TACOMA, Wash., Oct. 24, 2019 /PRNewswire/ --

Highlights

• Quarterly net income of $50.7 million and diluted earnings per share of $0.70, inclusive of a $4.7 million gain, net of tax, from the sale-leaseback of owned real estate
• Net loans increased $109.4 million, or 5.1% on an annualized basis from loan production of $383.0 million
• Nonperforming assets to period end assets ratio improved for the seventh consecutive quarter to 0.27%
• Repurchased 676 thousand shares of common stock during the quarter
• Regular cash dividend declared of $0.28 per share

Hadley Robbins, 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 2019 earnings, "Third quarter results reflected our focus on executing on our fundamentals. We responsibly built loan totals, increased deposits, and improved our credit quality metrics. Operating expenses were well controlled and meaningful progress was made in moving a number of digital initiatives to completion. Net income for the quarter was one of our strongest at $50.7 million and is a tribute to the dedication and hard work of the Columbia Bank team."

Balance Sheet

Total assets at September 30, 2019 were $13.76 billion, an increase of $667.0 million from the linked quarter. Loans were $8.76 billion, up $109.4 million, or 5.1% annualized, from June 30, 2019 as a result of loan originations of $383.0 million and increased seasonal line utilization partially offset by payments. Securities available for sale were $3.37 billion at September 30, 2019, an increase of $503.2 million from $2.86 billion at June 30, 2019. Total deposits at September 30, 2019 were $10.86 billion, an increase of $644.1 million from June 30, 2019. Deposit mix remained fairly consistent from June 30, 2019 with 49% noninterest-bearing and 51% interest-bearing. The average cost of total deposits for the quarter was 26 basis points, an increase of 6 basis points from the second quarter of 2019, which was impacted by the increase in public funds. For additional information regarding this calculation, see the "Net Interest Margin" section.

Greg Sigrist, Columbia's Executive Vice President and Chief Financial Officer, stated, "We selectively increased public funds by approximately $300 million in the third quarter as an alternative funding source, with a corresponding increase in our investment securities, as we expanded our interest rate risk strategy to partially mitigate the impact of further interest rate cuts. Although this did increase our cost of deposits by 6 basis points, our relationship deposit franchise is well intact and continues to benefit from having nearly half of our deposits in noninterest-bearing accounts."

Income Statement

Net Interest Income

Net interest income for the third quarter of 2019 was $122.5 million, a decrease of $2.7 million and $346 thousand from the linked quarter and the prior year period, respectively. After taking into consideration the $4.9 million of interest recoveries on nonaccrual loans received in the second quarter of 2019, net interest income was $2.2 million higher than the second quarter of 2019. This increase was due to lower Federal Home Loan Bank ("FHLB") interest expense and higher interest income on interest earning assets due to higher average volumes, partially offset by higher deposit interest expense due to higher average balances and rates on interest-bearing public funds, excluding certificates of deposit. Net interest income compared to the prior year period was relatively unchanged. The increase in interest income from higher average balances of interest-earning assets in the third quarter of 2019 was offset by higher interest expense from higher average balances of FHLB advances and interest-bearing public funds, excluding certificates of deposit. For additional information regarding net interest income, see the "Net Interest Margin" section and the "Average Balances and Rates" tables.

Noninterest Income

Noninterest income was $28.0 million for the third quarter of 2019, an increase of $2.4 million and $7.0 million from the second quarter of 2019 and the prior year period, respectively. The linked quarter increase was principally due to a $5.9 million gain from the sale-leaseback of owned real estate during the third quarter of 2019. This gain was partially offset by $3.0 million in bank-owned life insurance ("BOLI") benefits and a $667 thousand gain on disposal of loans realized during the second quarter of 2019. The increase from the prior year period was primarily due to the previously noted sale-leaseback gain in the third quarter of 2019.

Noninterest Expense

Total noninterest expense for the third quarter of 2019 was $87.1 million, an increase of $348 thousand and $4.2 million from the linked quarter and the prior year period, respectively. The increase in noninterest expense was a result of higher salaries, other compensation and incentive plan expenses, which were partially offset by lower provision for off-balance sheet reserves during the quarter. After removing acquisition-related expenses of $1.1 million from the third quarter of 2018, year over year noninterest expense increased $5.3 million, or 7%. This increase was primarily driven by higher compensation and employee benefits expense, which was partially offset by a decrease in regulatory premium expenses. The Bank's Federal Deposit Insurance Corporation ("FDIC") deposit insurance expense was reduced due to the utilization of a portion of our FDIC Small Bank Assessment Credit.

Net Interest Margin

Beginning January 2019, our net interest margin was calculated using the actual number of days on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.

Columbia's net interest margin (tax equivalent) for the third quarter of 2019 was 4.14%, a decrease of 26 basis points and 23 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 driven by the previously noted $4.9 million, or 17 basis points, of loan interest recoveries received in the second quarter of 2019. The remainder of the decline was largely driven by the net impact of the approximately $300 million increase in securities and public funds as part of the expanded interest rate risk strategy. Additionally, a benefit from deposit inflows was largely offset by lower yields on loans and investments. Further, the decline related to the interest rate environment was offset by changes in the mix and volume of interest-earning assets as well as lower levels of FHLB advances. Compared to the prior year period, the decreased net interest margin (tax equivalent) was driven by higher rates on our deposits and borrowings as well as lower accretion income on acquired loans as reflected in the table below.

Columbia's operating net interest margin (tax equivalent)(2) was 4.12% for the third quarter of 2019, which decreased 26 and 22 basis points compared to the linked quarter and the prior year period, respectively. The decreases in the operating net interest margin for the third quarter of 2019 compared to the linked quarter and the prior year quarter were due to the items previously noted in the preceding paragraph, except for the lower accretion income, which is not included in the operating net interest margin.

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, 2019, nonperforming assets to total assets were 0.27% compared to 0.31% at June 30, 2019. Total nonperforming assets decreased $2.5 million from the linked quarter due to a decrease in both nonaccrual loans and OREO.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "Our credit metrics continue to perform better than our peer group average. This is reflective of the commitment our bankers have to our risk disciplines as well as the diligent efforts of our special assets team. The quarter benefited from $1.8 million in net recoveries which allowed us to keep our credit cost to a minimum."

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 and lease losses to period end loans was 0.94% at September 30, 2019 compared to 0.93% at June 30, 2019. For the third quarter of 2019, Columbia recorded a net provision for loan and lease losses of $299 thousand compared to a net provision of $218 thousand for the linked quarter and a net provision of $3.2 million for the comparable quarter last year. The net provision for loan and lease losses recorded during the third quarter of 2019 consisted of $1.6 million of provision expense for loans, excluding PCI loans, and a provision recapture of $1.3 million for PCI loans.

Organizational Update

During the quarter, the Company announced the upcoming retirement of Mr. Robbins and its related succession planning activities. Mr. Robbins stated, "I am proud to pass the torch to Clint who has a 14 year proven track record of success in helping grow Columbia Bank to where we are today. The various roles that Clint has held while at Columbia Bank have prepared him well for this next phase of his career. He is very well respected among our investors, community leaders and employees."

During the first nine months of 2019, the Bank received the following accolades:

• Hadley Robbins was named to the inaugural Power 100 list of the most influential leaders in the region by the Puget Sound Business Journal;
• Selected as one of the Top Corporate Philanthropists for 2019 by the Portland Business Journal;
• Received an Extraordinary Banking Award for 2019 by the Institute of Extraordinary Banking;
• Named to the list of Top Workplaces in 2018 by Portland's Oregonian;
• Honored as one of Oregon's Most Admired Companies in 2018 by the Portland Business Journal;
• For the 13th consecutive year, named as one of Washington's Best Workplaces by Puget Sound Business Journal;
• Winner of the 2018 Corporate Citizenship Award for midsize companies in Washington state from the Puget Sound Business Journal;
• Selected as Best Bank and Best Large Business in The Best of South Sound reader's choice poll for 2019 by South Sound Magazine;
• Received the Corporate Award of the Year for work with Small Business Association Loans to minority owned businesses from the Oregon Association of Minority Entrepreneurs;
• Selected as one of the Best Banks in the Best of The Mid-Valley, in the annual reader's poll by the Salem Statesman Journal;
• Columbia Bank's Board of Directors was awarded the Governance Award for their service to the Bank and the community by Seattle Business Magazine;
• Recognized as one of the Best Places to Work in Idaho by Populus Marketing Research;
• Awarded the 2018 National Association of Secretaries of State Medallion for outstanding work to improve lives in Washington communities from The State of Washington Secretary of State's Office; and
• Selected as one of America's Best Banks of 2019 among the nation's 100 largest publicly traded banks and thrifts by Forbes.

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share on November 20, 2019 to shareholders of record as of the close of business on November 6, 2019.

Conference Call Information

Columbia's management will discuss the third quarter 2019 financial results on a conference call scheduled for Thursday, October 24, 2019 at 10:00 a.m. Pacific Daylight Time (1:00 p.m. EDT). Interested parties may join the live-streamed event by using the site: https://engage.vevent.com/rt/columbiabankingsysteminc~102419

The conference call can also be accessed on Thursday, October 24, 2019 at 10:00 a.m. Pacific Daylight Time (1:00 p.m. EDT) by calling 888-286-8956; Conference ID: 7935679.

A replay of the call can be accessed beginning Friday, October 25, 2019 using the site: https://engage.vevent.com/rt/columbiabankingsysteminc~102419

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 13th consecutive year, the bank was named in 2019 as one of Puget Sound Business Journal's "Washington's Best Workplaces." For the 8th consecutive year, Columbia was included in the 2019 Forbes America's Best Banks list.

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, include 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; (6) failure to maintain effective internal controls over financial reporting or disclosure controls and procedures may adversely affect our business; (7) reliance on and cost of technology may increase; and (8) 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 useful measurements as they more closely reflect the ongoing operating performance of the Company. Despite the usefulness 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:

Non-GAAP Financial Measures - Continued

The Company also considers its core noninterest expense ratio to be a useful measurement as it more closely reflects the ongoing operating performance of the Company. Despite the usefulness of the core noninterest expense ratio to the Company, there is not a standardized definition for it, 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 table reconciles the Company's calculation of the core noninterest expense ratio:

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 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, and, 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:

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SOURCE Columbia Banking System, Inc.