Columbia Banking System Announces Fourth Quarter and Record Full Year 2014 Earnings

TACOMA, Wash., Jan. 29, 2015 /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 fourth quarter 2014 earnings, "We continued to build on the momentum created by our recent acquisitions and the outstanding efforts of our bankers whose activities resulted in record-setting full year earnings and loan production for the quarter and year."  Ms. Dressel continued, "Our entire team also worked hard preparing for and closing the Intermountain Community Bancorp acquisition which we announced during the third quarter."

Significant Influences on the Quarter Ended December 31, 2014

Our reported net income for the current quarter was impacted by $5.4 million, or $0.10 per diluted share, in acquisition and accounting related items. Specifically, on a pre-tax basis, these items consisted of $4.6 million in acquisition-related expenses, $948 thousand of impact from FDIC loan accounting, and $2.8 million in provision for loan and lease losses related to the establishment of an allowance for loans acquired in the Intermountain transaction.

As the Intermountain transaction also impacted comparability of our balance sheet to prior periods, the table below is provided to summarize the amounts recognized as of the transaction date for each major class of assets acquired and liabilities assumed:

Balance Sheet
Loans were $5.45 billion at December 31, 2014, up $622.4 million, or 13% from $4.82 billion at September 30, 2014. The increase in loans was driven by the acquisition of Intermountain as well as strong organic loan growth of approximately $120 million during the current quarter. Securities were $2.13 billion at December 31, 2014, an increase of $488.6 million, or 30% from $1.64 billion at September 30, 2014, again, primarily due to the acquisition of Intermountain. Compared to the prior year end period, loans increased $928.1 million, or 21%, during 2014. The growth during the year was comprised of $502.6 million acquired with Intermountain and $425.5 million of organic growth.

Total deposits at December 31, 2014 were $6.92 billion, an increase of $680.3 million, or 11% from $6.24 billion at September 30, 2014 due to the acquisition of Intermountain. Core deposits comprised 96% of total deposits and were $6.62 billion at December 31, 2014. The average rate on interest bearing deposits for the quarter was 0.08% compared to 0.07% for the third quarter of 2014. The slight uptick is attributed to the deposits obtained in the Intermountain acquisition.

Asset Quality

At December 31, 2014, nonperforming assets to total assets were 0.62% or $53.6 million, compared to 0.67%, or $49.9 million, at September 30, 2014.  The $3.7 million increase was due to $5.2 million in nonperforming assets established through the Intermountain transaction, partially offset by a $1.5 million decrease in pre-acquisition nonperforming assets.  

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

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

The allowance for loan losses to period end loans was 1.28% at December 31, 2014 compared to 1.41% at September 30, 2014. Excluding acquired loans, the allowance at December 31, 2014 represented 1.21% of non-acquired loans, compared to 1.27% of non-acquired loans at September 30, 2014. The allowance to loans, excluding acquired loans, is a non-GAAP financial measure. See the section titled "Non-GAAP Financial Measures" on the last pages of this earnings release for the reconciliation of the allowance for loan losses to period end 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 fourth quarter of 2014, Columbia recorded a provision for loan and lease losses of $1.7 million. For the comparable quarter last year, the Company had a provision recapture of $3.7 million. The provision for loan and lease losses recorded during the current quarter was primarily driven by establishing an allowance for loans acquired in the Intermountain transaction.

Net Interest Margin ("NIM")

Columbia's net interest margin (tax equivalent) of 4.50% for the fourth quarter of 2014 was down 35 basis points from the third quarter of 2014 margin of 4.85%. The decrease was due to the combination of the acquisition of Intermountain, the premium amortization adjustment on mortgage-backed securities recorded in the third quarter of 2014 and continued repricing within the loan portfolio. Compared to the fourth quarter of 2013, Columbia's net interest margin decreased 53 basis points from 5.03%, due, in part, to lower incremental accretion on acquired loans, which was $13.3 million for the prior year quarter, and only $8.8 million for the current quarter as well as the previously mentioned loan repricing.

Columbia's operating net interest margin (tax equivalent)⁽¹⁾ decreased to 4.17% for the fourth quarter of 2014, compared to 4.22% for the third quarter of 2014. The decrease was primarily due to a combination of a continuing low rate environment and the acquisition of Intermountain.

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:

Impact of FDIC Acquired Loan Accounting

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 and stems from the discount established at the time these loan portfolios were acquired. At December 31, 2014, the accretable yield on purchased credit impaired loans was $73.8 million. Accretable yield is subject to change based upon expected future loan cash flows, which are remeasured by Columbia on a quarterly basis. 

The $5.3 million change in the FDIC loss-sharing asset in the current quarter negatively affected noninterest income and consisted primarily of $5.1 million in amortization expense. Additional details of the components of the change in the FDIC loss-sharing asset are provided in tabular format on the following page in the section titled "Noninterest Income". With the expiration of our two most significant FDIC loss-sharing agreements on March 31, 2015, the amortization of our loss-sharing asset will continue to decline.

Fourth Quarter 2014 Results

Net Interest Income

Net interest income for the fourth quarter of 2014 was $78.8 million, an increase of $2.5 million compared to the third quarter of 2014. This increase was primarily due to the acquired loans and securities from the Intermountain transaction. Compared to the fourth quarter of 2013, net interest income increased by $1.6 million from $77.2 million. The increase from the prior year period is due to the acquired loans and securities from the acquisition of Intermountain and organic loan growth, tempered by the decline in incremental accretion income. For additional information regarding net interest income, see "Average Balances and Rates" tables.

Noninterest Income

Total noninterest income was $15.2 million for the fourth quarter of 2014, a decrease of $745 thousand compared to $15.9 million for the third quarter of 2014. This decrease was due to the gain of $565 thousand recorded during the third quarter related to the deposit premium realized on the sale of three branches to Sound Community Bancorp coupled with an additional $488 thousand in expense associated with the change in FDIC loss-sharing asset during the fourth quarter.

Compared to the fourth quarter of 2013, noninterest income increased by $4.6 million. The increase from the prior year period was primarily due to the expense recorded for the change in FDIC loss-sharing asset, which was $4.3 million less in the current quarter compared to the fourth quarter of 2013.

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 periods indicated:

Noninterest Expense
Total noninterest expense for the fourth quarter of 2014 was $64.2 million, an increase of $535 thousand, or 1% from $63.6 million for the same quarter in 2013. The small increase from the prior year period was due to additional ongoing noninterest expense resulting from the Intermountain acquisition and increased cost of OREO. These increases were partially offset by lower acquisition-related expenses of $4.6 million for the current quarter compared to $7.9 million for the prior year period. Of the $4.6 million in acquisition-related expenses recorded during the current quarter, $4.5 million related to the recently completed Intermountain acquisition and the remaining $119 thousand related to the West Coast acquisition. Compared to the third quarter of 2014, noninterest expense increased $4.2 million, due to the $1.3 million increase in acquisition-related expenses, an increase in cost of OREO as well as additional ongoing expense resulting from the Intermountain acquisition.

Organizational Update

Ms. Dressel commented, "We feel very fortunate to have added such a qualified team of bankers to the Columbia Bank family as the result of our acquisition of Intermountain. Throughout our footprint, our bankers remain committed to retaining and developing full service relationships with customers. We continue to have opportunity for growth in all of our markets. In particular, the Boise market is one of the areas on which we will concentrate in 2015."

Forbes Ranking 2015

"We are gratified to rank in the top 20 on the annual Forbes list of best banks in the country, based on safety and soundness measures," Ms. Dressel said. "Columbia ranked #17, a significant jump from our previous position of #31 a year ago. In addition, we ranked as the best in Washington State, and second in the Pacific Northwest for the fourth year in a row."

Conference Call Information

Columbia's management will discuss the fourth quarter 2014 results on a conference call scheduled for Thursday, January 29, 2015 at 1:00 p.m. PST (4:00 pm EST). Interested parties may listen to this discussion by calling 1-866-378-3802; Conference ID code #62154937.

A conference call replay will be available from approximately 4:00 p.m. PST on January 29, 2015 through midnight PST on February 5, 2015. The conference call replay can be accessed by dialing 1-855-859-2056 and entering Conference ID code #62154937. 

Annual Meeting of Shareholders 
Columbia Banking System's Annual Meeting of Shareholders will be held at 1:00 PDT on April 22, 2015, at the William W. Philip Hall at the University of Washington Tacoma., 1900 Commerce Street, Tacoma, Washington 98402.  The Hall is named in honor of William W. "Bill" Philip, who had a seminal role in establishing UW Tacoma, and was a co-founder of Columbia Bank.

Directions and parking information are available at www.tacoma.washington.edu/conference. 

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 78 branches in Washington, 60 in Oregon, and 16 in Idaho. For the eighth consecutive year, the bank was named in 2014 as one of Puget Sound Business Journal's "Washington's Best Workplaces." Columbia ranked in the top 20 on the 2015 Forbes list of best banks in the country, as well as ranking the best in Washington and second in the Pacific Northwest for the fourth 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, 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.

 

 

 

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:

Non-GAAP Financial Measures - Continued

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

Explanatory Note

Our two most significant FDIC loss-sharing agreements expire on March 31, 2015. As a result, a significant portion of receivables previously disclosed as "covered loans" will no longer be covered by FDIC loss-sharing. To prepare for this event, we have changed our consolidated balance sheet presentation, and reclassified our prior period balance sheets, to no longer differentiate between covered and non-covered loans. Further, when presenting certain loan portfolio details, we refer to loans acquired with deteriorated credit quality as "purchased credit impaired" loans. Purchased credit impaired loan balances approximate balances previously presented as "covered loans".

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SOURCE Columbia Banking System, Inc.