TACOMA, Wash., July 23, 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 second quarter 2015 earnings, "We accomplished a lot this quarter, generating solid financial performance, especially in light of the after tax impact to earnings of $3.4 million, or $0.06 per diluted share, resulting from acquisition-related expense and FDIC acquired loan accounting. Despite intense competition, our bankers continue to expand existing and source new relationships. Their production of over $280 million in new loans represents our second highest quarterly total ever."

Ms. Dressel continued, "We completed the core operating system conversion for our latest acquisition during the quarter and are nearing the end of the integration process. The successful conversion was the result of the outstanding efforts of everyone involved to ensure there was minimal disruption to our customers and new team members."

Significant Influences on the Quarter Ended June 30, 2015

Balance Sheet

Loans were $5.61 billion at June 30, 2015, up $161.0 million from March 31, 2015 due to robust originations during the current quarter. Securities were $1.93 billion at June 30, 2015, a decrease of $113.9 million, or 6% from $2.04 billion at March 31, 2015 primarily due to the reinvestment of cash flows into originated loans. Total deposits at June 30, 2015 were $7.04 billion, a decrease of $30.6 million from $7.07 billion at March 31, 2015. Core deposits were $6.74 billion at June 30, 2015, a decrease of $33.8 million from March 31, 2015. The average rate on interest-bearing deposits and total deposits for the quarter was 0.08% and 0.04%, respectively, compared to 0.07% and 0.04% for the first quarter of 2015.

Asset Quality

At June 30, 2015, nonperforming assets to total assets were 0.54% compared to 0.65% at March 31, 2015. Total nonperforming assets decreased $8.8 million due to a $6.1 million reduction in nonaccrual loans and a $2.7 million decline in other real estate owned due to sales activity during the current quarter.

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 1.23% at June 30, 2015 compared to 1.29% at March 31, 2015. Excluding acquired loans, the allowance at June 30, 2015 represented 1.17% of originated loans, unchanged from March 31, 2015. 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 second quarter of 2015, Columbia recorded a net provision for loan and lease losses of $2.2 million compared to a net provision of $2.1 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 net charge-offs recorded during the quarter and growth in the loan portfolio, partially offset by improving asset quality metrics.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) of 4.41% for the second quarter of 2015 increased 2 basis points from 4.39% for the first quarter of 2015. Compared to the second quarter of 2014, Columbia's net interest margin decreased 45 basis points from 4.86%, primarily due to lower incremental accretion on acquired loans, which was $11.3 million for the prior year quarter, compared to $7.3 million for the current quarter. Columbia's operating net interest margin (tax equivalent)(1) was 4.17% for the second quarter of 2015, relatively flat compared to 4.18% for the first quarter of 2015 and down 10 basis points compared to 4.27% for the second quarter of 2014 due as a result of the continuing low interest rate environment.

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 June 30, 2015, the accretable yield on purchased credit impaired loans was $67.3 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis.

The $1.5 million change in the FDIC loss-sharing asset in the current quarter reduced noninterest income and consisted primarily of $1.4 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.

Second Quarter 2015 Results

Net Interest Income

Net interest income for the second quarter of 2015 was $81.0 million, an increase of $646 thousand compared to the first quarter of 2015. This increase was primarily due to higher average loan balances in the current quarter. Compared to the second quarter of 2014, net interest income increased by $5.9 million from $75.1 million. The increase from the prior year period is due to the combination of acquired loans and securities from the acquisition of Intermountain Community Bancorp ("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 $21.5 million for the second quarter of 2015, a decrease of $1.3 million compared to $22.8 million for the first quarter of 2015. The linked quarter decline was primarily due to a $1.6 million negative variance related to the change in FDIC loss-sharing asset. For the prior quarter, the change in FDIC loss-sharing asset was a net benefit of $150 thousand, compared to a net expense in the current quarter of $1.5 million. The net benefit in the linked quarter was due to increases in the asset resulting from loan impairment and OREO write-down activity. Additional details of the components of the change in the FDIC loss-sharing asset are provided in tabular format below. Also contributing to the linked quarter decrease in noninterest income was a reduction in investment securities gains, which were $378 thousand lower in the current quarter than in the first quarter of 2015. These decreases were partially offset by a $1.0 million increase in service charges and other fees compared to the first quarter of 2015.

Compared to the second quarter of 2014, noninterest income increased by $6.8 million. The increase from the prior year period was due to both a $2.1 million increase in service charges and other fees and the change in FDIC loss-sharing asset which was a net expense of $1.5 million in the current quarter compared to an expense of $5.1 million in the second quarter of 2014. The growth in service charges and other fees resulted 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 second quarter of 2015 was $68.5 million, an increase of $1.7 million compared to $66.7 million for the first quarter of 2015. This increase was driven by higher acquisition-related expenses in the current quarter of $5.6 million compared to $3.0 million for the first quarter of 2015. After taking into account the acquisition-related expenses, ongoing noninterest expense for the current quarter was $932 thousand lower than the first quarter of 2015 on the same basis. Clint Stein, Columbia's Executive Vice President and Chief Financial Officer stated, "With the Intermountain core system conversion behind us, the added costs associated with running multiple platforms has subsided and we have started to more fully realize the resulting efficiency in our expense numbers."

Compared to the second quarter of 2014, noninterest expense increased $10.7 million, or 19% from $57.8 million, due to the $5.0 million increase in acquisition-related expenses as well as additional ongoing expense resulting from the Intermountain acquisition, partially offset by the $563 thousand benefit recorded in the current quarter related to OREO compared to a benefit of only $97 thousand recorded during the second quarter of 2014.

Organizational Update

Melanie Dressel commented, "We were delighted that Columbia Bank was recently voted the "Best Large Business" 2015 by readers of South Sound Magazine during their annual poll. We were also named one of "Washington's Best Workplaces" 2015 by the Puget Sound Business Journal for the ninth consecutive year. These awards are a true testament to our wonderful employees and their dedication to customer service. I was also very pleased and proud when Clint Stein was named a Puget Sound Business Journal CFO of the year. The award celebrates financial executives in Washington whose leadership, guidance and knowledge contribute greatly to the success of their companies. Clint is certainly very deserving of the honor."

Conference Call Information

Columbia's management will discuss the second quarter 2015 results on a conference call scheduled for Thursday, July 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 #22782056.

A conference call replay will be available from approximately 4:00 p.m. PDT on July 23, 2015 through midnight PDT on July 30, 2015. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #22782056.

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. Columbia ranked 17th best 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 measures 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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SOURCE Columbia Banking System, Inc.