Columbia Banking System Announces First Quarter 2016 Results

TACOMA, Wash., April 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 first quarter 2016 earnings, "Our reported earnings were muted by the last of the Intermountain acquisition expense, increased provision expense and lower accretion income. In the near term, the current rate environment is challenging for organic loan growth to fully offset the runoff in accretion income. Aside from our reported earnings, we had some very positive outcomes in the quarter. These include the highest first quarter loan production we have ever achieved, continued growth during what is historically our slowest quarter for deposit gathering, and meaningful expense control." Ms. Dressel continued, "Despite the uptick in provision expense for the quarter, we remain confident in the overall quality of our loan portfolio."

Balance Sheet

Total assets at March 31, 2016 were $9.04 billion, an increase of $84.2 million from December 31, 2015 as deposit account net inflows were used to fund loan growth and purchase investment securities.  Loan growth of $62.3 million during the quarter was driven by strong loan originations of $254 million.  Loan production was diversified across the portfolio sectors but centered in our  commercial business sector. Securities were $2.20 billion at March 31, 2016, an increase of $26.0 million, or 1% from $2.17 billion at December 31, 2015. Total deposits at March 31, 2016 were $7.60 billion, an increase of $158.1 million from $7.44 billion at December 31, 2015. Core deposits comprised 96% of total deposits and were $7.29 billion at March 31, 2016, an increase of $157.2 million from December 31, 2015. The average rate on interest-bearing deposits and total deposits for the quarter was 0.07% and 0.04%, respectively, remaining unchanged from the fourth quarter of 2015.

Income Statement

Net Interest Income

Net interest income for the first quarter of 2016 was $80.2 million, a decrease of $1.6 million and $194 thousand from the linked and prior year first quarter, respectively. The linked quarter decrease was the result of one less day of interest accruals in the current quarter and a decline in incremental accretion income on loans, partially offset by higher loan volumes. The decrease from the prior year period is attributed to lower incremental accretion income, which in the current quarter is $2.8 million less than the first quarter of 2015. For additional information regarding net interest income, see the "Average Balances and Rates" table.

Noninterest Income

Noninterest income was $20.6 million for the first quarter of 2016, a decrease of $4.1 million compared to $24.7 million for the fourth quarter of 2015. The linked quarter decrease was primarily due to the $3.1 million accrual adjustment recorded during the fourth quarter of 2015 through other noninterest income related to the mortgage repurchase liability resulting from our acquisition of West Coast Bank. Additionally, income from interest rate contracts associated with commercial loan products was $428 thousand lower than the linked quarter.

Compared to the first quarter of 2015, noninterest income declined by $2.1 million primarily due to the change in FDIC loss-sharing asset, which accounted for $1.3 million of the decrease. In addition, other noninterest income was lower in the current quarter due to a $402 thousand decrease related to gains on disposals of loans.

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 first quarter of 2016 was $65.1 million, a decrease of $1.8 million compared to $66.9 million for the fourth quarter of 2015. After removing the effect of the acquisition-related expenses, which were predominantly related to occupancy in the current quarter, noninterest expense for the current quarter was $2.4 million lower than the fourth quarter of 2015 on the same basis. The decrease was due in part to $852 thousand higher occupancy costs recorded in the prior quarter related to the write-down of land pending sale, which was sold during the current quarter. Also contributing to the decrease was lower expense related to the FDIC clawback liability of $209 thousand during the current quarter compared to $813 thousand in the prior quarter. The linked quarter reduction in legal and professional expense was principally driven by higher fees incurred in the fourth quarter of 2015 for regulatory exams and filings.

Compared to the first quarter of 2015, noninterest expense decreased $1.7 million, or 2%, from $66.7 million. This decrease was due to lower compensation and benefits and was partially offset by higher net OREO expenses.  OREO expenses were a net cost of $104 thousand in the current quarter but were a net benefit of $1.2 million in the first quarter of 2015.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) for the first quarter of 2016 was 4.13%, a decline of 12 and 26 basis points from the linked and prior year quarters, respectively. The decline was due to both lower incremental accretion on acquired loans and lower yielding originated loans. Incremental accretion income was $4.7 million in the current period compared to $7.5 million in the prior year quarter. Columbia's operating net interest margin (tax equivalent)⁽¹⁾ was 4.03% for the first quarter of 2016, a decrease of 6 basis points from 4.09% for the fourth quarter of 2015 and down 15 basis points compared to 4.18% for the first quarter of 2015 as a result of the continuing low interest rate environment.

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 March 31, 2016, nonperforming assets to total assets were 0.55% compared to 0.39% at December 31, 2015. Total nonperforming assets increased $14.1 million due to a $15.4 million increase in nonaccrual loans, partially offset by 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 1.18% at March 31, 2016 compared to 1.17% at December 31, 2015. For the first quarter of 2016, Columbia recorded a net provision for loan and lease losses of $5.3 million compared to a net provision of $1.2 million for the comparable quarter last year. The provision for loan and lease losses recorded during the current quarter was due to net charge-off activity, $3.5 million of which stemmed from two commercial business loans, and organic loan growth.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, stated, "Our provision for the first quarter was primarily driven by charge-offs which rose six basis points to 28 basis points on an annualized basis when compared to last quarter. While not a big jump quarter over quarter, it nevertheless did have an impact."  Mr. McDonald continued, "We are still satisfied with how our loan portfolio is behaving.  Nonperforming assets at 55 basis points and an impaired asset capital ratio of less than 16% continue to reflect strong performance."

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 March 31, 2016, the accretable yield on purchased credit impaired loans was $56.6 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis.

The $1.1 million change in the FDIC loss-sharing asset in the current quarter reduced noninterest income and consisted primarily of $1.3 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 prior pages.

Organizational Update

Ms. Dressel commented, "We carefully evaluate opportunities to improve our noninterest expense, particularly in light of continued pressure from the prolonged low interest rate environment. Our goal, as always, is to improve operating leverage while not sacrificing our commitment to customer service. To that end, during 2015 we consolidated four branches and during the first quarter of 2016 we consolidated an additional branch as a part of this objective."

Ms. Dressel continued, "Since our founding, we have maintained a strong commitment to being actively engaged in the communities we have the privilege to serve. We were very pleased to be recently recognized by the Puget Sound Business Journal as one of Washington State's 75 Top Corporate Philanthropists for 2016."

Regular and Special Cash Dividends

A regular cash dividend of $0.19 per common share, and per common share equivalent for holders of preferred stock, will be paid on May 25, 2016 to shareholders of record as of the close of business on May 11, 2016.  In addition, a special cash dividend of $0.18 per common share, and per common share equivalent for holders of preferred stock, which will also be paid on May 25, 2016 to shareholders of record as of the close of business on May 11, 2016.  

Ms. Dressel commented, "We are pleased that our financial performance allows us to increase our regular dividend from the prior quarter by 6% to $0.19 per share, and to pay a special cash dividend for the ninth consecutive quarter.  Along with our regular dividend, the special dividend constitutes a payout ratio of 100% for the quarter and a dividend yield of 4.67% based on our closing price on April 27, 2016."

Conference Call Information

Columbia's management will discuss the first quarter 2016 results on a conference call scheduled for Thursday, April 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 #22782081.

A conference call replay will be available from approximately 4:00 p.m. PDT on April 28, 2016 through 9:00 p.m. PDT on May 5, 2016. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #22782081.

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.

 

 

 

 

 

 

 

 

 

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.