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Columbia Banking System Announces First Quarter 2018 Results and Increased Quarterly Cash Dividend

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Columbia Banking System Announces First Quarter 2018 Results and Increased Quarterly Cash Dividend

PR Newswire

TACOMA, Wash., April 26, 2018 /PRNewswire/ --

Columbia Banking System Logo. (PRNewsFoto/Columbia Banking System, Inc.)

Highlights

  • First quarter net income of $40.0 million; diluted earnings per share of $0.55, which included $0.04 per share negative impact from acquisition-related expenses
  • Net interest margin of 4.22%, up 2 basis points from linked quarter
  • Loan production for the quarter of $264.3 million
  • Pacific Continental core system conversion completed

Hadley Robbins, 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 2018 earnings, "Our first quarter 2018 loan production and line utilization reflected the seasonal pattern of being a low point in the year. In addition, earnings were impacted by $4.3 million of acquisition-related expense and an elevated provision for loan losses of $5.9 million." Mr. Robbins continued, "However, during the period, we crossed a significant milestone by completing the Pacific Continental core systems conversion and achieved a majority of the related cost saving initiatives. With the systems conversion behind us, we are well positioned to continue our focus on high quality earnings growth."

Balance Sheet

Total assets at March 31, 2018 were $12.53 billion, a decrease of $186.3 million from December 31, 2017. Loans were $8.34 billion, down $19.0 million from December 31, 2017 as loan originations of $264.3 million were offset by payments. Debt securities available for sale were $2.62 billion at March 31, 2018, a decrease of $113.7 million, or 4% from $2.74 billion at December 31, 2017. Total deposits at March 31, 2018 were $10.40 billion, a decrease of $136.6 million from December 31, 2017. Core deposits comprised 95% of total deposits and were $9.90 billion at March 31, 2018, a decrease of $142.4 million from December 31, 2017. The average cost of total deposits for the quarter was 0.10%, an increase of 2 basis points from the fourth quarter of 2017.

Income Statement

Net Interest Income

Net interest income for the first quarter of 2018 was $115.5 million, an increase of $9.3 million from the linked quarter and an increase of $28.8 million from the prior year period. The increase from both the linked quarter and prior year period was primarily due to income from earning assets acquired in the Pacific Continental transaction, which closed on November 1, 2017. For additional information regarding net interest income, see the "Net Interest Margin" section and the "Average Balances and Rates" table.

Noninterest Income

Noninterest income was $23.1 million for the first quarter of 2018, a decrease of $438 thousand from the fourth quarter of 2018. The linked quarter decrease was principally due to lower card revenue partially offset by higher deposit account and treasury management fees. The lower card revenue reflects our change to net presentation of interchange revenue pursuant to the adoption of new revenue recognition accounting guidance on January 1, 2018. Specifically, $1.3 million of payment card network expenses that would have historically been presented in other noninterest expense are now presented in card revenue. Compared to the first quarter of 2017, noninterest income decreased by $1.7 million principally due to a prior year BOLI benefit of $1.5 million recognized in other noninterest income.

Noninterest Expense

Total noninterest expense for the first quarter of 2018 was $86.0 million, an increase of $360 thousand from the fourth quarter of 2017. After removing the effect of acquisition-related expenses, noninterest expense for the current quarter increased $9.7 million from the linked quarter on the same basis. This increase was due to higher compensation and benefits as well as higher other noninterest expense. Compared to the first quarter of 2017, noninterest expense increased $17.0 million. This increase was driven by $2.9 million higher acquisition-related expenses in the current quarter as well as additional, ongoing expenses resulting from our November 1, 2017 acquisition of Pacific Continental.

Provision for Income Taxes

Our effective tax rate for the current quarter was 14.6%, compared to 61.5% and 26.6% for the linked and prior year periods, respectively. The decrease from both periods was principally attributable to the enactment of the Tax Cuts and Jobs Act on December 22, 2017. Specifically, the linked period's effective tax rate included a $12.2 million re-measurement charge so that our deferred tax assets at year-end 2017 reflected the new 21% corporate tax rate. The prior year period's effective tax rate reflected the then-enacted 35% corporate tax rate reduced by favorable tax attributes of certain earning assets and discrete tax benefits from share-based compensation.

Our effective tax rate remains below the statutory tax rate due to tax-exempt income from municipal securities, bank owned life insurance and certain loan receivables. In addition, the current period's rate reflects the tax benefit of discrete items such as share-based compensation. For 2018, we expect our effective tax rate to be approximately 19%.

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the first quarter of 2018 was 4.22%, an increase of 2 basis points from the linked quarter and prior year period. The increases were due to higher loan accretion income during the current quarter. Columbia's operating net interest margin (tax equivalent)(1) was 4.18% for the first quarter of 2018, a decline of 7 basis points from the linked quarter and an increase of 9 basis points from the prior year period. The decrease from the linked quarter was primarily due to a lower tax rate utilized for the tax equivalent components of our net interest income, which lowered the margin by 7 basis points. The increase from the prior year period was due to higher loan yields and volumes which more than offset the lower tax rates used in the current quarter.

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:



Three Months Ended



March 31,


December 31,


September 30,


June 30,


March 31,



2018


2017


2017


2017


2017



(dollars in thousands)

Incremental accretion income due to:











FDIC purchased credit impaired loans


$

329



$

265



$

972



$

753



$

2,117


Other acquired loans


3,370



2,482



1,903



2,356



1,948


Incremental accretion income


$

3,699



$

2,747



$

2,875



$

3,109



$

4,065













Net interest margin (tax equivalent)


4.22

%


4.20

%


4.20

%


4.12

%


4.20

%

Operating net interest margin (tax equivalent) (1)


4.18

%


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