COLB Columbia Banking System Inc

TACOMA, Wash., July 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 second quarter 2016 earnings, "The second quarter of the year has traditionally been a strong quarter for us and it was again this year. Our bankers continue their impressive level of loan production, our nonperforming assets to total assets remains well below our peers, and the results of our expense initiatives are reflected in the continued improvement in our efficiency ratio." Ms. Dressel continued, "Our net interest margin has held up remarkably well over the past several years, but the prolonged low interest rate environment and flattening of the yield curve continue to apply downward pressure on the margin."

Balance Sheet

Total assets at June 30, 2016 were $9.35 billion, an increase of $317.7 million from March 31, 2016. Loan growth of $229.9 million during the quarter was driven by strong loan originations of $337.8 million and seasonal increases in line utilization. Loan production was diversified across the portfolio, but was centered in our commercial business and commercial and multifamily residential real estate sectors. Securities available for sale were $2.28 billion at June 30, 2016, an increase of $93.4 million, or 4% from $2.19 billion at March 31, 2016. Total deposits at June 30, 2016 were $7.67 billion, an increase of $76.3 million from $7.60 billion at March 31, 2016. Core deposits comprised 97% of total deposits and were $7.45 billion at June 30, 2016, an increase of $63.3 million from March 31, 2016. The average cost of total deposits for the quarter was 0.04%, unchanged from the first quarter of 2016.

Income Statement

Net Interest Income

Net interest income for the second quarter of 2016 was $82.1 million, an increase of $2.0 million and $1.1 million from the linked and prior year periods, respectively. The linked quarter increase was driven principally by higher loan and securities volumes. 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. Such accretion income was $2.9 million lower in the current quarter as compared to the second quarter of 2015. For additional information regarding net interest income, see the "Average Balances and Rates" table.

Noninterest Income

Noninterest income was $21.9 million for the second quarter of 2016, an increase of $1.3 million compared to $20.6 million for the first quarter of 2016. The linked quarter increase was primarily driven by higher loan and card revenue during the current quarter. The loan revenue increase was a result of loan fees as well as revenue from interest rate contracts associated with certain commercial loan production. Revenue from such contracts was $190 thousand higher than the linked quarter. Additionally, card revenue increased $399 thousand due primarily to increased interchange fees associated with higher debit card transaction volumes.

Compared to the second quarter of 2015, noninterest income increased by $478 thousand due to loan and card revenue as well as lower expenses from the FDIC loss-sharing asset. Card revenue was up $349 thousand principally from interchange fees as noted above. The increased loan revenue was driven by sales of Small Business Administration-guaranteed loans and, to a lesser extent, mortgage banking activity. These increases were partially offset by lower financial services revenue which is sensitive to volatility in the stock market.

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 second quarter of 2016 was $63.8 million, a decrease of $1.3 million compared to $65.1 million for the first quarter of 2016, which included $2.4 million of acquisition-related expenses. Removing those acquisition-related expenses from the prior quarter results in an increase in  noninterest expense of $1.2 million. The increase was due to higher compensation costs in the current quarter.

Compared to the second quarter of 2015, noninterest expense decreased $4.7 million, or 7%, from $68.5 million. After removing the effect of the acquisition-related expenses, noninterest expense for the current quarter was $962 thousand higher than the second quarter of 2015 on the same basis. This increase was due to higher compensation and benefits, driven by higher insurance expense as well as higher OREO expenses. OREO expenses were a net cost of $84 thousand in the current quarter but were a net benefit of $563 thousand in the second quarter of 2015. These increases were partially offset by decreased legal and professional fees as well as decreased occupancy expense in the current quarter.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) for the second quarter of 2016 was 4.10%, a decline of 3 and 31 basis points from the linked and prior year periods, respectively. The declines were due to both lower incremental accretion income on acquired loans and lower yielding originated loans. Incremental accretion income was $4.4 million in the current period compared to $7.3 million in the prior year quarter. Columbia's operating net interest margin (tax equivalent)⁽¹⁾ was 4.00% for the second quarter of 2016, a decrease of 3 basis points from 4.03% for the first quarter of 2016 and down 17 basis points compared to 4.17% for the second 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 June 30, 2016, nonperforming assets to total assets were 0.36% compared to 0.55% at March 31, 2016 and 0.39% at December 31, 2015. Total nonperforming assets decreased $15.8 million due to a $14.0 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 1.13% at June 30, 2016 compared to 1.18% at March 31, 2016 and 1.17% at December 31, 2015. For the second quarter of 2016, Columbia recorded a net provision for loan and lease losses of $3.6 million compared to a net provision of $5.3 million for the linked quarter and $2.2 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, one of our long standing benchmarks coming out of the great recession was to have nonperforming assets at a level of 50 basis points or below. We achieved this metric during the second half of 2015 and now see this ratio moving within a range on either side of 50 basis points." Mr. McDonald continued, "The ratio is expected to move from period to period due to events occurring within the normal course of business."

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 June 30, 2016, the accretable yield on purchased credit impaired loans was $52.9 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis.

The $990 thousand change in the FDIC loss-sharing asset in the current quarter reduced noninterest income and consisted primarily of $883 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.

Stock Repurchase Program

The Board of Directors approved a stock repurchase program which succeeds the prior program that was adopted in October 2011. The program authorizes the Company to repurchase up to 2.9 million shares of our outstanding common stock, representing approximately 5% of the common shares outstanding. The Company intends to repurchase the shares from time to time in the open market or in private transactions, under conditions which allow such repurchases to be accretive to earnings while maintaining capital ratios that exceed the guidelines for a well-capitalized financial institution.

Organizational Update

Ms. Dressel commented, "As a result of our ongoing efforts to improve operating leverage while still preserving our commitment to our customers and the communities we serve, we consolidated two branches during the second quarter of 2016."

Ms. Dressel continued, "We firmly believe that in order to be a great place to bank, we must first be a great place to work. We strive to create an engaged work environment in which our employees can serve our customers effectively. We are delighted and gratified that Columbia Bank was recently named one of "Washington's Best Places to Work" 2016 by the Puget Sound Business Journal for the tenth consecutive year."

Conference Call Information

Columbia's management will discuss the second quarter 2016 results on a conference call scheduled for Thursday, July 28, 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 #22782088.

A conference call replay will be available from approximately 4:00 p.m. PDT on July 28, 2016 through midnight PDT on August 4, 2016. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #22782088.

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.