Columbia Banking System Announces Fourth Quarter and Full Year 2018 Results, Quarterly and Special Cash Dividends

PRNewswire 24-Jan-2019 9:00 AM

TACOMA, Wash., Jan. 24, 2019 /PRNewswire/ --

Highlights

• Record full year 2018 net income of $172.9 million; diluted earnings per share of $2.36
• Fourth quarter net income of $44.7 million; diluted earnings per share of $0.61, which included $0.01 per share negative impact from acquisition-related expenses
• Record full year production of $1.43 billion and fourth quarter loan production of $388.4 million
• Deposit costs increased modestly but remained low at 15 basis points
• Nonperforming assets to period end assets ratio decreased to 0.46%
• Regular cash dividend increased to $0.28 while special cash dividend maintained at $0.14

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 fourth quarter 2018 earnings, "We had a record year in terms of net income and loan production. Our bankers did an exceptional job in a very competitive environment. We maintained a strong core deposit mix and low funding costs and actively managed our credit exposures, resulting in low levels of nonperforming assets."

Balance Sheet

Total assets at December 31, 2018 were $13.10 billion, an increase of $138.5 million from September 30, 2018. Loans were $8.39 billion, down $122.8 million from September 30, 2018 as loan originations of $388.4 million were offset by pay-downs and prepayments. Debt securities available for sale were $3.17 billion at December 31, 2018, an increase of $246.3 million, or 8% from $2.92 billion at September 30, 2018. Total deposits at December 31, 2018 were $10.46 billion, a decrease of $145.8 million from September 30, 2018 due to seasonal decline. Core deposits comprised 95% of total deposits and were $9.97 billion at December 31, 2018, a decrease of $110.8 million from September 30, 2018. Deposit mix remained consistent from September 30, 2018 with 50% noninterest bearing and 50% interest bearing. The average cost of total deposits for the quarter was 0.15%, an increase of 3 basis points from the third quarter of 2018.

Clint Stein, Columbia's Executive Vice President and Chief Operating Officer, stated, "We experienced our usual balance sheet seasonality during the fourth quarter.  The deposit portfolio is holding up well with no meaningful rate related attrition. The decrease in the loan portfolio was mostly related to reduced line utilization." Mr. Stein continued, "While elevated prepayments were still a factor during the quarter, they continued to moderate from levels experienced during the first half of 2018."

Income Statement

Net Interest Income

Net interest income for the fourth quarter of 2018 was $123.9 million, an increase of $1.1 million from the linked quarter and an increase of $17.7 million from the prior year period. The increase from the linked quarter was due to a combination of higher rates on earning assets and higher volumes of taxable securities. The increase from the prior year period was primarily due to income from earning assets acquired in the Pacific Continental acquisition, which closed on November 1, 2017, as well as higher rates on earning assets. 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 $20.4 million for the fourth quarter of 2018, a decrease of $617 thousand from the third quarter of 2018. The linked quarter decrease was principally due to lower loan revenue. Compared to the fourth quarter of 2017, noninterest income decreased by $3.2 million. The decrease from the prior year period was due to lower card revenue during the current quarter as we became subject to the interchange fee cap imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act's Durbin Amendment as of July 1, 2018. Also contributing to the decrease in noninterest income compared to the prior year period was our change to net presentation of interchange revenue pursuant to the adoption of new revenue recognition accounting guidance on January 1, 2018. Specifically, $1.2 million of payment card network expenses that would have historically been presented in other noninterest expense are now presented in card revenue.

Noninterest Expense

Total noninterest expense for the fourth quarter of 2018 was $87.0 million, an increase of $4.2 million from the third quarter of 2018. After removing the effect of acquisition-related expenses for the current quarter and the linked quarter, noninterest expense increased $4.8 million due to higher compensation and employee benefits and legal and professional fees. The increase in compensation and employee benefits expense was driven in part by higher health insurance expense and higher payroll costs associated with an additional day within the current quarter. The increase in legal and professional expense was due to implementation and consulting costs related to our digital strategy and other projects. Compared to the fourth quarter of 2017, noninterest expense increased by $1.4 million. After removing the acquisition-related expenses of $13.6 million from the fourth quarter of 2017, noninterest expense increased $14.5 million. This increase was primarily driven by higher compensation and employee benefits and legal expense resulting from the Pacific Continental acquisition.

Provision for Income Taxes

Our effective tax rate for the current quarter was 19.3%, compared to 19.7% and 61.5% for the linked and prior year periods, respectively. The decrease from the prior year period was principally attributable to the re-measurement charge of $12.2 million to reduce our deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which lowered the corporate tax rate to 21% from 35%. 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.

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the fourth quarter of 2018 was 4.40%, a decrease of 1 basis point from the linked quarter and an increase of 20 basis points from the prior year period. Columbia's operating net interest margin (tax equivalent)⁽¹⁾ was 4.38% for both the fourth quarter of 2018 and the linked quarter and increased 13 basis points from the prior year period. Although the net interest margin for the current quarter as compared to the linked quarter was flat, the increase from the prior year period was due to income from earning assets acquired in the Pacific Continental acquisition as well as higher rates on interest-earning assets, which more than offset the modest increase in rates on interest-bearing liabilities.

Greg Sigrist, Columbia's Executive Vice President and Chief Financial Officer, commented, "Our net interest margin continued to hold up well given the strength of our deposit franchise. We also added to our leverage strategy in the quarter. Although this muted the benefit of loans repricing in the quarter, the leverage strategy is an important tool to help position the Bank for a falling 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 December 31, 2018, nonperforming assets to total assets were 0.46% compared to 0.52% at September 30, 2018. Total nonperforming assets decreased $6.9 million from the linked quarter due to a $5.5 million decrease in nonaccrual loans and a $1.4 million decrease in other real estate owned.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "We are pleased with the progress that we have made in reducing the level of our nonperforming assets. Our nonperforming assets to total assets ratio was 0.46% which is below our general target of 0.50%.

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 0.99% at December 31, 2018 compared to 0.98% at September 30, 2018. For the fourth quarter of 2018, Columbia recorded a net provision for loan and lease losses of $1.8 million compared to a net provision of $3.2 million for the linked quarter and a net provision of $3.3 million for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter consisted of $1.9 million of provision expense for loans, excluding PCI loans and a recapture of $81 thousand for PCI loans.

Organizational Update

For the 8th consecutive year, Columbia was listed on the Forbes annual list of America's Best Banks, which measures asset quality, capital adequacy, net interest margin and profitability among the nation's largest publicly traded banks and thrifts. We were also recognized as an employer of choice in Oregon, joining the Oregonian's list of Top Workplaces 2018 and were named one of Washington's Best Workplaces for the 12th consecutive year by the Puget Sound Business Journal.

In addition to the recognition we received for dedication to providing a great place to work, we received recognition for our work in the community. We were pleased to receive the 2018 National Association of Secretaries of State Medallion by the Washington Secretary of State for outstanding work to improve lives in Washington communities. We were also delighted to receive the 2018 Corporate Citizenship Award for midsize companies in Washington State by the Puget Sound Business Journal and to be selected as one of Oregon's Most Admired companies by the Portland Business Journal. For the first time, Columbia was named the Top SBA Lender in Oregon by the Small Business Administration.

Mr. Robbins commented, "We were honored to be recognized for our commitment to our employees, our clients and our communities in the Northwest throughout the year. We were particularly pleased to receive recognition for our partnership and community support from the Springfield, Oregon and Beaverton Oregon Chambers of Commerce, two markets in the footprint of former Pacific Continental Bank."

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share and a special cash dividend of $0.14 per common share on February 20, 2019 to shareholders of record as of the close of business on February 6, 2019.

Conference Call Information

Columbia's management will discuss the fourth quarter and full-year 2018 financial results on a conference call scheduled for Thursday, January 24, 2019 at 1:00 p.m. Pacific Time (4:00 p.m. ET). Interested parties may join the live-streamed event by using the site:
https://engage.vevent.com/rt/columbiabankingsysteminc~012419

The conference call can also be accessed on Thursday, January 24, 2019 at 1:00 p.m. Pacific Time (4:00 p.m. ET) by calling 888-286-8956; Conference ID: 3096265.

A replay of the call can be accessed beginning Friday, January 25, 2019 using the site: https://engage.vevent.com/rt/columbiabankingsysteminc~012419

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 12th consecutive year, the bank was named in 2018 as one of Puget Sound Business Journal's "Washington's Best Workplaces." For the 8th consecutive year, Columbia was included in the 2019 Forbes America's Best Bank list.

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, include 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; (6) reliance on and cost of technology may increase; and (7) 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.