Columbia Banking System Announces Fourth Quarter and Full Year 2017 Results and Quarterly Cash Dividend

TACOMA, Wash., Jan. 25, 2018 /PRNewswire/ --

Highlights

• Fourth quarter net income of $15.7 million; diluted earnings per share of $0.23, which included $0.31 per share negative impact from deferred tax asset re-measurement and acquisition-related expenses
• Record full year 2017 net income of $112.8 million; diluted earnings per share of $1.86
• QTD net interest margin of 4.20%, unchanged from linked quarter and up 9 basis points from prior year period
• Loan production for the quarter of $377.7 million and full year production of $1.20 billion
• Completed 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 fourth quarter 2017 earnings, "2017 was a year of tremendous change for our organization. I'm proud of our bankers for the resiliency they showed while maintaining a client centric focus during our executive succession activities. With the completion of our merger with Pacific Continental Corporation, we are excited to welcome a new group of talented bankers and an exceptional customer base to Columbia." Mr. Robbins continued, "While competitive pressures dampened loan growth, we had another solid year of production as our bankers grew relationships on both sides of the balance sheet. Our full year record earnings were helped, in part, by rising interest rates as evidenced by the 26 basis point expansion in our operating net interest margin during the year."

Significant Influences on the Quarter Ended December 31, 2017

Pacific Continental Acquisition

On November 1, 2017, we completed our acquisition of Pacific Continental Corporation. The table below summarizes the amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed:

In addition to the balance sheet impacts shown above, our reported net income for the current quarter was negatively impacted by $13.6 million in acquisition-related expenses stemming from the Pacific Continental transaction. Those charges impacted diluted earnings per share by approximately $0.13.

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. Beginning in 2018, the Tax Cuts and Jobs Act reduces the federal tax rate for corporations from 35% to 21% and changes or limits certain deductions. As a result of the lower corporate tax rate, during the current quarter, we recorded a re-measurement charge of $12.2 million to reduce our deferred tax assets. This adjustment increased provision for income taxes and negatively impacted diluted earnings per share by approximately $0.18.

Our effective tax rate for the current quarter was 61.5%, compared to 31.0% and 28.6% for the linked and prior year periods, respectively. The increase in the effective tax rate during the quarter resulted from the re-measurement of deferred tax assets.

The effective tax rate for 2017 was 36.6%, compared to 30.0% in 2016. The increase in 2017 was, again, related to the re-measurement of deferred tax assets. For 2018, we expect our effective tax rate to be approximately 19%.

Balance Sheet

Total assets at December 31, 2017 were $12.72 billion, an increase of $2.90 billion from September 30, 2017. Loans were $8.36 billion, up $1.85 billion from September 30, 2017 due to the acquisition of Pacific Continental as well as strong loan originations of $377.7 million. Securities available for sale were $2.74 billion at December 31, 2017, an increase of $535.0 million, or 24% from $2.21 billion at September 30, 2017, again, primarily due to the Pacific Continental acquisition. Total deposits at December 31, 2017 were $10.53 billion, an increase of $2.19 billion from September 30, 2017 primarily due to the acquisition of Pacific Continental. Core deposits comprised 95% of total deposits and were $10.04 billion at December 31, 2017, an increase of $2.04 billion from September 30, 2017. The average cost of total deposits for the quarter was 0.08%, an increase of 3 basis points from the third quarter of 2017.

Income Statement

Net Interest Income

Net interest income for the fourth quarter of 2017 was $106.2 million, an increase of $17.3 million from the linked period and an increase of $20.5 million from the prior year period. The increase from both the linked and prior year periods was primarily due to income from earning assets acquired in the Pacific Continental transaction. The increase from the prior year period was partially offset by $1.5 million lower incremental accretion income from purchased loans. 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 $23.6 million for the fourth quarter of 2017, a decrease of $13.5 million from the third quarter of 2017. The linked quarter decrease was principally due to the $14.0 million gain on the sale of the merchant card services portfolio recorded in the third quarter. Compared to the fourth quarter of 2016, noninterest income increased by $1.3 million principally due to a current quarter BOLI benefit of $1.2 million recognized in other noninterest income.

Noninterest Expense

Total noninterest expense for the fourth quarter of 2017 was $85.6 million, an increase of $18.1 million from the third quarter of 2017. The increase was primarily due to $13.6 million of acquisition-related expenses recorded in the current quarter compared to $1.2 million of such expenses in the linked quarter. The remaining increase was from additional, ongoing expenses resulting from the Pacific Continental acquisition. Compared to the fourth quarter of 2016, noninterest expense increased $20.6 million. This increase was also driven by higher acquisition-related expenses in the current quarter as well as additional, ongoing expenses resulting from the recent acquisition.

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the fourth quarter of 2017 was 4.20%, unchanged from the linked quarter and an increase of 9 basis points from the prior year period. The increase from the prior year quarter was 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 4.25% for the fourth quarter of 2017, an increase of 10 basis points from the linked quarter and an increase of 26 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:

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

Asset Quality

At December 31, 2017, nonperforming assets to total assets were 0.63% compared to 0.45% at September 30, 2017 and 0.35% at December 31, 2016. Total nonperforming assets increased $35.5 million from the linked quarter due to a $19.1 million increase attributable to the Pacific Continental acquisition with the remaining $16.4 million increase from non-acquired nonperforming assets.

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 0.91% at December 31, 2017 compared to 1.10% at September 30, 2017. For the fourth quarter of 2017, Columbia recorded a net provision for loan and lease losses of $3.3 million compared to a net provision recovery of $648 thousand for the linked quarter and a net provision of $18 thousand for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter consisted of $4.8 million of provision for loan losses for loans, excluding PCI loans (inclusive of a $1.9 million provision related to Pacific Continental), and a provision recovery of $1.5 million for PCI loans.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "Our nonperforming assets ratio ticked-up to sixty three basis points at year-end 2017. The increase was situational rather than a shift in the portfolio and was primarily driven by one specific credit downgrade along with the addition of Pacific Continental's activity, which accounted for 15 basis points of the total."

Organizational Update

Mr. Robbins commented, "We are honored to again be recognized by Forbes in its annual list of America's Best Banks. For 2018, we were ranked 11^th, our highest to date and up from 30^th in 2017. We also continue to give back to the communities we serve and call home. Our recently completed Warm Hearts Winter Drive raised over $220,000 and 6,500 winter clothing items for 58 homeless shelters across the Northwest." Mr. Robbins continued, "The success of our Warm Hearts campaign would not have been possible without the tireless efforts of our employees and the generous donations and support we received from clients and community members."

David Lawson, Columbia's Executive Vice President and Chief Human Resources Officer, stated, "We recently announced that Lisa Dow has been appointed Executive Vice President and Chief Risk Officer. We are excited for Lisa to join our executive committee and look forward to leveraging her 35 years of banking experience well into the future." Mr. Lawson continued, "The recent passage of tax reform legislation will allow us to improve the financial position for many of our nonexempt employees as well as enhance our community commitments. We are increasing our minimum wage to $15 per hour, investing additional funds to expand our training programs, and making a contribution to our foundation for employee directed giving."

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.22 per common share on February 21, 2018 to shareholders of record as of the close of business on February 7, 2018.

Conference Call Information

Columbia's management will discuss the fourth quarter and full-year 2017 financial results on a conference call scheduled for Thursday, January 25, 2018 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/columbiabankingsystemincao~9288084

The conference call can also be accessed on Thursday, January 25, 2018 at 1:00 p.m. Pacific Time (4:00 p.m. ET) by calling 888-286-8956; Conference ID code #9288084.

A replay of the call can be accessed beginning Friday, January 26, 2018 using the site:

https://engage.vevent.com/rt/columbiabankingsystemincao~9288084

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 eleventh on the 2018 Forbes annual list of America's 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, including the acquisition of Pacific Continental, 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 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.