Columbia Banking System Announces First Quarter 2015 Earnings

TACOMA, Wash., April 22, 2015 /PRNewswire/ -- Melanie Dressel, President and Chief Executive Officer of Columbia Banking System and Columbia Bank (NASDAQ: COLB) ("Columbia") said today upon the release of Columbia's first quarter 2015 earnings, "We are pleased with our financial performance for the quarter, especially in light of the after tax impact to earnings of $1.9 million, or $0.03 per diluted share, resulting from acquisition-related expenses and FDIC acquired loan accounting. We had good loan production, solid core deposit growth, increased quarter over quarter revenue, and the operating net interest margin continued to show great resiliency."

Ms. Dressel continued, "The integration of our acquisition of Intermountain Community Bancorp remains on track. As expected, we plan to realize more of the operational synergies as the second and third quarters progress."

Significant Influences on the Quarter Ended March 31, 2015

Balance Sheet

Loans were $5.45 billion at March 31, 2015, up $5.5 million from December 31, 2014. Securities were $2.04 billion at March 31, 2015, a decrease of $91.5 million, or 4% from $2.13 billion at December 31, 2014 primarily due to sales of investment securities.          Total deposits at March 31, 2015 were $7.07 billion, an increase of $150.2 million, or 2% from $6.92 billion at December 31, 2014. Core deposits were $6.77 billion at March 31, 2015, an increase of $151.8 million from December 31, 2014. The average rate on interest-bearing deposits and total deposits for the quarter was 0.07% and 0.04%, respectively, compared to 0.08% and 0.05% for the fourth quarter of 2014.

Asset Quality

At March 31, 2015, nonperforming assets to total assets were 0.65% or $55.2 million, compared to 0.62%, or $53.6 million, at December 31, 2014. The $1.6 million increase was the result of a $476 thousand increase in nonaccrual loans and a $1.1 million increase in other real estate owned, most of which came from the purchased credit impaired loan portfolio.

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

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

The allowance for loan losses to period end loans was 1.29% at March 31, 2015 compared to 1.28% at December 31, 2014. Excluding acquired loans, the allowance at March 31, 2015 represented 1.17% of originated loans, compared to 1.21% of originated loans at December 31, 2014. The decline reflects strong organic loan growth. The allowance to loans, excluding acquired loans, is a non-GAAP financial measure. See the section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of the allowance for loan losses to period end loans, excluding acquired loans.

For the first quarter of 2015, Columbia recorded a net provision for loan and lease losses of $1.2 million compared to a net provision of $1.9 million for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter was primarily driven by the purchased credit impaired ("PCI") loan portfolio, for which Columbia recorded a provision of $2.6 million, which was partially offset by a provision recapture of $1.4 million related to loans, excluding PCI loans. The provision recorded relating to PCI loans was due to the decrease in the present value of expected future cash flows as remeasured during the current quarter, compared to the present value of expected future cash flows during the fourth quarter of 2014. The $2.6 million provision related to PCI loans was partially offset by a $1.5 million favorable adjustment to the change in FDIC loss-sharing asset. The $1.4 million provision recapture related to loans, excluding PCI loans, was due to loan recovery activity during the current quarter and improvement in credit quality.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) of 4.39% for the first quarter of 2015 was down 11 basis points from 4.50% for the fourth quarter of 2014. The decrease was primarily due to fewer accruing days in the current quarter, which negatively impacted the net interest margin by 10 basis points. Compared to the first quarter of 2014, Columbia's net interest margin decreased 46 basis points from 4.85%, due to lower incremental accretion on acquired loans, which was $12.3 million for the prior year quarter, and only $7.5 million for the current quarter.

Columbia's operating net interest margin (tax equivalent)⁽¹⁾ increased to 4.18% for the first quarter of 2015, compared to 4.17% for the fourth quarter of 2014, despite the negative impact of fewer accruing days in the current quarter.

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

Impact of FDIC Acquired Loan Accounting

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

The incremental accretion income on FDIC purchased credit impaired loans represents the amount of income recorded above the contractual rate stated in the individual loan notes and stems from the discount established at the time these loan portfolios were acquired. At March 31, 2015, the accretable yield on purchased credit impaired loans was $68.7 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis.

The $150 thousand change in the FDIC loss-sharing asset in the current quarter added to noninterest income and consisted primarily of loan impairment of $1.5 million and write-downs on OREO of $1.1 million, partially offset by $2.3 million in amortization expense. Additional details of the components of the change in the FDIC loss-sharing asset are provided in tabular format in the section titled "Noninterest Income" in the following pages.

First Quarter 2015 Results

Net Interest Income

Net interest income for the first quarter of 2015 was $80.4 million, an increase of $1.6 million compared to the fourth quarter of 2014. This increase was primarily due to the acquired loans and securities from the Intermountain transaction. Compared to the first quarter of 2014, net interest income increased by $6.4 million from $73.9 million. The increase from the prior year period is due to the combination of acquired loans and securities from the acquisition of Intermountain and organic loan growth, partially offset by a decline in incremental accretion income. For additional information regarding net interest income, see the "Average Balances and Rates" table.

Noninterest Income

Total noninterest income was $22.8 million for the first quarter of 2015, an increase of $7.6 million compared to $15.2 million for the fourth quarter of 2014. This increase was primarily due to a $5.5 million positive variance related to the change in FDIC loss-sharing asset. For the prior quarter, the change in FDIC loss-sharing asset was an expense of $5.3 million, compared to a net benefit in the current quarter of $150 thousand. The current period net benefit was driven by reduced amortization as well as increases in the asset resulting from loan impairment and covered asset write-downs. The decline in amortization resulted from the recent expiration of our two most significant FDIC loss-sharing agreements. Additional details of the components of the change in the FDIC loss-sharing asset are provided in tabular format on the following page. Also contributing to the linked quarter growth in noninterest income was an increase in investment securities gains of $721 thousand and an increase in other noninterest income of $882 thousand. The increase in other noninterest income was due to a gain on sale of loans in the current quarter of $923 thousand compared to only $286 thousand in the fourth quarter of 2014.

Compared to the first quarter of 2014, noninterest income increased by $8.8 million. The increase from the prior year period was primarily due to the change in FDIC loss-sharing asset, which, as previously mentioned was a benefit of $150 thousand in the current quarter, but was an expense of $4.8 million in the first quarter of 2014. Additional details of the components of the change in the FDIC loss-sharing asset are provided in tabular format on the following page. Also contributing to the increase compared to the first quarter of 2014 was an increase in service charges and other fees of $1.9 million resulting primarily from the increased customer base from the acquisition of Intermountain.

The change in the FDIC loss-sharing asset has been a significant component of noninterest income. The following table reflects the income statement components of the change in the FDIC loss-sharing asset:

Noninterest Expense

Total noninterest expense for the first quarter of 2015 was $66.7 million, an increase of $2.6 million compared to $64.2 million for the fourth quarter of 2014. This increase was driven by higher compensation and benefit expenses due to including a full quarter of such expenses from the November 1, 2014 Intermountain acquisition. In addition, the current quarter included certain additional incentive and employee benefit expenses, typical in the first quarter. These expense increases were partially offset by a $1.4 million favorable change in OREO costs as well as a decrease of $1.6 million in acquisition-related expenses. Substantially all of the acquisition-related expenses recorded in the current quarter related to the recently completed Intermountain acquisition.

Compared to the first quarter of 2014, noninterest expense increased $9.3 million, or 16% from $57.4 million, due to the $2.0 million increase in acquisition-related expenses as well as additional ongoing expense resulting from the Intermountain acquisition, partially offset by the benefit recorded in the current quarter related to OREO.

Conference Call Information

Columbia's management will discuss the first quarter 2015 results on a conference call scheduled for Thursday, April 23, 2015 at 1:00 p.m. PDT (4:00 pm EDT). Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #22782055.

A conference call replay will be available from approximately 4:00 p.m. PDT on April 23, 2015 through midnight PDT on April 30, 2015. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #22782055.

Annual Meeting of Shareholders

Columbia Banking System's Annual Meeting of Shareholders will be held at 1:00 PDT on April 22, 2015, 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 http://www.tacoma.uw.edu/getting-campus/getting-campus.

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, with over 150 branches throughout Washington, Oregon and Idaho. For the eighth consecutive year, the bank was named in 2014 as one of Puget Sound Business Journal's "Washington's Best Workplaces." Columbia ranked in the top 20 on the 2015 Forbes list of best banks in the country, as well as ranking the best in Washington and second in the Pacific Northwest for the fourth year in a row.

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.

 

 

Non-GAAP Financial Measures

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

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

Non-GAAP Financial Measures - Continued

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

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

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