real estate construction

(145)

-

(1,710)

(3,079)


Consumer

(2,102)

(2,514)

(3,298)

(4,965)


   Total charge-offs

(4,872)

(7,541)

(16,653)

(31,466)

Recoveries:






Commercial Business

460

122

1,157

778


One-to-four family residential perm

78

-

78

15


Commercial and five or more family residential real estate perm

10

5

96

46


One-to-four family residential construction

119

573

1,923

1,481


Commercial and five or more family residential real estate construction

-

-

-

-


Consumer

70

426

178

502


   Total recoveries

737

1,126

3,432

2,822

Net  (charge-offs)/recoveries

(4,135)

(6,414)

(13,221)

(28,644)

Provision charged to expense

500

9,000

2,650

37,500

Ending balance

$               50,422

$               62,334

$               50,422

$               62,334



For the third quarter of 2011, the company made a provision of $500 thousand for noncovered non- acquired loan losses.  For the comparable quarter last year, the company made a provision of $9.0 million.  The provision for noncovered nonacquired loan losses was the result of the company's organic loan growth of $86.9 million in noncovered loans.

The allowance for noncovered loan losses to noncovered period-end loans was 2.23% at September 30, 2011 compared to 3.22% at September 30, 2010 and 3.18% at December 31, 2010. In addition to a reduction in nonperforming assets, the decline in the allowance for loan losses to total loans is partially attributed to the inclusion of the Bank of Whitman loan portfolio initially recorded at fair value at the date of acquisition.  The addition of the Bank of Whitman loan portfolio reduced the noncovered loan losses to noncovered period-end loans by approximately 20 basis points.

Stock Repurchase Program

The Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to 2 million shares of our outstanding common stock.  Those shares represent approximately 5% of the approximately 39.5 million common shares currently outstanding.  The Company intends to purchase the shares from time to time in the open market or in private transactions, under conditions which allow such repurchases to be accretive to earnings while maintaining capital ratios that exceed the guidelines for a well-capitalized financial institution.  This newly authorized repurchase program supersedes and replaces the prior program adopted in February 2002.

Melanie Dressel commented, "Our decision to authorize this stock repurchase program illustrates our confidence in the value and future of Columbia, and represents another component of our capital management strategy."

Operating Results

Quarter ended September 30, 2011

Net Interest Income

Net interest income for the third quarter of 2011 was $64.8 million, an increase of 38% from $47.0 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 6.53% in the third quarter of 2011, from 5.24% for the same quarter last year. The net interest margin in the third quarter was positively impacted by approximately 200 basis points (a basis point equals 1/100 of 1%) due to the $19.7 million accretion of the discount on the loan portfolios acquired in the five FDIC-assisted transactions.  The net interest margin was negatively impacted during the quarter by interest reversals relating to nonaccrual loans totaling $270,000 reducing the net interest margin by an estimated 3 basis points. Interest reversals relating to nonaccrual loans for the nine months ended September 30, 2011 were approximately $685,000 reducing the net interest margin by an estimated 2 basis points.

Average interest-earning assets were $4.03 billion during the third quarter, an increase of 10% compared with $3.65 billion during the same quarter of 2010.  The yield on average interest-earning assets increased 108 basis points to 6.88% during the third quarter compared with 5.80% during the same quarter of 2010.  During the same period, average interest-bearing liabilities increased to $2.81 billion from $2.64 billion in the third quarter of 2010.  The cost of average interest-bearing liabilities decreased 27 basis points to 0.50% during the quarter, from 0.77% in the same quarter of 2010.

Noninterest Income

After removing the change in the FDIC loss sharing asset and the gain on the Bank of Whitman transaction, noninterest income increased 15% for the third quarter and 8% year-to-date.

Noninterest Expense

Total noninterest expense for the third quarter of 2011 was $39.9 million, an increase of 19% from $33.5 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.  These increases were partially mitigated by decreased data processing expense.

Organizational Update

Ms. Dressel commented, "To underscore our commitment to our customers in the Whatcom County, Washington area, we recently relocated our Bellingham branch to a full service location.  In addition to increased convenience and expanded services, our leadership team in the region will continue their emphasis on expansion of small business lending."

Deposit Market Share

Columbia Bank climbed to #8 from the #9 deposit market share position among all banks operating in Washington State, according to the FDIC's annual Deposit Market Share Report as of June 30, 2011.  Information in the report does not include the Bank's recent acquisition of deposits from the former Bank of Whitman.

The increase in market share also moves Columbia into the #3 market share position for all banks headquartered in the state. "We are delighted to see more Washington businesses and consumers choosing to bank with us," Melanie Dressel noted.  "As we grow, we are excited to bring our unique brand of community banking, exceptional service, and commitment to involvement in new communities throughout the Pacific Northwest." 

Along with the increase in overall state deposit market share, Columbia picked up two additional #1 rankings in Klickitat and Cowlitz counties.  The Bank continues to retain its #1 position in Pierce County as well.

Top 25 Most Powerful Women in Banking

Melanie Dressel was selected for the fourth time as one of the 25 Most Powerful Women in Banking by American Banker magazine.  For Ms. Dressel's inclusion as number 25 on the prestigious list, American Banker cited Columbia Banking System's performance, including nearly doubling the number of branches through five acquisitions and organic growth over an 18-month period.  In addition, the honor reflected her focus on superior customer service, commitment to local communities, her appointment in April to the board of directors of the American Bankers Association as well as activities that promote the economic well-being of the Pacific Northwest.

Conference Call

Columbia's management will discuss the third quarter results on a conference call scheduled for Thursday, October 27, 2011 at 1:00 p.m. PDT (4:00 p.m. EDT).  Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #21071775.    

A conference call replay will be available from approximately 4:00 p.m. PDT on October 27, 2011, through midnight PDT on November 3, 2011.  The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #21071775.

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.

FINANCIAL STATISTICS








Columbia Banking System, Inc.

Three Months Ended


Nine Months Ended

Unaudited

September 30,


September 30,

(in thousands except per share)

2011


2010


2011


2010

Earnings








Net interest income

$             64,788


$             46,965


$           164,612


$           125,971

Provision for loan and lease losses, noncovered loans

$                  500


$               9,000


$               2,650


$             37,500

Noninterest income

$               2,196


$               5,183


$                  319


$             36,893

Noninterest expense

$             39,935


$             33,520


$           114,445


$           102,162

Net income

$             18,872


$               5,204


$             33,283


$             18,176

Net income applicable to common shareholders

$             18,872


$               2,474


$             33,283


$             13,229









Per Common Share








Net income (basic)

$                 0.48


$                 0.06


$                 0.84


$                 0.39

Net income (diluted)

$                 0.48


$                 0.06


$                 0.84


$                 0.38









Averages








Total assets

$        4,680,901


$        4,360,913


$        4,426,037


$        4,212,668

Interest-earning assets

$        4,028,029


$        3,654,932


$        3,794,865


$        3,550,290

Loans, including covered loans

$        2,777,681


$        2,500,302


$        2,536,492


$        2,497,396

Securities

$           998,775


$           715,201


$           919,173


$           718,023

Deposits

$        3,678,931


$        3,297,583


$        3,457,227


$        3,246,323

Core deposits

$        3,332,234


$        2,887,044


$        3,132,963


$        2,772,921

Interest-bearing deposits

$        2,651,664


$        2,467,763


$        2,521,136


$        2,450,625

Interest-bearing liabilities

$        2,813,396


$        2,640,738


$        2,686,491


$        2,625,557

Noninterest-bearing deposits

$        1,027,268


$           829,820


$           936,091


$           795,698

Shareholders' equity

$           735,192


$           739,155


$           721,638


$           655,377









Financial Ratios








Return on average assets

1.60%


0.47%


1.01%


0.58%

Return on average common equity

10.18%


1.39%


6.17%


2.97%

Average equity to average assets

15.71%


16.95%


16.30%


15.56%

Net interest margin

6.53%


5.24%


5.96%


4.90%

Efficiency ratio (tax equivalent)(1)

69.17%


68.33%


68.62%


68.32%










September 30,


December 31,



Period end

2011


2010


2010



Total assets

$      4,755,832


$     4,245,260


$      4,256,363



Covered assets, net

$         595,640


$        577,695


$         531,504



Loans, excluding covered loans

$      2,257,899


$     1,934,162


$      1,915,754



Allowance for loan and lease losses

$           50,422


$          62,334


$           60,993



Restructured loans accruing interest

$             8,749


$            6,482


$             6,505



Securities

$      1,018,069


$        710,649


$         781,774



Deposits

$      3,795,499


$     3,306,886


$      3,327,269



Core deposits

$      3,464,705


$     2,934,451


$      2,998,482



Shareholders' equity

$         749,966


$        704,692


$         706,878











Book value per common share

$             18.99


$            17.92


$             17.97











Nonperforming, noncovered assets








Nonaccrual loans

$           55,183


$          91,406


$           89,163



Other real estate owned and other personal property owned

34,069


23,259


30,991



Total nonperforming, noncovered assets

$           89,252


$        114,665


$         120,154



Nonperforming loans to period-end noncovered loans

2.44%


4.73%


4.65%



Nonperforming assets to period-end noncovered assets

2.15%


3.13%


3.23%



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

2.23%


3.22%


3.18%



Allowance for loan and lease losses to nonperforming noncovered loans

91.37%


68.19%


68.41%



Allowance for loan and lease losses to nonperforming noncovered assets

56.49%


54.36%


50.76%



Net noncovered loan charge-offs

$           13,221

(2)

$          28,644

(3)

$           33,776

(4)










(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, gain on bank acquisition, incremental accretion income on the acquired loan portfolio and the change in FDIC indemnification asset.

(2)  For the nine months ended September 30, 2011.

(3)  For the nine months ended September 30, 2010.

(4)  For the twelve months ended December 31, 2010.



FINANCIAL STATISTICS








Columbia Banking System, Inc.


Unaudited

September 30,


December 31

(in thousands)

2011


2010

Loan Portfolio Composition
















Noncovered loans:








Commercial business

$         983,820


43.6%


$         795,369


41.5%









Real Estate:








One-to-four family residential

64,535


2.9%


49,383


2.6%

Five or more family residential and commercial

977,173


43.3%


794,329


41.5%

Total Real Estate

1,041,708


46.2%


843,712


44.1%









Real Estate Construction:








One-to-four family residential

52,287


2.3%


67,961


3.5%

Five or more family residential and commercial

27,181


1.2%


30,185


1.6%

Total Real Estate Construction

79,468


3.5%


98,146


5.1%









Consumer

176,667


7.8%


182,017


9.5%

Subtotal loans

2,281,663


101.1%


1,919,244


100.2%

Less:  Net unearned income

(23,764)


-1.1%


(3,490)


-0.2%

Total noncovered loans, net of unearned income

2,257,899


100.0%


1,915,754


100.0%

Less:  Allowance for loan and lease losses

(50,422)




(60,993)



Noncovered loans, net

2,207,477




1,854,761











Covered loans, net of allowance for loan losses of ($8,327) and ($6,055), respectively

570,805




517,061











Total loans, net

$      2,778,282




$      2,371,822











Loans held for sale

$  2,568




$     754














September 30,


December 31


2011


2010

Deposit Composition








Core deposits:








Demand and other non-interest bearing

$      1,105,169


29.1%


$         895,671


26.9%

Interest bearing demand

712,000


18.8%


672,307


20.2%

Money market

1,036,713


27.3%


920,831


27.7%

Savings

281,760


7.4%


210,995


6.3%

Certificates of deposit less than $100,000

329,063


8.7%


298,678


9.0%

Total core deposits

3,464,705


91.3%


2,998,482


90.0%









Certificates of deposit greater than $100,000

281,641


7.4%


266,708


8.0%

Certificates of deposit insured by CDARS®

47,192


1.3%


38,312


1.2%

Wholesale certificates of deposit

1,495


0.0%


23,155


0.7%

Subtotal

3,795,033


100.0%


3,326,657


100.0%

Premium resulting from acquisition date fair value adjustment

466




612



Total Deposits

$      3,795,499




$      3,327,269





QUARTERLY FINANCIAL STATISTICS










Columbia Banking System, Inc.

Three Months Ended

Unaudited

Sep 30


Jun 30


Mar 31


Dec 31


Sep 30

(in thousands except per share)

2011


2011


2011


2010


2010

Earnings










Net interest income

$         64,788


$         49,375


$         50,449


$         38,816


$         46,965

Provision for loan and lease losses, noncovered loans

$              500


$           2,150


$                   -


$           3,791


$           9,000

Noninterest income (loss)

$           2,196


$           3,542


$          (5,419)


$         15,888


$           5,183

Noninterest expense

$         39,935


$         37,164


$         37,346


$         34,985


$         33,520

Net income

$         18,872


$           8,632


$           5,779


$         12,608


$           5,204

Net income applicable to common shareholders

$         18,872


$           8,632


$           5,779


$         12,608


$           2,474











Per Common Share










Earnings (basic)

$             0.48


$             0.22


$             0.15


$             0.32


$             0.06

Earnings (diluted)

$             0.48


$             0.22


$             0.15


$             0.32


$             0.06

Book value

$           18.99


$           18.43


$           18.09


$           17.97


$           17.92











Averages










Total assets

$    4,680,901


$    4,324,390


$    4,268,348


$    4,354,890


$    4,360,913

Interest-earning assets

$    4,028,029


$    3,719,558


$    3,632,663


$    3,682,951


$    3,654,932

Loans, including covered loans

$    2,777,681


$    2,439,439


$    2,388,076


$    2,450,793


$    2,500,302

Securities

$       998,775


$       988,839


$       767,360


$       726,470


$       715,201

Deposits

$    3,678,931


$    3,382,486


$    3,306,168


$    3,343,920


$    3,297,583

Core deposits

$    3,332,234


$    3,073,068


$    2,989,825


$    2,992,417


$    2,887,044

Interest-bearing deposits

$    2,651,664


$    2,479,485


$    2,429,821


$    2,458,466


$    2,467,763

Interest-bearing liabilities

$    2,813,396


$    2,647,990


$    2,596,833


$    2,627,804


$    2,640,738

Noninterest-bearing deposits

$    1,027,268


$       903,001


$       876,347


$       885,454


$       829,820

Shareholders' equity

$       735,192


$       719,165


$       710,282


$       707,319


$       739,155











Financial Ratios










Return on average assets

1.60%


0.80%


0.55%


1.15%


0.47%

Return on average common equity

10.18%


4.81%


3.30%


7.07%


1.39%

Average equity to average assets

15.71%


16.63%


16.64%


16.24%


16.95%

Net interest margin

6.53%


5.49%


5.80%


4.35%


5.24%

Efficiency ratio (tax equivalent)

69.17%


69.49%


73.33%


65.33%


68.33%











Period end










Total assets

$    4,755,832


$    4,429,143


$    4,264,319


$    4,256,363


$    4,245,260

Covered assets, net

$       595,640


$       631,549


$       499,872


$       531,504


$       577,695

Noncovered loans

$    2,257,899


$    1,987,474


$    1,884,206


$    1,915,754


$    1,934,162

Allowance for loan and lease losses

$         50,422


$         54,057


$         55,315


$         60,993


$         62,334

Restructured loans accruing interest

$           8,749


6,681


6,739


6,505


6,482

Securities

$    1,018,069


$    1,008,559


$       906,096


$       781,774


$       710,649

Deposits

$    3,795,499


$    3,475,167


$    3,336,213


$    3,327,269


$    3,306,886

Core deposits

$    3,464,705


$    3,142,975


$    3,027,898


$    2,998,482


$    2,934,451

Shareholders' equity

$       749,966


$       727,680


$       714,083


$       706,878


$       704,692





















Nonperforming, noncovered assets










Nonaccrual loans

$         55,183


$         59,404


$         78,692


$         89,163


$         91,406

Other real estate owned and other personal property owned

34,069


37,116


29,315


30,991


23,259

Total nonperforming, noncovered assets

$         89,252


$         96,520


$       108,007


$       120,154


$       114,665

Nonperforming loans to period-end noncovered loans

2.44%


2.99%


4.18%


4.65%


4.73%

Nonperforming assets to period-end noncovered assets

2.15%


2.54%


2.87%


3.23%


3.13%

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

2.23%


2.72%


2.94%


3.18%


3.22%

Allowance for loan and lease losses to nonperforming noncovered loans

91.37%


91.00%


70.29%


68.41%


68.19%

Allowance for loan and lease losses to nonperforming noncovered assets

56.49%


56.01%


51.21%


50.76%


54.36%

Net noncovered loan charge-offs

$           4,135


$           3,408


$           5,678


$           5,132


$           6,414



CONSOLIDATED CONDENSED STATEMENTS OF INCOME








Columbia Banking System, Inc.

Three Months Ended


Nine Months Ended

(Unaudited)

September 30,


September 30,

(in thousands except per share)

2011


2010


2011


2010

Interest Income








Loans

$      59,655


$      44,882


$    151,446


$    120,769

Taxable securities

6,037


4,660


16,701


14,113

Tax-exempt securities

2,500


2,252


7,483


6,988

Federal funds sold and deposits in banks

240


281


722


640

Total interest income

68,432


52,075


176,352


142,510









Interest Expense








Deposits

2,642


4,007


8,569


13,282

Federal Home Loan Bank advances

807


716


2,215


2,131

Long-term obligations

75


266


579


769

Other borrowings

120


121


377


357

Total interest expense

3,644


5,110


11,740


16,539









Net Interest Income

64,788


46,965


164,612


125,971

Provision for loan and lease losses

500


9,000


2,650


37,500

Provision for losses on covered loans

433


453


2,312


453

Net interest income after provision

63,855


37,512


159,650


88,018









Noninterest Income








Service charges and other fees

6,991


6,518


19,746


18,384

Gain on bank acquisitions, net of tax

1,830


-


1,830


9,818

Merchant services fees

1,952


2,051


5,393


5,700

Gain on sale of investment securities, net

-


-


-


58

Bank owned life insurance

523


521


1,556


1,541

Change in FDIC loss sharing asset

(10,855)


(4,536)


(32,048)


(1,137)

Other

1,755


629


3,842


2,529

Total noninterest income

2,196


5,183


319


36,893









Noninterest Expense








Compensation and employee benefits

21,392


17,574


59,772


52,057

Occupancy

4,815


4,278


13,600


12,554

Merchant processing

976


934


2,764


2,697

Advertising and promotion

1,137


630


3,050


2,253

Data processing and communications

2,195


2,477


6,032


6,923

Legal and professional fees

1,957


1,609


4,868


4,584

Taxes, licenses and fees

1,211


803


2,983


2,055

Regulatory premiums

574


1,952


3,553


4,910

Net cost of operation of other real estate

(195)


(1,442)


(423)


(802)

Amortization of intangibles

1,177


1,044


3,116


2,886

FDIC clawback liability

1,146


-


3,294


-

Other

3,550


3,661


11,836


12,045

Total noninterest expense

39,935


33,520


114,445


102,162









Income before income taxes

26,116


9,175


45,524


22,749

Income tax expense

7,244


3,971


12,241


4,573









Net Income

$      18,872


$        5,204


$      33,283


$      18,176

Net Income Applicable to Common Shareholders

$      18,872


$        2,474


$      33,283


$      13,229









Earnings per common share








Basic

$          0.48


$          0.06


$          0.84


$          0.39

Diluted

$          0.48


$          0.06


$          0.84


$          0.38

Dividends paid per common share

$          0.06


$          0.01


$          0.14


$          0.03

Weighted average number of common shares outstanding

39,131


38,976


39,092


33,938

Weighted average number of diluted common shares outstanding

39,192


39,137


39,167


34,142









Note: Certain prior period balances have been reclassified to conform to current period presentation



CONSOLIDATED CONDENSED BALANCE SHEETS








Columbia Banking System, Inc.








(Unaudited)





September 30,


December 31,

(in thousands)





2011


2010

ASSETS



Cash and due from banks





$  97,432


$ 55,492

Interest-earning deposits with banks and federal funds sold





250,030


458,638

Total cash and cash equivalents





347,462


514,130

Securities available for sale at fair value (amortized cost of $954,415 and $743,928, respectively)





995,854


763,866

Federal Home Loan Bank stock at cost





22,215


17,908

Loans held for sale





2,568


754

Noncovered loans, net of unearned income of ($23,764) and ($3,490), respectively





2,257,899


1,915,754

Less: allowance for loan and lease losses





50,422


60,993

Noncovered loans, net





2,207,477


1,854,761

Covered loans, net of allowance for loan losses of ($8,327) and ($6,055), respectively





570,805


517,061

Total loans, net





2,778,282


2,371,822

FDIC loss sharing asset





193,869


205,991

Interest receivable





17,428


11,164

Premises and equipment, net





104,974


93,108

Other real estate owned ($24,835 and $14,443 covered by Federal Deposit Insurance Corporation loss share, respectively)





49,891


45,434

Goodwill





118,434


109,639

Core deposit intangible, net





21,369


18,696

Other assets





103,486


103,851

Total Assets





$        4,755,832


$       4,256,363

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:








Noninterest-bearing





$        1,105,169


$          895,671

Interest-bearing





2,690,330


2,431,598

Total deposits





3,795,499


3,327,269

Federal Home Loan Bank advances





122,642


119,405

Securities sold under agreements to repurchase





25,000


25,000

Other borrowings





-


642

Long-term subordinated debt





-


25,735

Other liabilities





62,725


51,434

Total liabilities





4,005,866


3,549,485

Commitments and contingent liabilities









September 30,


December 31,






2011


2010





Common Stock (no par value)








Authorized shares

63,033


63,033





Issued and outstanding

39,502


39,338


578,828


576,905

Retained earnings





145,451


117,692

Accumulated other comprehensive income





25,687


12,281

Total shareholders' equity





749,966


706,878

Total Liabilities and Shareholders' Equity





$        4,755,832


$       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.

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

SOURCE Columbia Banking System, Inc.



RELATED LINKS
http://www.columbiabank.com

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