Highlights
• Record quarterly net income of $41.7 million; diluted earnings per share of $0.57, which included $0.03 per share negative impact from acquisition-related expenses
• Net interest margin of 4.29%, up 7 basis points from linked quarter
• Record second quarter loan production of $372.7 million
• Nonperforming assets to period end assets ratio decreased to 0.61%
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 second quarter 2018 earnings, “Our bankers had a very successful quarter in generating a record level of production, while at the same time working down nonperforming assets. Year over year, we have seen earnings before income taxes grow more than 35%.”
Balance Sheet
Total assets at June 30, 2018 were $12.63 billion, an increase of $98.0 million from March 31, 2018. Loans were $8.45 billion, up $114.5 million from March 31, 2018 as loan originations of $372.7 million and increased seasonal line utilization were partially offset by payments. Debt securities available for sale were $2.65 billion at June 30, 2018, an increase of $22.2 million, or 1% from $2.62 billion at March 31, 2018. Total deposits at June 30, 2018 were $10.38 billion, a decrease of $11.5 million from March 31, 2018. Core deposits comprised 95% of total deposits and were $9.89 billion at June 30, 2018, a decrease of $8.5 million from March 31, 2018. The average cost of total deposits for the quarter was 0.10%, unchanged from the first quarter of 2018.
Income Statement
Net Interest Income
Net interest income for the second quarter of 2018 was $116.7 million, an increase of $1.2 million from the linked quarter and an increase of $30.5 million from the prior year period. The increase from the linked quarter was due to higher rates on earning assets and 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 $23.7 million for the second quarter of 2018, an increase of $549 thousand from the first quarter of 2018. The linked quarter increase was principally due to higher card revenue and financial services and trust revenue, partially offset by lower other noninterest income.
Compared to the second quarter of 2017, noninterest income decreased by $443 thousand. The decrease was due to the lack of merchant processing revenue in the current quarter as a result of the sale of our merchant card services portfolio in the third quarter of 2017, partially offset by an increase in treasury management fees. As a result of the merchant card services portfolio 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 $855 thousand. 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 second quarter of 2018 was $84.6 million, a decrease of $1.3 million from the first quarter of 2018. After removing the effect of acquisition-related expenses of $2.8 million, noninterest expense for the current quarter was essentially flat from the linked quarter on the same basis as higher OREO and legal and professional fees were offset by lower compensation and employee benefits and other noninterest expense. Compared to the second quarter of 2017, noninterest expense increased $15.8 million. This increase was driven by additional, ongoing expenses resulting from our November 1, 2017 acquisition of Pacific Continental and $1.8 million higher acquisition-related expenses in the current quarter.
Provision for Income Taxes
Our effective tax rate for the current quarter was 19.3%, compared to 14.6% and 29.1% for the linked and prior year periods, respectively. The increase from the linked period is due to the tax benefit of discrete items such as share-based compensation recorded in the first quarter. The decrease from the prior year period was principally attributable to 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 second quarter of 2018 was 4.29%, an increase of 7 basis points from the linked quarter and 17 basis points from the prior year period. The increases were due to higher rates on interest-earning assets. Columbia’s operating net interest margin (tax equivalent)(1) was 4.27% for the second quarter of 2018, an increase of 9 basis points from the linked quarter and an increase of 18 basis points from the prior year period. These increases were due to higher rates on interest-earning assets, which more than offset the more modest increase in rates on interest bearing liabilities from the comparative periods.
Greg Sigrist, Columbia’s Executive Vice President and Chief Financial Officer, commented, “Columbia’s net interest margin continues to benefit from the strength of our core deposits.”
Asset Quality
At June 30, 2018, nonperforming assets to total assets were 0.61% compared to 0.72% at March 31, 2018. Total nonperforming assets decreased $13.4 million from the linked quarter due to a $9.0 million decrease in nonaccrual loans and a decrease in other real estate owned.
Andy McDonald, Columbia’s Executive Vice President and Chief Credit Officer, commented, “For the quarter, we enjoyed a modest decline in non-performing assets and saw continued positive migration in portfolio metrics overall. However, we took a rather large charge-off in the agricultural portfolio during the quarter, which principally drove the provision. Absent this event, it was a strong quarter for the bank from a credit perspective.”
The allowance for loan losses to period end loans was 0.95% at June 30, 2018 compared to 0.96% at March 31, 2018. For the second quarter of 2018, Columbia recorded a net provision for loan and lease losses of $4.0 million compared to a net provision of $5.9 million for the linked quarter and a net provision of $3.2 million for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter consisted of $4.6 million of provision expense for loan losses, excluding PCI loans and a provision recapture of $575 thousand for PCI loans.
Cash Dividend Announcement
Columbia will pay a regular cash dividend of $0.26 per common share on August 22, 2018 to shareholders of record as of the close of business on August 8, 2018.
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.” Columbia ranked 11th on the 2018 Forbes list of best banks.
More information about Columbia can be found on its website at www.columbiabank.com.
Full report can be found here: https://www.columbiabank.com/docs/default-source/press-releases/colb_2q_2018_earnings_release_for_prnewswire.pdf?sfvrsn=b6401207_2
