Columbia Banking System Announces Fourth Quarter and Full Year 2020 Results and Quarterly Cash Dividend

TACOMA, Wash., Jan. 28, 2021 /PRNewswire/ -- 

Notable Items for the Fourth Quarter and Fiscal Year 2020

• Full year 2020 net income of $154.2 million and diluted earnings per share of $2.17
• Record fourth quarter net income of $58.3 million and diluted earnings per share of $0.82
• Deposits increased $269.6 million, or 2%, during the fourth quarter of 2020 and $3.19 billion, or 30%, compared to December 31, 2019
• Net interest margin of 3.52%, an increase of 5 basis points from the linked quarter
• Nonperforming assets to period-end assets ratio decreased to 0.21%
• Loan balances subject to deferral were down 91% from June 30, 2020
• Regular cash dividend declared of $0.28 per share

Clint Stein, President and Chief Executive Officer of Columbia Banking System, Inc. and Columbia Bank (NASDAQ: COLB) ("Columbia"), said today upon the release of Columbia's fourth quarter 2020 earnings, "Our financial performance for the quarter and the year is a direct reflection of our bankers' determination and tireless efforts to maintain our normal business operations throughout the extended duration of the pandemic. Our account officers worked collectively with our credit administration team to create tailored solutions that best served our client's needs during these challenging times." Mr. Stein continued, "I would also like to recognize the efforts of our full team for the innovation and dedication they demonstrated in meeting the needs of our clients and communities amid the myriad challenges of 2020."

Balance Sheet

Total assets at December 31, 2020 were $16.58 billion, an increase of $351.4 million from the linked quarter. Loans were $9.43 billion, down $261.3 million from September 30, 2020 as loan originations of $468.1 million were more than offset by loan payments and a decrease in loan utilization as well as a decrease in PPP loans of $301.7 million principally due to loan forgiveness. Total PPP loans decreased from $953.2 million at September 30, 2020 to $651.6 million at December 31, 2020. Interest-earning deposits with banks were $434.9 million, a decrease of $301.6 million from the linked quarter. Debt securities available for sale were $5.21 billion at December 31, 2020, an increase of $928.4 million from $4.28 billion at September 30, 2020 as a result of substantial purchases during the quarter. Total deposits at December 31, 2020 were $13.87 billion, an increase of $269.6 million from September 30, 2020 largely due to an increase of $253.4 million in interest-bearing deposits. The deposit mix remained fairly consistent from September 30, 2020 with 50% noninterest-bearing and 50% interest-bearing. 

Chris Merrywell, Columbia's Executive Vice President and Chief Operating Officer, stated, "Our teams worked diligently during the fourth quarter to process new loan requests and PPP forgiveness. We are very proud of their efforts to put our clients' needs first."

Income Statement

Net Interest Income

Net interest income for the fourth quarter of 2020 was $131.1 million, an increase of $6.4 million and $6.3 million from the linked quarter and the prior-year period, respectively. The increase in interest income from loans as compared to the linked quarter was a result of an increase of $4.0 million in PPP loan interest and fee income principally due to the forgiveness of PPP loans as well as a $1.7 million recovery of interest related to a nonaccrual loan that paid-off during the quarter. The increase in net interest income compared to the linked quarter also benefited from an increase in interest income from securities due to two securities that had prepayment activity which contributed $2.5 million in additional interest income. Higher average balances of securities as a result of recent purchases also contributed to the increase in net interest income.

Net interest income compared to the prior-year period increased as a result of a reduction in interest expense of $4.2 million on deposits due to the lower rate environment. Interest income from investment securities increased approximately $3.0 million primarily due to higher average balances. Net interest income also benefited from lower interest expense of $1.8 million on FHLB advances due to lower average balances. Partially offsetting these increases to net interest income was a $3.0 million decrease to interest income from loans due to the lower rate environment. For additional information regarding net interest income, see the "Net Interest Margin" section and the "Average Balances and Rates" tables.

Provision for Credit Losses

The Bank recorded a net provision recovery for credit losses for the fourth quarter of 2020 of $4.7 million compared to net provisions of $7.4 million for the linked quarter and $1.6 million for the comparable quarter in 2019. The net provision recovery for credit losses for the current quarter was primarily due to an improved economic forecast.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "We are obviously pleased with the credit metrics posted this quarter. The decline in NPAs and problem loans is notable along with the release from the provision. But, we understand we must remain diligent with respect to credit as government stimulus and other actions may have a delayed effect on the possible impacts to our loan portfolio."

Noninterest Income

Noninterest income was $23.6 million for the fourth quarter of 2020, an increase of $1.1 million from the linked quarter and $1.8 million from the fourth quarter of 2019. The increase compared to the linked quarter was principally due to loan revenue, specifically, mortgage banking revenue, as a result of a change in the way we sold a portion of our loans held for sale, during the quarter, resulting in more favorable pricing. Additionally, included in the current quarter is an increase of $758 thousand to the fair value of the mortgage loan pipeline. The increase in noninterest income during the fourth quarter of 2020 compared to the same quarter in 2019 was principally due to an increase in loan revenue partially offset by a decrease in deposit account and treasury management fees. The increase in loan revenue was due to mortgage banking revenue which increased $3.8 million due to higher loan volume. Partially offsetting this increase was a decrease in treasury management fees of $863 thousand and a decrease in overdraft fees of $889 thousand compared to the same quarter in 2019. The decrease in overdraft fees was due to an overall decrease in the number of transactions amidst the pandemic as well as clients generally carrying higher cash balances in their deposit accounts.

Noninterest Expense

Total noninterest expense for the fourth quarter of 2020 was $84.3 million, a decrease of $815 thousand compared to the third quarter of 2020 principally due to lower other noninterest expense as a result of the provision recapture for unfunded loan commitments totaling $1.3 million.

Compared to the fourth quarter of 2019, noninterest expense decreased $2.7 million principally due to decreases in other noninterest expense and legal and professional fees partially offset by an increase in regulatory premiums. Other noninterest expense decreased as a result of the provision recapture for unfunded loan commitments similar to the reduction for the linked quarter and a reduction of $857 thousand in travel and entertainment expense due to COVID-19. The decrease in legal and professional fees was principally due to lower fees on reciprocal money market accounts in 2020. Partially offsetting these decreases was an increase in regulatory premiums. During the fourth quarter of 2019, the Bank utilized a portion of its Small Bank Assessment Credit to pay for FDIC deposit insurance premiums. The final portion of the credit was utilized during the second quarter of 2020.

The provision for unfunded loan commitments for the periods indicated are as follows:

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the fourth quarter of 2020 was 3.52%, an increase of 5 basis points and a decrease of 59 basis points from the linked quarter and prior-year period, respectively. The increase in the net interest margin (tax equivalent) compared to the linked quarter was due to increased income on PPP loans due to forgiveness activity as well as a recovery of interest on a nonaccrual loan that paid-off during the quarter. Interest income on the securities portfolio also contributed to the rise in the net interest margin due to two securities that had prepayment activity. These increases were partially offset by a shift in the mix of interest-earning assets towards lower-yielding investment securities. Notably, the average cost of total deposits for the quarter was 5 basis points, a decrease of 1 basis point from the third quarter of 2020. The decrease in the net interest margin (tax equivalent) compared to the prior-year period was driven by higher average interest-earning deposits with banks at an average rate of 10 basis points as well as lower rates on the loan and securities portfolios. For additional information regarding net interest margin, see the "Average Balances and Rates" tables.

Columbia's operating net interest margin (tax equivalent)¹ was 3.51% for the fourth quarter of 2020, which increased 5 points compared to the linked quarter and decreased 58 basis points compared to the prior-year period. The increase in the operating net interest margin for the fourth quarter of 2020 compared to the linked quarter and the decrease compared to the prior-year period were due to the items noted in the preceding paragraph.

The following table highlights the yield on our PPP loans for the periods indicated:

Aaron James Deer, Columbia's Executive Vice President and Chief Financial Officer, stated, "We had a nice increase in the margin during the fourth quarter, although it was largely due to accelerated PPP fee amortization. The recent improvement in the rate outlook gives us some optimism for future asset yield improvement, but the near-term expectation is that loan and securities yields will remain under pressure."

Asset Quality

At December 31, 2020, nonperforming assets to total assets decreased to 0.21% compared to 0.29% at September 30, 2020. Total nonperforming assets decreased $12.5 million from the linked quarter due to decreases in commercial business, agriculture and commercial real estate nonaccrual loans.

The following table sets forth information regarding nonaccrual loans and total nonperforming assets:

Nonperforming assets to total loans was 0.37% at December 31, 2020 compared to 0.49% at September 30, 2020.

The following table provides an analysis of the Company's allowance for credit losses:

The allowance for credit losses to period-end loans was 1.58% at December 31, 2020 compared to 1.62% at September 30, 2020. Excluding PPP loans, the allowance for credit losses to period-end loan²] was 1.70% at December 31, 2020 compared to 1.80% at September 30, 2020.

Loan Deferrals

The following table shows the loan balances subject to deferral for the periods indicated:

Organizational Update

Two New Directors

The appointment of two new directors was announced following a regional search during the quarter. Laura Alvarez Schrag and Tracy Mack-Askew formally joined the board on January 1, 2021. Ms. Alvarez Schrag is President of Pondera Consulting and a resident of Nampa, Idaho and Ms. Mack-Askew is General Manager-HD Vocational Platform Development of Daimler Trucks North America and a resident of Portland, Oregon.

"Ms. Alvarez Schrag and Ms. Mack-Askew bring a wealth of expertise in organizational development, governance and operations to the Board," said Mr. Stein. "We look forward to benefiting from their business expertise and their knowledge of key Northwest markets."

COVID-19 Update

COVID-19 continues to impact our communities. We continue to monitor changing guidance from state and local healthcare officials and adjust our protocols accordingly. Social distancing, additional cleaning protocols and other safety measures we have taken enabled us to keep our branch lobbies open to serve clients throughout the quarter. Investments in additional video conferencing tools provided a smooth transition for team members resuming remote work arrangements as states reinstituted recommendations from earlier in the spring. Employees continue to balance the challenges of life and work amidst the pandemic, such as managing distance learning routines for their children. The variety of flexibility options we have provided have supported employees while maintaining service standards.

Warm Hearts Winter Drive

Our sixth annual Warm Hearts Winter Drive to benefit families and individuals struggling with homelessness during the winter months raised $315,025 for more than 65 homeless and relief shelters across the Northwest.

"In a year made particularly difficult by the pandemic, the Warm Hearts Winter Drive was as important as ever," said David Moore Devine, Columbia's Executive Vice President and Chief Marketing & Experience Officer. "I could not be prouder of the way our bankers and other employees across the Northwest stepped up to help their neighbors. Their efforts will make a tremendous difference in the communities we serve this winter."

The annual drive has raised nearly $1.5 million in combined donations since the program started in 2016.

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share on February 24, 2021 to shareholders of record as of the close of business on February 10, 2021.

Conference Call Information

Columbia's management will discuss the fourth quarter 2020 financial results on a conference call scheduled for Thursday, January 28, 2021 at 10:00 a.m. Pacific Time (1:00 p.m. ET). Interested parties may join the live-streamed event by using the site: https://edge.media-server.com/mmc/p/vcquk5yf  

The conference call can also be accessed on Thursday, January 28, 2021 at 10:00 a.m. Pacific Time (1:00 p.m. ET) by calling 833-301-1160; Conference ID password:  3936658.

A replay of the call will be accessible beginning Friday, January 29, 2021 using the link below:
https://edge.media-server.com/mmc/p/vcquk5yf  

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. (NASDAQ: COLB) is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank with locations throughout Washington, Oregon and Idaho. The bank has been named one of Puget Sound Business Journal's "Washington's Best Workplaces," more than 10 times and was recently honored as #1 in Customer Satisfaction with Retail Banking in the Northwest region by J.D. Power³ in the 2020 U.S. Retail Banking Satisfaction Study. Columbia was named the #1 bank in the Northwest on the Forbes 2020 list of "America's Best Banks" marking nearly 10 consecutive years on the publication's list of top financial institutions.

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

¹ Operating net interest margin (tax equivalent) is a non-GAAP financial measure. See the section titled "Non-GAAP Financial Measures" in this earnings release for the reconciliation of operating net interest margin (tax equivalent) to net interest margin.
² Allowance for credit losses to period-end loans, excluding PPP is a non-GAAP financial measure. See the section titled "Non-GAAP Financial Measures" in this earnings release for the reconciliation of allowance for credit losses to period-end loans to allowance for credit losses to period-end loans, excluding PPP loans.
³ Columbia Bank received the highest score in the Northwest region of the J.D. Power 2020 U.S. Retail Banking Satisfaction Study of customer satisfaction with their own retail bank. Visit jdpower.com/awards.

Note Regarding Forward-Looking Statements

This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, descriptions of 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 as well as the potential effects of the COVID-19 pandemic on Columbia's business, operations, financial performance and prospects. The words "will," "believe," "expect," "intend," "should," and "anticipate" or the negative of these words or 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 risks and uncertainties, many of which are outside our control, 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 U.S. Securities and Exchange Commission's (the "SEC") 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 (as applicable), 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) the effect of COVID-19 and other infectious illness outbreaks that may arise in the future, which has created significant uncertainties in U.S. and global markets, is expected to continue to adversely affect the businesses in which Columbia is engaged; (3) changes in interest rates could significantly reduce net interest income and negatively affect funding sources; (4) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (5) costs or difficulties related to the integration of acquisitions may be greater than expected; (6) competitive pressure among financial institutions may increase significantly; (7) failure to maintain effective internal control over financial reporting or disclosure controls and procedures may adversely affect our business; (8) reliance on and cost of technology may increase; and (9) changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, including with regard to COVID-19, have adversely affected and may continue to 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 which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. 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.

Non-GAAP Financial Measures

The Company considers its operating net interest margin (tax equivalent) and operating efficiency ratios to be useful measurements as they more closely reflect the ongoing operating performance of the Company. Despite the usefulness of the operating net interest margin (tax equivalent) and operating efficiency ratio to the Company, there are no standardized definitions for them. As a result, the Company's calculations may not be comparable with other organizations. 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 (tax equivalent) and operating efficiency ratio:

Non-GAAP Financial Measures - Continued

The Company considers its pre-tax, pre-provision income to be a useful measurement in evaluating the earnings of the Company as it provides a method to assess income. Despite the usefulness of this measure to the Company, there is not a standardized definition for it. As a result, the Company's calculation may not always be comparable with other organizations. 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 pre-tax, pre-provision income:

The Company considers its tangible common equity ratio and tangible book value per share ratio to be useful measurements in evaluating the capital adequacy of the Company as they provide a method to assess management's success in utilizing our tangible capital. Despite the usefulness of these ratios to the Company, there is not a standardized definition for them. As a result, the Company's calculation may not always be comparable with other organizations. 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 tangible common equity ratio:

Non-GAAP Financial Measures - Continued

The Company considers its ratio of allowance for credit losses to period-end loans, excluding PPP loans, to be a useful measurement in evaluating the adequacy of the amount of allowance for credit losses to loans of the Company as PPP loans are guaranteed by the U.S. Small Business Administration and thus do not require the same amount of reserve for credit losses as do other loans. Despite the usefulness of this ratio to the Company, there is not a standardized definition for it. As a result, the Company's calculation may not always be comparable with other organizations. 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 credit losses to period-end loans:

The Company also considers its return on average tangible common equity ratio to be a useful measurement as it evaluates the Company's ongoing ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the business can be evaluated, whether acquired or developed internally. Despite the usefulness of this ratio to the Company, there is not a standardized definition for it. As a result, the Company's calculation may not always be comparable with other organizations. 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 return on average tangible common shareholders' equity ratio:

SOURCE Columbia Banking System Inc