Columbia Banking System Announces Second Quarter 2014 Earnings And Revised Conference Call Time

Highlights
- Net income of $21.2 million and diluted earnings per share of $0.40, net of a reduction in net income of $850 thousand, or $0.02 per diluted share, associated with acquisition-related expenses and FDIC acquired loan accounting
- Record loan production of over $250 million during the quarter
- Compared to the first quarter of 2014, both net interest margin and operating net interest margin expanded to 4.86% and 4.27%, respectively
- Nonperforming assets to period end noncovered assets reduced to 0.65%, a decrease of 19 basis points from year end and a decrease of 10 basis points from March 31, 2014

PR Newswire

TACOMA, Wash., July 23, 2014 /PRNewswire/ -- Melanie Dressel, President and Chief Executive Officer of Columbia Banking System and Columbia Bank ( COLB ) ("Columbia") said today upon the release of Columbia's second quarter 2014 earnings, "We had a very solid quarter driven by record loan production that resulted in over 14% annualized noncovered loan growth for the period.  Our reported earnings per share of $0.40 was negatively impacted by $0.02 due to the combination of acquisition related expense and the impact of our FDIC acquired loan accounting." Ms. Dressel continued, "The second quarter marked the one year anniversary of the closing of our acquisition of West Coast Bancorp, and we have achieved the anticipated cost saves and expected earnings accretion."

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Significant Influences on the Quarter Ended June 30, 2014

Balance Sheet

Noncovered loans were $4.45 billion at June 30, 2014, up $155.6 million, or 4% from $4.30 billion at March 31, 2014. The increase in noncovered loans was driven by originations, which were over $250 million during the current quarter. Securities were $1.62 billion at June 30, 2014, a decrease of $49.7 million, or 3% from $1.67 billion at March 31, 2014.

Total deposits at June 30, 2014 were $5.99 billion, a decrease of $59.3 million, or 1% from $6.04 billion at March 31, 2014 due largely to seasonal deposit fluctuations. Compared to year end 2013, total deposits have increased $25.6 million. Core deposits comprised 96% of total deposits and were $5.74 billion at June 30, 2014.

Asset Quality

At June 30, 2014, nonperforming assets to noncovered assets were 0.65% or $45.8 million, down from 0.75%, or $52.3 million, at March 31, 2014.  Nonaccrual loans decreased $5.8 million during the second quarter driven by payments of $3.7 million, the return of $3.5 million of nonaccrual loans to accrual status, charge-offs of $1.8 million, and $2.1 million of loans transferred to other real estate owned ("OREO"), partially offset by $5.3 million of new nonaccrual loans. Noncovered OREO and other personal property owned ("OPPO") decreased by $721 thousand during the second quarter, primarily due to $2.1 million in sales and $636 thousand in write-downs, partially offset by the previously mentioned $2.1 million transferred from loans. 

The following table sets forth, at the dates indicated, information regarding noncovered nonaccrual loans and total noncovered nonperforming assets:



June 30, 2014


March 31, 2014


December 31, 2013



(in thousands)

Nonaccrual noncovered loans:










Commercial business


$

11,484



$

14,541



$

12,609


Real estate:










One-to-four family residential


3,024



2,900



2,667


Commercial and multifamily residential


11,039



11,050



11,043


Total real estate


14,063



13,950



13,710


Real estate construction:










One-to-four family residential


1,040



3,026



3,705


Total real estate construction


1,040



3,026



3,705


Consumer


4,026



4,880



3,991


Total nonaccrual loans


30,613



36,397



34,015


Noncovered other real estate owned and other personal property owned


15,203



15,924



23,918


Total nonperforming noncovered assets


$

45,816



$

52,321



$

57,933


The following table provides an analysis of the Company's allowance for loan and lease losses ("ALLL") at the dates and the periods indicated:



Three Months Ended June 30,


Six Months Ended June 30,



2014



2013



2014



2013




(in thousands)

Beginning balance


$

50,442



$

51,119



$

52,280



$

52,244


Charge-offs:













Commercial business


(1,717)



(961)



(1,950)



(2,275)


One-to-four family residential real estate




(28)



(207)



(144)


Commercial and multifamily residential real estate


(1,963)



(614)



(2,986)



(1,397)


One-to-four family residential real estate construction








(133)


Consumer


(909)



(638)



(1,636)



(809)


Total charge-offs


(4,589)



(2,241)



(6,779)



(4,758)


Recoveries:













Commercial business


1,712



352



2,202



465


One-to-four family residential real estate


12



141



40



141


Commercial and multifamily residential real estate


537



84



576



177


One-to-four family residential real estate construction


442



49



484



2,188


Consumer


338



194



591



241


Total recoveries


3,041



820



3,893



3,212


Net charge-offs


(1,548)



(1,421)



(2,886)



(1,546)


Provision for loan and lease losses


600



2,000



100



1,000


Ending balance


$

49,494



$

51,698



$

49,494



$

51,698


Columbia's allowance for loan losses to nonperforming, noncovered loans ratio was 162% at June 30, 2014, up from 139% at March 31, 2014. The increase in this ratio was caused by a decrease in nonperforming, noncovered loans. The allowance for noncovered loan losses to period end loans was 1.11% at June 30, 2014 compared to 1.17% at March 31, 2014. Excluding acquired loans, the allowance at June 30, 2014 represented 1.34% of noncovered loans, compared to 1.58% of noncovered loans at December 31, 2013. The allowance to noncovered loans, excluding acquired loans is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of the allowance to noncovered loans, excluding acquired loans. The decline reflects strong organic loan growth as well as continued improvement in the Company's asset quality metrics.

For the second quarter of 2014, Columbia had a provision of $600 thousand for noncovered loans. For the comparable quarter last year the company had a provision of $2.0 million. The provision recorded during the current quarter was driven by net loan charge-offs experienced in the quarter, partially offset by improving asset quality metrics.

Andy McDonald, Columbia's Chief Credit Officer stated, "Our credit metrics continue to improve and we are moving closer to our long-term average for nonperforming assets.  With the credit challenges of the economic downturn largely in the rearview mirror, our charge-off and nonaccrual loan activity has been in the normal course of business and is not the result of any troubled portfolio sectors."

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) of 4.86% for the second quarter of 2014 was consistent with the linked quarter margin of 4.85%. Compared to the second quarter of 2013, Columbia's net interest margin decreased 33 basis points from 5.19%, primarily due to lower incremental accretion on acquired loans, which was $18.1 million for the prior year quarter, and only $11.3 million for the current quarter.

Columbia's operating net interest margin (tax equivalent) (1) increased to 4.27% for the second quarter of 2014, compared to the linked quarter margin of 4.19%. The increase was primarily due to  higher average loan balances. Compared to the second quarter of 2013, the operating net interest margin decreased 7 basis points from 4.34% primarily due to 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 for the periods presented:



Three Months Ended


Six Months Ended



June 30, 2014


June 30, 2013


June 30, 2014


June 30, 2013



(dollars in thousands)

Incremental accretion income due to:













FDIC acquired impaired loans


$

5,734



$

7,837



$

12,223



$

16,212


Other FDIC acquired loans


95



638



299



1,708


Other acquired loans


5,481



9,635



11,096



9,635


Incremental accretion income


$

11,310



$

18,110



$

23,618



$

27,555















Net interest margin (tax equivalent)


4.86

%


5.19

%


4.86

%


5.13

%

Operating net interest margin (tax equivalent) (1)


4.27

%


4.34

%


4.23

%


4.28

%


(1) Operating net interest margin (tax equivalent) is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of operating net interest margin to 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:

FDIC Acquired Loan Activity
















Three Months Ended


Six Months Ended



June 30, 2014


June 30, 2013


June 30, 2014


June 30, 2013



(in thousands)

Incremental accretion income on FDIC acquired impaired loans


$

5,734



$

7,837



$

12,223



$

16,212


Incremental accretion income on other FDIC acquired loans


95



638



299



1,708


Recapture (provision) for losses on covered loans


(1,517)



1,712



(3,939)



732


Change in FDIC loss-sharing asset


(5,050)



(13,137)



(9,869)



(23,620)


FDIC clawback liability benefit (expense)


103



(199)



(101)



(430)


Pre-tax earnings impact


$

(635)



$

(3,149)



$

(1,387)



$

(5,398)


The incremental accretion income on FDIC acquired impaired loans in the table above represents the amount of income recorded on acquired loans 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, 2014, the accretable yield on acquired impaired loans was $92.5 million. The accretable yield represents income to be recorded by Columbia over the remaining life of the acquired loans. 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 net provision for losses on covered loans in the current period is substantially offset by an 80%, or $1.2 million, benefit to the change in the FDIC loss-sharing asset, resulting in a negative net pre-tax earnings impact of $303 thousand. The provision for losses on covered loans was primarily due to decreased expected future cash flows as remeasured during the current quarter when compared to the prior quarter's remeasurement. 

The $5.1 million change in the FDIC loss-sharing asset in the current quarter negatively affected noninterest income and consists of $5.8 million of amortization expense and approximately $500 thousand of expense related to covered other real estate owned, partially offset by the $1.2 million adjustment described above.

Second Quarter 2014 Results

Net Interest Income

Net interest income for the second quarter of 2014 was $75.1 million, an increase of $1.2 million compared to the first quarter of 2014. This increase was due to higher average noncovered loan balances during the current quarter. Compared to the second quarter of 2013, net interest income decreased by $4.9 million from $80.0 million. The decrease from the prior year period is primarily due to the $4.2 million decrease in loan accretion income related to the West Coast acquisition. For additional information regarding net interest income, see "Average Balances and Rates" tables.

Noninterest Income

Total noninterest income was $14.6 million for the second quarter of 2014, compared to $6.8 million for the second quarter of 2013. The increase from the prior year period was due to the expense recorded for the change in FDIC loss-sharing asset, which was $8.1 million less in the current quarter compared to the second quarter of 2013. Compared to the first quarter of 2014, noninterest income before change in loss-sharing asset increased $850 thousand, from $18.8 million to $19.7 million, primarily due to an increase of $854 thousand in service charges and other fees.

The change in the FDIC loss-sharing asset is a significant component of noninterest income. The following table reflects the income statement components of the change in the FDIC loss-sharing asset for the three and six month periods indicated:



Three Months Ended


Six Months Ended



June 30,


June 30,



2014



2013



2014



2013




(in thousands)

Adjustments reflected in income













Amortization, net


(5,764)



(9,801)



(12,216)



(19,580)


Loan impairment (recapture)


1,214



(1,370)



3,151



(585)


Sale of other real estate


(965)



(2,251)



(1,721)



(3,597)


Write-downs of other real estate


276



102



792



154


Other


189



183



125



(12)


Change in FDIC loss-sharing asset


$

(5,050)



$

(13,137)



$

(9,869)



$

(23,620)



















Noninterest Expense

Total noninterest expense for the second quarter of 2014 was $57.8 million, a decrease of $6.7 million, or 10% from $64.5 million for the same quarter in 2013. The decrease from the prior year period was primarily due to lower acquisition-related expenses of $672 thousand for the current quarter compared to $9.2 million for the prior year period. This reduction in acquisition-related costs was partially offset by the reduction in OREO benefit, which went from $2.8 million in the second quarter of 2013 to only $97 thousand in the current quarter.

Compared to the first quarter of 2014, noninterest expense increased $378 thousand. The slight increase was primarily due to an increase in other noninterest expense of $391 thousand related to branch consolidation expenses.

Organizational Update

Melanie Dressel commented, "We continually review our branch system to ensure that we are running effectively and efficiently, while providing the best possible customer service. We currently operate 139 branches throughout our Washington and Oregon footprint, down from 142 at year-end 2013.  During the second quarter, we merged two of our downtown Tacoma, Washington branches, and announced we have entered into an agreement to sell three Olympic Peninsula branches to Sound Community Bank; the transaction is expected to close during the third quarter this year. Also during the third quarter, our Clackamas, Oregon branch will relocate to a more convenient new location."

Ms. Dressel continued, "We are very gratified that our employees enjoy being a part of the Columbia family. For the eighth consecutive year, we have been named one of "Washington's Best Workplaces" for 2014."


Revised Conference Call Information

Columbia's management will discuss the second quarter 2014 results on a conference call scheduled for Thursday, July 24, 2014 at 9:00 a.m. PDT (12:00 pm EDT). Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #71565968.

A conference call replay will be available from approximately 12:00 p.m. PDT on July 24, 2014 through midnight PDT on July 31, 2014. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #71565968.

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding Company of Columbia State Bank, a Washington state-chartered full-service commercial bank, with 79 branches in Washington and 60 in Oregon. For the eighth consecutive year, the bank was named in 2014 as one of  Puget Sound Business Journal's  "Washington's Best Workplaces."

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.

Contacts:

Melanie J. Dressel,


President and


Chief Executive Officer


(253) 305-1911




Clint E. Stein,


Executive Vice President


and Chief Financial Officer


(253) 593-8304

 



FINANCIAL STATISTICS











Columbia Banking System, Inc.

Three Months Ended


Six Months Ended

Unaudited

June 30,


June 30,



2014



2013



2014



2013


Earnings


(dollars in thousands except per share amounts)

Net interest income


$

75,124



$

79,989



$

149,064



$

133,471


Provision for loan and lease losses


$

600



$

2,000



$

100



$

1,000


Provision for losses on covered loans, net (1)


$

1,517



$

(1,712)



$

3,939



$

(732)


Noninterest income


$

14,627



$

6,808



$

28,635



$

8,466


Noninterest expense


$

57,764



$

64,504



$

115,150



$

102,553


Acquisition-related expense (included in noninterest expense)


$

672



$

9,234



$

1,638



$

9,957


Net income


$

21,227



$

14,591



$

41,071



$

26,767


Per Common Share













Earnings (basic)


$

0.40



$

0.28



$

0.79



$

0.59


Earnings (diluted)


$

0.40



$

0.28



$

0.77



$

0.58


Book value


$

20.71



$

20.07



$

20.71



$

20.07


Averages













Total assets


$

7,229,187



$

7,110,957



$

7,186,709



$

5,987,243


Interest-earning assets


$

6,339,102



$

6,284,281



$

6,292,157



$

5,316,008


Loans, including covered loans


$

4,646,356



$

4,571,181



$

4,592,033



$

3,771,314


Securities


$

1,645,993



$

1,665,180



$

1,664,081



$

1,360,114


Deposits


$

5,968,881



$

5,824,802



$

5,935,544



$

4,912,533


Interest-bearing deposits


$

3,807,710



$

3,986,581



$

3,790,137



$

3,366,784


Interest-bearing liabilities


$

3,901,016



$

4,161,095



$

3,884,628



$

3,470,257


Noninterest-bearing deposits


$

2,161,171



$

1,838,221



$

2,145,407



$

1,545,749


Shareholders' equity


$

1,084,927



$

1,051,380



$

1,076,189



$

910,667


Financial Ratios













Return on average assets


1.17

%


0.82

%


1.14

%


0.89

%

Return on average common equity


7.83

%


5.56

%


7.64

%


5.88

%

Average equity to average assets


15.01

%


14.79

%


14.97

%


15.21

%

Net interest margin (tax equivalent)


4.86

%


5.19

%


4.86

%


5.13

%

Efficiency ratio (tax equivalent) (2)


62.61

%


72.60

%


63.06

%


70.35

%

Operating efficiency ratio (tax equivalent) (3)


63.80

%


64.13

%


64.49

%


64.99

%
















June 30,


December 31,




Period end


2014



2013



2013





Total assets


$

7,297,458



$

7,070,465



$

7,161,582





Covered assets, net


$

255,151



$

351,545



$

289,790





Loans, excluding covered loans, net


$

4,452,674



$

4,181,018



$

4,219,451





Allowance for noncovered loan and lease losses


$

49,494



$

51,698



$

52,280





Securities


$

1,621,929



$

1,541,039



$

1,696,640





Deposits


$

5,985,069



$

5,747,861



$

5,959,475





Core deposits


$

5,735,047



$

5,467,899



$

5,696,357





Shareholders' equity


$

1,092,151



$

1,030,674



$

1,053,249





Nonperforming, noncovered assets













Nonaccrual loans


$

30,613



$

43,610



$

34,015





Other real estate owned ("OREO") and other personal property owned("OPPO")


15,203



24,423



23,918





   Total nonperforming, noncovered assets


$

45,816



$

68,033



$

57,933





Nonperforming assets to period-end noncovered loans + OREO and OPPO


1.03

%


1.62

%


1.37

%




Nonperforming loans to period-end noncovered loans


0.69

%


1.04

%


0.81

%




Nonperforming assets to period-end noncovered assets


0.65

%


1.01

%


0.84

%




Allowance for loan and lease losses to period-end noncovered loans


1.11

%


1.24

%


1.24

%




Allowance for loan and lease losses to nonperforming noncovered loans


161.68

%


118.55

%


153.70

%




Net noncovered loan charge-offs


$

2,886


(4)

$

1,546


(5)

$

3,124


(6)
















(1) Provision(recapture) for losses on covered loans was partially offset by $1.2 million in income and $1.4 million in expense recorded to Change in FDIC loss-sharing asset in the Consolidated Statements of Income for the three months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, provision(recapture) for losses on covered loans was partially offset by $3.2 million in income and $586 thousand in expense, respectively.

(2) Noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income on a tax equivalent basis.

(3) The operating efficiency ratio (tax equivalent) is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of the operating efficiency ratio (tax equivalent) to the efficiency ratio (tax equivalent). During the second quarter of 2014, the methodology was changed to now exclude Washington state Business and Occupation ("B&O") taxes. Amounts presented in prior periods have been adjusted to conform with the current methodology.

(4)  For the six months ended June 30, 2014.

(5)  For the six months ended June 30, 2013.

(6)  For the twelve months ended December 31, 2013.


 

FINANCIAL STATISTICS












Columbia Banking System, Inc.












Unaudited

June 30,


December 31,



2014


2013

Loan Portfolio Composition


(dollars in thousands)

Noncovered loans:













Commercial business


$

1,735,588



39.0

%


$

1,561,782



37.0

%

Real estate:













One-to-four family residential


102,632



2.3

%


108,317



2.6

%

Commercial and multifamily residential


2,127,520



47.8

%


2,080,075



49.2

%

   Total real estate


2,230,152



50.1

%


2,188,392



51.8

%

Real estate construction:













One-to-four family residential


61,481



1.4

%


54,155



1.3

%

Commercial and multifamily residential


134,140



3.0

%


126,390



3.0

%

   Total real estate construction


195,621



4.4

%


180,545



4.3

%

Consumer


348,439



7.8

%


357,014



8.5

%

Subtotal loans


4,509,800



101.3

%


4,287,733



101.6

%

Less:  Net unearned income


(57,126)



(1.3)%



(68,282)



(1.6)%


Total noncovered loans, net of unearned income


4,452,674



100.0

%


4,219,451



100.0

%

Less:  Allowance for loan and lease losses


(49,494)






(52,280)





Noncovered loans, net


4,403,180






4,167,171





Covered loans, net of allowance for loan losses of ($19,801) and ($20,174), respectively


242,100






277,671





Total loans, net


$

4,645,280






$

4,444,842





Loans held for sale


$

750






$

735




















June 30,


December 31,



2014


2013

Deposit Composition


(dollars in thousands)

Core deposits:













Demand and other non-interest bearing


$

2,190,161



36.6

%


$

2,171,703



36.4

%

Interest bearing demand


1,189,620



19.9

%


1,170,006



19.6

%

Money market


1,553,269



26.0

%


1,569,261



26.3

%

Savings


532,276



8.9

%


496,444



8.3

%

Certificates of deposit less than $100,000


269,721



4.4

%


288,943



4.9

%

Total core deposits


5,735,047



95.8

%


5,696,357



95.5

%














Certificates of deposit greater than $100,000


182,697



3.1

%


201,498



3.5

%

Certificates of deposit insured by CDARS®


18,690



0.3

%


19,488



0.3

%

Brokered money market accounts


48,408



0.8

%


41,765



0.7

%

Subtotal


5,984,842



100.0

%


5,959,108



100.0

%

   Premium resulting from acquisition date fair value adjustment


227






367





Total deposits


$

5,985,069






$

5,959,475





 

 


FINANCIAL STATISTICS













Columbia Banking System, Inc.













Unaudited
























June 30,


December 31,



2014


2013



OREO


OPPO


OREO


OPPO

OREO and OPPO Composition


(in thousands)

Covered


$

13,051



$



$

12,093



$

26


Noncovered


15,203





23,834



84


Total


$

28,254



$



$

35,927



$

110

















Three Months Ended


Six Months Ended



June 30,


June 30,



2014



2013



2014



2013


OREO and OPPO Earnings Impact


(in thousands)

Net cost of operation of noncovered OREO


$

730



$

393



$

1,057



$

339


Net benefit of operation of covered OREO


(827)



(3,221)



(1,008)



(5,668)


Net cost (benefit) of operation of OREO


$

(97)



$

(2,828)



$

49



$

(5,329)















Noncovered OPPO cost (benefit), net


$



$

8



$

(125)



$

(96)


Covered OPPO benefit, net


(20)





(19)




OPPO benefit, net (1)


$

(20)



$

8



$

(144)



$

(96)















(1) OPPO cost (benefit), net is included in Other noninterest expense in the Consolidated Statements of Income.

The following table shows a summary of FDIC acquired loan accounting for the five most recent quarters:

 



Three Months Ended



June 30,


March 31,


December 31,


September 30,


June 30,



2014



2014



2013



2013



2013




(in thousands)

Expense to pre-tax earnings (1)


$

(635)



$

(752)



$

(1,248)



$

(3,362)



$

(3,149)


















Balance sheet components:
















Covered loans, net of allowance


$

242,100



$

260,158



$

277,671



$

302,160



$

338,661


Covered OREO


13,051



14,712



12,093



12,730



12,854


FDIC loss-sharing asset


27,981



36,837



39,846



53,559



67,374


















(1) For details of the components of expense to pre-tax earnings related to FDIC acquired loan accounting, see previous table entitled "FDIC Acquired Loan Activity."

 


...

QUARTERLY FINANCIAL STATISTICS















Columbia Banking System, Inc.

Three Months Ended

Unaudited

June 30,



March 31,



December 31,



September 30,



June 30,




2014



2014



2013



2013



2013




(dollars in thousands except per share)

Earnings



Net interest income


$

75,124



$

73,940



$

77,209



$

80,415



$

79,989


Provision (recapture) for loan and lease losses


$

600



$

(500)



$

(2,100)



$

4,260



$

2,000


Provision (recapture) for losses on covered loans


$

1,517



$

2,422



$

(1,582)



$

(947)



$

(1,712)


Noninterest income


$

14,627



$

14,008



$

10,612



$

7,622



$

6,808


Noninterest expense


$

57,764



$

57,386



$

63,619



$

64,714



$

64,504


Acquisition-related expense (included in noninterest expense)


$

672



$

966



$

7,910



$

7,621



$

9,234


Net income


$

21,227



$

19,844



$

19,973



$

13,276



$

14,591


Per Common Share
















Earnings (basic)


$

0.40



$

0.38



$

0.39



$

0.26



$

0.28


Earnings (diluted)


$

0.40



$

0.37



$

0.38



$

0.25



$

0.28


Book value


$

20.71



$

20.39



$

20.50



$

20.35



$

20.07


Averages
















Total assets


$

7,229,187



$

7,143,759



$

7,192,084



$

7,048,864



$

7,110,957


Interest-earning assets


$

6,339,102



$

6,244,692



$

6,269,894



$

6,101,960



$

6,284,281


Loans, including covered loans


$

4,646,356



$

4,537,107



$

4,504,587



$

4,504,040



$

4,571,181


Securities


$

1,645,993



$

1,682,370



$

1,662,720



$

1,512,292



$

1,665,180


Deposits


$

5,968,881



$

5,901,838



$

6,003,657



$

5,837,018



$

5,824,802


Interest-bearing deposits


$

3,807,710



$

3,772,370



$

3,839,060



$

3,805,260



$

3,986,581


Interest-bearing liabilities


$

3,901,016



$

3,868,060



$

3,886,126



$

3,898,997



$

4,161,095


Noninterest-bearing deposits


$

2,161,171



$

2,129,468



$

2,164,597



$

2,031,758



$

1,838,221


Shareholders' equity


$

1,084,927



$

1,067,353



$

1,056,694



$

1,036,134



$

1,051,380


Financial Ratios
















Return on average assets


1.17

%


1.11

%


1.11

%


0.75

%


0.82

%

Return on average common equity


7.83

%


7.45

%


7.57

%


5.13

%


5.56

%

Average equity to average assets


15.01

%


14.94

%


14.69

%


14.70

%


14.79

%

Net interest margin (tax equivalent)


4.86

%


4.85

%


5.03

%


5.37

%


5.19

%

Period end
















Total assets


$

7,297,458



$

7,237,053



$

7,161,582



$

7,150,297



$

7,070,465


Covered assets, net


$

255,151



$

274,896



$

289,790



$

314,898



$

351,545


Loans, excluding covered loans, net


$

4,452,674



$

4,297,076



$

4,219,451



$

4,193,732



$

4,181,018


Allowance for noncovered loan and lease losses


$

49,494



$

50,442



$

52,280



$

55,844



$

51,698


Securities


$

1,621,929



$

1,671,594



$

1,696,640



$

1,602,484



$

1,541,039


Deposits


$

5,985,069



$

6,044,416



$

5,959,475



$

5,948,967



$

5,747,861


Core deposits


$

5,735,047



$

5,768,434



$

5,696,357



$

5,662,958



$

5,467,899


Shareholders' equity


$

1,092,151



$

1,074,491



$

1,053,249



$

1,045,797



$

1,030,674


Nonperforming, noncovered assets
















Nonaccrual loans


$

30,613



$

36,397



$

34,015



$

35,961



$

43,610


OREO and OPPO


15,203



15,924



23,918



23,641



24,423


Total nonperforming, noncovered assets


$

45,816



$

52,321



$

57,933



$

59,602



$

68,033


Nonperforming assets to period-end noncovered loans + OREO and OPPO


1.03

%


1.21

%


1.37

%


1.41

%


1.62

%

Nonperforming loans to period-end noncovered loans


0.69

%


0.85

%


0.81

%


0.86

%


1.04

%

Nonperforming assets to period-end noncovered assets


0.65

%


0.75

%


0.84

%


0.87

%


1.01

%

Allowance for loan and lease losses to period-end noncovered loans


1.11

%


1.17

%


1.24

%


1.33

%


1.24

%

Allowance for loan and lease losses to nonperforming noncovered loans


161.68

%


138.59

%


153.70

%


155.29

%


118.55

%

Net noncovered loan charge-offs


$

1,548



$

1,338



$

1,464



$

114



$

1,421



 

CONSOLIDATED STATEMENTS OF INCOME










Columbia Banking System, Inc.

Three Months Ended


Six Months Ended

Unaudited

June 30,


June 30,



2014



2013 (1)


2014



2013 (1)



(in thousands except per share)

Interest Income













Loans


$

67,004



$

74,837



$

132,545



$

122,865


Taxable securities


6,382



4,890



13,134



9,124


Tax-exempt securities


2,671



2,508



5,289



4,806


Federal funds sold and deposits in banks


30



33



44



234


Total interest income


76,087



82,268



151,012



137,029


Interest Expense













Deposits


729



1,054



1,481



2,143


Federal Home Loan Bank advances


115



(699)



229



(628)


Prepayment charge on Federal Home Loan Bank advances




1,548





1,548


Other borrowings


119



376



238



495


Total interest expense


963



2,279



1,948



3,558


Net Interest Income


75,124



79,989



149,064



133,471


Provision for loan and lease losses


600



2,000



100



1,000


Provision (recapture) for losses on covered loans, net


1,517



(1,712)



3,939



(732)


Net interest income after provision (recapture) for loan and lease losses


73,007



79,701



145,025



133,203


Noninterest Income













Service charges and other fees


13,790



13,560



26,726



21,154


Merchant services fees


2,040



2,013



3,910



3,864


Investment securities gains, net


296



92



519



462


Bank owned life insurance


976



1,008



1,941



1,706


Change in FDIC loss-sharing asset


(5,050)



(13,137)



(9,869)



(23,620)


Other


2,575



3,272



5,408



4,900


Total noninterest income


14,627



6,808



28,635



8,466


Noninterest Expense













Compensation and employee benefits


31,064



35,657



62,402



57,310


Occupancy


8,587



7,543



16,831



12,296


Merchant processing


998



852



1,978



1,709


Advertising and promotion


950



1,160



1,719



2,030


Data processing and communications


3,680



3,638



7,200



6,218


Legal and professional fees


2,303



5,504



4,472



7,554


Taxes, licenses and fees


1,051



1,204



2,231



2,591


Regulatory premiums


1,073



1,177



2,249



2,034


Net cost (benefit) of operation of other real estate


(97)



(2,828)



49



(5,329)


Amortization of intangibles


1,480



1,693



3,060



2,722


Other (1)


6,675



8,904



12,959



13,418


Total noninterest expense


57,764



64,504



115,150



102,553


Income before income taxes


29,870



22,005



58,510



39,116


Provision for income taxes


8,643



7,414



17,439



12,349


Net Income


$

21,227



$

14,591



$

41,071



$

26,767


Earnings per common share













Basic


$

0.40



$

0.28



$

0.79



$

0.59


Diluted


$

0.40



$

0.28



$

0.77



$

0.58


Dividends paid per common share


$

0.24



$

0.10



$

0.36



$

0.20


Weighted average number of common shares outstanding


52,088



50,788



51,600



45,099


Weighted average number of diluted common shares outstanding


52,494



52,125



52,463



45,758



(1) Reclassified to conform to the current period's presentation. The reclassification was limited to removing the separate line item for FDIC clawback liability expense within noninterest expense and including the prior period activity in the line item for other noninterest expense.


 

CONSOLIDATED BALANCE SHEETS

Columbia Banking System, Inc.



















Unaudited







June 30,



December 31,









2014



2013









(in thousands)

ASSETS



Cash and due from banks


$

193,816



$

165,030


Interest-earning deposits with banks


30,646



14,531


Total cash and cash equivalents


224,462



179,561


Securities available for sale at fair value (amortized cost of $1,581,989 and $1,680,491, respectively)


1,590,017



1,664,111


Federal Home Loan Bank stock at cost


31,912



32,529


Loans held for sale


750



735


Loans, excluding covered loans, net of unearned income of ($57,126) and ($68,282), respectively


4,452,674



4,219,451


Less: allowance for loan and lease losses


49,494



52,280


Loans, excluding covered loans, net


4,403,180



4,167,171


Covered loans, net of allowance for loan losses of ($19,801) and ($20,174), respectively


242,100



277,671


Total loans, net


4,645,280



4,444,842


FDIC loss-sharing asset


27,981



39,846


Interest receivable


22,183



22,206


Premises and equipment, net


156,645



154,732


Other real estate owned ($13,051 and $12,093 covered by FDIC loss-share, respectively)


28,254



35,927


Goodwill


343,952



343,952


Other intangible assets, net


22,792



25,852


Other assets


203,230



217,289


Total assets


$

7,297,458



$

7,161,582


LIABILITIES AND SHAREHOLDERS' EQUITY







Deposits:







Noninterest-bearing


$

2,190,161



$

2,171,703


Interest-bearing


3,794,908



3,787,772


Total deposits


5,985,069



5,959,475


Federal Home Loan Bank advances


110,587



36,606


Securities sold under agreements to repurchase


25,000



25,000


Other liabilities


84,651



87,252


Total liabilities


6,205,307



6,108,333


Commitments and contingent liabilities













June 30,



December 31,









2014



2013








Preferred stock (no par value)












Authorized shares

2,000



2,000








Issued and outstanding

9



9



2,217



2,217


Common stock (no par value)












Authorized shares

63,033



63,033








Issued and outstanding

52,635



51,265



861,609



860,562


Retained earnings


224,765



202,514


Accumulated other comprehensive income (loss)


3,560



(12,044)


Total shareholders' equity


1,092,151



1,053,249


Total liabilities and shareholders' equity


$

7,297,458



$

7,161,582


 


AVERAGE BALANCES AND RATES
















Columbia Banking System, Inc.
















Unaudited





















Three Months Ended June 30,


Three Months Ended June 30,



2014


2013



Average
Balances


Interest
Earned / Paid


Average
Rate


Average
Balances


Interest
Earned / Paid


Average
Rate



(dollars in thousands)

ASSETS



















Loans, excluding covered loans, net (1) (3)


$

4,373,439



$

56,807



5.20

%


$

4,192,519



$

60,881



5.81

%

Covered loans, net (2)


272,917



10,622



15.57

%


378,662



14,074



14.87

%

Taxable securities


1,281,753



6,382



1.99

%


1,328,806



4,890



1.47

%

Tax exempt securities (3)


364,240



4,192



4.60

%


336,375



3,890



4.63

%

Interest-earning deposits with banks and federal funds sold


46,753



30



0.26

%


47,919



33



0.27

%

Total interest-earning assets


6,339,102



$

78,033



4.92

%


6,284,281



$

83,768



5.33

%

Other earning assets


130,462









113,403








Noninterest-earning assets


759,623









713,273








Total assets


$

7,229,187









$

7,110,957








LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit


$

480,459



$

325



0.27

%


$

590,261



$

535



0.36

%

Savings accounts


527,370



14



0.01

%


477,574



28



0.02

%

Interest-bearing demand


1,187,274



115



0.04

%


1,059,772



153



0.06

%

Money market accounts


1,612,607



275



0.07

%


1,858,974



338



0.07

%

Total interest-bearing deposits


3,807,710



729



0.08

%


3,986,581



1,054



0.11

%

Federal Home Loan Bank advances (4)


68,306



115



0.67

%


106,309



849



3.19

%

Other borrowings


25,000



119



1.90

%


68,205



376



2.21

%

Total interest-bearing liabilities


3,901,016



$

963



0.10

%


4,161,095



$

2,279



0.22

%

Noninterest-bearing deposits


2,161,171









1,838,221








Other noninterest-bearing liabilities


82,073









60,261








Shareholders' equity


1,084,927









1,051,380








Total liabilities & shareholders' equity


$

7,229,187









$

7,110,957








Net interest income (tax equivalent)


$

77,070









$

81,489





Net interest margin (tax equivalent)


4.86

%








5.19

%



(1)

Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on certain acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.2 million and $840 thousand for the three months ended June 30, 2014 and 2013, respectively. The accretion of net unearned discounts on certain acquired loans was $5.6 million and $10.3 million for the three months ended June 30, 2014 and 2013, respectively.

(2)

Incremental accretion on acquired impaired loans is included in covered loan interest earned. The incremental accretion income on acquired impaired loans was $5.7 million and $7.8 million for the three months ended June 30, 2014 and 2013, respectively.

(3)

Yields on a fully tax equivalent basis. The tax equivalent yield adjustment to interest earned on noncovered loans was $425 thousand and $118 thousand for the three months ended June 30, 2014 and 2013, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and $1.4 million for the three months ended June 30, 2014 and 2013, respectively.

(4)

Federal Home Loan Bank advances includes a prepayment charge of $1.5 million during the three months ended June 30, 2013. As a result of the prepayment, the Company recorded $874 thousand in premium amortization, which partially offset the impact of the prepayment charge.

 



AVERAGE BALANCES AND RATES
















Columbia Banking System, Inc.
















Unaudited





















Six Months Ended June 30,


Six Months Ended June 30,



2014


2013



Average
Balances


Interest
Earned / Paid


Average
Rate


Average
Balances


Interest
Earned / Paid


Average
Rate



(dollars in thousands)

ASSETS



















Loans, excluding covered loans, net (1) (3)


$

4,311,118



$

111,753



5.18

%


$

3,380,360



$

94,045



5.56

%

Covered loans, net (2)


280,915



21,574



15.36

%


390,954



29,066



14.87

%

Taxable securities


1,305,584



13,134



2.01

%


1,056,992



9,124



1.73

%

Tax exempt securities (3)


358,497



8,301



4.63

%


303,122



7,457



4.92

%

Interest-earning deposits with banks and federal funds sold


36,043



44



0.24

%


184,581



234



0.25

%

Total interest-earning assets


6,292,157



$

154,806



4.92

%


5,316,009



$

139,926



5.26

%

Other earning assets


128,703









97,094








Noninterest-earning assets


765,849









574,140








Total assets


$

7,186,709









$

5,987,243








LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit


$

491,731



$

687



0.28

%


$

536,750



$

1,115



0.42

%

Savings accounts


520,678



28



0.01

%


402,584



44



0.02

%

Interest-bearing demand


1,178,042



223



0.04

%


950,352



331



0.07

%

Money market accounts


1,599,686



543



0.07

%


1,477,098



653



0.09

%

Total interest-bearing deposits


3,790,137



1,481



0.08

%


3,366,784



2,143



0.13

%

Federal Home Loan Bank advances (4)


69,491



229



0.66

%


56,751



920



3.24

%

Other borrowings


25,000



238



1.90

%


46,722



495



2.12

%

Total interest-bearing liabilities


3,884,628



$

1,948



0.10

%


3,470,257



$

3,558



0.21

%

Noninterest-bearing deposits


2,145,407









1,545,749








Other noninterest-bearing liabilities


80,485









60,570








Shareholders' equity


1,076,189









910,667








Total liabilities & shareholders' equity


$

7,186,709









$

5,987,243








Net interest income (tax equivalent)


$

152,858









$

136,368





Net interest margin (tax equivalent)


4.86

%








5.13

%



(1)

Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on certain acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $2.1 million and $1.5 million for the six months ended June 30, 2014 and 2013, respectively. The accretion of net unearned discounts on certain acquired loans was $11.4 million and $11.3 million for the six months ended June 30, 2014 and 2013, respectively.

(2)

Incremental accretion on acquired impaired loans is included in covered loan interest earned. The incremental accretion income on acquired impaired loans was $12.2 million and $16.2 million for the six months ended June 30, 2014 and 2013, respectively.

(3)

Yields on a fully tax equivalent basis. The tax equivalent yield adjustment to interest earned on noncovered loans was $782 thousand and $246 thousand for the six months ended June 30, 2014 and 2013, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.0 million and $2.7 million for the six months ended June 30, 2014 and 2013, respectively.

(4)

Federal Home Loan Bank advances includes a prepayment charge of $1.5 million during the six months ended June 30, 2013. As a result of the prepayment, the Company recorded $874 thousand in premium amortization, which partially offset the impact of the prepayment charge.

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 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 tables reconcile the Company's calculation of the operating net interest margin and operating efficiency ratio:

 




Three Months Ended June 30,


Six Months Ended June 30,



2014



2013



2014



2013


Operating net interest margin non-GAAP reconciliation:


(dollars in thousands)

Net interest income (tax equivalent) (1)


$

77,070



$

81,489



$

152,858



$

136,368


Adjustments to arrive at operating net interest income (tax equivalent):













Incremental accretion income on FDIC acquired impaired loans


(5,734)



(7,837)



(12,223)



(16,212)


Incremental accretion income on other FDIC acquired loans


(95)



(638)



(299)



(1,708)


Incremental accretion income on other acquired loans


(5,481)



(9,635)



(11,096)



(9,635)


Premium amortization on acquired securities


1,554



3,054



3,179



3,054


Interest reversals on nonaccrual loans


392



145



680



394


Prepayment charges on FHLB advances




1,548





1,548


Operating net interest income (tax equivalent) (1)


$

67,706



$

68,126



$

133,099



$

113,809


Average interest earning assets


$

6,339,102



$

6,284,281



$

6,292,157



$

5,316,009


Net interest margin (tax equivalent) (1)


4.86

%


5.19

%


4.86

%


5.13

%

Operating net interest margin (tax equivalent) (1)


4.27

%


4.34

%


4.23

%


4.28

%








Three Months Ended June 30,


Six Months Ended June 30,



2014



2013



2014



2013


Operating efficiency ratio non-GAAP reconciliation:


(dollars in thousands)

Noninterest expense (numerator A)


$

57,764



$

64,504



$

115,150



$

102,553


Adjustments to arrive at operating noninterest expense:













Acquisition-related expenses


(672)



(9,234)



(1,638)



(9,957)


Net  benefit of operation of OREO and OPPO


117



2,820



95



5,425


FDIC clawback liability benefit  (expense)


103



(199)



(101)



(430)


Loss on asset disposals


(431)



(8)



(450)



(33)


State of Washington Business and Occupation ("B&O") taxes


(972)



(1,120)



(2,047)



(2,455)


Operating noninterest expense (numerator B)


$

55,909



$

56,763



$

111,009



$

95,103















Net interest income (tax equivalent) (1)


$

77,070



$

81,489



$

152,858



$

136,368


Noninterest income


14,627



6,808



28,635



8,466


Bank owned life insurance tax equivalent adjustment


556



556



1,105



941


Total revenue (tax equivalent) (denominator A)


$

92,253



$

88,853



$

182,598



$

145,775















Operating net interest income (tax equivalent) (1)


$

67,706



$

68,126



$

133,099



$

113,809


Adjustments to arrive at operating noninterest income (tax equivalent):













Investment securities gains, net


(296)



(92)



(519)



(462)


Gain on asset disposals


(18)



(21)



(50)



(41)


Change in FDIC loss-sharing asset


5,050



13,137



9,869



23,620


Operating noninterest income (tax equivalent)


19,919



20,388



39,040



32,524


Total operating revenue (tax equivalent) (denominator B)


$

87,625



$

88,514



$

172,139



$

146,333


Efficiency ratio (tax equivalent) (numerator A/denominator A)


62.61

%


72.60

%


63.06

%


70.35

%

Operating efficiency ratio (tax equivalent) (numerator B/denominator B)


63.80

%


64.13

%


64.49

%


64.99

%


(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of  $1.9 million and $1.5 million for the three months ended June 30, 2014 and 2013, respectively, and $3.8 million and $2.9 million for the six months ended June 30, 2014 and 2013, respectively.

Non-GAAP Financial Measures - Continued

The Company considers its ratio of allowance for loan and lease losses to period-end noncovered loans, excluding acquired loans to be an important measurement 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 noncovered loans, excluding acquired loans:



June 30,



December 31,




2014



2013




(dollars in thousands)

Allowance for loan and lease losses (numerator a)


$

49,494



$

52,280


Less: Allowance for loan and lease losses attributable to acquired loans


(3,626)



(4,188)


Equals: Allowance for noncovered loans, excluding acquired loans (numerator b)


$

45,868



48,092









Loans, excluding covered loans, net of unearned income (denominator a)


$

4,452,674



$

4,219,451


Less: Acquired loans, net of unearned income


(1,031,516)



(1,181,542)


Equals: Loans, excluding covered loans and acquired loans, net of unearned income (denominator b)


$

3,421,158



$

3,037,909









Allowance for loan and lease losses to period-end noncovered loans (numerator a/denominator a)


1.11

%


1.24

%

Allowance for loan and lease losses to period-end noncovered loans, excluding acquired loans (numerator b/denominator b)


1.34

%


1.58

%

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