Columbia Banking System Announces Second Quarter 2010 Earnings; Declares Cash Dividend

- Net income applicable to common shareholders of $3.9 million, or $0.11 per common share, compared to a loss of $6.6 million for the 2nd quarter 2009.

- Raised $229 million in net proceeds through public offering of common stock

- Remains well capitalized at 27% total risk-based capital ratio, up from 18% at March 31, 2010

- Strong core deposits at 86% of total deposits

- Net interest margin increased to 4.66% from 4.30% for the quarter ended December 31, 2009 and 4.38% from 2nd quarter 2009.

- Assets increase to $4.29 billion, up from $3.20 billion at December 31, 2009

- Deposits increase to $3.28 billion, up from $2.48 billion at December 31, 2009

- Opened downtown Portland, Oregon office; substantial retail network of 83 branches in Washington and Oregon.

TACOMA, Wash., July 29 /PRNewswire-FirstCall/ -- Columbia Banking System, Inc. (Nasdaq: COLB) today announced net income applicable to common shareholders of $3.9 million for the second quarter of 2010 compared to a net loss applicable to common shareholders of $6.6 million for the same quarter of 2009.  On a diluted per common share basis, net income for the quarter was $0.11, compared to a net loss of $0.37 for the second quarter of 2009.  The continuing challenges of the difficult economy resulted in management's decision to record a $13.5 million provision for loan losses for the quarter. In addition, earnings were impacted by one-time conversion expenses due to the FDIC-assisted acquisition of the former Columbia River Bank completed during the first quarter 2010.  The conversion of the former American Marine Bank is scheduled for third quarter 2010.

Net income applicable to common shareholders for the six months ended June 30, 2010 was $10.8 million, compared to a net loss of $6.2 million for the first six months of 2009.  On a diluted per common share basis, net income for the first six months of 2010 was $0.34, compared to a loss of $0.35 a year earlier.

Melanie Dressel, President & Chief Executive Officer commented, "We are continuing to implement our strategic initiatives to benefit from the current disruptions in our industry and to increase our presence in the Pacific Northwest.  The transitions of the former Columbia River Bank and American Marine Bank to the Columbia Bank family are proceeding successfully, although we have not yet seen the full benefit or normalization in expenses relating to the two acquisitions."  

Ms. Dressel noted, "We will continue to enhance our future growth by hiring experienced teams of bankers who give us access to new clients and markets, and by adding retail locations that make strategic sense for us.  We are also pleased with our ability to maintain our historically stable net interest margin supported by solid core deposits. As the economy improves, we believe we are well positioned for the future as a Pacific Northwest regional community bank."

Significant Influences on the Quarter Ended June 30, 2010

Columbia River Bank and American Marine Bank

In January, 2010, Columbia State Bank completed two FDIC-assisted transactions, acquiring the former Columbia River Bank and American Marine Bank.  The two acquisitions increased our asset size by approximately $1 billion and added 32 branches to our retail system in Oregon and Washington.  The transactions met our criteria of making financial sense, extending our geographic footprint, and being a cultural fit, including strong core deposits.  The conversion of Columbia River Bank to Columbia State Bank data systems was successfully completed in the second quarter of 2010; conversion of American Marine Bank is scheduled for mid-third quarter this year.  Including temporary help and vendor-related costs, conversion expenses included in the second quarter 2010 results were approximately $1.2 million.  

Capital

During the second quarter, 2010, Columbia raised $240 million through a public offering by issuing 11,040,000 shares of common stock, including 1,440,000 shares pursuant to the underwriters' over-allotment option, at a price of $21.75 per share.  The net proceeds to the Company after deducting underwriting discounts, commission and expenses were approximately $229 million.  We intend to deploy the capital to support opportunistic growth and our capital needs, as well as for general corporate purposes.

The Company's total risk-based capital ratio at June 30, 2010 was 27%, well in excess of the minimum of 10% required to be "well-capitalized" under applicable regulatory standards.  Our excess capital over and above this 10% minimum was approximately $432.6 million at June 30, 2010.  At the end of the second quarter 2010, our tangible common equity to tangible assets ratio stood at 14% as compared to 8.3% at March 31, 2010 and 11.4% at December 31, 2009.  

Net Interest Margin

Columbia's net interest margin increased to 4.66% in the second quarter of 2010, up from 4.38% for the same quarter last year and 4.30% in the fourth quarter of 2009, and a decrease from 4.78% for the first quarter of 2010.  The net interest margin in the second quarter was positively impacted by approximately 7 basis points due to the $604,727 accretion of the discount on the loan portfolios acquired in the two FDIC-assisted transactions.  The net interest margin was negatively impacted by interest reversals relating to nonaccrual loans totaling $532,117, reducing the net interest margin by an estimated 6 basis points.  Additionally, the net interest margin was negatively affected by 18 basis points due to the short term investment of the $229 million in proceeds of the May, 2010 capital raise.

Balance Sheet

At June 30, 2010, the Company's total assets were $4.29 billion, an increase of 34% from $3.20 billion at December 31, 2009.  Total shareholders' equity at June 30, 2010 was $775.3 million, an increase of 47% from $528.1 million at December 31, 2009.

Loans not covered under the FDIC loss-sharing agreements ("non-covered loans") were $1.95 billion at June 30, 2010, down 3% from $2.00 billion at December 31, 2009.  The average yield on non-covered loans for the quarter ended June 30, 2010 was 6.14%.  The non-covered loan portfolio continues to be diversified, mitigating risk by avoiding concentration in any one segment.  The portfolio includes 39% commercial business loans, 6% total construction including commercial and residential, 3% one-to-four family residential real estate, and 10% consumer.  Approximately 42% of the portfolio is commercial real estate, which consists of 60% income property and 40% owner occupied.   Net loans covered under the FDIC-loss sharing agreements ("covered loans"), which provide protection against credit risk on those covered loans, totaled $585 million at June 30, 2010.  

Total deposits at June 30, 2010 increased 40% to $3.28 billion from $2.35 billion at June 30, 2009, and 32% from $2.48 billion at December 31, 2009.  Core deposits (defined as demand, savings, money market accounts and certificates of deposit under $100,000) increased 47% to $2.83 billion at June 30, 2010, from $1.93 billion at June 30, 2009, and comprised 86% of total deposits.  The average cost of deposits for the quarter ended June 30, 2010 was 0.70% compared to 0.64% for the quarter ended March 31, 2010.

Asset Quality

Virtually all loans and real estate owned (OREO) acquired in both FDIC-assisted transactions during the first quarter 2010 are covered under FDIC loss-sharing agreements and carry minimal loss exposure.  

At June 30, 2010, nonperforming assets were $131.9 million, compared to $126.6 million at March 31, 2010, $129.5 million at December 31, 2009, $148.9 at September 30, 2009 and $136.1 million at June 30, 2009.   The increase in nonperforming assets from year-end was the result of a modest increase in nonperforming assets within the commercial real estate term loan portfolio and a less favorable environment for asset resolution with the expiration of the Federal Home Buyer tax credit in April. "The transition away from nonperforming construction loans and into nonperforming term commercial real estate and commercial business loans is a typical pattern seen in most credit cycles," noted Andy McDonald, Executive Vice President and Chief Credit Officer. "As we have previously discussed, this transition is consistent with what we expected would take place during the first half of this year."

Mr. McDonald continued, "During the quarter, we placed $12.7 million in term commercial real estate loans on nonaccrual status, bringing the total amount of term commercial real estate nonaccrual loans to $36.1 million, or approximately 50 loans.  Of these 50 loans, only two required any type of impairment at quarter-end for total impairments of approximately $716,000 as a result of our conservative underwriting standards based on cash flow rather than loan-to-value."

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

For the quarter ended June 30, 2010, net loan charge-offs were approximately $10.7 million, compared to $16.4 million for the same period a year ago, and $11.5 million during the first quarter of 2010.  Charge-offs for the quarter were primarily commercial business and residential construction, land and acquisition loans.

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

For the second quarter 2010, the provision for loan losses was $13.5 million compared to $21.0 million for the same quarter last year, and $15.0 million for the prior two quarters.  The allowance for loan losses to non-covered period-end loans was 3.07% at June 30, 2010 compared to 2.66% and 2.31% at December 31, 2009 and June 30, 2009, respectively.

Columbia's provision for loan losses reflects management's continuing evaluation of the loan portfolio's credit quality, which is affected by a broad range of economic metrics.  Additional factors affecting the provision include, but are not limited to, net-loan charge-offs, non-accrual loans, specific reserves, risk-rating migration and general economic factors.

Non-covered past due loans were $12.0 million at June 30, 2010, or 0.62% of total non-covered loans compared to $16.4 million, or 0.85% of total loans, as of March 31, 2010 and $9.1 million, or 0.45% of total loans, as of December 31, 2009.

Ms. Dressel commented. "As we have stated over the past few months, we believe the economic recovery will be slow, resulting in problem credits shifting away from construction assets and into commercial real estate and commercial business loans.  Although the reduction in net charge-offs is a hopeful sign, we look forward to seeing more stabilization in the economy, which should result in a downward trend in our nonperforming loans.  In the interim, we will be proactive, as always, in managing our loan portfolio."  

Operating Results

Quarter ended June 30, 2010

Net Interest Income

Net interest income for the second quarter of 2010 was $40.7 million, an increase of 43% from $28.5 million for the same quarter in 2009, primarily due to the impact of the addition of Columbia River Bank and American Marine Bank loan portfolios. The Company's net interest margin increased to 4.66% in the second quarter of 2010, from 4.38% for the same quarter last year. The net interest margin was negatively impacted by interest reversals for the quarter ended June 30, 2010 related to noncovered nonaccrual loans, and by the short-term investment of the proceeds of the May, 2010 capital raise.  However, the net interest margin was also positively impacted by accretion of the discount on the loan portfolios acquired in the two FDIC-assisted transactions.

Average interest-earning assets were $3.62 billion during the quarter, an increase of 33% compared with $2.73 billion during the same quarter of 2009.   The yield on average interest-earning assets decreased 15 basis points (a basis point equals 1/100 of 1%) to 5.26% during the second quarter compared with 5.41% during the same quarter of 2009.  During the same period, average interest-bearing liabilities increased to $2.66 billion, or 28%, from $2.07 billion in the second quarter of 2009.  The cost of average interest-bearing liabilities decreased 53 basis points to 0.82% during the quarter, from 1.35% in the same quarter of 2009.

Noninterest Income

Noninterest income was $13.2 million, compared to $7.0 million in the second quarter of last year.  The increase was primarily due to $3.4 million of accretion income to increase the FDIC indemnification asset.  In addition, noninterest income was affected by an increase of $2.9 million in service charges and other fees primarily attributable to the addition of Columbia River Bank and American Marine Bank.

Noninterest Expense

Total noninterest expense for the second quarter of 2010 was $34.7 million, an increase of 37% from $25.3 million for the same quarter in 2009.   The increase was primarily due to the addition of operating expenses of Columbia River Bank and American Marine Bank, both acquired in January 2010.  In addition to the normalized operating expenses for these two acquisitions, we expect expenses to continue to be elevated as we finalize the integration of the two banks, open new offices and invest in teams of bankers as we take advantage of opportunities in our markets.  

Organizational Update

Ms. Dressel commented, "We continue to be pleased with the positive response from customers in the new communities we serve in both Oregon and Washington.   I would like to express my thanks to all our employees involved in the successful conversion of the former Columbia River Bank to our system during the second quarter; the transition went smoothly. We anticipate the same for the conversion of the former American Marine Bank, which is scheduled for later this quarter."

Ms. Dressel continued, "Our new downtown Portland office, which houses business bankers and a full-service branch in Fox Tower, opened during the second quarter. To support our efforts to reach new customers in relatively untapped markets for us, we have also added two teams of business bankers, who are based in the Salem, Oregon area and the Snohomish, Skagit and Whatcom counties in northwest Washington. Our investment in bringing these talented bankers on board will provide local experience and a customer-centric approach.   To help fill in our geographic footprint between Seattle and Bellingham, we anticipate opening two additional branches in northwest Washington, and will apply for regulatory approval when appropriate locations are determined."  

"In addition to our core value of excellent customer service, it is important for us to provide a great place to work for the people who provide that service," Ms. Dressel noted.  "We are very gratified that we were recently awarded third place in the large company category for Seattle Business Magazine's 2010 Washington's 100 Best Companies to Work For."

Cash Dividend Announcement

The Board of Directors has announced a quarterly cash dividend of $0.01 per common share, which will be paid on August 25, 2010 to shareholders of record as of the close of business on August 11, 2010.  

Conference Call

Columbia's management will discuss the second quarter results on a conference call scheduled for Thursday, July 29, 2010 at 1:00 p.m. PDT (4:00 p.m. EDT).  Interested parties may listen to this discussion by calling 1-888-318-7969; Conference ID code #88090193.

A conference call replay will be available from approximately 4:00 p.m. PDT on July 29, 2010, through midnight PDT on August 5, 2010.  The conference call replay can be accessed by dialing 1-800-642-1687 and entering Conference ID code #88090193.

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank which was awarded third place in the large employer category by Seattle Business Magazine's 100 Best Companies to Work For 2010 and was designated one of  Puget Sound Business Journal's "Washington's Best Workplaces 2009".  

With the January, 2010 FDIC-assisted acquisitions of Columbia River Bank and American Marine Bank, Columbia Banking System has 83 banking offices, including 59 branches in Washington State and 24 branches in Oregon. Columbia Bank does business under the Bank of Astoria name at the Bank of Astoria's former branches located in Astoria, Warrenton, Seaside, Cannon Beach, Manzanita and Tillamook. 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.

SOURCE Columbia Banking System, Inc.