Columbia Banking System Announces First Quarter 2021 Results and Quarterly Cash Dividend

TACOMA, Wash., April 29, 2021 /PRNewswire/ --

Notable Items for First Quarter 2021

• Quarterly net income of $51.9 million and diluted earnings per share of $0.73
• Net loans increased $248.7 million, or 3%, during the first quarter of 2021
• Deposits increased $897.6 million, or 6%, during the first quarter of 2021
• Net interest margin of 3.31%, a decrease of 21 basis points from the linked quarter
• Nonperforming assets to period-end assets ratio decreased to 0.20%
• Loan balances subject to deferral were down 51% from December 31, 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 first quarter 2021 earnings, "The momentum gained by our bankers at the end of 2020 accelerated during the quarter, resulting in record first-quarter, non-PPP loan production, exceptional deposit inflows, and record performance for the financial services group. Creating this momentum was intentional. Throughout the pandemic we remained forward-looking and focused on keeping our operations open safely while supporting the unique needs of both existing and new clients."

Mr. Stein continued, "I cannot be more proud of our team's efforts. Every one of our employees has helped our clients and communities weather the difficulties of an unprecedented year. During the quarter, we handled a higher number of PPP loan applications in the second round than we did in the first round, supporting existing and gaining new clients, and we handled the forgiveness process for first round PPP clients. Those not directly involved in the PPP program focused on growing our business. As the pandemic eases and communities fully reopen, we are well-positioned to take advantage of new opportunities."

Balance Sheet

Total assets at March 31, 2021 were $17.34 billion, an increase of $750.3 million from the linked quarter. Loans were $9.68 billion, up $248.7 million from December 31, 2020 as loan originations of $894.6 million were partially offset by loan payments and a decrease in loan utilization. Total Paycheck Protection Program ("PPP") loans increased from $651.6 million at December 31, 2020 to $894.1 million at March 31, 2021, which includes $399.3 million from the first round of PPP loans from 2020 and $494.8 million from the more recent round of PPP loans in 2021. Interest-earning deposits with banks were $706.4 million, an increase of $271.5 million from the linked quarter. Debt securities available for sale were $5.50 billion at March 31, 2021, an increase of $286.2 million from $5.21 billion at December 31, 2020 as a result of purchases during the quarter partially offset by principal pay downs and a decline in unrealized gains. Total deposits at March 31, 2021 were $14.77 billion, an increase of $897.6 million from December 31, 2020 largely due to an increase in demand and other noninterest-bearing deposits. The deposit mix remained fairly consistent from December 31, 2020 with 50% noninterest-bearing and 50% interest-bearing.

Income Statement

Net Interest Income

Net interest income for the first quarter of 2021 was $124.0 million, a decrease of $7.1 million from the linked quarter and an increase of $1.6 million from the prior-year period. The decrease from the linked quarter is primarily due to interest income from loans, which decreased mainly due to lower average rates. In addition, the linked quarter included a $1.7 million recovery of interest related to a nonaccrual loan that paid off during the fourth quarter of 2020. The increase in net interest income from the prior year period was primarily a result of a reduction in interest expense on Federal Home Loan Bank ("FHLB") advances and deposits, partially offset by a decline in interest income on loans. The decrease in interest expense was due to lower average balances of FHLB advances and lower rates on deposits. The decline in interest income from loans was mainly due to lower average rates. 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 first quarter of 2021 of $800 thousand compared to a net provision recovery of $4.7 million for the linked quarter and a net provision of $41.5 million for the comparable quarter in 2020.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "Overall credit metrics for the quarter were relatively stable. There were no material changes in our nonaccruals or nonperforming assets or within the loan portfolio, and we saw a modest release from the provision stemming from the improving economic forecast. We are seeing positive signs that the economy is recovering from the pandemic, and our focus with our clients has shifted to their longer-term cash flow needs."

Noninterest Income

Noninterest income was $23.2 million for the first quarter of 2021, a decrease of $396 thousand from the linked quarter and an increase of $2.0 million from the first quarter of 2020. The decrease compared to the linked quarter was principally due to lower loan revenue. The increase in noninterest income during the first quarter of 2021 compared to the same quarter in 2020 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 compared to the first quarter of 2020 was due to mortgage banking revenue, which increased $3.4 million due to higher loan volume and increased premium per loan on sold loans. The decrease in deposit account and treasury management fees was driven by a decrease in overdraft fees of $988 thousand compared to the same quarter in 2020 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.

Chris Merrywell, Columbia's Executive Vice President and Chief Operating Officer, stated, "Our bankers have been busy delivering products and services that our clients value as we exit the pandemic. Our approach of staying open while maintaining the health and safety of our clients and our employees during the past year has resulted in expanded relationships and solid fee income. Mortgage volumes and sale executions continued to be very strong during the quarter, and our investment professional teams' performance was the best in our history."

Noninterest Expense

Total noninterest expense for the first quarter of 2021 was $83.6 million, a decrease of $741 thousand compared to the fourth quarter of 2020, principally due to a decrease in compensation and employee benefits expense partially offset by an increase in data processing and software expense. The decrease in compensation and employee benefits expense was mostly attributable to labor costs related to the origination of PPP loans. These labor costs are capitalized and amortized as a reduction to interest income over the life of the loan. The increase in data processing and software expense was driven by additional data processing expense associated with PPP loans.

Compared to the first quarter of 2020, noninterest expense decreased $712 thousand, principally due to a decrease in compensation and employee benefits expense partially offset by increases in data processing and software expense and regulatory premiums. The decrease in compensation and employee benefits expense and the increase in data processing and software expense are due to the items described in the preceding paragraph. The increase in regulatory premiums was the result of the Bank utilizing a portion of its Small Bank Assessment Credit during the first quarter of 2020 to pay for Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums. The final portion of the credit was utilized during the second quarter of 2020.

The provision for unfunded loan commitments, a component of other noninterest expense, for the periods indicated are as follows:

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the first quarter of 2021 was 3.31%, a decrease of 21 basis points and 69 basis points from the linked quarter and prior-year period, respectively. The decrease in the net interest margin (tax equivalent) compared to the linked quarter was due to a decrease in interest income from loans as result of the lower rate environment, as well as the linked quarter including additional interest income related to a nonaccrual loan that was paid off during the quarter. Notably, the average cost of total deposits for the quarter was 4 basis points, a decrease of 1 basis point from the fourth 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 3.30% for the first quarter of 2021, which decreased 21 basis points compared to the linked quarter and decreased 72 basis points compared to the prior-year period. The decrease in the operating net interest margin for the first quarter of 2021 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, "While we are very encouraged by the strengthening economic outlook and steepening yield curve, our net interest margin may remain under modest pressure over the near term with some volatility stemming from PPP forgiveness. Longer term, we expect the margin to stabilize and ultimately expand as the rate environment improves and earning asset growth shifts back toward loans."

Asset Quality

At March 31, 2021, nonperforming assets to total assets decreased to 0.20% compared to 0.21% at December 31, 2020. Total nonperforming assets decreased $1.3 million from the linked quarter, primarily due to a decrease in agriculture nonaccrual loans.

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

Nonperforming assets to total loans was 0.35% at March 31, 2021 compared to 0.37% at December 31, 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 1.53% at March 31, 2021 compared to 1.58% at December 31, 2020. Excluding PPP loans, the allowance for credit losses to period-end loans² was 1.69% at March 31, 2021 compared to 1.70% at December 31, 2020.

Loan Deferrals

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

Organizational Update

COVID-19 Update

Columbia continues to adapt to evolving COVID-19 guidance from federal, state and local healthcare officials as the availability of vaccines increases throughout the Northwest. Throughout the quarter, we periodically updated team members on vaccination information, directing them to government and local resources for appointment instructions, efficacy and safety information. All social distancing, cleaning protocols and other safety measures taken by Columbia remain in place and the Bank's branch lobbies continue to serve clients in accordance with local guidance.

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share on May 26, 2021 to shareholders of record as of the close of business on May 12, 2021.

Conference Call Information

Columbia's management will discuss the first quarter 2021 financial results on a conference call scheduled for Thursday, April 29, 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/bqd4pgqe 

The conference call can also be accessed on Thursday, April 29, 2021 at 10:00 a.m. Pacific Time (1:00 p.m. ET) by calling 833-301-1160; Conference ID password:  2249249.

A replay of the call will be accessible beginning Friday, April 30, 2021 using the link below:
https://edge.media-server.com/mmc/p/bqd4pgqe

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 ranked #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:

• national and global economic conditions could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth and maintain the quality of our earning assets;
• the markets where we operate and make loans could face challenges;
• the risks presented by the economy, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;
• the efficiencies and enhanced financial and operating performance we expect to realize from investments in personnel, acquisitions and infrastructure may not be realized;
• interest rate changes could significantly reduce net interest income and negatively affect asset yields and funding sources;
• the effect of the discontinuation or replacement of LIBOR;
• results of operations following strategic expansion, including the impact of acquired loans on our earnings, could differ from expectations;
• changes in the scope and cost of FDIC insurance and other coverages;
• changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies could materially affect our financial statements and how we report those results, and expectations and preliminary analysis relating to how such changes will affect our financial results could prove incorrect;
• changes in laws and regulations affecting our businesses, including changes in the enforcement and interpretation of such laws and regulations by applicable governmental and regulatory agencies;
• increased competition among financial institutions and nontraditional providers of financial services;
• continued consolidation in the Northwest financial services industry resulting in the creation of larger financial institutions that have greater resources could change the competitive landscape;
• the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings and capital;
• our ability to identify and address cyber-security risks, including security breaches, "denial of service attacks," "hacking" and identity theft;
• any material failure or interruption of our information and communications systems;
• inability to keep pace with technological changes;
• our ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk and regulatory and compliance risk;
• failure to maintain effective internal control over financial reporting or disclosure controls and procedures;
• the effect of geopolitical instability, including wars, conflicts and terrorist attacks;
• our profitability measures could be adversely affected if we are unable to effectively manage our capital;
• natural disasters, including earthquakes, tsunamis, flooding, fires and other unexpected events;
• the effect of COVID-19 and other infectious illness outbreaks that may arise in the future, which has created significant impacts and uncertainties in U.S. and global markets;
• changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, including with regard to COVID-19; and
• the effects of any damage to our reputation resulting from developments related to any of the items identified above.

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