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Columbia Banking System Announces Third Quarter 2017 Results

TACOMA, Wash., Oct. 26, 2017 /PRNewswire/ --

Highlights

  • Third quarter net income of $40.8 million; diluted earnings per share of $0.70
  • Recorded $14.0 million pretax gain related to the merchant card services transition agreement
  • Net interest margin expanded to 4.20%
  • Loan production for the quarter of $255.2 million and growth of $88.9 million
  • Deposit growth of $269.3 million
  • Nonperforming assets to period end assets ratio remains low at 0.45%
  • Announced closing date of November 1, 2017 for merger with Pacific Continental Corporation

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 third quarter 2017 earnings, "I'm very pleased with our financial performance this quarter. As evidenced by the growth in both loans and deposits, our financial results reflect the commitment of our bankers to build durable long-term relationships that lead to sustainable revenue streams."

Balance Sheet

Total assets at September 30, 2017 were $9.81 billion, an increase of $129.5 million from June 30, 2017. Loans grew $88.9 million during the quarter due to strong loan originations of $255.2 million. Securities available for sale were $2.21 billion at September 30, 2017, a decrease of $56.8 million, or 3% from $2.26 billion at June 30, 2017. Total deposits at September 30, 2017 were $8.34 billion, an increase of $269.3 million from June 30, 2017. Core deposits comprised 96% of total deposits and were $8.00 billion at September 30, 2017, an increase of $277.7 million from June 30, 2017. The average cost of total deposits for the quarter was 0.05%, unchanged from the second quarter of 2017.

Income Statement

Net Interest Income

Net interest income for the third quarter of 2017 was $88.9 million, an increase of $2.8 million from the linked period and an increase of $3.4 million from the prior year period. The linked quarter increase was principally from loan interest income, driven by both higher rates and higher volumes for the quarter. This increase was partially offset by a decrease in incremental accretion from purchased loans, which was $234 thousand lower than the linked period. The increase from the prior year period was also due to higher loan interest income, driven principally by higher loan volumes, partially offset by lower incremental accretion. Incremental accretion income from purchased loans in the current period was $1.7 million lower than the prior year period. For additional information regarding net interest income, see the "Average Balances and Rates" table.

Noninterest Income

Noninterest income was $37.1 million for the third quarter of 2017, an increase of $12.9 million compared to $24.1 million for the second quarter of 2017. The linked quarter increase was principally due to the $14.0 million gain on the sale of the merchant card services portfolio. As a result of that sale, we now share with the buyer in merchant services revenue and include such amounts in "Card revenue." For the current quarter, this net revenue share was $438 thousand. Compared to the third quarter of 2016, noninterest income increased by $13.9 million due to the previously noted $14.0 million gain on sale of the merchant card services portfolio as well as higher other noninterest income, principally from a current quarter BOLI benefit of $1.0 million, with no such BOLI benefit in the prior year period.

Noninterest Expense

Total noninterest expense for the third quarter of 2017 was $67.5 million, a decrease of $1.3 million from the second quarter of 2017. The small improvement resulted from the $2.4 million charge from early termination of our FDIC loss-sharing agreements recorded in the linked quarter; the early termination charge was recognized in other noninterest expense. The decrease was partially offset by higher compensation expense in the current quarter.

Compared to the third quarter of 2016, noninterest expense was relatively unchanged. Increases in compensation and employee benefits and legal and professional fees were offset by decreases in advertising and promotion and merchant processing expenses. With respect to the latter, beginning July 1, 2017, the Company no longer directly incurs such costs.

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the third quarter of 2017 was 4.20%, an increase of 8 basis points from the linked quarter and an increase of 7 basis points from the prior year period. The increase from the linked quarter was due to higher yields on loans as a result of higher underlying rates. The increase from the prior year quarter was also due to higher yield on loans as well as higher loan volumes, partially offset by lower incremental accretion. Columbia's operating net interest margin (tax equivalent)(1) was 4.15% for the third quarter of 2017, an increase of 6 basis points from the linked quarter and an increase of 12 basis points from the prior year period due to higher loan yields and volumes.

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


Nine Months Ended



September 30,


June 30,


March 31,


December 31,


September 30,


September 30,


September 30,



2017


2017


2017


2016


2016


2017


2016



(dollars in thousands)

Incremental accretion income due to:















FDIC purchased credit impaired loans


$

972



$

753



$

2,117



$

1,199



$

1,816



$

3,842



$

4,773


Other acquired loans


1,903



2,356



1,948



3,087



2,749



6,207



8,896


Incremental accretion income


$

2,875



$

3,109



$

4,065



$

4,286



$

4,565



$

10,049



$

13,669

















Net interest margin (tax equivalent)


4.20

%


4.12

%


4.20

%


4.11

%


4.13

%


4.17

%


4.12

%

Operating net interest margin (tax equivalent) (1)


4.15

%


4.09

%


4.09

%


3.99

%


4.03

%


4.11

%


4.02

%

__________

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

Asset Quality

At September 30, 2017, nonperforming assets to total assets were 0.45% compared to 0.42% at June 30, 2017 and 0.35% at December 31, 2016. Total nonperforming assets increased $3.1 million from the linked quarter due to a $3.5 million increase in nonaccrual loans, partially offset by a decrease in other real estate owned.

The following table sets forth information regarding nonaccrual loans and total nonperforming assets:



September 30, 2017


June 30, 2017


December 31, 2016



(in thousands)

Nonaccrual loans:







Commercial business


$

25,213



$

24,747



$

11,555


Real estate:







One-to-four family residential


816



697



568


Commercial and multifamily residential


9,143



7,267



11,187


Total real estate


9,959



7,964



11,755


Real estate construction:







One-to-four family residential


239



241



563


Total real estate construction


239



241



563


Consumer


4,906



3,872



3,883


Total nonaccrual loans


40,317



36,824



27,756


Other real estate owned and other personal property owned


3,682



4,058



5,998


Total nonperforming assets


$

43,999



$

40,882



$

33,754


The following table provides an analysis of the Company's allowance for loan and lease losses:



Three Months Ended


Nine Months Ended



September 30,
2017


June 30, 2017


September 30,
2016


September 30,
2017


September 30,
2016



(in thousands)

Beginning balance


$

72,984



$

71,021



$

69,304



$

70,043



$

68,172


Charge-offs:











Commercial business


(1,362)



(3,600)



(2,159)



(6,089)



(8,873)


One-to-four family residential real estate




(153)





(460)



(35)


Commercial and multifamily residential real estate










(26)


One-to-four family residential real estate construction








(14)




Consumer


(263)



(465)



(383)



(1,156)



(983)


Purchased credit impaired


(1,633)



(1,800)



(2,062)



(5,372)



(7,826)


Total charge-offs


(3,258)



(6,018)



(4,604)



(13,091)



(17,743)


Recoveries:











Commercial business


688



2,944



854



3,997



2,269


One-to-four family residential real estate


40



223



81



380



142


Commercial and multifamily residential real estate


58



127



20



263



219


One-to-four family residential real estate construction


20



58



21



107



280


Commercial and multifamily residential real estate construction






107





109


Consumer


343



248



399



876



765


Purchased credit impaired


1,389



1,204



2,216



3,737



5,291


Total recoveries


2,538



4,804



3,698



9,360



9,075


Net charge-offs


(720)



(1,214)



(906)



(3,731)



(8,668)


Provision (recapture) for loan and lease losses


(648)



3,177



1,866



5,304



10,760


Ending balance


$

71,616



$

72,984



$

70,264



$

71,616



$

70,264


The allowance for loan losses to period end loans was 1.10% at September 30, 2017 compared to 1.14% at June 30, 2017. For the third quarter of 2017, Columbia recorded a net provision recovery for loan and lease losses of $648 thousand compared to a net provision of $3.2 million for the linked quarter and $1.9 million for the comparable quarter last year. The net provision recovery for loan and lease losses recorded during the current quarter consisted of $175 thousand of net provision recovery for loan losses for loans, excluding PCI loans, and a provision recovery of $473 thousand for PCI loans.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "For the third quarter our credit metrics remained stable and our loss rates continued to be exceptionally low, thus allowing us to recapture provision for the quarter."

Organizational Update

Mr. Robbins commented, "We are pleased to share the successful completion of our transition to the new Columbia Connect online banking platform. The new system launched in July, providing customers with expanded mobile and tablet access while paving the way for future enhancements including bank to bank transfers, customer to customer transfers and a personal financial management suite. We are also looking forward to the upcoming close of our merger with Pacific Continental Corporation on November 1, 2017. Teams at both banks have been working diligently to prepare a smooth transition for clients and employees. As a combined organization, we will continue to provide the customer-focused approach to banking that has been the hallmark of both brands."

Conference Call Information

Columbia's management will discuss the third quarter 2017 results on a conference call scheduled for Thursday, October 26, 2017 at 1:00 p.m. Pacific Time (4:00 p.m. ET). Interested parties may join the live-streamed event and a replay of the event by using the site:

https://engage.vevent.com/rt/columbiabankingsystemincao~94426798

The conference call can also be accessed on Thursday, October 26, 2017 at 1:00 p.m. Pacific Time (4:00 p.m. ET) by calling 888-286-8956; Conference ID code #94426798.

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 eleventh consecutive year, the bank was named in 2017 as one of Puget Sound Business Journal's "Washington's Best Workplaces." Columbia ranked in the top 30 on the 2017 Forbes list of best banks.

More information about Columbia can be found on its website at www.columbiabank.com.

Note Regarding Forward-Looking Statements

This news release includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include, but are not limited to, descriptions of Columbia's management's expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia's style of banking and the strength of the local economy. The words "will," "believe," "expect," "intend," "should," and "anticipate" or the negative of these words or words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risks and uncertainties, many of which are outside our control, that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in Columbia's filings with the Securities and Exchange Commission, available at the SEC's website at www.sec.gov and the Company's website at www.columbiabank.com, including the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q, (as applicable), factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (1) local, national and international economic conditions may be less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates could significantly reduce net interest income and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (4) costs or difficulties related to the integration of acquisitions may be greater than expected; (5) competitive pressure among financial institutions may increase significantly; (6) legislation or regulatory requirements or changes may adversely affect the businesses in which Columbia is engaged; and (7) the proposed merger with Pacific Continental Corporation ("Pacific Continental") may not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all, which may have an effect on the trading prices of Columbia's stock. 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.

Additional Information

In connection with the Agreement and Plan of Merger, dated as of January 9, 2017, by and between Columbia Banking System, Inc. and Pacific Continental, Columbia has filed with the SEC a Registration Statement on Form S-4 that includes a Joint Proxy Statement of Columbia and Pacific Continental and a Prospectus of Columbia, as well as other relevant documents concerning the proposed transaction. Shareholders of Columbia and Pacific Continental are urged to carefully read the Registration Statement and the Joint Proxy Statement/Prospectus regarding the transaction in their entirety and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain important information. Shareholders of Columbia and Pacific Continental are also urged to carefully review and consider each of Columbia's and Pacific Continental's public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. A definitive Joint Proxy Statement/Prospectus has been sent to the shareholders of each institution seeking any required shareholder approvals. The Joint Proxy Statement/Prospectus and other relevant materials filed with the SEC may be obtained free of charge at the SEC's Website at http://www.sec.gov. PACIFIC CONTINENTAL AND COLUMBIA SHAREHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND THE OTHER RELEVANT MATERIALS BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION.

Investors will also be able to obtain these documents, free of charge, from Pacific Continental by accessing Pacific Continental's website at www.therightbank.com under the link "Investor Relations" or from Columbia at www.columbiabank.com under the tab "About" and then under the heading "Investor Relations." Copies can also be obtained, free of charge, by directing a written request to Columbia, Attention: Corporate Secretary, 1301 A Street, Suite 800, Tacoma, Washington 98401-2156 or to Pacific Continental, Attention: Corporate Secretary, 111 West Seventh Avenue, P.O. Box 10727, Eugene Oregon 97440-2727.

Contacts:

Hadley S. Robbins,


President and


Chief Executive Officer




Clint E. Stein,


Executive Vice President and


Chief Financial Officer




Investor Relations


InvestorRelations@columbiabank.com


253-305-1921

FINANCIAL STATISTICS








Columbia Banking System, Inc.








Unaudited


Three Months Ended


Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,



2017


2017


2016


2017


2016

Earnings


(dollars in thousands except per share amounts)

Net interest income


$

88,929



$

86,161



$

85,572



$

261,765



$

247,882


Provision (recapture) for loan and lease losses


$

(648)



$

3,177



$

1,866



$

5,304



$

10,760


Noninterest income


$

37,067



$

24,135



$

23,166



$

86,061



$

65,752


Noninterest expense


$

67,537



$

68,867



$

67,264



$

205,390



$

196,128


Acquisition-related expense (included in noninterest expense)


$

1,171



$

1,023



$



$

3,558



$

2,436


Net income


$

40,769



$

27,132



$

27,484



$

97,100



$

74,148


Per Common Share











Earnings (basic)


$

0.70



$

0.47



$

0.47



$

1.67



$

1.28


Earnings (diluted)


$

0.70



$

0.47



$

0.47



$

1.67



$

1.28


Book value


$

22.77



$

22.23



$

21.96



$

22.77



$

21.96


Averages











Total assets


$

9,695,005



$

9,597,274



$

9,493,451



$

9,589,469



$

9,225,466


Interest-earning assets


$

8,750,561



$

8,651,735



$

8,544,876



$

8,641,706



$

8,279,639


Loans


$

6,441,537



$

6,325,462



$

6,179,163



$

6,322,629



$

6,002,656


Securities, including Federal Home Loan Bank stock


$

2,236,235



$

2,316,077



$

2,351,093



$

2,287,329



$

2,253,877


Deposits


$

8,187,337



$

7,965,868



$

7,918,532



$

8,036,805



$

7,663,099


Interest-bearing deposits


$

4,200,580



$

4,123,135



$

4,118,787



$

4,147,740



$

4,043,105


Interest-bearing liabilities


$

4,285,936



$

4,367,216



$

4,295,485



$

4,305,686



$

4,228,531


Noninterest-bearing deposits


$

3,986,757



$

3,842,733



$

3,799,745



$

3,889,065



$

3,619,994


Shareholders' equity


$

1,323,794



$

1,295,564



$

1,278,588



$

1,293,898



$

1,268,261


Financial Ratios











Return on average assets


1.68

%


1.13

%


1.16

%


1.35

%


1.07

%

Return on average common equity


12.32

%


8.38

%


8.60

%


10.01

%


7.80

%

Average equity to average assets


13.65

%


13.50

%


13.47

%


13.49

%


13.75

%

Net interest margin (tax equivalent)


4.20

%


4.12

%


4.13

%


4.17

%


4.12

%

Efficiency ratio (tax equivalent) (1)


52.09

%


60.42

%


60.02

%


57.26

%


60.62

%

Operating efficiency ratio (tax equivalent) (2)


56.47

%


57.23

%


60.47

%


57.58

%


59.58

%














September 30,


June 30,


December 31,





Period end


2017


2017


2016





Total assets


$

9,814,578



$

9,685,110



$

9,509,607






Loans, net of unearned income


$

6,512,006



$

6,423,074



$

6,213,423






Allowance for loan and lease losses


$

71,616



$

72,984



$

70,043






Securities, including Federal Home Loan Bank stock


$

2,218,113



$

2,280,996



$

2,288,817






Deposits


$

8,341,717



$

8,072,464



$

8,059,415






Core deposits


$

7,999,499



$

7,721,766



$

7,749,568






Shareholders' equity


$

1,328,428



$

1,297,314



$

1,251,012






Nonperforming assets











Nonaccrual loans


$

40,317



$

36,824



$

27,756






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


3,682



4,058



5,998






Total nonperforming assets


$

43,999



$

40,882



$

33,754






Nonperforming loans to period-end loans


0.62

%


0.57

%


0.45

%





Nonperforming assets to period-end assets


0.45

%


0.42

%


0.35

%





Allowance for loan and lease losses to period-end loans


1.10

%


1.14

%


1.13

%





Net loan charge-offs


$

720


(3)

$

1,214


(4)

$

239


(5)
















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

(2) The operating efficiency ratio (tax equivalent) is a non-GAAP financial measure. See section titled "Non-GAAP Financial Measures" on the last page of this earnings release for the reconciliation of the operating efficiency ratio (tax equivalent) to the efficiency ratio (tax equivalent).

(3) For the three months ended September 30, 2017.

(4) For the three months ended June 30, 2017.

(5) For the three months ended December 31, 2016.










QUARTERLY FINANCIAL STATISTICS








Columbia Banking System, Inc.








Unaudited


Three Months Ended



September 30,


June 30,


March 31,


December 31,


September 30,



2017


2017


2017


2016


2016



(dollars in thousands except per share)

Earnings



Net interest income


$

88,929



$

86,161



$

86,675



$

85,737



$

85,572


Provision (recapture) for loan and lease losses


$

(648)



$

3,177



$

2,775



$

18



$

1,866


Noninterest income


$

37,067



$

24,135



$

24,859



$

22,330



$

23,166


Noninterest expense


$

67,537



$

68,867



$

68,986



$

65,014



$

67,264


Acquisition-related expense (included in noninterest expense)


$

1,171



$

1,023



$

1,364



$

291



$


Net income


$

40,769



$

27,132



$

29,199



$

30,718



$

27,484


Per Common Share











Earnings (basic)


$

0.70



$

0.47



$

0.50



$

0.53



$

0.47


Earnings (diluted)


$

0.70



$

0.47



$

0.50



$

0.53



$

0.47


Book value


$

22.77



$

22.23



$

21.86



$

21.52



$

21.96


Averages











Total assets


$

9,695,005



$

9,597,274



$

9,473,698



$

9,568,214



$

9,493,451


Interest-earning assets


$

8,750,561



$

8,651,735



$

8,520,291



$

8,612,498



$

8,544,876


Loans


$

6,441,537



$

6,325,462



$

6,198,215



$

6,200,506



$

6,179,163


Securities, including Federal Home Loan Bank stock


$

2,236,235



$

2,316,077



$

2,310,490



$

2,314,521



$

2,351,093


Deposits


$

8,187,337



$

7,965,868



$

7,954,653



$

8,105,522



$

7,918,532


Interest-bearing deposits


$

4,200,580



$

4,123,135



$

4,118,604



$

4,151,695



$

4,118,787


Interest-bearing liabilities


$

4,285,936



$

4,367,216



$

4,263,660



$

4,222,820



$

4,295,485


Noninterest-bearing deposits


$

3,986,757



$

3,842,733



$

3,836,049



$

3,953,827



$

3,799,745


Shareholders' equity


$

1,323,794



$

1,295,564



$

1,261,652



$

1,274,388



$

1,278,588


Financial Ratios











Return on average assets


1.68

%


1.13

%


1.23

%


1.28

%


1.16

%

Return on average common equity


12.32

%


8.38

%


9.26

%


9.65

%


8.60

%

Average equity to average assets


13.65

%


13.50

%


13.32

%


13.32

%


13.47

%

Net interest margin (tax equivalent)


4.20

%


4.12

%


4.20

%


4.11

%


4.13

%

Period end











Total assets


$

9,814,578



$

9,685,110



$

9,527,272



$

9,509,607



$

9,586,754


Loans, net of unearned income


$

6,512,006



$

6,423,074



$

6,228,136



$

6,213,423



$

6,259,757


Allowance for loan and lease losses


$

71,616



$

72,984



$

71,021



$

70,043



$

70,264


Securities, including Federal Home Loan Bank stock


$

2,218,113



$

2,280,996



$

2,341,959



$

2,288,817



$

2,372,724


Deposits


$

8,341,717



$

8,072,464



$

8,088,827



$

8,059,415



$

8,057,816


Core deposits


$

7,999,499



$

7,721,766



$

7,794,590



$

7,749,568



$

7,809,064


Shareholders' equity


$

1,328,428



$

1,297,314



$

1,275,343



$

1,251,012



$

1,276,735


Nonperforming assets











Nonaccrual loans


$

40,317



$

36,824



$

25,547



$

27,756



$

21,366


OREO and OPPO


3,682



4,058



4,519



5,998



8,994


Total nonperforming assets


$

43,999



$

40,882



$

30,066



$

33,754



$

30,360


Nonperforming loans to period-end loans


0.62

%


0.57

%


0.41

%


0.45

%


0.34

%

Nonperforming assets to period-end assets


0.45

%


0.42

%


0.32

%


0.35

%


0.32

%

Allowance for loan and lease losses to period-end loans


1.10

%


1.14

%


1.14

%


1.13

%


1.12

%

Net loan charge-offs


$

720



$

1,214



$

1,797



$

239



$

906


LOAN PORTFOLIO COMPOSITION








Columbia Banking System, Inc.








Unaudited













September 30,


June 30,


March 31,


December 31,


September 30,



2017


2017


2017


2016


2016

Loan Portfolio Composition - Dollars


(dollars in thousands)

Commercial business


$

2,735,206



$

2,704,468



$

2,559,247



$

2,551,054



$

2,630,017


Real estate:











One-to-four family residential


176,487



173,150



172,581



170,331



168,511


Commercial and multifamily residential


2,825,794



2,787,560



2,783,433



2,719,830



2,686,783


Total real estate


3,002,281



2,960,710



2,956,014



2,890,161



2,855,294


Real estate construction:











One-to-four family residential


145,419



139,956



115,219



121,887



130,163


Commercial and multifamily residential


213,939



195,565



172,896



209,118



202,014


Total real estate construction


359,358



335,521



288,115



331,005



332,177


Consumer


323,913



323,187



318,069



329,261



325,741


Purchased credit impaired


120,477



129,853



138,903



145,660



152,764


Subtotal loans


6,541,235



6,453,739



6,260,348



6,247,141



6,295,993


Less: Net unearned income


(29,229)



(30,665)



(32,212)



(33,718)



(36,236)


Loans, net of unearned income


6,512,006



6,423,074



6,228,136



6,213,423



6,259,757


Less: Allowance for loan and lease losses


(71,616)



(72,984)



(71,021)



(70,043)



(70,264)


Total loans, net


6,440,390



6,350,090



6,157,115



6,143,380



6,189,493


Loans held for sale


$

7,802



$

6,918



$

3,245



$

5,846



$

3,361




September 30,


June 30,


March 31,


December 31,


September 30,

Loan Portfolio Composition - Percentages


2017


2017


2017


2016


2016

Commercial business


42.0

%


42.1

%


41.1

%


41.1

%


42.0

%

Real estate:











One-to-four family residential


2.7

%


2.7

%


2.8

%


2.7

%


2.7

%

Commercial and multifamily residential


43.3

%


43.5

%


44.7

%


43.7

%


43.0

%

Total real estate


46.0

%


46.2

%


47.5

%


46.4

%


45.7

%

Real estate construction:











One-to-four family residential


2.2

%


2.2

%


1.8

%


2.0

%


2.1

%

Commercial and multifamily residential


3.3

%


3.0

%


2.8

%


3.4

%


3.2

%

Total real estate construction


5.5

%


5.2

%


4.6

%


5.4

%


5.3

%

Consumer


5.0

%


5.0

%


5.1

%


5.3

%


5.2

%

Purchased credit impaired


1.9

%


2.0

%


2.2

%


2.3

%


2.4

%

Subtotal loans


100.4

%


100.5

%


100.5

%


100.5

%


100.6

%

Less: Net unearned income


(0.4)

%


(0.5)

%


(0.5)

%


(0.5)

%


(0.6)

%

Loans, net of unearned income


100.0

%


100.0

%


100.0

%


100.0

%


100.0

%

DEPOSIT COMPOSITION








Columbia Banking System, Inc.








Unaudited
























September 30,


June 30,


March 31,


December 31,


September 30,



2017


2017


2017


2016


2016

Deposit Composition - Dollars


(dollars in thousands)

Core deposits:











Demand and other non-interest bearing


$

4,119,950



$

3,905,652



$

3,958,106



$

3,944,495



$

3,942,434


Interest bearing demand


1,009,378



988,532



985,954



985,293



963,242


Money market


1,821,262



1,787,101



1,798,034



1,791,283



1,873,376


Savings


772,858



756,825



759,002



723,667



714,047


Certificates of deposit, less than $250,000


276,051



283,656



293,494



304,830



315,965


Total core deposits


7,999,499



7,721,766



7,794,590



7,749,568



7,809,064













Certificates of deposit, $250,000 or more


84,105



81,861



74,460



79,424



79,590


Certificates of deposit insured by CDARS®


20,690



19,276



20,994



22,039



16,951


Brokered money market accounts


237,421



249,554



198,768



208,348



152,151


Subtotal


8,341,715



8,072,457



8,088,812



8,059,379



8,057,756


Premium resulting from acquisition date fair value adjustment


2



7



15



36



60


Total deposits


$

8,341,717



$

8,072,464



$

8,088,827



$

8,059,415



$

8,057,816




September 30,


June 30,


March 31,


December 31,


September 30,

Deposit Composition - Percentages


2017


2017


2017


2016


2016

Core deposits:











Demand and other non-interest bearing


49.4

%


48.4

%


48.9

%


48.9

%


48.9

%

Interest bearing demand


12.1

%


12.2

%


12.2

%


12.2

%


12.0

%

Money market


21.8

%


22.1

%


22.2

%


22.2

%


23.2

%

Savings


9.3

%


9.4

%


9.4

%


9.0

%


8.9

%

Certificates of deposit, less than $250,000


3.3

%


3.5

%


3.6

%


3.8

%


3.9

%

Total core deposits


95.9

%


95.6

%


96.3

%


96.1

%


96.9

%












Certificates of deposit, $250,000 or more


1.0

%


1.0

%


0.9

%


1.0

%


1.0

%

Certificates of deposit insured by CDARS®


0.2

%


0.2

%


0.3

%


0.3

%


0.2

%

Brokered money market accounts


2.9

%


3.2

%


2.5

%


2.6

%


1.9

%

Total


100.0

%


100.0

%


100.0

%


100.0

%


100.0

%

CONSOLIDATED STATEMENTS OF INCOME







Columbia Banking System, Inc.







Unaudited


Three Months Ended


Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,



2017


2017


2016


2017


2016



(in thousands except per share)

Interest Income











Loans


$

78,641



$

75,579



$

74,956



$

228,340



$

216,923


Taxable securities


8,718



9,468



8,988



29,172



25,834


Tax-exempt securities


2,718



2,716



2,799



8,125



8,397


Deposits in banks


226



23



15



268



81


Total interest income


90,303



87,786



86,758



265,905



251,235


Interest Expense











Deposits


1,083



908



823



2,778



2,352


Federal Home Loan Bank advances


163



591



229



979



594


Other borrowings


128



126



134



383



407


Total interest expense


1,374



1,625



1,186



4,140



3,353


Net Interest Income


88,929



86,161



85,572



261,765



247,882


Provision (recapture) for loan and lease losses


(648)



3,177



1,866



5,304



10,760


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


89,577



82,984



83,706



256,461



237,122


Noninterest Income











Deposit account and treasury management fees


7,685



7,396



7,222



22,368



21,304


Card revenue


6,735



6,202



6,114



18,660



17,817


Financial services and trust revenue


2,645



3,036



2,746



8,520



8,347


Loan revenue


3,154



2,989



2,949



9,736



8,013


Merchant processing revenue




2,264



2,352



4,283



6,726


Bank owned life insurance


1,290



1,433



1,073



4,003



3,459


Investment securities gains, net






572





1,174


Change in FDIC loss-sharing asset




(173)



(104)



(447)



(2,197)


Gain on sale of merchant card services portfolio


14,000







14,000




Other


1,558



988



242



4,938



1,109


Total noninterest income


37,067



24,135



23,166



86,061



65,752


Noninterest Expense











Compensation and employee benefits


39,983



38,393



38,476



119,201



112,086


Occupancy


8,085



7,577



8,219



22,853



26,044


Merchant processing expense




1,147



1,161



2,196



3,312


Advertising and promotion


969



1,137



1,993



2,923



3,878


Data processing


4,122



4,741



4,275



13,071



12,350


Legal and professional fees


2,880



2,947



2,264



9,196



5,366


Taxes, licenses and fees


1,505



748



1,491



3,494



4,079


Regulatory premiums


782



741



776



2,299



2,985


Net cost (benefit) of operation of other real estate owned


271



(1)



(249)



422



(61)


Amortization of intangibles


1,188



1,249



1,460



3,786



4,526


Other


7,752



10,188



7,398



25,949



21,563


Total noninterest expense


67,537



68,867



67,264



205,390



196,128


Income before income taxes


59,107



38,252



39,608



137,132



106,746


Provision for income taxes


18,338



11,120



12,124



40,032



32,598


Net Income


$

40,769



$

27,132



$

27,484



$

97,100



$

74,148


Earnings per common share











Basic


$

0.70



$

0.47



$

0.47



$

1.67



$

1.28


Diluted


$

0.70



$

0.47



$

0.47



$

1.67



$

1.28


Dividends paid per common share - regular


$

0.22



$

0.22



$

0.20



$

0.66



$

0.57


Dividends paid per common share - special


$



$



$

0.19



$



$

0.57


Dividends paid per common share - total


$

0.22



$

0.22



$

0.39



$

0.66



$

1.14


Weighted average number of common shares outstanding


57,566



57,520



57,215



57,459



57,173


Weighted average number of diluted common shares outstanding


57,571



57,525



57,225



57,465



57,183


CONSOLIDATED BALANCE SHEETS









Columbia Banking System, Inc.









Unaudited







September 30,


June 30,


December 31,








2017


2017


2016








(in thousands)

ASSETS



Cash and due from banks




$

186,116



$

197,623



$

193,038


Interest-earning deposits with banks




136,578



14,425



31,200


Total cash and cash equivalents




322,694



212,048



224,238


Securities available for sale at fair value (amortized cost of $2,215,335, $2,272,959 and $2,299,037, respectively)


2,207,873



2,264,636



2,278,577


Federal Home Loan Bank stock at cost


10,240



16,360



10,240


Loans held for sale






7,802



6,918



5,846


Loans, net of unearned income of ($29,229), ($30,665) and ($33,718), respectively


6,512,006



6,423,074



6,213,423


Less: allowance for loan and lease losses




71,616



72,984



70,043


Loans, net






6,440,390



6,350,090



6,143,380


FDIC loss-sharing asset








3,535


Interest receivable






36,163



30,856



30,074


Premises and equipment, net




143,351



146,728



150,342


Other real estate owned




3,682



4,058



5,998


Goodwill






382,762



382,762



382,762


Other intangible assets, net




13,845



15,033



17,631


Other assets






245,776



255,621



256,984


Total assets






$

9,814,578



$

9,685,110



$

9,509,607


LIABILITIES AND SHAREHOLDERS' EQUITY







Deposits:











Noninterest-bearing






$

4,119,950



$

3,905,652



$

3,944,495


Interest-bearing






4,221,767



4,166,812



4,114,920


Total deposits






8,341,717



8,072,464



8,059,415


Federal Home Loan Bank advances




6,465



159,474



6,493


Securities sold under agreements to repurchase


40,933



65,895



80,822


Other liabilities






97,035



89,963



111,865


Total liabilities






8,486,150



8,387,796



8,258,595


Commitments and contingent liabilities



















September 30,


June 30,


December 31,








2017


2017


2016







Preferred stock (no par value)

(in thousands)







Authorized shares

2,000



2,000



2,000








Issued and outstanding





9







2,217


Common stock (no par value)












Authorized shares

115,000



115,000



115,000








Issued and outstanding

58,376



58,353



58,042



1,003,887



1,001,292



995,837


Retained earnings







330,474



302,550



271,957


Accumulated other comprehensive loss




(5,933)



(6,528)



(18,999)


Total shareholders' equity




1,328,428



1,297,314



1,251,012


Total liabilities and shareholders' equity




$

9,814,578



$

9,685,110



$

9,509,607


AVERAGE BALANCES AND RATES









Columbia Banking System, Inc.









Unaudited















Three Months Ended


Three Months Ended



September 30, 2017


September 30, 2016



Average

Balances


Interest

Earned / Paid


Average

Rate


Average

Balances


Interest

Earned / Paid


Average

Rate



(dollars in thousands)

ASSETS













Loans, net (1)(2)


$

6,441,537



$

80,136



4.98

%


$

6,179,163



$

76,195



4.93

%

Taxable securities


1,784,407



8,718



1.95

%


1,870,466



8,988



1.92

%

Tax exempt securities (2)


451,828



4,181



3.70

%


480,627



4,306



3.58

%

Interest-earning deposits with banks


72,789



226



1.24

%


14,620



15



0.41

%

Total interest-earning assets


8,750,561



$

93,261



4.26

%


8,544,876



$

89,504



4.19

%

Other earning assets


173,611







155,663






Noninterest-earning assets


770,833







792,912






Total assets


$

9,695,005







$

9,493,451







LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit


$

382,299



$

92



0.10

%


$

417,887



$

124



0.12

%

Savings accounts


766,540



19



0.01

%


705,923



18



0.01

%

Interest-bearing demand


1,000,079



223



0.09

%


961,527



189



0.08

%

Money market accounts


2,051,662



749



0.15

%


2,033,450



492



0.10

%

Total interest-bearing deposits


4,200,580



1,083



0.10

%


4,118,787



823



0.08

%

Federal Home Loan Bank advances


33,687



163



1.94

%


96,931



229



0.95

%

Other borrowings


51,669



128



0.99

%


79,767



134



0.67

%

Total interest-bearing liabilities


4,285,936



$

1,374



0.13

%


4,295,485



$

1,186



0.11

%

Noninterest-bearing deposits


3,986,757







3,799,745






Other noninterest-bearing liabilities


98,518







119,633






Shareholders' equity


1,323,794







1,278,588






Total liabilities & shareholders' equity


$

9,695,005







$

9,493,451






Net interest income (tax equivalent)


$

91,887







$

88,318




Net interest margin (tax equivalent)


4.20

%






4.13

%



(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 acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.8 million and $1.4 million for the three month periods ended September 30, 2017 and September 30, 2016, respectively. The incremental accretion on acquired loans was $2.9 million and $4.6 million for the three months ended September 30, 2017 and 2016, respectively.

(2)

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.5 million and $1.2 million for the three months ended September 30, 2017 and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million for both the three month periods ended September 30, 2017 and 2016.

AVERAGE BALANCES AND RATES











Columbia Banking System, Inc.











Unaudited















Three Months Ended


Three Months Ended



September 30, 2017


June 30, 2017



Average

Balances


Interest

Earned / Paid


Average

Rate


Average

Balances


Interest

Earned / Paid


Average

Rate



(dollars in thousands)

ASSETS













Loans, net (1)(2)


$

6,441,537



$

80,136



4.98

%


$

6,325,462



$

77,030



4.87

%

Taxable securities


1,784,407



8,718



1.95

%


1,861,895



9,468



2.03

%

Tax exempt securities (2)


451,828



4,181



3.70

%


454,182



4,179



3.68

%

Interest-earning deposits with banks


72,789



226



1.24

%


10,196



23



0.90

%

Total interest-earning assets


8,750,561



$

93,261



4.26

%


8,651,735



$

90,700



4.19

%

Other earning assets


173,611







173,044






Noninterest-earning assets


770,833







772,495






Total assets


$

9,695,005







$

9,597,274







LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit


$

382,299



$

92



0.10

%


$

386,361



$

95



0.10

%

Savings accounts


766,540



19



0.01

%


755,253



19



0.01

%

Interest-bearing demand


1,000,079



223



0.09

%


983,936



192



0.08

%

Money market accounts


2,051,662



749



0.15

%


1,997,585



602



0.12

%

Total interest-bearing deposits


4,200,580



1,083



0.10

%


4,123,135



908



0.09

%

Federal Home Loan Bank advances


33,687



163



1.94

%


195,369



591



1.21

%

Other borrowings


51,669



128



0.99

%


48,712



126



1.03

%

Total interest-bearing liabilities


4,285,936



$

1,374



0.13

%


4,367,216



$

1,625



0.15

%

Noninterest-bearing deposits


3,986,757







3,842,733






Other noninterest-bearing liabilities


98,518







91,761






Shareholders' equity


1,323,794







1,295,564






Total liabilities & shareholders' equity


$

9,695,005







$

9,597,274






Net interest income (tax equivalent)


$

91,887







$

89,075




Net interest margin (tax equivalent)


4.20

%






4.12

%



(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 acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.8 million for both the three month periods ended September 30, 2017 and June 30, 2017. The incremental accretion on acquired loans was $2.9 million and $3.1 million for the three months ended September 30, 2017 and June 30, 2017, respectively.

(2)

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.5 million for both the three months ended September 30, 2017 and June 30, 2017. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million for both the three month periods ended September 30, 2017 and June 30, 2017.

AVERAGE BALANCES AND RATES











Columbia Banking System, Inc.











Unaudited















Nine Months Ended September 30,


Nine Months Ended September 30,



2017


2016



Average

Balances


Interest

Earned / Paid


Average

Rate


Average

Balances


Interest

Earned / Paid


Average

Rate



(dollars in thousands)

ASSETS













Loans, net (1)(2)


$

6,322,629



$

232,680



4.91

%


$

6,002,656



$

220,445



4.90

%

Taxable securities


1,835,693



29,172



2.12

%


1,787,288



25,834



1.93

%

Tax exempt securities (2)


451,636



12,500



3.69

%


466,589



12,918



3.69

%

Interest-earning deposits with banks


31,748



268



1.13

%


23,106



81



0.47

%

Total interest-earning assets


8,641,706



$

274,620



4.24

%


8,279,639



$

259,278



4.18

%

Other earning assets


174,898







154,950






Noninterest-earning assets


772,865







790,877






Total assets


$

9,589,469







$

9,225,466







LIABILITIES AND SHAREHOLDERS' EQUITY

Certificates of deposit


$

389,260



$

282



0.10

%


$

431,643



$

408



0.13

%

Savings accounts


753,577



57



0.01

%


691,379



53



0.01

%

Interest-bearing demand


985,625



574



0.08

%


946,437



541



0.08

%

Money market accounts


2,019,278



1,865



0.12

%


1,973,646



1,350



0.09

%

Total interest-bearing deposits


4,147,740



2,778



0.09

%


4,043,105



2,352



0.08

%

Federal Home Loan Bank advances


103,369



979



1.26

%


103,023



594



0.77

%

Other borrowings


54,577



383



0.94

%


82,403



407



0.66

%

Total interest-bearing liabilities


4,305,686



$

4,140



0.13

%


4,228,531



$

3,353



0.11

%

Noninterest-bearing deposits


3,889,065







3,619,994






Other noninterest-bearing liabilities


100,820







108,680






Shareholders' equity


1,293,898







1,268,261






Total liabilities & shareholders' equity


$

9,589,469







$

9,225,466






Net interest income (tax equivalent)


$

270,480







$

255,925




Net interest margin (tax equivalent)


4.17

%






4.12

%



(1)

Nonaccrual loans have been included in the table as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $5.2 million and $3.6 million for the nine months ended September 30, 2017 and 2016, respectively. The incremental accretion on acquired loans was $10.0 million and $13.7 million for the nine months ended September 30, 2017 and 2016, respectively.

(2)

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $4.3 million and $3.5 million for the nine months ended September 30, 2017 and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $4.4 million and $4.5 million for the nine months ended September 30, 2017 and 2016, respectively.

Non-GAAP Financial Measures

The Company considers its operating net interest margin and operating efficiency ratios to be useful measurements as they more closely reflect the ongoing operating performance of the Company. Despite the usefulness of the operating net interest margin and operating efficiency ratio to the Company, there are no standardized definitions for them and, as a result, the Company's calculations may not be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

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



Three Months Ended


Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,



2017


2017


2016


2017


2016

Operating net interest margin non-GAAP reconciliation:


(dollars in thousands)

Net interest income (tax equivalent) (1)


$

91,887



$

89,075



$

88,318



$

270,480



$

255,925


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











Incremental accretion income on FDIC purchased credit impaired loans


(972)



(753)



(1,816)



(3,842)



(4,773)


Incremental accretion income on other acquired loans


(1,903)



(2,356)



(2,749)



(6,207)



(8,896)


Premium amortization on acquired securities


1,527



1,669



1,991



4,658



6,390


Interest reversals on nonaccrual loans


311



747



266



1,323



826


Operating net interest income (tax equivalent) (1)


$

90,850



$

88,382



$

86,010



$

266,412



$

249,472


Average interest earning assets


$

8,750,561



$

8,651,735



$

8,544,876



$

8,641,706



$

8,279,639


Net interest margin (tax equivalent) (1)


4.20

%


4.12

%


4.13

%


4.17

%


4.12

%

Operating net interest margin (tax equivalent) (1)


4.15

%


4.09

%


4.03

%


4.11

%


4.02

%



Three Months Ended


Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,



2017


2017


2016


2017


2016

Operating efficiency ratio non-GAAP reconciliation:


(dollars in thousands)

Noninterest expense (numerator A)


$

67,537



$

68,867



$

67,264



$

205,390



$

196,128


Adjustments to arrive at operating noninterest expense:











Acquisition-related expenses


(1,171)



(1,023)





(3,558)



(2,436)


Net benefit (cost) of operation of OREO and OPPO


(271)



1



254



(420)



68


FDIC clawback liability recovery (expense)






(29)



54



(308)


Loss on asset disposals




(8)



(31)



(14)



(198)


Termination of FDIC loss share agreements charge




(2,409)





(2,409)




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


(1,394)



(642)



(1,382)



(3,159)



(3,757)


Operating noninterest expense (numerator B)


$

64,701



$

64,786



$

66,076



$

195,884



$

189,497













Net interest income (tax equivalent) (1)


$

91,887



$

89,075



$

88,318



$

270,480



$

255,925


Noninterest income


37,067



24,135



23,166



86,061



65,752


Bank owned life insurance tax equivalent adjustment


695



772



577



2,156



1,862


Total revenue (tax equivalent) (denominator A)


$

129,649



$

113,982



$

112,061



$

358,697



$

323,539













Operating net interest income (tax equivalent) (1)


$

90,850



$

88,382



$

86,010



$

266,412



$

249,472


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











Investment securities gains, net






(572)





(1,174)


Gain on asset disposals


(38)



(256)



(16)



(323)



(72)


Mortgage loan repurchase liability adjustment








(573)




Change in FDIC loss-sharing asset




173



104



447



2,197


Gain on sale of merchant card services portfolio


(14,000)







(14,000)




Operating noninterest income (tax equivalent)


23,724



24,824



23,259



73,768



68,565


Total operating revenue (tax equivalent) (denominator B)


$

114,574



$

113,206



$

109,269



$

340,180



$

318,037


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


52.09

%


60.42

%


60.02

%


57.26

%


60.62

%

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


56.47

%


57.23

%


60.47

%


57.58

%


59.58

%

__________

(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 $3.0 million, $2.9 million and $2.7 million for the three month periods ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively; and $8.7 million and $8.0 million for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.

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SOURCE Columbia Banking System, Inc.