CONSOLIDATED
CONDENSED BALANCE SHEETS
Columbia
Banking System, Inc.
(Unaudited)
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
(in
thousands)
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
|
|
|
|
|
$ |
61,201 |
|
|
$ |
84,787 |
|
Interest-earning
deposits with banks
|
|
|
|
|
|
|
|
|
317 |
|
|
|
3,943 |
|
Total
cash and cash equivalents
|
|
|
|
|
|
|
|
|
61,518 |
|
|
|
88,730 |
|
Securities
available for sale at fair value (amortized cost of $538,835 and $525,110,
respectively)
|
|
|
|
|
|
|
|
|
544,367 |
|
|
|
528,918 |
|
Federal
Home Loan Bank stock at cost
|
|
|
|
|
|
|
|
|
11,607 |
|
|
|
11,607 |
|
Loans
held for sale
|
|
|
|
|
|
|
|
|
3,747 |
|
|
|
1,964 |
|
Loans,
net of deferred loan fees of ($4,065) and ($4,033),
respectively
|
|
|
|
|
|
|
2,185,755 |
|
|
|
2,232,332 |
|
Less:
allowance for loan and lease losses
|
|
|
|
|
|
|
|
|
44,249 |
|
|
|
42,747 |
|
Loans,
net
|
|
|
|
|
|
|
|
|
2,141,506 |
|
|
|
2,189,585 |
|
Interest
receivable
|
|
|
|
|
|
|
|
|
11,388 |
|
|
|
11,646 |
|
Premises
and equipment, net
|
|
|
|
|
|
|
|
|
61,123 |
|
|
|
61,139 |
|
Other
real estate owned
|
|
|
|
|
|
|
|
|
4,312 |
|
|
|
2,874 |
|
Goodwill
|
|
|
|
|
|
|
|
|
95,519 |
|
|
|
95,519 |
|
Core
deposit intangible, net
|
|
|
|
|
|
|
|
|
5,638 |
|
|
|
5,908 |
|
Other
assets
|
|
|
|
|
|
|
|
|
105,032 |
|
|
|
99,189 |
|
Total
Assets
|
|
|
|
|
|
|
|
$ |
3,045,757 |
|
|
$ |
3,097,079 |
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
|
|
|
|
|
|
$ |
474,736 |
|
|
$ |
466,078 |
|
Interest-bearing
|
|
|
|
|
|
|
|
|
1,869,670 |
|
|
|
1,916,073 |
|
Total
deposits
|
|
|
|
|
|
|
|
|
2,344,406 |
|
|
|
2,382,151 |
|
Federal
Home Loan Bank and Federal Reserve Bank borrowings
|
|
|
|
|
|
|
|
|
183,000 |
|
|
|
200,000 |
|
Securities
sold under agreements to repurchase
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
Other
borrowings
|
|
|
|
|
|
|
|
|
275 |
|
|
|
201 |
|
Long-term
subordinated debt
|
|
|
|
|
|
|
|
|
25,620 |
|
|
|
25,603 |
|
Other
liabilities
|
|
|
|
|
|
|
|
|
51,739 |
|
|
|
48,739 |
|
Total
liabilities
|
|
|
|
|
|
|
|
|
2,630,040 |
|
|
|
2,681,694 |
|
Commitments
and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Preferred
stock (no par value, 76,898 aggregate liquidation
preference)
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
shares
|
|
|
2,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
Issued
and outstanding
|
|
|
77 |
|
|
|
77 |
|
|
|
73,875 |
|
|
|
73,743 |
|
Common
Stock (no par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
shares
|
|
|
63,033 |
|
|
|
63,033 |
|
|
|
|
|
|
|
|
|
Issued
and outstanding
|
|
|
18,254 |
|
|
|
18,151 |
|
|
|
233,704 |
|
|
|
233,192 |
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
|
102,753 |
|
|
|
103,061 |
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
5,385 |
|
|
|
5,389 |
|
Total
shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
415,717 |
|
|
|
415,385 |
|
Total
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
$ |
3,045,757 |
|
|
$ |
3,097,079 |
|
|
See
accompanying notes to unaudited consolidated condensed financial
statements.
|
CONSOLIDATED
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia
Banking System, Inc.
(Unaudited)
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Number
of
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
(in
thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Equity
|
|
Balance
at January 1, 2008
|
|
|
-
- |
|
|
$ |
-
- |
|
|
|
17,953 |
|
|
$ |
226,550 |
|
|
$ |
110,169 |
|
|
$ |
5,012 |
|
|
$ |
341,731 |
|
Cumulative
effect of applying EITF 06-4 consensus
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(2,155 |
) |
|
|
-
- |
|
|
|
(2,155 |
) |
Adjusted
balance
|
|
|
-
- |
|
|
|
-
- |
|
|
|
17,953 |
|
|
|
226,550 |
|
|
|
108,014 |
|
|
|
5,012 |
|
|
|
339,576 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
10,977 |
|
|
|
-
- |
|
|
|
10,977 |
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain from securities, net of reclassification
adjustments
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1,904 |
|
|
|
1,904 |
|
Net
unrealized gain from cash flow hedging instruments
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
663 |
|
|
|
663 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,544 |
|
Common
stock issued - stock option and other plans
|
|
|
-
- |
|
|
|
-
- |
|
|
|
67 |
|
|
|
1,084 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1,084 |
|
Common
stock issued - restricted stock awards, net of cancelled
awards
|
|
|
-
- |
|
|
|
-
- |
|
|
|
64 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
Share-based
payment
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
384 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
384 |
|
Tax
benefit associated with share-based compensation
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
138 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
138 |
|
Cash
dividends paid on common stock
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(3,059 |
) |
|
|
-
- |
|
|
|
(3,059 |
) |
Balance
at March 31, 2008
|
|
|
-
- |
|
|
$ |
-
- |
|
|
|
18,084 |
|
|
$ |
228,156 |
|
|
$ |
115,932 |
|
|
$ |
7,579 |
|
|
$ |
351,667 |
|
Balance
at January 1, 2009
|
|
|
77 |
|
|
$ |
73,743 |
|
|
|
18,151 |
|
|
$ |
233,192 |
|
|
$ |
103,061 |
|
|
$ |
5,389 |
|
|
$ |
415,385 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1,512 |
|
|
|
-
- |
|
|
|
1,512 |
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain from securities, net of reclassification
adjustments
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1,113 |
|
|
|
1,113 |
|
Net
unrealized loss from cash flow hedging instruments
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(428 |
) |
|
|
(428 |
) |
Net
unrealized loss from unfunded defined benefit plan
liability
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(689 |
) |
|
|
(689 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,508 |
|
Accretion
of preferred stock discount
|
|
|
-
- |
|
|
|
132 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(132 |
) |
|
|
-
- |
|
|
|
-
- |
|
Common
stock issued - stock option and other plans
|
|
|
-
- |
|
|
|
|
|
|
|
20 |
|
|
|
242 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
242 |
|
Common
stock issued - restricted stock awards, net of cancelled
awards
|
|
|
-
- |
|
|
|
-
- |
|
|
|
83 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
Share-based
payment
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
302 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
302 |
|
Tax
benefit deficiency associated with share-based
compensation
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(32 |
) |
|
|
-
- |
|
|
|
-
- |
|
|
|
(32 |
) |
Preferred
dividends accrued/paid
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(961 |
) |
|
|
-
- |
|
|
|
(961 |
) |
Cash
dividends paid on common stock
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(727 |
) |
|
|
-
- |
|
|
|
(727 |
) |
Balance
at March 31, 2009
|
|
|
77 |
|
|
$ |
73,875 |
|
|
|
18,254 |
|
|
$ |
233,704 |
|
|
$ |
102,753 |
|
|
$ |
5,385 |
|
|
$ |
415,717 |
|
See
accompanying notes to unaudited consolidated condensed financial
statements
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
Columbia
Banking System, Inc.
(Unaudited)
|
|
Three
Months Ended March 31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
Income
|
|
$ |
1,512 |
|
|
$ |
10,977 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
Provision
for loan and lease losses
|
|
|
11,000 |
|
|
|
2,076 |
|
Deferred
income tax benefit
|
|
|
(359 |
) |
|
|
(220 |
) |
Excess
tax benefit from stock-based compensation
|
|
|
-
- |
|
|
|
(138 |
) |
Stock-based
compensation expense
|
|
|
302 |
|
|
|
384 |
|
Depreciation,
amortization and accretion
|
|
|
1,673 |
|
|
|
1,708 |
|
Net
realized gain on sale of securities
|
|
|
-
- |
|
|
|
(882 |
) |
Net
realized gain on sale of other assets
|
|
|
(15 |
) |
|
|
(46 |
) |
Gain
on termination of cash flow hedging instruments
|
|
|
(663 |
) |
|
|
-
- |
|
Net
change in:
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
(1,783 |
) |
|
|
(1,462 |
) |
Interest
receivable
|
|
|
258 |
|
|
|
422 |
|
Interest
payable
|
|
|
(1,199 |
) |
|
|
1,204 |
|
Other
assets
|
|
|
(5,717 |
) |
|
|
(3,789 |
) |
Other
liabilities
|
|
|
3,335 |
|
|
|
3,243 |
|
Net
cash provided by operating activities
|
|
|
8,344 |
|
|
|
13,477 |
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(27,117 |
) |
|
|
(76,907 |
) |
Proceeds
from sales of securities available for sale
|
|
|
-
- |
|
|
|
51,358 |
|
Proceeds
from principal repayments and maturities of securities available for
sale
|
|
|
13,218 |
|
|
|
8,545 |
|
Loans
originated and acquired, net of principal collected
|
|
|
34,309 |
|
|
|
(19,489 |
) |
Purchases
of premises and equipment
|
|
|
(1,178 |
) |
|
|
(1,425 |
) |
Proceeds
from disposal of premises and equipment
|
|
|
-
- |
|
|
|
12 |
|
Purchase
of FHLB stock
|
|
|
-
- |
|
|
|
(4,834 |
) |
Proceeds
from termination of cash flow hedging instruments
|
|
|
-
- |
|
|
|
8,093 |
|
Proceeds
from sales of other real estate and other personal property
owned
|
|
|
1,297 |
|
|
|
204 |
|
Net
cash provided by(used in) investing activities
|
|
|
20,529 |
|
|
|
(34,443 |
) |
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net
increase(decrease) in deposits
|
|
|
(37,745 |
) |
|
|
28,453 |
|
Proceeds
from Federal Home Loan Bank and Federal Reserve Bank
borrowings
|
|
|
414,000 |
|
|
|
873,268 |
|
Repayment
from Federal Home Loan Bank and Federal Reserve Bank
borrowings
|
|
|
(431,000 |
) |
|
|
(874,538 |
) |
Proceeds
from repurchase agreement borrowings
|
|
|
-
- |
|
|
|
25,000 |
|
Net
increase in other borrowings
|
|
|
74 |
|
|
|
260 |
|
Cash
dividends paid
|
|
|
(1,624 |
) |
|
|
(3,059 |
) |
Proceeds
from issuance of common stock
|
|
|
210 |
|
|
|
1,084 |
|
Excess
tax benefit from stock-based compensation
|
|
|
-
- |
|
|
|
138 |
|
Net
cash provided by(used in) financing activities
|
|
|
(56,085 |
) |
|
|
50,606 |
|
Increase(decrease)
in cash and cash equivalents
|
|
|
(27,212 |
) |
|
|
29,640 |
|
Cash
and cash equivalents at beginning of period
|
|
|
88,730 |
|
|
|
93,975 |
|
Cash
and cash equivalents at end of period
|
|
$ |
61,518 |
|
|
$ |
123,615 |
|
Supplemental
Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
9,325 |
|
|
$ |
16,902 |
|
Cash
paid for income tax
|
|
$ |
500 |
|
|
$ |
150 |
|
Loans
transferred to other real estate owned
|
|
$ |
2,738 |
|
|
$ |
-
- |
|
|
See
accompanying notes to unaudited consolidated condensed financial
statements.
|
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
|
Columbia
Banking System, Inc.
1.
Basis of Presentation and Significant Accounting Policies
(a)
|
Basis
of Presentation
|
The
interim unaudited consolidated condensed financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for condensed interim financial information and with instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain financial
information and footnotes have been omitted or condensed. The consolidated
condensed financial statements include the accounts of the Company, and its
wholly owned banking subsidiary Columbia Bank. All intercompany transactions and
accounts have been eliminated in consolidation. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair statement of the results for the interim periods presented
have been included. The results of operations for the three months
ended March 31, 2009 are not necessarily indicative of results to be anticipated
for the year ending December 31, 2009. The accompanying interim unaudited
consolidated condensed financial statements should be read in conjunction with
the financial statements and related notes contained in the Company’s 2008
Annual Report on Form 10-K.
(b)
|
Significant
Accounting Policies
|
The
significant accounting policies used in preparation of our consolidated
financial statements are disclosed in our 2008 Annual Report on Form 10-K. There
have not been any other changes in our significant accounting policies compared
to those contained in our 2008 10-K disclosure for the year ended
December 31, 2008.
2.
Accounting Pronouncements Recently Issued or Adopted
Recently
Issued Accounting Pronouncements
In April
2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make it more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities. This
FSP will be effective for interim and annual reporting periods ending after June
15, 2009 with early adoption permitted for periods ending after March 15,
2009. The Company plans to adopt this FSP for its interim reporting
period ending June 30, 2009. The Company is evaluating the effect on its
financial condition and results of operations of applying the guidance in this
FSP.
In April 2009,
the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about FairValue
of Financial Instruments. This FSP requires disclosures about
the fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial
statements. This FSP also amends APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP will be effective
for interim reporting periods ending after June 15, 2009 with early adoption
permitted for periods ending after March 15, 2009. The Company plans
to adopt this FSP for its interim reporting period ending June 30,
2009. Because FSP No 107-1 impacts the Company’s disclosure and not
its accounting treatment for financial instruments, adoption of this FSP will
not impact the Company’s financial condition or results of
operations.
In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly. This FSP provides additional guidance for estimating
fair value in accordance with FASB Statement No. 157, Fair Value Measurements,
when the transaction volume and level of market activity for the asset or
liability have significantly decreased. This FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. This FSP will be effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied
prospectively. Early adoption is permitted for periods ending after
March 15, 2009. The Company plans to adopt this FSP for its interim
reporting period ending June 30, 2009. The Company is evaluating the
effect on its financial condition and results of operations of applying the
guidance in this FSP.
In April
2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies. This FSP amends and clarifies FASB Statement
No. 141 (revised 2007), Business Combinations, to
address application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. This FSP is effective for
assets or liabilities arising from contingencies in business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.
In April
2009, the Securities and Exchange Commission issued Staff Accounting Bulletin
(“SAB”) No. 111. This SAB amends and replaces Topic 5.M. in the SAB
series entitled Other Than
Temporary Impairment of Certain Investments in Debt and Equity Securities
to exclude debt securities from its scope. The SEC released
SAB No. 111 in response to the FASB’s issuance of FSP FAS 115-2 and FAS 124-2,
which provided guidance for assessing whether an impairment of a debt security
is other than temporary. The Company will continue to apply the
guidance in SAB Topic 5.M in assessing whether an impairment of an equity
security is other than temporary.
Recently
Adopted Accounting Pronouncements
In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Base Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1”). Under this FSP, unvested share-based
payment awards that contain nonforfeitable rights to dividends will be
considered to be a separate class of common stock and will be included in the
basic EPS calculation using the two-class method that is described in FASB
Statement No. 128, Earnings
per Share. This FSP became effective for the Company on
January 1, 2009, and required retrospective adjustment of all prior periods
presented (see Note 3).
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS 161”). This Statement amends and requires enhanced
qualitative, quantitative and credit risk disclosures about an entity’s
derivative and hedging activities, but does not change the scope or accounting
principles of Statement No. 133. SFAS 161 became effective for fiscal
years and interim periods beginning after November 15, 2008. Because
SFAS 161 impacts the Company’s disclosure and not its accounting treatment for
derivative financial instruments and related hedged items, adoption of SFAS 161
did not impact the Company’s financial condition or results of operations (See
Note 10).
3.
Earnings per Common Share
Basic EPS
is computed by dividing income applicable to common shareholders by the weighted
average number of common shares outstanding for the period. Common
shares outstanding include common stock and vested restricted stock awards where
recipients have satisfied the vesting terms. Diluted EPS reflects the
assumed conversion of all dilutive securities. The Company calculates
earnings per share using the two-class method as described in SFAS 128 (see Note
2). Application of the two-class method had no impact on earnings per
share. The following table sets forth the computation of basic and
diluted earnings per share for the three months ended March 31, 2009 and
2008:
|
|
Three
Months Ended
March
31,
|
|
(in
thousands except per share) |
|
2009
|
|
|
2008
|
|
Net
income
|
|
$ |
1,512 |
|
|
$ |
10,977 |
|
Less:
Preferred dividends
|
|
|
(961 |
) |
|
|
-
- |
|
Less:
Accretion of issuance discount for preferred stock
|
|
|
(132 |
) |
|
|
-
- |
|
Net
income applicable to common shareholders
|
|
$ |
419 |
|
|
$ |
10,977 |
|
Basic
weighted average common shares outstanding
|
|
|
17,980 |
|
|
|
17,850 |
|
Dilutive
effect of potential common shares from:
|
|
|
|
|
|
|
|
|
Awards
granted under equity incentive program
|
|
|
7 |
|
|
|
128 |
|
Diluted
weighted average common shares outstanding
|
|
|
17,987 |
|
|
|
17,978 |
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.02 |
|
|
$ |
0.61 |
|
Diluted
|
|
$ |
0.02 |
|
|
$ |
0.61 |
|
Options
under the equity compensation plan to purchase an additional 186,674 and 36,981
shares of common stock were outstanding at March 31, 2009 and 2008, respectively
and were not included in the above computations of diluted earnings per share
because their inclusion would have had an antidilutive effect. Also
outstanding at March 31, 2009 and excluded from the above computations of
diluted earnings per share because of its antidilutive effect was a warrant to
acquire an additional 796,046 shares of common stock that was issued to the U.S.
Department of Treasury as part of the Capital Purchase Program.
4.
Dividends
Subsequent
to quarter end, on April 22, 2009, the Company declared a quarterly cash
dividend of $0.01 per share, payable on May 20, 2009, to shareholders of record
at the close of business May 6, 2009. The decision to reduce the
quarterly dividend as compared to recent quarters was based upon the Board of
Directors’ review of the Company’s dividend payout ratio and dividend yield
balanced with the Company’s desire to retain capital. On
January 29, 2009, the Company declared a quarterly cash dividend of $0.04
per share, payable on February 25, 2009 to shareholders of record as of the
close of business on February 11, 2009. The payment of cash
dividends is subject to Federal regulatory requirements for capital levels and
other restrictions. In addition, the cash dividends paid by Columbia Bank to the
Company are subject to both Federal and State regulatory
requirements.
5.
Business Segment Information
The
Company is managed along two major lines of business: commercial banking and
retail banking. The treasury function of the Company, included in the “Other”
category, although not considered a line of business, is responsible for the
management of investments and interest rate risk.
The
Company generates segment results that include balances directly attributable to
business line activities. The financial results of each segment are derived from
the Company’s general ledger system. Overhead, including sales and back office
support functions and other indirect expenses are not allocated to the major
lines of business. Goodwill resulting from business combinations is included in
the Retail Banking segment. Since the Company is not specifically organized
around lines of business, most reportable segments comprise more than one
operating activity.
The
principal activities conducted by commercial banking are the origination of
commercial business relationships, private banking services and real estate
lending. Retail banking includes all deposit products, with their related fee
income, and all consumer loan products as well as commercial loan products
offered in the Company’s branch offices.
Effective
January 1, 2009 the Company began allocating the provision for loan and lease
losses to the reportable segments. Prior to 2009, the provision for
loan and lease losses was included in the “Other” category. Segment
net interest income after provision for loan and lease losses for the prior
period has been restated to be comparable to the same line item for the current
period.
The
organizational structure of the Company and its business line financial results
are not necessarily comparable with information from other financial
institutions. Financial highlights by lines of business are as
follows:
|
|
Three
Months Ended March 31, 2009
|
|
(in
thousands)
|
|
Commercial
Banking
|
|
|
Retail
Banking
|
|
|
Other
|
|
|
Total
|
|
Net
interest income
|
|
$ |
10,273 |
|
|
$ |
12,317 |
|
|
$ |
5,313 |
|
|
$ |
27,903 |
|
Provision
for loan and lease losses
|
|
|
(6,430 |
) |
|
|
(4,570 |
) |
|
|
-
- |
|
|
|
(11,000 |
) |
Net
interest income after provision for loan and lease losses
|
|
|
3,843 |
|
|
|
7,747 |
|
|
|
5,313 |
|
|
|
16,903 |
|
Noninterest
income
|
|
|
942 |
|
|
|
2,250 |
|
|
|
3,782 |
|
|
|
6,974 |
|
Noninterest
expense
|
|
|
(4,396 |
) |
|
|
(5,394 |
) |
|
|
(13,391 |
) |
|
|
(23,181 |
) |
Income
(loss) before income taxes
|
|
|
389 |
|
|
|
4,603 |
|
|
|
(4,296 |
) |
|
|
696 |
|
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,512 |
|
Total
assets
|
|
$ |
1,474,383 |
|
|
$ |
850,778 |
|
|
$ |
720,596 |
|
|
$ |
3,045,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
(in
thousands)
|
|
Commercial
Banking
|
|
|
Retail
Banking
|
|
|
Other
|
|
|
Total
|
|
Net
interest income
|
|
$ |
13,632 |
|
|
$ |
16,051 |
|
|
$ |
644 |
|
|
$ |
30,327 |
|
Provision
for loan and lease losses
|
|
|
(1,526 |
) |
|
|
(550 |
) |
|
|
-
- |
|
|
|
(2,076 |
) |
Net
interest income after provision for loan and lease losses
|
|
|
12,106 |
|
|
|
15,501 |
|
|
|
644 |
|
|
|
28,251 |
|
Noninterest
income
|
|
|
1,173 |
|
|
|
2,244 |
|
|
|
6,740 |
|
|
|
10,157 |
|
Noninterest
expense
|
|
|
(2,696 |
) |
|
|
(9,198 |
) |
|
|
(11,660 |
) |
|
|
(23,554 |
) |
Income
(loss) before income taxes
|
|
|
10,583 |
|
|
|
8,547 |
|
|
|
(4,276 |
) |
|
|
14,854 |
|
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,877 |
) |
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,977 |
|
Total
assets
|
|
$ |
1,491,325 |
|
|
$ |
995,845 |
|
|
$ |
759,416 |
|
|
$ |
3,246,586 |
|
6.
Fair Value Accounting and Measurement
SFAS 157
defines fair value, establishes a consistent framework for measuring fair value
and expands disclosure requirements about fair value. We hold fixed
and variable rate interest bearing securities, investments in marketable equity
securities and certain other financial instruments, which are carried at fair
value. Fair value is determined based upon quoted prices when
available or through the use of alternative approaches, such as matrix or model
pricing, when market quotes are not readily accessible or
available.
The
valuation techniques are based upon observable and unobservable
inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect our own market
assumptions. These two types of inputs create the following fair
value hierarchy:
Level 1 –
Quoted prices for identical instruments in active markets that are accessible at
the measurement date.
Level 2 –
Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model
derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3 –
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable.
Fair
values are determined as follows:
Certain
preferred stock securities at fair value are priced using quoted prices for
identical instruments in active markets and are classified within level 1 of the
valuation hierarchy.
Other
securities at fair value are priced using matrix pricing based on the
securities’ relationship to other benchmark quoted prices, and under the
provisions of SFAS 157 are considered a Level 2 input method.
Interest
rate swap positions are valued in models, which use as their basis, readily
observable market parameters and are classified within level 2 of the valuation
hierarchy.
The
following table sets forth the Company’s financial assets and liabilities that
were accounted for at fair value on a recurring basis at March 31, 2009 by level
within the fair value hierarchy. As required by SFAS 157, financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement:
|
|
Fair
value
at
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
(in
thousands)
|
|
March
31, 2009
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
$ |
544,367 |
|
|
$ |
480 |
|
|
$ |
543,887 |
|
|
$ |
-
- |
|
Other
assets (Interest rate swap agreements)
|
|
$ |
14,558 |
|
|
$ |
-
- |
|
|
$ |
14,558 |
|
|
$ |
-
- |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities (Interest rate swap agreements)
|
|
$ |
14,558 |
|
|
$ |
-
- |
|
|
$ |
14,558 |
|
|
$ |
-
- |
|
Certain
assets and liabilities are measured at fair value on a nonrecurring basis after
initial recognition such as loans measured for impairment and OREO. The
following methods were used to estimate the fair value of each such class of
financial instrument:
Impaired loans - A
loan is considered to be impaired when, based on current information and events,
it is probable that the Company will be unable to collect all amounts due (both
interest and principal) according to the contractual terms of the loan
agreement. Impaired loans are measured by the fair market value of the
collateral less estimated costs to sell.
Other real estate owned -
OREO is real property that the Bank has taken ownership of in partial or full
satisfaction of a loan or loans. OREO is recorded at the lower of the carrying
amount of the loan or fair value less estimated costs to sell. This amount
becomes the property’s new basis. Any write-downs based on the property fair
value less estimated cost to sell at the date of acquisition are charged to the
allowance for loan and lease losses. Management periodically reviews OREO in an
effort to ensure the property is carried at the lower of its new basis or fair
value, net of estimated costs to sell. Any write-downs subsequent to
acquisition are charged to earnings.
The
following table sets forth the Company’s financial assets that were accounted
for at fair value on a nonrecurring basis at March 31, 2009:
|
|
Fair
value at
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
(in
thousands)
|
|
March
31, 2009
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Impaired
loans
|
|
$ |
24,459 |
|
|
$ |
-
- |
|
|
$ |
-
- |
|
|
$ |
24,459 |
|
Other
real estate owned
|
|
|
720 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
720 |
|
|
|
$ |
25,179 |
|
|
$ |
-
- |
|
|
$ |
-
- |
|
|
$ |
25,179 |
|
In
accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, impaired loans with carrying amounts of $32.7
million had specific valuation allowances totaling $8.3 million recorded during
the period, which were included in the allowance for loan and lease
losses.
Other
real estate owned totaling $2.7 million was acquired during the
quarter. In accordance with Statement of Financial Accounting
Standards No.144, Accounting
for the Impairment or Disposal of Long-Lived Assets, a portion of these
long-lived assets held for sale with a carrying amount of $847,515 was written
down to their fair value of $719,500, less cost to sell of $87,500 (or
$632,000), resulting in a loss of $215,515, which was charged to the allowance
for loan and lease losses during the period.
7.
Comprehensive Income
The
components of comprehensive income are as follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Net
income as reported
|
|
$ |
1,512 |
|
|
$ |
10,977 |
|
Unrealized
gain from securities:
|
|
|
|
|
|
|
|
|
Net
unrealized holding gain from available for sale securities arising during
the period, net of tax of ($613) and $(1,385)
|
|
|
1,113 |
|
|
|
2,475 |
|
Reclassification
adjustment of net gain from sale of available for sale securities included
in income, net of tax of $0 and $311
|
|
|
-
- |
|
|
|
(571 |
) |
Net
unrealized gain from securities, net of reclassification
adjustment
|
|
|
1,113 |
|
|
|
1,904 |
|
Unrealized
gain(loss) from cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
Net
unrealized gain from cash flow hedging instruments arising during the
period, net of tax of $0 and $425
|
|
|
-
- |
|
|
|
739 |
|
Reclassification
adjustment of net gain included in income, net of tax of $235 and
$42
|
|
|
(428 |
) |
|
|
(76 |
) |
Net
unrealized gain(loss) from cash flow hedging instruments
|
|
|
(428 |
) |
|
|
663 |
|
Net
unrealized loss from unfunded defined benefit plan liability arising
during the period, net of tax of $379 and $0
|
|
|
(689 |
) |
|
|
-
- |
|
Total
comprehensive income (loss)
|
|
$ |
1,508 |
|
|
$ |
13,544 |
|
8.
Allowance for Loan and Lease Losses and Unfunded Loan Commitments and Letters of
Credit
The
following table presents activity in the allowance for loan and lease losses for
the three months ended March 31, 2009 and 2008:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Beginning
balance
|
|
$ |
42,747 |
|
|
$ |
26,599 |
|
Provision
charged to expense
|
|
|
11,000 |
|
|
|
2,076 |
|
Loans
charged off
|
|
|
(9,707 |
) |
|
|
(1,215 |
) |
Recoveries
|
|
|
209 |
|
|
|
454 |
|
Ending
balance
|
|
$ |
44,249 |
|
|
$ |
27,914 |
|
Changes
in the allowance for unfunded loan commitments and letters of credit are
summarized as follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Beginning
balance
|
|
$ |
500 |
|
|
$ |
349 |
|
Net
changes in the allowance for unfunded commitments and letters of
credit
|
|
|
50 |
|
|
|
60 |
|
Ending
balance
|
|
$ |
550 |
|
|
$ |
409 |
|
9.
Goodwill and Intangible Assets
At March
31, 2009 and December 31, 2008, the Company had $95.5 million in
goodwill. At March 31, 2009 and December 31, 2008, the Company
had a core deposit intangible (“CDI”) asset of $5.6 million and $5.9 million,
respectively. In accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets”, goodwill is not amortized but is reviewed for potential
impairment at the reporting unit level during the third quarter on an annual
basis and between annual tests in certain circumstances such as material adverse
changes in legal, business, regulatory, and economic factors. An impairment loss
is recorded to the extent that the carrying amount of goodwill exceeds its
implied fair value. The CDI is evaluated for impairment if events and
circumstances indicate a possible impairment. The CDI is amortized on an
accelerated basis over an estimated life of approximately 10 years. Amortization
expense related to the CDI was $270,000 and $296,000 for the three months ended
March 31, 2009 and March 31, 2008, respectively. The Company estimates that
aggregate amortization expense on the CDI will be $1.0 million for 2009,
$963,000 for 2010, $893,000 for 2011 and $832,000 for 2012. The CDI
amortization expense is included in other noninterest expense on the
consolidated condensed statements of income.
10. Derivatives
and Hedging Activities
The
Company periodically enters into certain commercial loan interest rate swap
agreements in order to provide commercial loan customers the ability to convert
from variable to fixed interest rates. Under these agreements, the
Company enters into a variable-rate loan agreement with a customer in addition
to a swap agreement. This swap agreement effectively converts the
customer’s variable rate loan into a fixed rate. The Company then
enters into a corresponding swap agreement with a third party in order to offset
its exposure on the variable and fixed components of the customer
agreement. As the interest rate swap agreements with the customers
and third parties are not designated as hedges under SFAS 133, the instruments
are marked to market in earnings.
The
following table presents the fair value of derivative instruments at March 31,
2009 and 2008:
|
Asset
Derivatives
|
Liability
Derivatives
|
As
of March 31,
|
2009
|
2008
|
2009
|
2008
|
(in
thousands)
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
Derivatives
not designated as hedging instruments under Statement 133
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
Other
assets
|
$14,558
|
Other
assets
|
$4,768
|
Other
liabilities
|
$14,558
|
Other
liabilities
|
$4,768
|
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OFOPERATIONS
This
discussion should be read in conjunction with the unaudited consolidated
condensed financial statements of Columbia Banking System, Inc. (referred to in
this report as “we”, “our”, and “the Company”) and notes thereto presented
elsewhere in this report and with the December 31, 2008 audited
consolidated financial statements and its accompanying notes included in our
Annual Report on Form 10-K. In the following discussion, unless otherwise noted,
references to increases or decreases in average balances in items of income and
expense for a particular period and balances at a particular date refer to the
comparison with corresponding amounts for the period or date one year
earlier.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
quarterly report on Form 10-Q may be deemed to contain forward-looking
statements, which management believes to be a benefit to
shareholders. These forward looking statements describe management’s
expectations regarding future events and developments such as future operating
results, growth in loans and deposits, continued success of our style of banking
and the strength of the local economy. The words “will,” “believe,” “expect,”
“should,” and “anticipate” and 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 risk
and uncertainty 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 our filings with the SEC, factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, among others, the following possibilities:
·
|
local
and national economic conditions could be less favorable than expected or
could have a more direct and pronounced effect on us than expected and
adversely affect our ability to continue internal growth at historical
rates and maintain the quality of our earning
assets;
|
·
|
the
local housing/real estate market could continue to
decline;
|
·
|
credit
markets could continue to tighten which may make it difficult to obtain
adequate funding for loan growth, which could adversely affect our
earnings;
|
·
|
the
financial services industry’s reputation could be damaged which could
adversely affect our ability to access markets for funding and acquire and
retain customers;
|
·
|
interest
rate changes could significantly reduce interest margins and negatively
affect funding sources;
|
·
|
credit
quality deterioration that could, among other things, increase defaults
and delinquency risks in the Bank’s loan
portfolio;
|
·
|
projected
business increases following strategic expansion or opening and acquiring
new branches could be lower than
expected;
|
·
|
competitive
pressure among financial institutions could increase
significantly;
|
·
|
the
goodwill we have recorded in connection with acquisitions could become
impaired, which may have an adverse impact on our earnings and
capital;
|
·
|
legislation
or changes in regulatory requirements could adversely affect the
businesses in which we are engaged;
and
|
·
|
the
efficiencies we expect to receive from our investments in personnel,
acquisitions and infrastructure could not
realized.
|
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. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
CRITICAL
ACCOUNTING POLICIES
Management
has identified the accounting policies related to the allowance for loan and
lease losses and the valuation and recoverability of goodwill as critical to an
understanding of our financial statements. These policies and related estimates
are discussed in “Item 7. Management Discussion and Analysis of Financial
Condition and Results of Operation” under the headings “Allowance for Loan and
Lease Losses” and “Valuation and Recoverability of Goodwill” in our 2008
Annual
Report on
Form 10-K. There have not been any material changes in our critical accounting
policies relating to the allowance for loan and lease losses or the valuation
and recoverability of goodwill as compared to those disclosed in our 2008 Annual
Report on Form 10-K.
OVERVIEW
Earnings
Summary
The Company
reported net income for the first quarter of $1.5 million and $419,000 net
income applicable to common shareholders or $0.02 per diluted common share,
compared to net income of $11.0 million or $0.61 per diluted share for the first
quarter of 2008. Net income applicable to common shareholders for
2009 excludes the preferred stock dividend of $961,000 and the accretion of the
preferred stock discount totaling $132,000. The decline in net income
from the prior year was primarily attributable to the large increase in the
provision for loan losses in the first quarter of 2009 reflective of the level
of net charge-offs and the continued deterioration in credit
quality. Return on average assets and return on average equity were
0.20% and 0.49%, respectively, for the first quarter of 2009, compared with
returns of 1.39% and 12.60%, respectively for the same period of
2008. The Company’s results for the first quarter of 2009 declined
from the same period in 2008, as a result of a provision for loan and lease
losses of $11.0 million.
Revenue (net
interest income plus noninterest income) for the three months ended March 31,
2009 was $34.9 million, 14% lower than the same period in 2008. The
decrease was primarily driven by lower interest earned on our loan portfolio due
to the decline in interest rates from the first quarter 2008.
Total
noninterest expense in the quarter ended March 31, 2009 was $23.2 million, a 2%
decrease from the first quarter of 2008. Regulatory premiums and
legal and professional fees increased $505,000 and $1.0 million respectively
over the same period in 2008. These increases were offset by a
decline in compensation and employee benefits expense of $1.5
million.
The provision
for loan and lease losses for the first quarter of 2009 was $11.0 million
compared with $2.1 million for the first quarter of 2008. The
additional provision is due to the continued weakness in the for-sale housing
industry resulting from the slowing economic environment and non-accrual loans
of $109.3 million at March 31, 2009 compared to $14.4 million at March 31,
2008. The provision increased the Company’s total allowance for loan
and lease losses to 2.02% of net loans at March 31, 2009 from 1.91% at year-end
2008 and 1.21% at the end of the first quarter 2008. Net charge-offs
for the current quarter were $9.5 million compared to $761,000 for the first
quarter of 2008.
RESULTS
OF OPERATIONS
Our
results of operations are dependent to a large degree on our net interest
income. We also generate noninterest income through service charges and fees,
merchant services fees, and bank owned life insurance. Our operating expenses
consist primarily of compensation and employee benefits, occupancy, merchant
card processing, data processing and legal and professional fees. Like most
financial institutions, our interest income and cost of funds are affected
significantly by general economic conditions, particularly changes in market
interest rates, and by government policies and actions of regulatory
authorities.
Net
Interest Income
For the
three months ended March 31, 2009 we experienced a slight decrease in our net
interest margin when compared to the same period in 2008. This
decrease resulted primarily from a decline in the yield on earning
assets. For the first quarter of 2009 interest income decreased 26%
while interest expense decreased 55%, when compared to the same period in
2008. The decrease in interest income and interest expense for the
period is primarily due to rate decreases on both interest-earning assets and
interest-bearing liabilities. Finally, like most financial
institutions, changes in the target Federal Funds rate may affect our net
interest margin.
The
following table sets forth the average balances of all major categories of
interest-earning assets and interest-bearing liabilities, the total dollar
amounts of interest income on interest-earning assets and interest expense on
interest-bearing liabilities, the average yield earned on interest-earning
assets and average rate paid on interest-bearing liabilities by category and in
total net interest income and net interest margin.
|
|
Three
months ending March 31,
|
|
|
Three
months ending March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
(in
thousands)
|
|
Average
Balances
(1)
|
|
|
Earned
/ Paid
|
|
|
Average
Rate
|
|
|
Average
Balances
(1)
|
|
|
Earned
/ Paid
|
|
|
Average
Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net (1) (2)
|
|
$ |
2,217,909 |
|
|
$ |
29,908 |
|
|
|
5.47 |
% |
|
$ |
2,304,588 |
|
|
$ |
41,303 |
|
|
|
7.21 |
% |
Securities
(2)
|
|
|
543,403 |
|
|
|
7,341 |
|
|
|
5.48 |
% |
|
|
582,056 |
|
|
|
8,300 |
|
|
|
5.74 |
% |
Interest-earning
deposits with banks and federal funds sold
|
|
|
12,947 |
|
|
|
7 |
|
|
|
0.23 |
% |
|
|
19,528 |
|
|
|
149 |
|
|
|
3.07 |
% |
Total
interest-earning assets
|
|
|
2,774,259 |
|
|
$ |
37,256 |
|
|
|
5.45 |
% |
|
|
2,906,172 |
|
|
$ |
49,752 |
|
|
|
6.89 |
% |
Other
earning assets
|
|
|
48,748 |
|
|
|
|
|
|
|
|
|
|
|
47,159 |
|
|
|
|
|
|
|
|
|
Noninterest-earning
assets
|
|
|
234,854 |
|
|
|
|
|
|
|
|
|
|
|
232,682 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,057,861 |
|
|
|
|
|
|
|
|
|
|
$ |
3,186,013 |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$ |
749,450 |
|
|
$ |
4,901 |
|
|
|
2.65 |
% |
|
$ |
844,845 |
|
|
$ |
9,087 |
|
|
|
4.33 |
% |
Savings
accounts
|
|
|
126,916 |
|
|
|
114 |
|
|
|
0.36 |
% |
|
|
114,868 |
|
|
|
115 |
|
|
|
0.40 |
% |
Interest-bearing
demand
|
|
|
469,034 |
|
|
|
678 |
|
|
|
0.59 |
% |
|
|
458,865 |
|
|
|
2,120 |
|
|
|
1.86 |
% |
Money
market accounts
|
|
|
523,755 |
|
|
|
1,199 |
|
|
|
0.93 |
% |
|
|
585,517 |
|
|
|
3,513 |
|
|
|
2.41 |
% |
Total
interest-bearing deposits
|
|
|
1,869,155 |
|
|
|
6,892 |
|
|
|
1.50 |
% |
|
|
2,004,095 |
|
|
|
14,835 |
|
|
|
2.98 |
% |
Federal
Home Loan Bank and Federal Reserve Bank borrowings
|
|
|
215,033 |
|
|
|
765 |
|
|
|
1.44 |
% |
|
|
284,054 |
|
|
|
2,582 |
|
|
|
3.66 |
% |
Securities
sold under agreements to repurchase
|
|
|
25,000 |
|
|
|
118 |
|
|
|
1.91 |
% |
|
|
19,231 |
|
|
|
142 |
|
|
|
2.98 |
% |
Other
borrowings and interest-bearing liabilities
|
|
|
247 |
|
|
|
0 |
|
|
|
0.60 |
% |
|
|
5,252 |
|
|
|
60 |
|
|
|
4.57 |
% |
Long-term
subordinated debt
|
|
|
25,610 |
|
|
|
351 |
|
|
|
5.56 |
% |
|
|
25,527 |
|
|
|
487 |
|
|
|
7.67 |
% |
Total
interest-bearing liabilities
|
|
|
2,135,045 |
|
|
$ |
8,126 |
|
|
|
1.54 |
% |
|
|
2,338,159 |
|
|
$ |
18,106 |
|
|
|
3.11 |
% |
Noninterest-bearing
deposits
|
|
|
455,698 |
|
|
|
|
|
|
|
|
|
|
|
451,095 |
|
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
47,366 |
|
|
|
|
|
|
|
|
|
|
|
46,488 |
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
419,752 |
|
|
|
|
|
|
|
|
|
|
|
350,271 |
|
|
|
|
|
|
|
|
|
Total
liabilities & shareholders' equity
|
|
$ |
3,057,861 |
|
|
|
|
|
|
|
|
|
|
$ |
3,186,013 |
|
|
|
|
|
|
|
|
|
Net
interest income (2)
|
|
|
|
|
|
$ |
29,130 |
|
|
|
|
|
|
|
|
|
|
$ |
31,646 |
|
|
|
|
|
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
4.26 |
% |
|
|
|
|
|
|
|
|
|
|
4.38 |
% |
(1)
|
Nonaccrual
loans have been included in the tables as loans carrying a zero yield.
Interest reversals for the first quarter ended March 31, 2009 related to
nonaccrual loans totaled $625,000. Excluding the impact of
interest reversals, net interest margin for the quarter would have been
4.35%. Amortized net deferred loan fees were included in the
interest income calculations. The amortization of net deferred loan fees
was $623,000 and $1.1 million for the three months ended March 31,
2009 and 2008 respectively.
|
(2)
|
Tax-exempt
income is calculated on a tax equivalent basis, based on a marginal tax
rate of 35%.
|
Provision
for Loan and Lease Losses
During
the first quarter of 2009, the Company recorded $11 million to its provision for
loan and lease losses, compared to $2.1 million for the same period in
2008. The elevated provision is principally due to the weakness in
the for-sale housing industry resulting from the slowing economic environment
and an increase in non-accrual loans. The additional provision
increased the Company’s total allowance for loan losses to 2.02% of net loans at
March 31, 2009. Comparing first quarter 2009 to the fourth quarter of
2008, the provision for loan and lease losses decreased $2.3 million or
17%. See the discussion under “Nonperforming Assets” for
details related to the non-accrual loans.
Noninterest
Income
Noninterest
income for the first quarter of 2009 was $7.0 million, compared to noninterest
income of $10.2 million during the same period last year. The change
was primarily a result of the $2.0 million gain on the redemption of Visa and
Mastercard shares and the $882,000 gain on the sale of investment securities
recorded in the first quarter of 2008. Removing the impact of these
non-recurring amounts, noninterest income for the first quarter of 2009
decreased $339,000 from the same period in 2008. This decline in
noninterest income was the result of a decrease of $146,000 in merchant card
services driven primarily by reduced transaction volume. In addition,
decreases totaling $235,000 in other income items such as mortgage banking fees,
interest rate swap income and miscellaneous loan fees contributed to the decline
in noninterest income. These declines were also driven primarily by
reduced transaction volumes. Comparing first quarter 2009 to the
fourth quarter 2008, noninterest income increased 10% or
$640,000. The increase was attributed to an other-than-temporary
impairment charge of $1.0 million for Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation equity securities recorded in the fourth
quarter of 2008. Eliminating the impact of the reduction in
noninterest income in the fourth quarter for the impairment charge, noninterest
income declined 5% or $384,000. This decrease is due primarily to
gains on disposal of assets recorded in the fourth quarter of 2008.
Noninterest
Expense
Noninterest
expense for the first quarter of 2009 was $23.2 million, a 2% decrease from
$23.6 million a year earlier. Despite the overall decrease in
noninterest expense, regulatory premiums in the current quarter increased
$505,000 from the same period one year ago. This increase is due to
significantly higher FDIC premium assessment rates for the Deposit Insurance
Fund. The increased assessment rate is the result of losses incurred
by the Deposit Insurance Fund and not directly correlated to the Company’s
performance. Removing the impact of the increase in FDIC premiums
noninterest expense declined 4% or $878,000 from the same period in
2008. This decline was due primarily to reduced expenses related to
compensation and benefits, occupancy and other expenses such as postage,
supplies and employee-related costs. These expense reductions were
offset by an increase in legal and professional fees of $1.0 million compared to
the same period in 2008. Legal and professional fees expense for the first
quarter 2008 were unusually low due to a recovery of $889,200 related to our
Visa litigation reserve recorded in a prior period.
The following
table presents selected items included in other noninterest expense and the
associated change from period to period:
|
|
Three
months ended
|
|
|
Increase
|
|
|
|
March
31,
|
|
|
(Decrease)
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
Core
deposit intangible amortization ("CDI")
|
|
$ |
270 |
|
|
$ |
296 |
|
|
$ |
(26 |
) |
Software
support & maintenance
|
|
|
162 |
|
|
|
200 |
|
|
|
(38 |
) |
Telephone
& network communications
|
|
|
359 |
|
|
|
399 |
|
|
|
(40 |
) |
Federal
Reserve Bank processing fees
|
|
|
82 |
|
|
|
111 |
|
|
|
(29 |
) |
Supplies
|
|
|
189 |
|
|
|
263 |
|
|
|
(74 |
) |
Postage
|
|
|
311 |
|
|
|
362 |
|
|
|
(51 |
) |
Investor
relations
|
|
|
83 |
|
|
|
51 |
|
|
|
32 |
|
Travel
|
|
|
89 |
|
|
|
94 |
|
|
|
(5 |
) |
ATM
Network
|
|
|
142 |
|
|
|
199 |
|
|
|
(57 |
) |
Sponsorships
and charitable contributions
|
|
|
145 |
|
|
|
159 |
|
|
|
(14 |
) |
Directors
fees
|
|
|
108 |
|
|
|
135 |
|
|
|
(27 |
) |
Employee
expenses
|
|
|
102 |
|
|
|
181 |
|
|
|
(79 |
) |
Insurance
|
|
|
116 |
|
|
|
120 |
|
|
|
(4 |
) |
CRA
partnership investment expense (1)
|
|
|
87 |
|
|
|
128 |
|
|
|
(41 |
) |
Miscellaneous
|
|
|
755 |
|
|
|
760 |
|
|
|
(5 |
) |
Total
other noninterest expense
|
|
$ |
3,000 |
|
|
$ |
3,458 |
|
|
$ |
(458 |
) |
(1)
|
The
amounts shown represent pass-through losses from our interests in certain
low-income housing related limited partnerships. As a result of these
interests we receive federal low-income housing tax credits available
under the Internal Revenue Code. For the three months ended March 31,
2009, $127,800 of such credits was taken as a reduction in our current
period income tax expense. In addition, our taxable income was decreased
by $31,000 for the period ended March 31, 2009 as a result of the tax
benefit associated with this investment
expense.
|
In
managing our business, we review the efficiency ratio, on a fully
taxable-equivalent basis (see definition in table below), which is not defined
in accounting principles generally accepted in the United States. Our
efficiency ratio [noninterest expense divided by the sum of net interest income
and noninterest income on a tax equivalent basis, excluding any gains and losses
arising from nonrecurring transactions] was 63.59% for the first quarter 2009,
compared to 62.36% for the first quarter of 2008. Due to the low
interest rate environment revenues declined faster than expense resulting in an
increase in the efficiency ratio.
The
following table presents a reconciliation of the financial data utilized to
calculate the efficiency ratio (a non-GAAP financial measure) to the same
measures calculated and presented in accordance with GAAP:
Reconciliation
of Financial Data to GAAP Financial Measures
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Net
interest income (1)
|
|
$ |
27,903 |
|
|
$ |
30,327 |
|
Tax
equivalent adjustment for non-taxable loan and investment securities
interest income (2)
|
|
|
1,227 |
|
|
|
1,319 |
|
Adjusted
net interest income
|
|
$ |
29,130 |
|
|
$ |
31,646 |
|
Noninterest
income
|
|
$ |
6,974 |
|
|
$ |
10,157 |
|
Gain
on sale of investment securities, net
|
|
|
-
- |
|
|
|
(882 |
) |
Redemption
of Visa and Mastercard shares
|
|
|
-
- |
|
|
|
(1,962 |
) |
Tax
equivalent adjustment for BOLI income (2)
|
|
|
276 |
|
|
|
272 |
|
Adjusted
noninterest income
|
|
$ |
7,250 |
|
|
$ |
7,585 |
|
Noninterest
expense
|
|
$ |
23,181 |
|
|
$ |
23,554 |
|
Net
gain (loss) on sale of OREO
|
|
|
(47 |
) |
|
|
23 |
|
Reversal
of previously accrued Visa litigation expense
|
|
|
-
- |
|
|
|
889 |
|
Adjusted
noninterest expense
|
|
$ |
23,134 |
|
|
$ |
24,466 |
|
Efficiency
ratio
|
|
|
66.33 |
% |
|
|
65.00 |
% |
Efficiency
ratio (fully taxable-equivalent)
|
|
|
63.59 |
% |
|
|
62.36 |
% |
Tax
Rate
|
|
|
35.00 |
% |
|
|
35.00 |
% |
(1)
|
Amount
represents net interest income before provision for loan and lease
losses.
|
(2)
|
Fully
taxable-equivalent basis: Non taxable revenue is increased by the
statutory tax rate to recognize the income tax benefit of the income
realized.
|
Income
Taxes
We
recorded an income tax benefit of $816,000 for the first quarter of 2009,
compared with a provision of $3.9 million for the same period in 2008. Our effective tax rate
remains lower than the statutory tax rate due to our nontaxable income generated
from tax-exempt municipal bonds, investments in bank owned life insurance, and
low income housing credits. For additional information, please
refer to the Company’s annual report on Form 10-K for the year ended
December 31, 2008.
Credit
Risk Management
The
extension of credit in the form of loans or other credit products to individuals
and businesses is one of our principal business activities. Our policies and
applicable laws and regulations require risk analysis as well as ongoing
portfolio and credit management. We manage our credit risk through lending limit
constraints, credit review, approval policies, and extensive, ongoing internal
monitoring. We also manage credit risk through diversification of the loan
portfolio by type of loan, type of industry, type of borrower and by limiting
the aggregation of debt limits to a single borrower. In analyzing our existing
portfolio, we review our consumer and residential loan portfolios by their
performance as a pool of loans since no single loan is individually significant
or judged by its risk rating, size, or potential risk of loss. In contrast, the
monitoring process for the commercial business, private banking, real estate
construction, and commercial real estate portfolios includes periodic reviews of
individual loans with risk ratings assigned to each loan and performance judged
on a loan by loan basis. We review these loans to assess the ability of the
borrower to service all of its interest and principal obligations and, as a
result, the risk rating may be adjusted accordingly. In the event that full
collection of principal and interest is not reasonably assured, the loan is
appropriately downgraded and, if warranted, placed on nonaccrual status even
though the loan may be current as to principal and interest payments.
Additionally, we review these types of loans for impairment in accordance with
SFAS No. 114, “Accounting by Creditors for the Impairment of a Loan”.
Impaired loans are considered for nonaccrual status and will typically remain as
such until all principal and interest payments are brought current and the
prospects for future payments in accordance with the loan agreement appear
relatively certain.
Loan
policies, credit quality criteria, portfolio guidelines and other controls are
established under the guidance of our Chief Credit Officer and approved, as
appropriate, by the Board. Credit Administration, together with the loan
committee, has the responsibility for administering the credit approval process.
As another part of its control process, we use an independent internal credit
review and examination function to provide assurance that loans and commitments
are made and maintained as prescribed by our credit policies. This includes a
review of documentation when the loan is initially extended and subsequent
monitoring to assess continued performance and proper risk
assessment.
We have diversification of loan types
within our portfolio. However, we are not immune to the current
instability in the residential real estate markets and mortgage-related
industries. Accordingly, we will continue to be diligent in our risk
management practices and maintain, what we believe, are adequate reserves for
probable loan losses.
Loan
Portfolio Analysis
We are a
full service commercial bank, originating a wide variety of loans, but
concentrating our lending efforts on originating commercial business and
commercial real estate loans.
The following
table sets forth the Company’s loan portfolio by type of loan for the dates
indicated:
|
|
March
31,
|
|
|
%
of
|
|
|
December
31,
|
|
|
%
of
|
|
(in
thousands)
|
|
2009
|
|
|
Total
|
|
|
2008
|
|
|
Total
|
|
Commercial
business
|
|
$ |
812,557 |
|
|
|
37.2 |
% |
|
$ |
810,922 |
|
|
|
36.3 |
% |
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family residential
|
|
|
54,831 |
|
|
|
2.5 |
% |
|
|
57,237 |
|
|
|
2.6 |
% |
Commercial
and five or more family residential properties
|
|
|
861,531 |
|
|
|
39.4 |
% |
|
|
862,595 |
|
|
|
38.7 |
% |
Total
real estate
|
|
|
916,362 |
|
|
|
41.9 |
% |
|
|
919,832 |
|
|
|
41.3 |
% |
Real
estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family residential
|
|
|
186,307 |
|
|
|
8.5 |
% |
|
|
209,682 |
|
|
|
9.4 |
% |
Commercial
and five or more family residential properties
|
|
|
64,712 |
|
|
|
3.0 |
% |
|
|
81,176 |
|
|
|
3.6 |
% |
Total
real estate construction
|
|
|
251,019 |
|
|
|
11.5 |
% |
|
|
290,858 |
|
|
|
13.0 |
% |
Consumer
|
|
|
209,882 |
|
|
|
9.6 |
% |
|
|
214,753 |
|
|
|
9.6 |
% |
Subtotal
|
|
|
2,189,820 |
|
|
|
100.2 |
% |
|
|
2,236,365 |
|
|
|
100.2 |
% |
Less:
Deferred loan fees
|
|
|
(4,065 |
) |
|
|
-0.2 |
% |
|
|
(4,033 |
) |
|
|
-0.2 |
% |
Total
loans
|
|
$ |
2,185,755 |
|
|
|
100.0 |
% |
|
$ |
2,232,332 |
|
|
|
100.0 |
% |
Loans
Held for Sale
|
|
$ |
3,747 |
|
|
|
|
|
|
$ |
1,964 |
|
|
|
|
|
Total
loans declined $46.6 million, or 2%, from year-end 2008. The
reduction in total loans was driven primarily by decreases in real estate
construction related loans. During the period, the Company’s exposure
to such loans has been reduced through a combination of loan payoffs and
pay-downs as well as loan charge-offs. In addition, commercial real
estate construction loan totals were reduced through conversion to permanent
loans. These reductions are a reflection of management’s strategy to
shrink the loan portfolio in these categories. Real estate
construction declined 14% and consumer loans declined $4.9 million, or 2%, from
year-end 2008.
Commercial Loans: We are
committed to providing competitive commercial lending in our primary market
areas. Management expects a continued focus within its commercial lending
products and to emphasize, in particular, relationship banking with businesses,
and business owners.
Real Estate Loans: These
loans are used to collateralize outstanding advances from the FHLB. Those
residential loans are secured by properties located within our primary market
areas, and typically have loan-to-value ratios of 80% or lower.
Generally,
commercial and five-or-more family residential real estate loans are made to
borrowers who have existing banking relationships with us. Our underwriting
standards generally require that the loan-to-value ratio for these loans not
exceed 75% of appraised value, cost, or discounted cash flow value, as
appropriate, and that commercial properties maintain debt coverage ratios (net
operating income divided by annual debt servicing) of 1.2 or better. However,
underwriting standards can be influenced by competition and other factors. We
endeavor to maintain the highest practical underwriting standards while
balancing the need to remain competitive in our lending practices.
Real Estate Construction
Loans: We originate a variety of real estate construction loans.
One-to-four family residential construction loans are originated for the
construction of custom homes (where the home buyer is the borrower) and to
provide financing to builders for the construction of pre-sold homes and
speculative residential construction. Underwriting guidelines for
these loans vary by loan type but include loan-to-value limits, term limits and
loan advance limits, as applicable.
Our
underwriting guidelines for commercial and five-or-more family residential real
estate construction loans generally require that the loan-to-value ratio not
exceed 75% and stabilized debt coverage ratios (net operating income divided by
annual debt servicing) of 1.2 or better. As noted above,
underwriting standards can be influenced by competition and other factors.
However, we endeavor to maintain the highest practical underwriting standards
while balancing the need to remain competitive in our lending
practices.
Consumer Loans: Consumer
loans include automobile loans, boat and recreational vehicle financing, home
equity and home improvement loans and miscellaneous personal loans.
Foreign Loans: Our banking
subsidiaries are not involved with loans to foreign companies or foreign
countries.
Nonperforming
Assets
Nonperforming
assets consist of: (i) nonaccrual loans; (ii) in most cases
restructured loans, for which concessions, including the reduction of interest
rates below a rate otherwise available to that borrower or the deferral of
interest or principal, have been granted due to the borrower’s weakened
financial condition (interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur); (iii) other real estate owned; and (iv) other personal
property owned. Collectively, nonaccrual and restructured loans are considered
nonperforming loans.
Nonaccrual loans: The
consolidated financial statements are prepared according to the accrual basis of
accounting. This includes the recognition of interest income on the loan
portfolio, unless a loan is placed on a nonaccrual basis, which occurs when
there are serious doubts about the collectibility of principal or interest.
Generally our policy is to discontinue the accrual of interest on all loans past
due 90 days or more and place them on nonaccrual status. When a loan
is placed on nonaccrual status, any accrued but unpaid interest on that date is
removed from interest income.
The
following tables set forth, at the dates indicated, information with respect to
our nonaccrual loans, restructured loans, total nonperforming loans and total
nonperforming assets:
|
|
March
31,
|
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Nonaccrual
loans:
|
|
|
|
|
|
|
Commercial
business
|
|
$ |
9,346 |
|
|
$ |
2,976 |
|
Real
estate:
|
|
|
|
|
|
|
|
|
One-to-four
family residential
|
|
|
1,500 |
|
|
|
905 |
|
Commercial
and five or more family residential real estate
|
|
|
6,794 |
|
|
|
5,710 |
|
Total
real estate
|
|
|
8,294 |
|
|
|
6,615 |
|
Real
estate construction:
|
|
|
|
|
|
|
|
|
One-to-four
family residential
|
|
|
60,352 |
|
|
|
69,668 |
|
Commercial
and five or more family residential real estate
|
|
|
29,853 |
|
|
|
25,752 |
|
Total
real estate construction
|
|
|
90,205 |
|
|
|
95,420 |
|
Consumer
|
|
|
1,447 |
|
|
|
1,152 |
|
Total
nonaccrual loans
|
|
|
109,292 |
|
|
|
106,163 |
|
Restructured
loans:
|
|
|
|
|
|
|
|
|
One-to-four
family residential construction
|
|
|
6,685 |
|
|
|
-
- |
|
Commercial
business
|
|
|
1,363 |
|
|
|
587 |
|
Total
restructured loans
|
|
|
8,048 |
|
|
|
587 |
|
Total
nonperforming loans
|
|
|
117,340 |
|
|
|
106,750 |
|
Other
real estate owned
|
|
|
4,312 |
|
|
|
2,874 |
|
Total
nonperforming assets
|
|
$ |
121,652 |
|
|
$ |
109,624 |
|
As of March
31, 2009, non-performing assets were $121.7 million, compared to $109.6 million
at December 31, 2008. The percent of non-performing assets to
period-end assets at March 31, 2009 was 3.99% compared to 3.54% for December 31,
2008 and 0.46% at March 31, 2008.
Residential
construction loans continue to be the primary component of nonperforming assets,
representing $70.3 million, or 58%, of nonperforming
assets. Commercial real estate loans account for another $37.7
million, or 31% of non-performing assets. These commercial real estate
non-performing assets are primarily centered in condominium development loans of
approximately $14.9 million and two retail development loans of approximately
$14.9 million. The increase in the Commercial Real Estate category
reflects the continued weakness in the for-sale housing industry, as $5.2
million of the $5.5 million increase in this category was related to a
condominium project located along the Oregon coast.
In the
residential construction segment, there was a modest reduction in non-performing
assets of $2.2 million. For the quarter in this segment, the Company
added $10.5 million of nonaccrual loans, received $4.4 million in payments, sold
$1.3 million of OREO, returned approximately $745,000 to accrual status and had
net charge-offs of $6.3 million. Approximately $3.0 million of these
net charge-offs were related to credits where the bank had previously written
down the loan amount; however, due to continued declines in residential real
estate values, we continue to take the prudent step of marking these assets down
as we receive updated information concerning the various projects we have
financed. This decline in value reflects the market dynamics in the
Pacific Northwest, which saw a significant decline in housing values toward the
end of 2008 and during the first part of 2009. Prior to December and
January, declines in housing values had been modest, ranging from 0.5% to 1.5%
per month. This accelerated to 2.5% in December, 2008 and to 3.5% for
the month of January, 2009. Given this trend, we reevaluated several
non-performing loans and took appropriate action based upon the updated market
information. As the market conditions continue to change over the
course of 2009, we will continually reevaluate our non-performing assets to
ensure they are appropriately valued.
Allowance
for Loan and Lease Losses
We
maintain an allowance for loan and lease losses (“ALLL”) to absorb losses
inherent in the loan portfolio. The size of the ALLL is determined through
quarterly assessments of the probable estimated losses in the loan portfolio.
Our methodology for making such assessments and determining the adequacy of the
ALLL includes the following key elements:
|
1.
|
General
valuation allowance consistent with SFAS No. 5, “Accounting for
Contingencies.”
|
|
2.
|
Criticized/classified
loss reserves on specific relationships. Specific allowances for
identified problem loans are determined in accordance with SFAS
No. 114, “Accounting by Creditors for Impairment of a
Loan.”
|
|
3.
|
The
unallocated allowance provides for other credit losses inherent in our
loan portfolio that may not have been contemplated in the general and
specific components of the allowance. This unallocated amount generally
comprises less than 5% of the allowance. The unallocated amount is
reviewed periodically based on trends in credit losses, the results of
credit reviews and overall economic
trends.
|
On a
quarterly basis our Chief Credit Officer reviews with Executive Management and
the Board of Directors the various additional factors that management considers
when determining the adequacy of the ALLL, including economic and business
condition reviews. Factors which influenced management’s judgment in determining
the amount of the additions to the ALLL charged to operating expense include the
following as of the applicable balance sheet dates:
|
1.
|
Existing
general economic and business conditions affecting our market
place
|
|
2.
|
Credit
quality trends, including trends in nonperforming
loans
|
|
4.
|
Seasoning
of the loan portfolio
|
|
5.
|
Bank
regulatory examination results
|
|
6.
|
Findings
of internal credit examiners
|
|
7.
|
Duration
of current business cycle
|
The ALLL
is increased by provisions for loan and lease losses (“provision”) charged to
expense, and is reduced by loans charged off, net of recoveries. While we
believe the best information available is used by us to determine the ALLL,
changes in market conditions could result in adjustments to the ALLL, affecting
net income, if circumstances differ from the assumptions used in determining the
ALLL.
At March
31, 2009, our allowance for loan and lease losses (“ALLL”) was $44.2 million, or
2.02% of total loans (excluding loans held for sale) and 38% of nonperforming
loans and 36% of nonperforming assets. This compares with an allowance of $42.8
million, or 1.91% of the total loan portfolio (excluding loans held for sale),
40% of nonperforming loans and 39% of nonperforming assets at December 31,
2008.
The
following table provides an analysis of the Company’s allowance for loan and
lease losses at the dates and the periods indicated:
|
|
Three
Months Ended
March
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Beginning
balance
|
|
$ |
42,747 |
|
|
$ |
26,599 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Residential,
construction, land & acquisitions
|
|
|
(6,285 |
) |
|
|
(107 |
) |
Commercial
business
|
|
|
(2,536 |
) |
|
|
(359 |
) |
Commercial
real estate
|
|
|
(703 |
) |
|
|
-
- |
|
Consumer
|
|
|
(183 |
) |
|
|
(749 |
) |
Total
charge-offs
|
|
|
(9,707 |
) |
|
|
(1,215 |
) |
Recoveries
|
|
|
|
|
|
|
|
|
One-to-four
family residential
|
|
|
68 |
|
|
|
-
- |
|
Residential
construction, land & acquisitions
|
|
|
39 |
|
|
|
-
- |
|
Commercial
business
|
|
|
28 |
|
|
|
31 |
|
Commercial
real estate:
|
|
|
22 |
|
|
|
300 |
|
Consumer
|
|
|
52 |
|
|
|
123 |
|
Total
recoveries
|
|
|
209 |
|
|
|
454 |
|
Net
charge-offs
|
|
|
(9,498 |
) |
|
|
(761 |
) |
Provision
charged to expense
|
|
|
11,000 |
|
|
|
2,076 |
|
Ending
balance
|
|
$ |
44,249 |
|
|
$ |
27,914 |
|
Total
loans, net at end of period (1)
|
|
$ |
2,185,755 |
|
|
$ |
2,300,465 |
|
Allowance
for loan and lease losses to period-end loans |
|
|
2.02 |
% |
|
|
1.21 |
% |
(1)
|
Excludes
loans held for sale
|
In
addition to the ALLL, we maintain an allowance for unfunded loan commitments and
letters of credit. We report this allowance as a liability on our Consolidated
Balance Sheet. We determine this amount using estimates of the probability of
the ultimate funding and losses related to those credit exposures. This
methodology is similar to the methodology we use for determining the adequacy of
our ALLL.
At March
31, 2009 and December 31, 2008, our allowance for unfunded loan commitments
and letters of credit was $550,000 and $500,000, respectively.
Securities
All of
our securities are classified as available for sale and carried at fair value.
These securities are used by the Company as a component of its balance sheet
management strategies. From time to time securities may be sold to
reposition the portfolio in response to strategies developed by the Company’s
asset liability committee. In accordance with our investment
strategy, management monitors market conditions with a view to realize gains on
its available for sale securities portfolio when prudent.
At March
31, 2009, the market value of securities available for sale had an unrealized
gain, net of tax, of $3.6 million compared to an unrealized gain, net of tax, of
$2.5 million at December 31, 2008. The change in market value of
securities available for sale is due primarily to fluctuations in interest
rates. The Company does not consider these investment securities to
be other than temporarily impaired. In the future, if the impairment
is judged to be other than temporary, the cost basis of the individual impaired
securities will be written down to fair value; the amount of the write-down
could be included in earnings as a realized loss.
The
following table sets forth our securities portfolio by type for the dates
indicated:
|
|
March
31,
|
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
U.S.
government-sponsored enterprise preferred stock
|
|
$ |
480 |
|
|
$ |
488 |
|
U.S.
government agency and government-sponsored enterprise mortgage-backed
securities and collateralized mortgage obligations
|
|
|
349,413 |
|
|
|
341,838 |
|
State
and municipal securities
|
|
|
192,671 |
|
|
|
185,653 |
|
Other
securities
|
|
|
1,803 |
|
|
|
939 |
|
Total
|
|
$ |
544,367 |
|
|
$ |
528,918 |
|
Liquidity
and Sources of Funds
Our
primary sources of funds are customer deposits. Additionally, we utilize
advances from the Federal Home Loan Bank of Seattle (the “FHLB”). The Federal
Reserve Bank of San Francisco (“FRB”), and wholesale repurchase agreements to
supplement our funding needs. These funds, together with loan repayments, loan
sales, retained earnings, equity and other borrowed funds are used to make
loans, to acquire securities and other assets, and to fund continuing
operations.
Deposit
Activities
Our
deposit products include a wide variety of transaction accounts, savings
accounts and time deposit accounts. Core deposits (demand deposit, savings,
money market accounts and certificates of deposit less than $100,000) decreased
$67.4 million, or 3%, since year-end 2008 while certificates of deposit greater
than $100,000 decreased $24.3 million, or 7%, from year-end 2008.
We have
established a branch system to serve our consumer and business depositors. In
addition, management’s strategy for funding asset growth is to make use of
brokered and other wholesale deposits on an as-needed basis. At March 31, 2009
brokered and other wholesale deposits (excluding public deposits) totaled $156.1
million, or 7% of total deposits, compared to $102.1 million, or 4% of total
deposits, at year-end 2008. The brokered deposits have varied
maturities.
The
following table sets forth the Company’s deposit base by type of product for the
dates indicated:
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
March
31, 2008
|
|
(in
thousands)
|
|
Balance
|
|
|
%
of
Total
|
|
|
Balance
|
|
|
%
of
Total
|
|
|
Balance
|
|
|
%
of
Total
|
|
Core
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing
|
|
$ |
474,736 |
|
|
|
20.2 |
% |
|
$ |
466,078 |
|
|
|
19.6 |
% |
|
$ |
508,955 |
|
|
|
20.1 |
% |
Interest
bearing demand
|
|
|
454,723 |
|
|
|
19.4 |
% |
|
|
519,124 |
|
|
|
21.8 |
% |
|
|
471,980 |
|
|
|
18.7 |
% |
Money
market
|
|
|
528,990 |
|
|
|
22.6 |
% |
|
|
530,065 |
|
|
|
22.3 |
% |
|
|
584,834 |
|
|
|
23.2 |
% |
Savings
|
|
|
133,517 |
|
|
|
5.7 |
% |
|
|
122,076 |
|
|
|
5.1 |
% |
|
|
116,486 |
|
|
|
4.6 |
% |
Certificates
of deposit less than $100,000
|
|
|
281,660 |
|
|
|
12.0 |
% |
|
|
303,704 |
|
|
|
12.7 |
% |
|
|
315,720 |
|
|
|
12.5 |
% |
Total
core deposits
|
|
|
1,873,626 |
|
|
|
79.9 |
% |
|
|
1,941,047 |
|
|
|
81.5 |
% |
|
|
1,997,975 |
|
|
|
79.1 |
% |
Certificates
of deposit greater than $100,000
|
|
|
314,721 |
|
|
|
13.4 |
% |
|
|
338,971 |
|
|
|
14.2 |
% |
|
|
411,491 |
|
|
|
16.3 |
% |
Wholesale
certificates of deposit (CDARS®)
|
|
|
95,817 |
|
|
|
4.1 |
% |
|
|
39,903 |
|
|
|
1.7 |
% |
|
|
-
- |
|
|
|
0.0 |
% |
Wholesale
certificates of deposit
|
|
|
60,242 |
|
|
|
2.6 |
% |
|
|
62,230 |
|
|
|
2.6 |
% |
|
|
117,048 |
|
|
|
4.6 |
% |
Total
deposits
|
|
$ |
2,344,406 |
|
|
|
100.0 |
% |
|
$ |
2,382,151 |
|
|
|
100.0 |
% |
|
$ |
2,526,514 |
|
|
|
100.0 |
% |
Borrowings
We rely
on Federal Home Loan Bank (“FHLB”) advances and Federal Reserve Bank (“FRB”)
borrowings as another source of both short and long-term funding. FHLB advances
and FRB borrowings are secured by bonds within our
investment
portfolio, one-to-four family real estate mortgages, and other
loans. At March 31, 2009, we had FHLB advances and FRB borrowings of
$183 million, compared to $200 million at December 31, 2008.
We also
utilize wholesale repurchase agreements as a supplement to our funding sources.
Our wholesale repurchase agreements are secured by mortgage-backed securities.
At March 31, 2009 and December 31, 2008 we had repurchase agreements of $25
million. Management anticipates that we will continue to rely on FHLB
advances, FRB borrowings, and wholesale repurchase agreements in the future and
we will use those funds primarily to make loans and purchase
securities.
During
2001, the Company, through a special purpose trust (“the Trust”) participated in
a pooled trust preferred offering, whereby the Trust issued $22.0 million of 30
year floating rate capital securities. The capital securities constitute
guaranteed preferred beneficial interests in debentures issued by the Trust. The
debentures had an initial rate of 7.29% and a rate of 4.75% at March 31, 2009.
The floating rate is based on the 3-month LIBOR plus 3.58% and is adjusted
quarterly. Through the Trust, we may call the debentures at any time for a
premium and after ten years at par, allowing us to retire the debt early if
market conditions are favorable. Through the 2007 Town Center Bancorp
acquisition, the Company assumed an additional $3.0 million in floating rate
trust preferred obligations; these debentures had a rate of 4.84% at March 31,
2009. The floating rate is based on the 3-month LIBOR plus 3.75% and
is adjusted quarterly.
The trust
preferred obligations are classified as long-term subordinated debt and our
related investment in the Trust is recorded in other assets on the consolidated
balance sheets. The balance of the long-term subordinated debt was $25.6 million
at March 31, 2009 and December 31, 2008. The subordinated debt payable to
the Trust is on the same interest and payment terms as the trust preferred
obligations issued by the Trust.
Additionally,
we have a $20.0 million line of credit with a large commercial bank with an
interest rate indexed to LIBOR. The outstanding balance on the line of credit
was $100,000 at March 31, 2009 and December 31, 2008. The line matures on June
30, 2009 and, if not renewed, any principle balance outstanding is due at
maturity.
Contractual
Obligations & Commitments
We are
party to many contractual financial obligations, including repayment of
borrowings, operating and equipment lease payments, commitments to extend credit
and investments in affordable housing partnerships. At March 31, 2009, we had
commitments to extend credit of $663.7 million compared to $703.3 million at
December 31, 2008.
Capital
Resources
Shareholders’
equity at March 31, 2009 was $415.7 million, up slightly from $415.4 million at
December 31, 2008. Shareholders’ equity was 13.6% and 13.4% of total
period-end assets at March 31, 2009 and December 31, 2008,
respectively.
Capital Ratios: Banking
regulations require bank holding companies to maintain a minimum “leverage”
ratio of core capital to adjusted quarterly average total assets of at least 3%.
In addition, banking regulators have adopted risk-based capital guidelines,
under which risk percentages are assigned to various categories of assets and
off-balance sheet items to calculate a risk-adjusted capital ratio. Tier I
capital generally consists of preferred stock, common shareholders’ equity, and
trust preferred obligations, less goodwill and certain identifiable intangible
assets, while Tier II capital includes the allowance for loan losses and
subordinated debt, both subject to certain limitations. Regulatory minimum
risk-based capital guidelines require Tier I capital of 4% of risk-adjusted
assets and total capital (combined Tier I and Tier II) of 8% to be considered
“adequately capitalized”.
Federal
Deposit Insurance Corporation regulations set forth the qualifications necessary
for a bank to be classified as “well capitalized”, primarily for assignment of
FDIC insurance premium rates. To qualify as “well capitalized,” banks must have
a Tier I risk-adjusted capital ratio of at least 6%, a total risk-adjusted
capital ratio of at least 10%, and a leverage ratio of at least 5%. Failure to
qualify as “well capitalized” can negatively impact a bank’s ability to expand
and to engage in certain activities.
The Company and its subsidiaries
qualify as “well-capitalized” at March 31, 2009 and December 31,
2008.
|
|
Company
|
|
|
Columbia
Bank
|
|
|
Requirements
|
|
|
|
3/31/2009
|
|
|
12/31/2008
|
|
|
3/31/2009
|
|
|
12/31/2008
|
|
|
Adequately
capitalized
|
|
|
Well-Capitalized
|
|
Total
risk-based capital ratio
|
|
|
14.47 |
% |
|
|
14.25 |
% |
|
|
11.45 |
% |
|
|
11.21 |
% |
|
|
8 |
% |
|
|
10 |
% |
Tier
1 risk-based capital ratio
|
|
|
13.21 |
% |
|
|
12.99 |
% |
|
|
10.19 |
% |
|
|
9.96 |
% |
|
|
4 |
% |
|
|
6 |
% |
Leverage
ratio
|
|
|
11.30 |
% |
|
|
11.27 |
% |
|
|
8.75 |
% |
|
|
8.64 |
% |
|
|
4 |
% |
|
|
5 |
% |
Stock
Repurchase Program
In March
2002 the Board of Directors approved a common stock repurchase program whereby
the Company may systematically repurchase up to 500,000 of its outstanding
shares of common stock. The Company may repurchase shares from time to time in
the open market or in private transactions, under conditions which allow such
repurchases to be accretive to earnings while maintaining capital ratios that
exceed the guidelines for a well-capitalized financial institution. As of March
31, 2009 we have repurchased 64,788 shares of common stock in this current stock
repurchase program, none of which was repurchased in the period covered by this
report. Due to our participation in the U.S. Treasury’s (“Treasury”) Capital
Purchase Program, we would first have to obtain approval from the Treasury
before commencing any common stock repurchases under this plan.
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
A number
of measures are used to monitor and manage interest rate risk, including income
simulations and interest sensitivity (gap) analyses. An income simulation model
is the primary tool used to assess the direction and magnitude of changes in net
interest income resulting from changes in interest rates. Basic assumptions in
the model include prepayment speeds on mortgage-related assets, cash flows and
maturities of other investment securities, loan and deposit volumes and pricing.
These assumptions are inherently subjective and, as a result, the model cannot
precisely estimate net interest income or precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from
simulated results due to timing, magnitude and frequency of interest rate
changes and changes in market conditions and management strategies, among other
factors. At March 31, 2009, based on the measures used to monitor and manage
interest rate risk, there has not been a material change in the Company’s
interest rate risk since December 31, 2008. For additional information,
refer to “Management’s Discussion and Analysis of Financial Condition and
Results of Operation” referenced in the Company’s 2008 Annual Report on Form
10-K.
Evaluation
of Disclosure Controls and Procedures
An
evaluation was carried out under the supervision and with the participation of
the Company’s management, including the Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934). Based on that evaluation, the CEO and CFO have concluded
that as of the end of the period covered by this report, our disclosure controls
and procedures are effective in ensuring that the information required to be
disclosed by us in the reports we file or submit under the Securities Exchange
Act of 1934 is (i) accumulated and communicated to our management (including the
CEO and CFO) to allow timely decisions regarding required disclosure, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
Changes
in Internal Controls Over Financial Reporting
There was
no change in our internal controls over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
The
Company and its banking subsidiaries are parties to routine litigation arising
in the ordinary course of business. Management believes that, based on the
information currently known to them, any liabilities arising from such
litigation will not have a material adverse impact on the Company’s financial
condition, results of operations or cash flows.
Our
business exposes us to certain risks. The following is a discussion of what we
currently believe are the most significant risks and uncertainties that may
affect our business, financial condition and future results.
We
cannot predict the effect of the national economic situation on our future
results of operations or stock trading price.
The
national economy and the financial services sector in particular, are currently
facing challenges of a scope unprecedented in recent history. No one
can predict the severity or duration of this national downturn, which has
adversely impacted the markets we serve. Any further deterioration in
our markets would have an adverse effect on our business, financial condition
and results of operations.
We
cannot predict the effect of recently enacted and pending federal
legislation.
On
October 3, 2008, Congress enacted the Emergency Economic Stabilization Act of
2008 (“EESA”), which provides the United States Treasury Department (“Treasury”)
with broad authority to implement action intended to help restore stability and
liquidity to the US financial markets. The EESA also increased the
amount of deposit account insurance coverage from $100,000 to $250,000 effective
until December 31, 2009. In early 2009, Treasury also announced the Financial
Stability Plan which, among other things, provides a new capital program called
the Capital Assistance Program, establishes a public-private investment fund for
the purchase of troubled assets and expands the Term Asset-Backed Securities
Loan Facility.
The full
effect of the broad legislation already enacted and related legislation expected
to be enacted in the near future on the national economy and financial
institutions, particularly on mid-sized institutions like us, cannot be
predicted.
Our
ability to access markets for funding and acquire and retain customers could be
adversely affected to the extent the financial services industry’s reputation is
damaged.
Reputation
risk is the risk to liquidity, earnings and capital arising from negative
publicity regarding the financial services industry. The financial
services industry continues to be featured in negative headlines about the
global and national credit crisis and the resulting stabilization legislation
enacted by the U.S. federal government. These reports can be damaging to the
industry's image and potentially erode consumer confidence in insured financial
institutions, such as our banking subsidiary.
We
have a concentration of loans secured by real estate.
We have
65% of our loans secured by real estate. The effects of the economic
downturn are now significantly impacting our market area. Further
downturn in the market areas we serve may cause us to have lower earnings and
could increase our credit risk associated with our loan portfolio, as the
collateral securing those loans may decrease in value. A continued
downturn in the economy could have a material adverse effect both on the
borrowers’ ability to repay these loans, as well as the value of the real
property held as collateral. Our ability to recover on defaulted
loans by foreclosing and selling the real estate collateral would then be
diminished and we would be more likely to suffer losses on defaulted
loans.
Our loan
portfolio mix could result in increased credit risk in a prolonged economic
downturn.
Our loan
portfolio, is concentrated in permanent commercial real estate loans, commercial
business and real estate construction loans, including acquisition and
development loans related to the for sale housing industry. These
types of loans generally are viewed as having more risk of default than
residential real estate loans or certain other types of loans or
investments. These types of loans typically are larger than
residential real estate loans and other commercial loans. Because our
loan portfolio contains a significant number of commercial business and
commercial real estate loans with relatively large balances, the deterioration
of one or a few of these loans may cause a considerable increase in our
non-performing loans. An increase in non-performing loans could
result in a loss of earnings, an increase in the provision for loan losses, or
an increase in loan charge-offs, all of which could have an adverse impact on
our results of operations and financial condition.
The current
economic downturn in the market areas we serve may cause us to have lower
earnings and could increase our credit risk associated with our loan
portfolio.
The
inability of borrowers to repay loans can erode our
earnings. Substantially all of our loans are to businesses and
individuals in Washington and Oregon, and a continuing decline in the economy of
these market areas could impact us adversely. Recently, a series of
large Puget Sound-based companies have announced or commenced implementation
of
substantial
employee layoffs and scaled back plans for future growth. A further
deterioration in economic conditions in the market areas we serve could result
in the following consequences, any of which could have an adverse impact on our
prospects, results of operations and financial condition:
·
|
loan
delinquencies may increase further;
|
·
|
collateral
for loans made may decline in value, in turn reducing customers’ borrowing
power, reducing the value of assets and collateral associated with
existing loans;
|
·
|
certain
securities within our investment portfolio could become other than
temporarily impaired, requiring a write down through earnings to fair
value thereby reducing equity;
|
·
|
demand
for banking products and services may
decline
|
·
|
low
cost or non-interest bearing deposits may decrease;
and
|
·
|
substantial
increase in office space availability in downtown
Seattle.
|
Our
allowance for loan and lease losses (“ALLL”) may not be adequate to cover actual
loan losses, which could adversely affect earnings.
Future
increases to the ALLL may be required based on changes in the composition of the
loans comprising the portfolio, deteriorating values in underlying collateral
(most of which consists of real estate) and changes in the financial condition
of borrowers, such as may result from changes in economic conditions, or as a
result of incorrect assumptions by management in determining the
ALLL. Additionally, federal banking regulators, as an integral part
of their supervisory function, periodically review our loan portfolio and the
adequacy of our ALLL. These regulatory agencies may require us to
recognize further loan loss provisions or charge-offs based upon their
judgments, which may be different from ours. Increases in the ALLL or
charge-offs could have a negative effect on our financial condition and results
of operation.
Fluctuating
interest rates can adversely affect our profitability.
Our
profitability is dependent to a large extent upon net interest income, which is
the difference (or “spread”) between the interest earned on loans, securities
and other interest-earning assets and interest paid on deposits, borrowings, and
other interest-bearing liabilities. Because of the differences in
maturities and repricing characteristics of interest-earning assets and
interest-bearing liabilities, changes in interest rates do not produce
equivalent changes in interest income earned on interest-earning assets and
interest paid on interest-bearing liabilities. Accordingly,
fluctuations in interest rates could adversely affect the Company’s interest
rate spread, and, in turn, profitability.
If the
goodwill we have recorded in connection with acquisitions becomes impaired, it
could have an adverse impact on our earnings and capital.
Accounting
standards require that we account for acquisitions using the purchase method of
accounting. Under purchase accounting, if the purchase price of an
acquired company exceeds the fair value of its net assets, the excess is carried
on the acquirer’s balance sheet as goodwill. In accordance with
generally accepted accounting principles, our goodwill is evaluated for
impairment on an annual basis or more frequently if events or circumstances
indicate that a potential impairment exists. Such evaluation is based
on a variety of factors, including the quoted price of our common stock, market
prices of common stocks of other banking organizations, common stock trading
multiples, discounted cash flows, and data from comparable
acquisitions. There can be no assurance that future evaluations of
goodwill will not result in an impairment resulting in write-downs, which could
be material.
A continued
tightening of the credit markets may make it difficult to obtain adequate
funding for loan growth, which could adversely affect our earnings.
A continued
tightening of the credit market and the inability to obtain or retain adequate
liquidity to fund continued loan growth may negatively affect our asset growth
and, therefore, our earnings capability. In addition to deposit
growth, maturity of investment securities and loan payments, the Company also
relies on alternative funding sources through correspondent banking, wholesale
certificates of deposit and borrowing lines with the Federal Reserve Bank and
FHLB of Seattle to fund loans. In the event the current economic
downturn continues, particularly in the housing market, these
resources
could be negatively affected, both as to price and availability, which would
limit and or raise the cost of the funds available to the Company.
We may grow
through future acquisitions which could, in some circumstances, adversely affect
our profitability measures.
We have in
recent years acquired other financial institutions. We may in the
future engage in selected acquisitions of additional financial
institutions. There are risks associated with any such acquisitions
that could adversely affect our profitability. These risks include,
among other things, assessing the asset quality of a financial institution being
acquired, encountering greater than anticipated cost of incorporating acquired
businesses into our operations, and being unable to profitably deploy funds
acquired in an acquisition.
We may issue
additional equity in connection with any future acquisitions. Such
acquisitions and related issuances of equity may have a dilutive effect on
earnings per share and the percentage ownership of current
shareholders.
Competition
in our market areas may limit our future success.
Commercial
banking is a highly competitive business. We compete with other
commercial banks, savings and loan associations, credit unions, finance,
insurance and other non-depository companies operating in our market
areas. We are subject to substantial competition for loans and
deposits from other financial institutions. Some of our competitors
are not subject to the same degree of regulation and restriction as we
are. Some of our competitors have greater financial resources than we
do. If we are unable to effectively compete in our market areas, our
business, results of operations and prospects could be adversely
affected.
The FDIC has
increased insurance premiums to rebuild and maintain the federal deposit
insurance fund and we may separately incur state statutory assessments in the
future.
Based on
recent events and the state of the economy, the FDIC has increased federal
deposit insurance premiums beginning in the first quarter of
2009. The increase of these premiums will add to our cost of
operations and could have a significant impact on the
Company. Depending on any future losses that the FDIC deposit
insurance fund may suffer due to failed institutions, there can be no assurance
that there will not be additional significant premium increases in order to
replenish the fund.
On February
27, 2009 the FDIC issued a press release announcing a special Deposit Insurance
Fund assessment of 20 basis points on insured institutions and granting the FDIC
the authority to impose an additional assessment after June 30, 2009 of up to 10
basis points if
necessary. Subject to the passing of certain legislation that would
allow the FDIC increased borrowing from the Treasury, the FDIC has indicated
that it would significantly reduce the special assessment; however, there can be
no assurance that this will occur.
We operate in
a highly regulated environment and may be adversely affected by changes in
federal state and local laws and regulations.
We are
subject to extensive regulation, supervision and examination by federal and
state banking authorities. Any change in applicable regulations or
federal, state or local legislation could have a substantial impact on us and
our operations. Additional legislation and regulations that could
significantly affect our powers, authority and operations may be enacted or
adopted in the future, which could have a material adverse effect on our
financial condition and results of operations. Further, regulators
have significant discretion and authority to prevent or remedy unsafe or unsound
practices or violations of laws or regulations by financial institutions and
holding companies in the performance of their supervisory and enforcement
duties. These powers recently have been utilized more frequently due
to the current economic conditions we are facing. The exercise of
regulatory authority may have a negative impact on our financial condition and
results of operations.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
None.
10.1
|
Amendment
effective February 1, 2009 to the Employment Agreement between the Bank,
the Company and Melanie Dressel dated August 1, 2004(1)
|
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
32
|
Certification
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002
|
(1) Incorporated
by reference to the Company’s Current Report on Form 8-K filed February 19,
2009.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
|
COLUMBIA
BANKING SYSTEM, INC.
|
|
|
|
|
Date:
May 6, 2009
|
|
By
|
/s/
MELANIE J. DRESSEL
|
|
|
|
|
Melanie
J. Dressel
|
|
|
|
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
Date:
May 6, 2009
|
|
By
|
/s/
GARY R. SCHMINKEY
|
|
|
|
|
Gary
R. Schminkey
|
|
|
|
|
Executive
Vice President and
Chief
Financial Officer
(Principal
Financial Officer)
|
|
|
|
|
Date:
May 6, 2009
|
|
By
|
/s/
CLINT E. STEIN
|
|
|
|
|
Clint
E. Stein
|
|
|
|
|
Senior
Vice President and
Chief
Accounting Officer
(Principal
Accounting Officer)
|