-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KzzuwVPyZqNWh2KuYQ8zPPfzY9fy+bRxskFD2Lp2Kq0fUystEJR8J8/y7SfymnSi 3F9rXc/gLtq4I9UbWK0Ogw== 0000887343-97-000017.txt : 19970805 0000887343-97-000017.hdr.sgml : 19970805 ACCESSION NUMBER: 0000887343-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA BANKING SYSTEM INC CENTRAL INDEX KEY: 0000887343 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 911422237 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20288 FILM NUMBER: 97650508 BUSINESS ADDRESS: STREET 1: 1102 BROADWAY PLAZA CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 2063051900 MAIL ADDRESS: STREET 1: 1102 BROADWAY PLAZA CITY: TACOMA STATE: WA ZIP: 98402 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997. / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. Commission File Number 0-20288 COLUMBIA BANKING SYSTEM, INC. (Exact name of small business issuer as specified in its charter) Washington 91-1422237 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1102 Broadway Plaza Tacoma, Washington 98402 (Address of principal executive offices) (Zip Code) (253) 305-1900 (Issuer's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of the issuer's Common Stock outstanding at July 31, 1997 was 5,498,186. TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Page Item 1. Financial statements Consolidated Statements of Operations - three months and six months ended June 30, 1997 and 1996 2 Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3 Consolidated Statements of Shareholders' Equity - twelve months ended December 31, 1996 and six months ended June 30, 1997 4 Consolidated Statements of Cash Flows - six months ended June 30, 1997 and 1996 5 Notes to consolidated financial statements 6 Item 2. Management Discussion and Analysis of Financial 8 Condition and Results of Operations PART II -- OTHER INFORMATION Item 4. Submission of matters to vote of security holders 17 Item 6. Exhibits and reports on Form 8-K 18 Signatures 18 1 CONSOLIDATED STATEMENTS OF OPERATIONS Columbia Banking System, Inc.
Three Months Ended Six Months Ended June 30, June 30, (in thousands except per share) 1997 1996 1997 1996 - ----------------------------------------------------------------------------- Interest Income Loans $11,672 $ 8,745 $21,965 $16,943 Securities available for sale 771 416 1,454 826 Deposits with banks 232 150 609 328 - ----------------------------------------------------------------------------- Total interest income 12,675 9,311 24,028 18,097 Interest Expense Deposits 5,027 3,798 9,676 7,593 Federal Home Loan Bank advances 398 447 828 884 Other borrowings 61 125 - ----------------------------------------------------------------------------- Total interest expense 5,425 4,306 10,504 8,602 Net Interest Income 7,250 5,005 13,524 9,495 Provision for loan losses 1,206 430 1,606 760 - ----------------------------------------------------------------------------- Net interest income after provision for loan losses 6,044 4,575 11,918 8,735 Noninterest Income Service charges and other fees 919 597 1,646 1,148 Mortgage banking 202 148 295 308 Gains on sale of loans 1,035 1,035 Credit card fees and other 679 563 1,349 1,017 - ----------------------------------------------------------------------------- Total noninterest income 2,835 1,308 4,325 2,473 Noninterest Expense Compensation and employee benefits 2,634 1,808 5,272 3,627 Occupancy 921 800 1,800 1,616 Professional Services 113 154 225 278 Advertising and promotion 281 194 502 374 Printing and supplies 145 103 300 192 Regulatory premiums and assessments 47 120 86 184 Data processing 267 205 536 363 Gains on, and net cost of, real estate owned 87 84 Other 1,783 1,467 3,358 2,734 - ----------------------------------------------------------------------------- Total noninterest expense 6,278 4,851 12,163 9,368 Income before income taxes 2,601 1,032 4,080 1,840 Provision for income taxes 768 1,194 - ----------------------------------------------------------------------------- Net Income $ 1,833 $ 1,032 $ 2,886 $ 1,840 ============================================================================= Per share (on average shares outstanding): Net Income $ 0.32 $ 0.27 $ 0.51 $ 0.49 Fully diluted net income 0.32 0.27 0.51 0.49 Average number of common and common equivalent shares outstanding 5,643 3,760 5,639 3,745 Fully diluted average common and common equivalent shares oustanding 5,668 3,995 5,667 3,980 See accompanying notes to consolidated financial statements.
2 CONSOLIDATED BALANCE SHEETS Columbia Banking System, Inc.
June 30, December 31, (in thousands) 1997 1996 - ----------------------------------------------------------------------------- Assets Cash and due from banks $ 30,111 $ 32,092 Interest-earning deposits with banks 10,724 38,086 Securities available for sale: U.S. Treasury & Government Agencies 33,058 30,481 Mortgage-backed 9,927 10,760 FHLB stock 4,450 4,248 - ----------------------------------------------------------------------------- Total securities available for sale 47,435 45,489 Loans held for sale 3,279 11,341 Loans 541,388 446,095 Less: allowance for loan losses 5,614 4,504 - ----------------------------------------------------------------------------- Loans, net 535,774 441,591 Interest Receivable 3,882 3,347 Premises and equipment, net 19,718 15,250 Real estate owned 301 40 Other 3,836 1,680 - ----------------------------------------------------------------------------- Total Assets $655,060 $588,916 ============================================================================= Liabilities and Shareholders' Equity Deposits: Noninterest-bearing $ 97,282 $ 83,983 Interest-bearing 452,641 409,239 - ----------------------------------------------------------------------------- Total Deposits 549,923 493,222 Federal Home Loan Bank advances 37,000 32,000 Other liabilities 5,874 4,734 - ---------------------------------------------------------------------------- Total liabilities 592,797 529,956 Shareholders' equity: Preferred stock (no par value) Authorized, 2,000,000 shares; None outstanding June 30, December 31, Common stock (no par value) 1997 1996 --------- ---------- Authorized shares 10,000 10,000 Issued and outstanding 5,494 5,185 60,832 56,340 Retained Earnings 1,438 2,694 Unrealized losses on securities available for sale, net of tax (7) (74) - ----------------------------------------------------------------------------- Total shareholders' equity 62,263 58,960 - ----------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $655,060 $588,916 =============================================================================
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Columbia Banking System, Inc.
Common stock Unrealized Total Number of Retained Gains and Shareholders' (in thousands) Shares Amount Earnings (Losses) Equity - ----------------------------------------------------------------------------- Balance at December 31, 1995 3,274 $30,806 $1,274 ($113) $31,967 Net income 3,577 3,577 Issuance of shares of common stock, net 1,492 20,868 20,868 Issuance of shares of common stock - 5% stock dividend 164 2,157 (2,157) Conversion of Convertible Subordinated Notes 255 2,509 2,509 Change in unrealized gains and (losses) 39 39 - ----------------------------------------------------------------------------- Balance at December 31, 1996 5,185 56,340 2,694 (74) 58,960 Net income 2,886 2,886 Issuance of shares of common stock, net 48 350 350 Issuance of shares of common stock - 261 4,142 (4,142) 5% stock dividend Change in unrealized gains and (losses),net of tax 67 67 - ----------------------------------------------------------------------------- Balance at June 30, 1997 5,494 $60,832 $1,438 ($ 7) $62,263 =============================================================================
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS Columbia Banking System, Inc.
Six Months Ended June 30, (in thousands) 1997 1996 - ----------------------------------------------------------------------------- Operating Activities Net income $ 2,886 $ 1,840 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 1,606 760 Losses on real estate owned 85 41 Depreciation and amortization 1,221 1,057 Deferred income taxes 102 Net realized losses (gains) on sale of investments (1,032) 196 (Increase) decrease in loans held for sale 8,062 (583) Increase in interest receivable (535) (424) Increase (decrease) in interest payable 261 (12) Net changes in other assets and liabilities (1,412) (282) - ----------------------------------------------------------------------------- Net cash provided (used) by operating activities 11,244 2,593 Investing Activities Proceeds from maturities of securities available for sale 3,041 9,428 Purchases of securities available for sale (5,818) (19,937) Proceeds from maturities of mortgage-backed securities available for sale 850 807 Loans originated and acquired, net of principal collected (105,606) (48,785) Proceeds from sales of loans 10,177 Purchases of premises and equipment (5,738) (1,045) Proceeds from disposal of premises and equipment 393 140 Proceeds from sale of real estate owned 63 3,263 - ----------------------------------------------------------------------------- Net cash used by investing activities (102,638) (56,129) Financing Activities Net increase in deposits 56,701 41,039 Net increase in other borrowings 2,300 Proceeds from FHLB advances and other long-term debt 25,000 20,800 Repayment of FHLB advances and other long-term debt (20,000) (8,800) Proceeds from issuance of common stock 350 59 - ----------------------------------------------------------------------------- Net cash provided by financing activities 62,051 55,398 - ----------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (29,343) 1,862 Cash and cash equivalents at beginning of period 70,178 30,879 - ----------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 40,835 $ 32,741 ============================================================================= Supplemental information: Cash paid for interest $ 13,537 $ 8,614 Loans foreclosed and transferred to real estate owned 409 Issuance of common stock from conversion of convertible subordinated notes 332 See accompanying notes to consolidated financial statements.
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Columbia Banking System, Inc. 1. Basis of Presentation The interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments including normal recurring accruals necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the six months ended June 30, 1997, are not necessarily indicative of results to be anticipated for the year ending December 31, 1997. Certain amounts in the 1996 financial statements have been reclassified to conform with the 1997 presentation. For additional information, refer to the consolidated financial statements and footnotes thereto included in the Columbia Banking System's (the Company) annual report on Form 10-K for the year ended December 31, 1996. 2. Summary of Significant Accounting Changes In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The statement is effective for years ending after December 15, 1997, for both interim and annual periods, and replaces the presentation of primary and fully diluted earnings per share with a presentation of basic and diluted earnings per share. The adoption of this Statement is not expected to have a material impact on earnings per share reported by the Company. 3. Sale of Bank Card Operations During the second quarter, the Company sold its VISA( credit card portfolio. The sale was negotiated in 1996, signed in the first quarter of 1997 and closed in the second quarter of this year. A one-time gain of $1.0 million was realized from the sale. The sale of the business is not expected to have a material effect on results of operations in future periods. The proceeds of the sale have been invested principally in loans to local businesses and consumers. 4. Stock Dividend On April 23, 1997, the Company announced a 5% stock dividend payable on May 22, 1997, to shareholders of record on May 8, 1997. On May 22, 1997, 260,899 common shares were issued to shareholders. Average shares outstanding, net income per share and book value per share have been adjusted to give retroactive effect to all periods presented. 5. Subsequent Events - Merger On July 1, 1997, the Company announced an agreement to merge Cascade Community Bank, a wholly owned subsidiary of Cascade Bancorp, Inc. and Columbia Bank, a wholly owned subsidiary of Columbia Banking System, Inc. The terms of the agreement also provide that Cascade Bancorp, Inc. will be merged into CBSI. The Agreement provides that stockholders of Cascade Bancorp will receive 2.27 shares of CBSI common stock for each share of Cascade common stock. As of June 30, 1997, there were 330,000 shares of Cascade common stock issued and outstanding. In addition, outstanding options to purchase shares of Cascade common stock will become options to acquire up to 25,880 shares of CBSI common stock. Cascade operates three banking offices in the Auburn/Kent valley with assets of approximately $87 million. The agreement, which was unanimously approved by the respective Boards of Directors of the parties, is subject to a number of conditions, including approval by the shareholders of Cascade Bancorp and various regulatory agencies. The parties anticipate closing the transaction in the fourth quarter of 1997. 6 On July 30, 1997, the Company announced an agreement to merge the Bank of Fife with and into Columbia Bank. Under terms of the agreement, Bank of Fife stockholders will receive between 1.45 to 1.77 shares of CBSI common stock for each share of Fife common stock, based on the average price of CBSI shares for a period of 20 days shortly before the closing of the transaction. The transaction will result in the issuance of up to 391,000 shares of CBSI common stock. The Bank of Fife operates one banking office in downtown Fife with assets of approximately $34 million. The agreement, which was unanimously approved by the respective Boards of Directors of the parties, is subject to a number of conditions, including approval by the shareholders of Bank of Fife and various regulatory agencies. The parties anticipate closing the transaction in the fourth quarter of 1997. CONSOLIDATED AVERAGE BALANCES--NET CHANGES Columbia Banking System, Inc.
Three Months Ended Increase Six Months Ended Increase June 30, (Decrease) June 30, (Decrease) (in thousands) 1997 1996 Amount 1997 1996 Amount - -------------------------------------------------------------------------------- ASSETS Loans $518,751 $392,018 $126,733 $494,083 $378,281 $115,802 Securities 49,133 27,959 21,174 47,244 28,329 18,915 Interest-earning deposits with banks 17,044 11,549 5,495 23,015 12,352 10,663 - -------------------------------------------------------------------------------- Total interest-earning assets 584,928 431,526 153,402 564,342 418,962 145,380 Noninterest-earning assets 49,200 29,483 19,717 45,156 29,271 15,885 - -------------------------------------------------------------------------------- Total assets $634,128 $461,009 $173,119 $609,498 $448,233 $161,265 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits $447,930 $331,894 $116,036 $430,451 $324,327 $106,124 Federal Home Loan Bank advances 29,217 33,095 (3,878) 29,992 32,170 (2,178) Other borrowings 77 (77) 84 (84) Convertible subordinated notes 2,619 (2,619) 2,651 (2,651) - -------------------------------------------------------------------------------- Total interest-bearing liabilities $477,147 367,685 109,462 $460,443 359,232 101,211 Noninterest-bearing deposits 89,745 57,529 32,216 83,685 53,673 30,012 Other noninterest-bearing liabilities 4,852 2,849 2,003 4,309 2,854 1,455 Shareholders' Equity 62,384 32,946 29,438 61,061 32,474 28,587 - -------------------------------------------------------------------------------- Total liabilities and shareholders'equity $634,128 $461,009 $173,119 $609,498 $448,233 $161,265 ================================================================================
7 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Columbia Banking System, Inc. This discussion contains certain forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors. Earnings Summary Net income for the second quarter of 1997 was $1.8 million, or $0.32 per share, compared to $1.0 million, or $0.27 per share, for the second quarter of 1996, an increase in net income of 80%. During 1996, the Company had no federal income tax provision for the three months ended June 30 due to utilization of net operating loss carryforwards. On a comparable fully taxed basis, net income in the second quarter of 1997 was $1.8 million, or $0.32 per share, compared with $681,000, or $0.18 per share for the second quarter of 1996, a more than twofold increase in net income. The increase in net income was primarily due to increased revenue resulting from continued loan and deposit growth. As a result of the continued loan growth, during the second quarter of 1997, an additional loan loss provision of $800,000 was recorded. Net income for the six months ended June 30, 1997 was $2.9 million, $0.51 per share, compared with $1.8 million, or $0.49 per share for the same period in 1996. On a comparable fully taxed basis for the six months, net income was $2.9 million, or $0.51 per share, compared with $1.2 million, or $0.32 per share, for the first six months of 1996. Per share income in 1997 reflects the issuance by the Company of 1,445,000 shares of Common Stock in the fourth quarter of 1996. During the second quarter, the Company sold its VISA( credit card portfolio. The sale was negotiated in 1996, signed in the first quarter of 1997 and closed in the second quarter of this year. A one-time gain of $1.0 million was realized from the sale. The Company's goal is to create, over the next several years, a well-capitalized, customer focused, Pacific Northwest commercial banking institution with a significant presence in selected markets and total assets in excess of $1.0 billion. The Company intends to effect this growth strategy through a combination of growth at existing branch offices, new branch openings (usually following the hiring of an experienced branch manager and/or lending officer with strong community ties and banking relationships) and acquisitions. In particular, the Company anticipates continued expansion in Pierce County, north into King County (the location of Seattle and Bellevue) and south into Thurston County (the location of the state capital, Olympia). In order to fund its commercial and consumer lending activities and to allow for increased contact with customers, the Company is establishing a branch system catering primarily to retail depositors, supplemented by business banking customer deposits and other borrowings. The Company believes this mix of funding sources will enable it to expand its commercial lending activities rapidly while attracting a stable core deposit base. On July 1, 1997, an announcement was made that the Company will acquire Cascade Community Bank, a wholly owned subsidiary of Cascade Bancorp, Inc., through a merger with Columbia Bank, a wholly owned subsidiary of Columbia Banking System. The terms of the agreement provide that stockholders of Cascade Bancorp will receive 2.27 shares of Columbia's common stock for each share of Cascade common stock. The merger will add three additional branches to Columbia Bank in its south King County market area. Two of the branches are located in Auburn with the third in downtown Kent. The parties anticipate closing the transaction in the fourth quarter of 1997. 8 On July 30, 1997, the Company announced an agreement to merge the Bank of Fife with and into Columbia Bank. The Bank of Fife stockholders will receive between 1.45 to 1.77 shares of CBSI common stock for each share of Fife common stock, based on the average price of CBSI shares for a period of 20 days shortly before the closing of the transaction. The Bank of Fife operates one banking office in downtown Fife, a commercial market in which Columbia does not have a branch. The parties anticipate closing the transaction in the fourth quarter of 1997. During the first quarter of 1997, the Company opened a second Bellevue branch and a new branch in Kent. Columbia Bank has opened 14 branch locations since beginning its major Pierce County expansion in August 1993, and now has 18 branches, 3 in Cowlitz County, 4 in King County and 11 in Pierce County. The Company has regulatory approval to open three additional branches in Pierce County and one in King County. During 1997, the Company anticipates the establishment of two new branches in addition to the three branches to be acquired in the merger with Cascade. New branches normally do not contribute to net income for many months after opening. Net Interest Income Net interest income for the second quarter of 1997 increased to $7.3 million, or 46%, from $5.0 million in the second quarter of 1996. For the first six months of 1997, net interest income increased to $13.5 million, or 42%, from $9.5 million for the same period in 1996. The increase in net interest income during the first six months of 1997 is largely due to the overall growth of the Company. Net interest income was favorably affected by average interest-earning assets increasing more rapidly than average interest-bearing liabilities, with the difference funded by noninterest-bearing deposits and shareholders' equity. During the first six months of 1997, average interest-earning assets increased $145.4 million, while average interest-bearing liabilities increased $101.2 million compared with the same period in 1996. Net interest margin (net interest income divided by average interest-earning assets) increased to 4.97% in the second quarter of 1997 from 4.65% in the second quarter of 1996. The increase in net interest margin is primarily the result of the growth in earning assets at increased spreads. While interest-earning assets grew, the average yield increased 0.04% to 8.69% for the second quarter of 1997 from 8.65% in the same period of 1996. The average cost of interest-bearing liabilities decreased to 4.56%, or 0.14% from 4.70% in the same period of 1996. For the first six months of 1997, net interest margin increased to 4.83% from 4.55% for the same period in 1996. The average yield on interest-earning assets decreased to 8.59%, or 0.07% from 8.66% for the six months ending June 30, 1996. In comparison, the average cost of interest-bearing liabilities decreased to 4.60 or 0.20% from 4.80 in the same period of 1996. 9 Noninterest Income and Expense Total noninterest income increased $1.5 million, or 115%, in the second quarter of 1997, and $1.9 million, or 76%, for the first six months of 1997, compared with the same periods in 1996. The increase was primarily due to a one-time gain of $1.0 million on the sale of the Company's VISA (Trade Mark) Credit card portfolio during the second quarter. Excluding the one-time gain, noninterest income increased $484,000, or 37%, in the second quarter of 1997, and $809,000, or 33%, for the first six months of 1997, compared with the same periods in 1996. Increases in recurring noninterest income during the first six months of 1997 were centered in account service charges, and bank card revenue. Total noninterest expense increased $1.4 million, or 29% in the second quarter of 1997, and $2.8 million, or 30%, in the first six months of 1997 compared with the same periods in 1996. The increase is primarily due to expenses associated with the expansion of Columbia Bank. Total noninterest expense was 69.4% and 72.4% of total revenues (the sum of net interest income plus noninterest income less nonrecurring gains) for the second quarter and first six months of 1997, respectively, and 76.8% and 78.3% for the same periods in 1996, respectively. Increases in noninterest expense are centered in compensation, other expense, and data processing. In general, increases in noninterest expense are due to the growth of the Company, establishment of branches, and the associated "volume driven" expenses. Total noninterest expense for the Company is expected to decline in relation to revenues as the Company pursues its commitment to more efficient operations and as projected asset growth materializes. During the second quarter, the Company sold its VISA (Trade Mark) credit card portfolio. The sale was negotiated in 1996, signed in the first quarter of 1997 and closed in the second quarter of this year. A one-time gain of $1.0 million was realized from the sale. The sale of the business is not expected to have a material effect on results of operations in future periods. The proceeds of the sale have been invested principally in loans to local businesses and consumers. Income Taxes Prior to December 31, 1996, for federal income tax purposes, the Company had net operating loss ("NOL") carryforwards. The carryforwards were used, subject to certain restrictions and limitations, to offset taxable income and the tax liability of the Company. At December 31, 1996, all available NOL carryforwards had been utilized to offset taxable income and the Company is now fully taxable. For the second quarter and first six months of 1997, the Company recorded income tax provisions of $768,000 and $1.2 million, respectively. . 10 Lending Activities The Company originates a wide variety of loans. Consistent with the trend beginning in 1993, the Company continues to increase commercial business loans and consumer loans as a percentage of its total loan portfolio. The Company also emphasizes its private banking services to high income and high net worth individuals. Loan Portfolio The following table sets forth at the dates indicated the Company's loan portfolio composition by type of loan:
June 30, % of December 31, % of (in thousands) 1997 Total 1996 Total - ----------------------------------------------------------------------------- Commercial $214,149 39.5% $169,318 38.0% Real estate: One-to four-family residential 59,014 10.9 67,709 15.1 Five or more family residential and commercial properties 160,893 29.7 128,803 28.9 - ----------------------------------------------------------------------------- Total real estate 219,907 40.6 196,512 44.0 Real estate construction: One-to four-family residential 24,190 4.5 21,380 4.8 Five or more family residential and commercial properties 21,813 4.0 10,680 2.4 - ----------------------------------------------------------------------------- Total real estate construction 46,003 8.5 32,060 7.2 Consumer 62,108 11.5 48,807 10.9 - ----------------------------------------------------------------------------- Sub-total loans 542,167 100.1 446,697 100.1 Less: Deferred loan fees (779) (0.1) (602) (0.1) - ----------------------------------------------------------------------------- Total loans $541,388 100.0% $446,095 100.0% ============================================================================= Loans held for sale $ 3,279 $ 11,341 =============================================================================
Total loans increased $95.3 million, or 21%, to $541.4 million from year-end 1996. All categories contributed to the increase except for the one- to four-family residential category which experienced declines during the first quarter and early into the second quarter. Commercial and Private Banking Lending Commercial loans increased to $214.1 million at June 30, 1997, representing 39.5% of total loans, from $169.3 million at December 31, 1996. This increase reflects management's commitment to provide competitive commercial lending in the Company's primary market area. The Company expects to continue to expand its commercial lending products and emphasize in particular its relationship banking with businesses, business owners and professional individuals. Real Estate Lending One- to Four-Family Residential Real Estate Lending. Residential one- to four-family loans amounted to $59.0 million at June 30, 1997, representing 10.9% of total loans, compared to $67.7 million at December 31, 1996. These loans are used by the Company to collateralize advances from the FHLB. The Company's underwriting standards require that one- to four-family portfolio loans generally be owner-occupied and that loan amounts not exceed 80% (90% with private mortgage insurance) of the appraised value or cost, whichever is lower, of the underlying collateral at origination. Generally, management's policy is to originate for sale to third parties residential loans secured by properties located within the Company's primary market areas. 11 Multi-family and Commercial Real Estate Lending. The Company makes multi- family and commercial real estate loans in its primary market areas. Multi- family and commercial real estate lending increased to $160.9 million at June 30, 1997, representing 29.7% of total loans, from $128.8 million at December 31, 1996. The Company's underwriting standards generally require that the loan-to-value ratio for multi-family and commercial loans not exceed 75% of appraised value or cost, whichever is lower, and that commercial properties maintain debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. Construction Lending. One- to Four-Family Residential Real Estate Construction Lending. The Company originates one- to four-family residential construction loans for the construction of custom homes (where the home buyer is the borrower) and provides financing to builders for the construction of pre-sold homes and speculative residential construction. The Company endeavors to limit its construction lending risk through adherence to strict underwriting procedures. Construction loans on one- to four-family residences increased to $24.2 million at June 30, 1997, representing 4.5% of total loans, from $21.4 million at December 31, 1996. Multi-family and Commercial Real Estate Construction Lending. Multi-family and commercial real estate construction loans increased $11.1 million to $21.8 million at June 30, 1997, representing 4.0% of total loans, from $10.7 million at December 31, 1996. Consumer Lending. At June 30, 1997, the Company had $62.1 million of consumer loans outstanding, representing 11.5% of total loans, as compared with $48.8 million at December 31, 1996. Consumer loans made by the Company include automobile loans, boat and recreational vehicle financing, home equity and home improvement loans and miscellaneous personal loans. At June 30, 1997, the Company had no foreign loans or loans related to highly leveraged transactions. 12 Nonperforming Assets The following table sets forth at the dates indicated an analysis of the composition of the Company's nonperforming assets:
June 30, December 31, (in thousands) 1997 1996 - ----------------------------------------------------------------------------- Nonaccrual: One-to four-family residential $ 248 $1,645 Commercial business 844 385 Consumer 62 197 - ----------------------------------------------------------------------------- Total $1,154 $2,227 - ----------------------------------------------------------------------------- Restructured: One-to four-family residential $ 23 $ 25 - ----------------------------------------------------------------------------- Total $ 23 $ 25 - ----------------------------------------------------------------------------- Total nonperforming loans $1,177 $2,252 ============================================================================= Real estate owned: Five or more family residential and commercial properties $ 301 $ 40 - ----------------------------------------------------------------------------- Total $ 301 $ 40 ============================================================================= Total nonperforming assets $1,478 $2,292 =============================================================================
The policy of the Company generally is to discontinue the accrual of interest on all loans past due 90 days or more and place them on nonaccrual status. Nonperforming loans decreased to $1.2 million, or 0.22% of total loans (excluding loans held for sale), at June 30, 1997 from $2.3 million, or 0.51% of total loans at December 31, 1996 due principally to the reduction of nonperforming loans secured by real estate. During the first six months of 1997, the Company foreclosed on $409,000 of loans collaterlalized by real estate and transferred them to real estate owned. During the second quarter of 1997, a $20,000 write-down of REO was recorded as well as a loss on sale of REO of $65,000. Total nonperforming assets decreased to $1.5 million, or 0.23% of period-end assets at June 30, 1997 from $2.3 million, or 0.39% of period-end assets at December 31, 1996. 13 Analysis of Allowance for Loan Losses The allowance for loan losses is maintained at a level considered by management to be adequate to provide for anticipated loan losses based on management's assessment of various factors affecting the loan portfolio. This includes a review of problem loans, business conditions and loss experience, and overall evaluation of the quality of the underlying collateral, holding and disposal costs and costs of capital. The allowance is increased by provisions charged to operations, and is reduced by loans charged off, net of recoveries. While management believes that it uses reasonable information to determine the allowance for loan losses, unforeseen market conditions could result in adjustments to the allowance for loan losses, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in determining the allowance. The allowance for loan losses at June 30, 1997 increased $1.1 million to 1.04%, from 1.01% of loans at December 31, 1996 (excluding loans held for sale at each date). Due to the rapid loan growth experienced by the Company $1.6 million was added to provisions for loan losses during the first six months of 1997 compared with $760,000 for the same period in 1996. Net loan charge-offs amounted to $398,000 and $496,000 for the second quarter and for the first six months of 1997, respectively, compared with net loan charge-offs of $34,000 and $97,000 for the same periods in 1996. The following table sets forth at the dates indicated the changes in the Company's allowance for loan losses:
Three Months Ended Six Months Ended June 30, June 30, (in thousands) 1997 1996 1997 1996 - ---------------------------------------------------------------------------- Beginning balance $4,806 $4,015 $4,504 $3,748 Charge offs: Commercial business (425) (18) (425) (44) Consumer (14) (27) (131) (67) - ---------------------------------------------------------------------------- Total charge-offs (439) (45) (556) (111) Recoveries: Commercial business 2 11 20 14 Consumer 39 40 - ---------------------------------------------------------------------------- Total recoveries 41 11 60 14 - ---------------------------------------------------------------------------- Net (charge-offs) recoveries (398) (34) (496) (97) Provision charged to expense 1,206 430 1,606 760 - ---------------------------------------------------------------------------- Ending balance $5,614 $4,411 $5,614 $4,411 ============================================================================
14 Liquidity and Sources of Funds The Company's primary sources of funds are customer deposits, advances from the Federal Home Loan Bank of Seattle (the "FHLB") and brokered deposits. 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 The Company's deposit products include a wide variety of transaction accounts, savings accounts and certificates of deposit. Total deposits increased $56.7 million, or 11.5%, to $549.9 million at June 30, 1997, from $493.2 million at December 31, 1996. To fund the growth of the Company, management's strategy has been to make use of brokered and other wholesale deposits while working to build core deposits as rapidly as possible through the Company's development of commercial banking relationships and its branch network. The Company's use of brokered and other wholesale deposits has decreased since year-end 1996, though management anticipates continued, and perhaps increasing, use of such deposits to fund increasing loan demand when necessary. The deposit increase during the first six months of 1997 occurred entirely in "core deposits". Brokered and other wholesale deposits (excluding public deposits) decreased $25.5 million to $4.8 million, or .87% of total deposits, at June 30, 1997, from $30.3 million, or 6.1% of total deposits, at December 31, 1996. Borrowings The Company relies on advances from the FHLB to supplement its funding sources. FHLB advances increased $5.0 million during the first six months of 1997 to $37.0 million. FHLB advances are secured by one- to four-family real estate mortgages and certain other assets. 15 Capital Shareholders' equity at June 30, 1997 was $62.3 million compared with $59.0 million at December 31, 1996. The increase is due to improved net income during the first six months of 1997. Shareholders' equity was 9.5% and 10.0% of total period-end assets at June 30, 1997 and December 31, 1996, respectively. Banking regulations require bank holding companies and banks to maintain a minimum "leverage" ratio of core capital to adjusted quarterly average total assets of at least 3%. At June 30, 1997, the Company's leverage ratio was 9.80%, compared with 10.62% at December 31, 1996. 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 common shareholders' equity (which does not include unrealized gains and losses on securities), 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%. The Company's Tier I and total capital ratios were 11.22% and 12.23%, respectively, at June 30, 1997, compared with 12.81% and 13.79%, respectively, at December 31, 1996. During 1992, the Federal Deposit Insurance Corporation (the "FDIC") published the qualifications necessary to be classified as a "well-capitalized" bank, primarily for assignment of FDIC insurance premium rates beginning in 1993. 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%. Columbia Bank qualified as "well-capitalized" at June 30, 1997. Federal laws generally bar institutions which are not well-capitalized from accepting brokered deposits. The FDIC has issued rules which prohibit under-capitalized institutions from soliciting or accepting such deposits. Adequately capitalized institutions are allowed to solicit such deposits, but only to accept them if a waiver is obtained from the FDIC. Applicable federal and Washington state regulations restrict capital distributions by institutions such as Columbia Bank, including dividends. Such restrictions are tied to the institution's capital levels after giving effect to distributions. The Company's ability to pay cash dividends is substantially dependent upon receipt of dividends from the Bank. The Company presently intends to retain earnings to support anticipated growth. Accordingly, the Company does not intend to pay cash dividends on its common stock in the foreseeable future. On April 23, 1997, the Company announced a 5% stock dividend payable on May 22, 1997, to shareholders of record on May 8, 1997. Average shares outstanding, net income per share and book value per share have been adjusted to give retroactive effect to all periods presented. The retroactive impact on earnings per share for the three months and six months ended June 30, 1996, is a reduction of $0.02 and $0.03 per share, respectively. 16 PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual shareholders meeting on April 23, 1997, for the purpose of electing a Board of Directors and to approve Columbia's Stock Option Plan, as amended and restated. All fifteen persons nominated were elected to hold office for the ensuing year. Nominee Votes "For" Votes "Withheld" - ---------------------------------------------------------------------------- W. Barry Connoley 4,629,010 10,117 Richard S. DeVine 4,638,189 938 A. G. Espe 4,639,071 56 Jack Fabulich 4,639,029 98 Jonathan Fine 4,639,064 63 John P. Folsom 4,638,218 909 Margel S. Gallagher 4,639,064 63 John A. Halleran 4,638,139 988 W. W. Philip 4,638,161 966 John H. Powell 4,639,029 98 Robert E. Quoidbach 4,638,175 952 Donald Rodman 4,639,070 57 Frank H. Russell 4,639,043 84 Sidney R. Snyder 4,638,161 966 James M. Will 4,629,075 10,052 The amended and restated "Stock Option Plan" was approved by the following vote of the shareholders: Shares Shares Shares Voted Voted Shares Not "FOR" "AGAINST" "ABSTAINING" Voted 4,107,106 362,952 57,782 676,086 17 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Exhibit 11 - Computation of Fully Diluted Earnings per Common Share See Exhibit 27 - Financial Data Schedule (b) On July 7, 1997, the Company filed Form 8-K, announcing an agreement to merge Cascade Community Bank, a wholly owned subsidiary of Cascade Bancorp, Inc. and Columbia Bank, a wholly owned subsidiary of Columbia Banking System, Inc. The terms of the agreement also provide that Cascade Bancorp, Inc. will be merged into CBSI. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COLUMBIA BANKING SYSTEM, INC. (Registrant) Date August 1, 1997 By /s/ A. G. Espe ----------------------------- ----------------------------- A. G. Espe Chairman and Chief Executive Officer Date August 1, 1997 By /s/ Gary R. Schminkey ----------------------------- ----------------------------- Gary R. Schminkey Senior Vice President and Chief Financial Officer (Principal Financial Officer) 18 Exhibit 11 Computation of Fully Diluted Earnings per Common Share Columbia Banking System, Inc.
Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share data) 1997 1996 1997 1996 - -------------------------------------------------------------------------------- Earnings Net income applicable to common stock $1,833 $1,032 $2,886 $1,840 Interest on convertible subordinated notes, net of income tax effects--Note 1 58 118 - -------------------------------------------------------------------------------- Pro forma net income available to common stock $1,833 $1,090 $2,886 $1,958 ================================================================================ Shares Weighted average number of common and common equivalent shares outstanding 5,668 3,760 5,667 3,745 Additional shares assuming conversion of convertible subordinated notes--Note 1 235 235 - -------------------------------------------------------------------------------- Pro forma shares 5,668 3,995 5,667 3,980 ================================================================================ Fully diluted earnings per share - as reported $0.32 $0.27 $0.51 $0.49 ================================================================================ Fully diluted earnings per share - as calculated $0.32 $0.27 $0.51 $0.49 ================================================================================
On April 23, 1997, the Company announced a 5% stock dividend payable on May 22, 1997, to shareholders of record on May 8, 1997. Average shares outstanding, net income per share and book value per share have been adjusted to give retroactive effect to all periods presented. The retroactive impact on earnings per share for the three months and six months ended June 30, 1996, is a reduction of $0.02 and $0.03 per share respectively. On June 3, 1996, the Company gave notice that it would redeem all of its issued and outstanding 7.85% Convertible Subordinated Notes (the "Notes") on August 1, 1996. The Notes were convertible in whole or in part, in multiples of $1,000 principal amount, at 100% of the principal amount of the Note (or portion thereof), at the conversion price per share of common stock of $10.56. Prior to August 1, 1996, all of the Notes were converted into 223,743 shares of common stock. For additional information on earnings per share, please see the "Capital" section of the "Management Discussion and Analysis of Financial Condition and Results of Operations". EX-27 2
9 FINANCIAL DATA SCHEDULE Columbia Banking System, Inc. (in thousands except per share) 0000887343 COLUMBIA BANKING SYSTEM, INC. 1000 $ 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 30111 10724 0 0 47435 0 0 541388 5614 655060 549923 0 5874 37000 0 0 60832 1431 655060 21965 1454 609 24028 9676 10504 13524 1606 0 12163 4080 2886 0 0 2886 .51 .51 4.83 1154 0 23 0 4504 556 60 5614 5614 0 283
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