Columbia Banking System Announces Third Quarter 2016 Results

TACOMA, Wash., Oct. 27, 2016 /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 third quarter 2016 earnings, "The competitive landscape and interest rate environment remain challenging. However, we are very pleased with our results for the third quarter, which built upon the momentum of our second quarter performance. Our bankers delivered another impressive quarter of record loan production while maintaining good portfolio diversification. We also had outstanding year-over-year deposit growth of 10%, while our cost of funds remained one of the best in the country."

Balance Sheet

Total assets at September 30, 2016 were $9.59 billion, an increase of $233.1 million from June 30, 2016. Loan growth of $152.6 million during the quarter was driven by strong loan originations of $375.3 million. Loan production was diversified across the portfolio sectors, with growth primarily centered in commercial business loans. Securities available for sale were $2.36 billion at September 30, 2016, an increase of $80.5 million, or 4% from $2.28 billion at June 30, 2016. Total deposits at September 30, 2016 were $8.06 billion, an increase of $384.6 million from $7.67 billion at June 30, 2016. Core deposits comprised 97% of total deposits and were $7.81 billion at September 30, 2016, an increase of $361.1 million from June 30, 2016. The average cost of total deposits for the quarter was 0.04%, unchanged from the second quarter of 2016.

Income Statement

Net Interest Income

Net interest income for the third quarter of 2016 was $85.6 million, an increase of $3.4 million and $3.9 million from the linked and prior year periods, respectively. The linked quarter increase was driven principally by higher loan and securities volumes as well as higher rates on loans. The increase from the prior year period was also due to higher loan and securities volumes, partially offset by lower incremental accretion income on loans, which was $1.8 million lower in the current quarter as compared to the third quarter of 2015. For additional information regarding net interest income, see the "Average Balances and Rates" table.

Noninterest Income

Noninterest income was $23.2 million for the third quarter of 2016, an increase of $1.2 million compared to $21.9 million for the second quarter of 2016. The linked quarter increase was due to lower expense related to the change in FDIC loss-sharing asset as well as higher investment security gains.   

Compared to the third quarter of 2015, noninterest income increased by $667 thousand due to lower expenses from the FDIC loss-sharing asset. Additional details of the components of the change in the FDIC loss-sharing asset are provided in tabular format below.

The change in the FDIC loss-sharing asset has been a significant component of noninterest income but, as our larger loss-sharing agreements have expired, the significance has diminished. The following table reflects the income statement components of the change in the FDIC loss-sharing asset:

 

Noninterest Expense

Total noninterest expense for the third quarter of 2016 was $67.3 million, an increase of $3.5 million from $63.8 million for the second quarter of 2016. The increase was due to both higher compensation and benefits expense as well as higher advertising costs in the current quarter. The increase in compensation and benefits was due to recognizing additional incentive expense from record loan production, deposit growth and improved financial performance. The higher advertising costs were the result of refreshed television commercials and the associated media costs during the current quarter.

Compared to the third quarter of 2015, noninterest expense increased $3.2 million, or 5%, from $64.1 million. After removing the effect of the acquisition-related expenses of $428 thousand in the prior year period, noninterest expense for the current quarter was $3.6 million higher than the third quarter of 2015. This increase was due to higher compensation and benefits as well as higher advertising costs as noted above. These increases were partially offset by decreased expenses related to other real estate owned as well as reduced regulatory premiums in the current quarter.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) for the third quarter of 2016 was 4.13%, an increase of 3 basis points from the linked quarter and decline of 24 basis points from prior year period. The increase from the linked quarter was due to higher loan rates. The decrease from the prior year period was due to both lower incremental accretion income on acquired loans and lower yielding originated loans. Incremental accretion income was $4.6 million in the current period compared to $6.4 million in the prior year quarter. Columbia's operating net interest margin (tax equivalent)(1) was 4.03% for the third quarter of 2016, an increase of 3 basis points from 4.00% for the second quarter of 2016 and down 15 basis points compared to 4.18% for the third quarter of 2015 as a result of lower yielding originated loans.

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

 

Asset Quality

At September 30, 2016, nonperforming assets to total assets were 0.32% compared to 0.36% at June 30, 2016 and 0.39% at December 31, 2015. Total nonperforming assets decreased $3.2 million from the linked quarter due to a $1.5 million decrease in nonaccrual loans as well as a decrease in other real estate owned.

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:

 

The allowance for loan losses to period end loans was 1.12% at September 30, 2016 compared to 1.13% at June 30, 2016 and 1.18% at December 31, 2015. For the third quarter of 2016, Columbia recorded a net provision for loan and lease losses of $1.9 million compared to a net provision of $3.6 million for the linked quarter and $2.8 million for the comparable quarter last year. The provision for loan and lease losses recorded during the current quarter was due to growth in the loan portfolio and net charge-off activity.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "As we have previously stated, we are pleased with our low level of nonperforming assets, which for the quarter remained below our long standing target of 50 basis points. We first achieved this metric a year ago and still believe this ratio will move within a range on either side of 50 basis points within the normal course of business for this point in the credit cycle."

Impact of FDIC Acquired Loan Accounting

While the significance of the FDIC acquired loan accounting has diminished over time, 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. At September 30, 2016, the accretable yield on purchased credit impaired loans was $48.9 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis.

The $104 thousand change in the FDIC loss-sharing asset in the current quarter reduced noninterest income and consisted primarily of $315 thousand 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 prior pages.

Organizational Update

Ms. Dressel commented, "We continue to emphasize efficiencies designed to improve our financial performance, always keeping in mind our core value of customer service. To that end, we consolidated two branches in Idaho and one branch in Oregon during the third quarter, and currently operate 143 locations throughout our footprint."

For the seventh time, "American Banker" magazine recently named Melanie Dressel one of the Top 25 Most Powerful Women in Banking. She ranked #22 on the annual list, which highlights the professional achievements and business acumen of the industry's leading women who are using their influence to make banking and their communities better. Ms. Dressel commented, "This recognition truly acknowledges the hard work and dedication of the entire team of Columbia Bankers."

In recognition of the success and innovation of the bank's Warm Hearts Winter Drive campaign to provide support for organizations serving the homeless, Senior Vice President and Marketing Director David Devine was the winner of the prestigious 2016 George Bailey Distinguished Service Award by the American Bankers Association Foundation. Hadley Robbins, Executive Vice President and Chief Operating Officer said, "David's leadership initiating the Warm Hearts drive and the tireless efforts of each employee to ensure its success are a testament to Columbia Bank's core value of community service."

Conference Call Information

Columbia's management will discuss the third quarter 2016 results on a conference call scheduled for Thursday, October 27, 2016 at 1:00 p.m. Pacific Daylight Time (4:00 p.m. Eastern Daylight Time). Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #22782094.

A conference call replay will be available from approximately 4:00 p.m. PDT on October 27, 2016 through midnight PDT on November 3, 2016. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #22782094.

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 locations throughout Washington, Oregon and Idaho. For the tenth consecutive year, the bank was named in 2016 as one of Puget Sound Business Journal's "Washington's Best Workplaces." Columbia ranked in the top 20 on the 2016 Forbes list of best banks in the country for the fifth 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. 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. 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 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, (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) changes in interest rates could significantly reduce net interest income 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 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 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. 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:

 

 

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SOURCE Columbia Banking System, Inc.