COLB Columbia Banking System Inc

TACOMA, Wash., Jan. 28, 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 fourth quarter 2015 earnings, "Our record earnings for the fourth quarter and full year were the result of several positive trends that continued to build throughout 2015. We are proud of our record loan production of $1.1 billion for the year." Ms. Dressel continued, "Our operating leverage continues to improve as we experienced growth in non-interest income and a lower expense to asset ratio. Asset quality improved further with our nonperforming assets to total assets declining to 0.39%. However, the future is not without challenges as we continue to experience intense pricing competition and the increasing probability of a lower interest rate environment for a longer period of time."

Balance Sheet

Loans were $5.82 billion at December 31, 2015, up $68.5 million from September 30, 2015 due to substantial loan originations during the current quarter. Compared to the prior year end, loans increased $369.6 million, or 7%, during 2015. Securities were $2.17 billion at December 31, 2015, an increase of $132.8 million, or 7% from $2.04 billion at September 30, 2015 due primarily to purchases of securities resulting from deposits growing in excess of loans. Total deposits at December 31, 2015 were $7.44 billion, an increase of $124.0 million from $7.31 billion at September 30, 2015. Core deposits comprised 96% of total deposits and were $7.13 billion at December 31, 2015, an increase of $141.7 million from September 30, 2015. The average rate on interest-bearing deposits was 0.07%, down from 0.08% for the third quarter of 2015 and the average cost on all deposits was 0.04%, unchanged from the third quarter of 2015.

Income Statement

Net Interest Income

Net interest income for the fourth quarter of 2015 was $81.8 million, an increase of $125 thousand compared to the third quarter of 2015. This increase was primarily due to higher average loan and securities balances in the current quarter, which were largely offset by lower yields on loans, lower incremental accretion income and an increase in interest reversals on nonaccrual loans. Compared to the fourth quarter of 2014, net interest income increased by $3.1 million from $78.8 million. The increase from the prior year period was the result of 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

Noninterest income was $24.7 million for the fourth quarter of 2015, an increase of $2.2 million compared to $22.5 million for the third quarter of 2015. The linked quarter increase was primarily due to the $3.1 million adjustment to the mortgage repurchase liability related to our acquisition of West Coast Bank recorded during the current quarter through other noninterest income. This increase was partially offset by lower service charge and merchant fee income, which were down $648 thousand and $249 thousand from the prior quarter, respectively. In addition, there were lower loan sale gains recorded in the current quarter, which were down $593 thousand from the prior quarter.

Compared to the fourth quarter of 2014, noninterest income increased by $9.6 million due to both the change in FDIC loss-sharing asset, which accounted for $4.3 million of the increase, and a $4.0 million increase in other noninterest income primarily due to the previously noted $3.1 million adjustment to the mortgage repurchase liability. 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 over time 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 fourth quarter of 2015 was $66.9 million, an increase of $2.8 million compared to $64.1 million for the third quarter of 2015. This increase was driven by higher acquisition-related expenses in the current quarter of $1.9 million compared to $428 thousand in the linked quarter. After removing the effect of the acquisition-related expenses, noninterest expense for the current quarter was $1.4 million higher than the third quarter of 2015 on the same basis. This increase was due to $852 thousand in higher occupancy costs related to the write-down of land pending sale as well as higher expense related to the FDIC clawback liability of $813 thousand during the current quarter compared to $174 thousand in the prior quarter. These increases were partially offset by lower fraud losses of $209 thousand in the current quarter compared to $834 thousand during the third quarter of 2015.

Compared to the fourth quarter of 2014, noninterest expense increased $2.7 million, or 4%, from $64.2 million. The primary drivers of the increase were higher expenses resulting from the Intermountain Community Bancorp acquisition, which occurred during the fourth quarter of 2014 as well as higher clawback liability expense and occupancy expense as noted above. Also contributing to the increase was our fourth quarter 2014 adoption of Accounting Standards Update 2014-01, which reclassified approximately $800 thousand in affordable housing projects expense from noninterest expense to tax expense. These increases were partially offset by a decrease of $2.7 million in acquisition-related expenses.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) of 4.25% for the fourth quarter of 2015 decreased 12 basis points from 4.37% for the third quarter of 2015 due to lower yields on loans, lower incremental accretion on acquired loans and an increase in securities as a percentage of earning assets. Compared to the fourth quarter of 2014, Columbia's net interest margin decreased 25 basis points from 4.50%, because of both lower yields on loans and lower incremental accretion on acquired loans, which was $8.8 million for the prior year quarter, compared to $6.0 million for the current quarter. Columbia's operating net interest margin (tax equivalent)⁽¹⁾ was 4.09% for the fourth quarter of 2015, a decrease of 9 basis points from 4.18% for the third quarter of 2015 and down 8 basis points compared to 4.17% for the fourth quarter of 2014 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:

Asset Quality

At December 31, 2015, nonperforming assets to total assets were 0.39% compared to 0.44% at September 30, 2015. Total nonperforming assets decreased $3.4 million due to a $5.7 million reduction in other real estate owned resulting from sales activity during the current quarter, partially offset by an increase in nonaccrual loans.

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 1.17% at December 31, 2015 compared to 1.20% at September 30, 2015. For the fourth quarter of 2015, Columbia recorded a net provision for loan and lease losses of $2.3 million compared to a net provision of $1.7 million for the comparable quarter last year.

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 December 31, 2015, the accretable yield on purchased credit impaired loans was $59.0 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis.

The $1.0 million change in the FDIC loss-sharing asset in the current quarter reduced noninterest income and consisted primarily of $1.1 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.

Organizational Update

Ms. Dressel commented, "We were very pleased to be recognized again by Forbes on its 2016 list of "America's Best Banks", ranking 19^th in the country. The rankings are based on asset quality, capital adequacy, net interest margin and profitability of the nation's 100 largest publicly traded banks and thrifts."

Ms. Dressel continued, "I am proud and delighted that Columbia Bank's "Warm Hearts Winter Drive" has so far raised over $150,000 in cash and almost 12,000 pieces of new cold weather items in response to the urgent need of people struggling with homelessness throughout our footprint. With the generous support of our employees and customers, we more than surpassed our goal, making a real difference in the lives of people in need across all the communities we serve."

Conference Call Information

Columbia's management will discuss the fourth quarter 2015 results on a conference call scheduled for Thursday, January 28, 2016 at 1:00 p.m. Pacific Standard Time (4:00 p.m. Eastern Standard Time). Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #22782080.

A conference call replay will be available from approximately 4:00 p.m. PST on January 28, 2016 through 9:00 p.m. PST on February 4, 2016. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #22782080.

Annual Meeting of Shareholders

Columbia Banking System's Annual Meeting of Shareholders will be held at 1:00 PDT on Wednesday, April 27, 2016 at the Greater Tacoma Convention and Trade Center, 1500 Broadway, Tacoma, Washington 98402.  Directions and parking are available at http://gtctc.org/parking-directions.

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 ninth consecutive year, the bank was named in 2015 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.