PR Newswire | Oct 29, 2020 09:02AM EDT

Dividend

10/29 08:00 CDT

Columbia Banking System Announces Third Quarter 2020 Results and Quarterly Cash Dividend TACOMA, Wash., Oct. 29, 2020

TACOMA, Wash., Oct. 29, 2020 /PRNewswire/ --

Notable Items for Third Quarter 2020

* Quarterly net income of $44.7 million and diluted earnings per share of $0.63 * Net loans decreased $83.0 million during the third quarter of 2020 * Deposits increased $468.8 million, or 4% during the third quarter of 2020 * Net interest margin of 3.47%, a decrease of 17 basis points from the linked quarter * Nonperforming assets to period-end assets ratio decreased 5 basis points to 0.29% * Loan balances subject to deferral down 93% from June 30, 2020 * Regular cash dividend declared of $0.28 per share

Clint Stein, President and Chief Executive Officer of Columbia Banking System, Inc. and Columbia Bank (NASDAQ: COLB) ("Columbia"), said today upon the release of Columbia's third quarter 2020 earnings, "I'm extremely proud of our bankers' commitment to our clients and communities as we push through the lingering effects of COVID-19. We continued to experience strong deposit growth during the quarter, helped by our normal seasonal inflows. Loan growth was challenged by soft borrower demand coupled with lower line utilization. Even so, earnings were supplemented as more excess liquidity was deployed into investment securities." Mr. Stein continued, "In addition, solid performance in our mortgage lending group and improved card transaction volumes, boosted our noninterest income."

Balance Sheet

Total assets at September 30, 2020 were $16.23 billion, an increase of $312.5 million from the linked quarter. Loans were $9.69 billion, down $83.0 million from June 30, 2020 as loan originations of $279.0 million were more than offset by loan payments and a decrease in loan utilization. Included in the loan originations for the quarter were $9.4 million of loans originated under the Paycheck Protection Program ("PPP"). Interest-earning deposits with banks were $736.4 million, a decrease of $143.8 million from the linked quarter. Debt securities available for sale were $4.28 billion at September 30, 2020, an increase of $587.9 million from $3.69 billion at June 30, 2020. Total deposits at September 30, 2020 were $13.60 billion, an increase of $468.8 million from June 30, 2020 largely due to an increase of $291.2 million in interest-bearing deposits. The deposit mix remained fairly consistent from June 30, 2020 with 51% noninterest-bearing and 49% interest-bearing. The average cost of total deposits for the quarter was 6 basis points, a decrease of 1 basis point from the second quarter of 2020. For additional information regarding this calculation, see the "Net Interest Margin" section.

Chris Merrywell, Columbia's Executive Vice President and Chief Operating Officer, stated, "As the "shelter-in-place" orders were relaxed during the quarter, our small business clients returned to a new normal for their business operations. Encouragingly, despite the ongoing challenges, most business owners have an optimistic outlook, which was reflected in an uptick in loan origination activity during the last few months."

Income Statement

Net Interest Income

Net interest income for the third quarter of 2020 was $124.7 million, an increase of $2.9 million and $2.3 million from the linked-quarter and the prior-year period, respectively. The increase in net interest income from the linked quarter was primarily due to lower interest expense on Federal Home Loan Bank ("FHLB") advances as a result of a $352.9 million decrease in the average balance of FHLB advances during the third quarter of 2020. In addition, an increase in the average balance of taxable securities, partially offset by a decline in rates, also contributed to the rise in net interest income compared to the linked quarter. Net interest income compared to the prior-year period increased primarily as a result of a reduction in interest expense on deposits and FHLB advances partially offset by a decline in interest income on interest-earning assets. The reduction in deposit interest expense was due to the lower interest rate environment while the reduction in interest expense on FHLB advances was principally due to lower average balances of advances. Interest income from securities increased principally due to higher average balances. Partially offsetting these favorable changes to net interest income was a decline in loan interest income due to the lower rate environment. For additional information regarding net interest income, see the "Net Interest Margin" section and the "Average Balances and Rates" tables.

Provision for Credit Losses

The Bank's provision for credit losses for the third quarter of 2020 was $7.4 million compared to $33.5 million for the linked quarter and $299 thousand for the comparable quarter in 2019. The provision for credit losses for the third quarter of 2020 compared to the linked quarter declined due to an improved economic forecast but remained elevated relative to the prior year principally as a result of COVID-19 and the 2020 downturn in the national and global economies. For more information, please see the "COVID-19 Update" section of this earnings release.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "For the quarter, our credit metrics remained very stable by almost all measures. We are pleased that our thesis on deferrals in the professional healthcare space is playing out as we expected. In addition, the provision for credit losses for the quarter was modest compared to the prior two quarters reflecting our efforts earlier this year to quickly address the challenges the pandemic presented. In this regard, we remain cautious as we head into the winter season and gain distance from the positive effects of earlier fiscal stimulus and loan deferrals."

Noninterest Income

Noninterest income was $22.5 million for the third quarter of 2020, a decrease of $14.8 million from the linked quarter and $5.6 million from the third quarter of 2019. The decrease compared to the linked quarter was principally due to the sale of Visa Class B shares during the second quarter of 2020. The Bank sold 17,360 shares of Visa Class B restricted stock for a gain of $3.0 million and wrote up its remaining 77,683 Visa Class B restricted shares to fair value resulting in a gain of $13.4 million, for a total gain of $16.4 million. Partially offsetting this decrease in noninterest income was an increase in mortgage banking revenue during the third quarter of 2020 primarily due to a higher volume of mortgage loans originated and sold. The decrease in noninterest income during the third quarter of 2020 compared to the same quarter in 2019 was principally due to a $5.9 million gain from the sale-leaseback of owned real estate during the third quarter of 2019. In addition, treasury management and overdraft fees decreased by $993 thousand and $921 thousand, respectively, compared to the same quarter in 2019. The decrease in overdraft fees was due to an overall decrease in the number of transactions during this pandemic time period as well as clients generally carrying higher cash balances in their deposit accounts. Partially offsetting these decreases in noninterest income was an increase in mortgage banking revenue of $2.3 million compared to the prior year period for the same reason stated above for the linked-quarter comparison.

Noninterest Expense

Total noninterest expense for the third quarter of 2020 was $85.1 million, an increase of $4.3 million compared to the second quarter of 2020 principally due to higher compensation and benefits expense partially offset by decreases in other noninterest and data processing expenses. The increase in compensation and benefits expense was due to the large deferral of labor costs related to the origination of PPP loans during the second quarter of 2020. These costs are treated as a contra expense and reduced compensation and benefits expense. As the number of PPP loan originations declined during the third quarter of 2020 compared to the second quarter, the amount of deferred labor costs decreased. This increase in noninterest expense for the third quarter of 2020 was partially offset by a decrease in the provision for unfunded loan commitments of $2.0 million, which is a component of other noninterest expense. In addition, data processing expense decreased $944 thousand due to the decline in PPP loan origination activity compared to the linked quarter.

Compared to the third quarter of 2019, noninterest expense decreased $2.0 million principally due to legal and professional fees and advertising and promotion expenses partially offset by an increase in other noninterest expense. Legal and professional fees declined $2.7 million while advertising and promotion expenses decreased $1.1 million. Partially offsetting these decreases was a $1.2 million increase in the provision for unfunded loan commitments due to higher estimated loss rates and higher amounts of unfunded loan commitments compared to the same period in 2019.

The provision for unfunded loan commitments for the periods indicated are as follows:

Three Months Ended Nine Months Ended

SeptemberJune 30,SeptemberSeptemberSeptember 30, 2020 2020 30, 2019 30, 2020 30, 2019

(in thousands)

Provision (recapture) for unfunded loan $ 800 $2,800$(400) $4,600 $(750) commitments



Net Interest Margin

Columbia's net interest margin (tax equivalent) for the third quarter of 2020 was 3.47%, a decrease of 17 basis points and 67 basis points from the linked-quarter and prior-year period, respectively. The decrease in the net interest margin (tax equivalent) compared to the linked-quarter and prior-year period was driven by higher average interest-earning deposits with banks at an average rate of 10 basis points as well as lower rates on the loan and securities portfolios.

Columbia's operating net interest margin (tax equivalent)[1] was 3.46% for the third quarter of 2020, which decreased 18 and 66 basis points compared to the linked-quarter and the prior-year period, respectively. The decreases in the operating net interest margin for the third quarter of 2020 compared to the linked-quarter and the prior-year period were due to the items noted in the preceding paragraph.

The following table highlights the yield on our paycheck protection program loans for the periods indicated:

Three Months Ended Nine Months Ended

September 30, June 30, September 30, 2020 2020 2020

Paycheck Protection Program (dollars in thousands) loans

Interest income $5,263 $4,590 $9,853

Average balance $948,034 $643,966 $533,702

Yield 2.21 %2.87 %2.47 %

Aaron James Deer, Columbia's Executive Vice President and Chief Financial Officer, stated, "The net interest margin remained under pressure during the quarter, as ultra-low interest rates and the flat yield curve continued to weigh on asset yields. Notwithstanding some upcoming benefit from PPP forgiveness, this margin pressure is likely to remain a headwind to net interest income given the current rate outlook."

Asset Quality

At September 30, 2020, nonperforming assets to total assets decreased to 0.29% compared to 0.34% at June 30, 2020. Total nonperforming assets decreased $6.6 million from the linked quarter due to decreases in agriculture and commercial business nonaccrual loans.

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

September 30, June 30, December 31, 2020 2020 2019

(in thousands)

Nonaccrual loans:

Commercial loans:

Commercial real estate $ 10,362 $11,155 $ 3,799

Commercial business 19,313 20,525 20,937

Agriculture 14,913 19,162 5,023

Construction 217 217 -

Consumer loans:

One-to-four family residential 2,405 2,662 3,292 real estate

Other consumer 21 11 9

Total nonaccrual loans 47,231 53,732 33,060

OREO and other personal property623 747 552 owned

Total nonperforming assets $ 47,854 $54,479 $ 33,612

Nonperforming assets to total assets was 0.29% at September 30, 2020 compared to 0.34% at June 30, 2020. Nonperforming assets to total loans was 0.49% at September 30, 2020 compared to 0.55% at June 30, 2020.

The following table provides an analysis of the Company's allowance for credit losses:

Three Months Ended Nine Months Ended

September June 30, SeptemberSeptember September 30, 2020 2020 30, 2019 30, 2020 30, 2019

(in thousands)

Beginning balance $151,546$122,074$80,517$83,968 $83,369

Impact of adopting - - - 1,632 - ASC 326

Charge-offs:

Commercial loans:

Commercial real - - (466) (101) (1,708) estate

Commercial business (3,164) (5,442) (2,623) (10,290) (8,445)

Agriculture (1,269) - (55) (5,995) (194)

Construction - - (17) - (232)

Consumer loans:

One-to-four family residential real (16) - (202) (26) (1,004) estate

Other consumer (133) (198) (9) (599) (64)

Total charge-offs (4,582) (5,640) (3,372) (17,011) (11,647)

Recoveries:

Commercial loans:

Commercial real 65 13 1,731 92 2,801 estate

Commercial business 1,124 811 349 2,795 1,368

Agriculture 27 1 67 69 189

Construction 11 235 2,555 688 3,329

Consumer loans:

One-to-four family residential real 1,301 422 440 2,005 1,224 estate

Other consumer 76 130 74 330 148

Total recoveries 2,604 1,612 5,216 5,979 9,059

Net (charge-offs) (1,978) (4,028) 1,844 (11,032) (2,588) recoveries

Provision for credit7,400 33,500 299 82,400 1,879 losses

Ending balance $156,968$151,546$82,660$156,968$82,660



The allowance for credit losses to period-end loans was 1.62% at September 30, 2020 compared to 1.55% at June 30, 2020. Excluding PPP loans, the allowance for credit losses to period-end loans[2] was 1.80% at September 30, 2020 compared to 1.72% at June 30, 2020.

Loan Deferrals

The following table shows the loan balances subject to a deferral for the periods indicated:

September 30, 2020June 30, 2020

(in thousands)

Loan balances subject to deferral$ 114,372 $1,595,615



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

Allowance for credit losses to period-end loans, excluding PPP is a non-GAAP financial measure. See the section titled "Non-GAAP Financial[2] Measures" in this earnings release for the reconciliation of allowance for credit losses to period-end loans to allowance for credit losses to period-end loans, excluding PPP loans.

Organizational Update

COVID-19 Update

We continue to monitor the spread of COVID-19 in our communities and adapt to changes in guidance from local healthcare officials. The measures we have taken to provide a safe environment for our team members and clients have been effective.

Branch lobbies across the footprint have remained open for standard business hours to serve clients throughout the quarter. The diligence of our team members and their commitment to the safety of their colleagues and clients has minimized the risk of spread in our facilities and helped us keep operating with minimal disruption.

Throughout the summer our leaders prepared to support team members with school-aged children returning to distanced learning programs. These adjustments have afforded many team members the support needed to help ease the pressures of distanced learning requirements. Responding to these temporary challenges with a variety of flexible options while upholding client service standards has also allowed us to retain existing talent.

Our participation in the Small Business Administration's ("SBA") Paycheck Protection Program has entered a new phase as clients began submitting requests for loan forgiveness. We began processing requests as soon as the SBA formally opened their portal. As of October 26th, we have taken over 1,400 applications and approved/submitted nearly 850 of those to the SBA for more than $220.0 million.

Northwest Wildfire Response

The devastating wildfires that swept across Washington and Oregon this summer resulted in significant damage to Northwest forests and neighboring communities. Even those communities spared the devastation of the fires were met with disruption related to weeks of poor air quality. To support recovery efforts, Columbia Bank has donated $25,000 to the Red Cross Northwest Wildfire Relief Fund. In addition, the employee led non-profit Columbia Cares will provide small grants to Northwest families and individuals who have been impacted by the wildfires.

"Our communities have demonstrated tremendous resilience in the face of great challenges this year," noted Mr. Stein. "We are pleased to support the effort to recover and rebuild through the Red Cross fund and our employee-led Columbia Cares organization."

Boise NeighborHub

Columbia opened its first retail location in downtown Boise, Idaho on September 28, 2020. The Boise NeighborHub combines client-focused technology and the elevated skill set of a banker with universal sales and support expertise. The opening marks the second location of the bank's signature NeighborHub concept, which serves the broader community as a hub for educational seminars, local events and community functions in addition to traditional banking and financial services.

"We are delighted to announce the opening of our Boise NeighborHub," said Chris Merrywell, Executive Vice President and Chief Operating Officer. "Combined with our existing commercial and healthcare banking teams, the new location allows us to offer Boise clients access to our full suite of business, consumer and wealth management solutions."

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share on November 25, 2020 to shareholders of record as of the close of business on November 11, 2020.

Common Stock Share Repurchase Program

Columbia Banking System's board of directors has authorized a share repurchase program which permits the repurchase of up to 3.5 million shares, or approximately 5%, of the Company's outstanding common stock. Repurchases will be made at management's discretion. "Columbia is committed to driving long term shareholder value and we believe that having a share repurchase program as part of our capital strategy increases the options we have available to achieve this goal," said Clint Stein, President and Chief Executive Officer.

Interest Rate Collar

Subsequent to quarter end, in October 2020, we terminated our $500 million notional interest rate collar. This termination locked in the $34.9 million value of the interest rate collar and this amount, net of deferred income taxes, will be amortized into interest income through February 2024.

Conference Call Information

Columbia's management will discuss the third quarter 2020 financial results on a conference call scheduled for Thursday, October 29, 2020 at 10:00 a.m. Pacific Time (1:00 p.m. ET). Interested parties may join the live-streamed event by using the site:

https://engage.vevent.com/rt/columbiabankingsysteminc/index.jsp?seid=181

The conference call can also be accessed on Thursday, October 29, 2020 at 10:00 a.m. Pacific Time (1:00 p.m. ET) by calling 888-286-8956; Conference ID: 2282428.

A replay of the call can be accessed beginning Friday, October 30, 2020 using the site:

https://engage.vevent.com/rt/columbiabankingsysteminc/index.jsp?seid=181

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank with locations throughout Washington, Oregon and Idaho. The bank has been named one of Puget Sound Business Journal's"Washington's Best Workplaces," more than 10 times and was recently honored as the #1 bank in the Northwest region by JD Power in the 2020 Retail Banking Satisfaction Study. Columbia was named the #1 bank in the Northwest on the Forbes 2020 list of "America's Best Banks" marking nearly 10 consecutive years on the publication's list of top financial institutions.

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

Note Regarding Forward-Looking Statements

This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, descriptions of Columbia's management's expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia's style of banking and the strength of the local economy as well as the potential effects of the COVID-19 pandemic on Columbia's business, operations, financial performance and prospects. The words "will," "believe," "expect," "intend," "should," and "anticipate" or the negative of these words or words of similar construction are intended in part to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risks and uncertainties, many of which are outside our control, that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in Columbia's filings with the Securities and Exchange Commission, available at the U.S. Securities and Exchange Commission's (the "SEC") website at www.sec.gov and the Company's website at www.columbiabank.com, include the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q (as applicable), factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (1) local, national and international economic conditions may be less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) the effect of COVID-19 and other infectious illness outbreaks that may arise in the future, which has created significant uncertainties in U.S. and global markets, is expected to continue to adversely affect the businesses in which Columbia is engaged; (3) changes in interest rates could significantly reduce net interest income and negatively affect funding sources; (4) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (5) costs or difficulties related to the integration of acquisitions may be greater than expected; (6) competitive pressure among financial institutions may increase significantly; (7) failure to maintain effective internal control over financial reporting or disclosure controls and procedures may adversely affect our business; (8) reliance on and cost of technology may increase; and (9) changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, including with regard to COVID-19, have adversely affected and may continue to adversely affect the businesses in which Columbia is engaged. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. The factors noted above and the risks and uncertainties described in our SEC filings should be considered when reading any forward-looking statements in this release.

Contacts:Clint Stein, Aaron James Deer,

President and Executive Vice President and

Chief Executive Officer Chief Financial Officer



Investor Relations

InvestorRelations@columbiabank.com

253-305-1921

CONSOLIDATED BALANCE SHEETS

Columbia Banking System, Inc.

Unaudited September 30,June 30, December 31,

2020 2020 2019

(in thousands)

ASSETS

Cash and due from $193,823 $217,461 $223,541 banks

Interest-earning 736,422 880,232 24,132 deposits with banks

Total cash and cash 930,245 1,097,693 247,673 equivalents

Debt securities available for sale at fair value (amortized cost of $4,081,118, $3,491,307 and 4,281,720 3,693,787 3,746,142 $3,703,096, respectively)

Equity securities 13,425 13,425 -

Federal Home Loan Bank 10,280 16,280 48,120 ("FHLB") stock at cost

Loans held for sale 24,407 28,803 17,718

Loans, net of 9,688,947 9,771,898 8,743,465 unearned income

Less: Allowance for credit 156,968 151,546 83,968 losses

Loans, net 9,531,979 9,620,352 8,659,497

Interest receivable 56,718 59,149 46,839

Premises and 164,049 164,362 165,408 equipment, net

Other real estate 623 747 552 owned

Goodwill 765,842 765,842 765,842

Other intangible 28,745 30,938 35,458 assets, net

Other assets 425,391 429,566 346,275

Total assets $16,233,424$15,920,944$14,079,524

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest-bearing $6,897,054 $6,719,437 $5,328,146

Interest-bearing 6,703,206 6,412,040 5,356,562

Total deposits 13,600,260 13,131,477 10,684,708

FHLB advances 7,427 157,441 953,469

Securities sold under 26,966 51,479 64,437 agreements to repurchase

Subordinated 35,139 35,185 35,277 debentures

Other liabilities 261,651 268,607 181,671

Total liabilities 13,931,443 13,644,189 11,919,562

Commitments and contingent liabilities

Shareholders' equity:

SeptemberJune 30,December 30, 31,

2020 2020 2019

(in thousands)

Preferred stock (no par value)

Authorized shares 2,000 2,000 2,000

Common stock (no par value)

Authorized shares 115,000 115,000115,000

Issued 73,797 73,770 73,577 1,658,203 1,654,129 1,650,753

Outstanding 71,613 71,586 72,124

Retained earnings 537,011 512,383 519,676

Accumulated other 177,601 181,077 40,367 comprehensive income

Treasury stock at 2,184 2,184 1,453 (70,834) (70,834) (50,834) cost

Total shareholders' 2,301,981 2,276,755 2,159,962 equity

Total liabilities and $16,233,424$15,920,944$14,079,524shareholders' equity

CONSOLIDATED STATEMENTS OF INCOME

Columbia Banking Three Months Ended Nine Months Ended System, Inc.

Unaudited September June 30, September September September 30, 30, 30, 30,

2020 2020 2019 2020 2019

Interest Income (in thousands except per share amounts)

Loans $105,739$105,496$112,656$318,601$337,657

Taxable securities19,102 18,343 16,457 58,533 49,790

Tax-exempt 2,340 2,257 2,556 6,899 8,237 securities

Deposits in banks 203 136 864 480 1,159

Total interest 127,384 126,232 132,533 384,513 396,843 income

Interest Expense

Deposits 2,005 2,094 6,863 7,741 16,337

FHLB advances and Federal Reserve 166 1,796 2,569 6,191 9,962 Bank ("FRB") borrowings

Subordinated 468 468 468 1,404 1,404 debentures

Other borrowings 19 23 183 178 552

Total interest 2,658 4,381 10,083 15,514 28,255 expense

Net Interest 124,726 121,851 122,450 368,999 368,588 Income

Provision for 7,400 33,500 299 82,400 1,879 credit losses

Net interest income after 117,326 88,351 122,151 286,599 366,709 provision for credit losses

Noninterest Income

Deposit account and treasury 6,658 6,092 9,015 20,538 27,030 management fees

Card revenue 3,834 3,079 4,006 10,431 11,431

Financial services3,253 3,163 3,226 9,481 9,608 and trust revenue

Loan revenue 6,645 5,607 3,855 16,842 9,840

Bank owned life 1,585 1,618 1,528 4,799 4,644 insurance

Investment securities gains, - 16,425 - 16,674 2,132 net

Other 497 1,275 6,400 2,173 10,689

Total noninterest 22,472 37,259 28,030 80,938 75,374 income

Noninterest Expense

Compensation and 55,133 46,043 54,459 156,018 158,559 employee benefits

Occupancy 8,734 8,812 8,645 26,743 26,166

Data processing 4,510 5,454 5,102 14,804 14,372

Legal and 3,000 3,483 5,683 8,585 16,810 professional fees

Amortization of 2,193 2,210 2,632 6,713 8,029 intangibles

Business and Occupation ("B&O")1,559 1,244 1,325 3,427 4,612 taxes

Advertising and 680 837 1,752 2,822 3,596 promotion

Regulatory 826 1,034 (38) 1,894 1,902 premiums

Net benefit of operation of other(160) (200) (90) (348) (682) real estate owned

Other 8,640 11,916 7,606 29,561 25,140

Total noninterest 85,115 80,833 87,076 250,219 258,504 expense

Income before 54,683 44,777 63,105 117,318 183,579 income taxes

Provision for 9,949 8,195 12,378 21,374 35,257 income taxes

Net Income $44,734 $36,582 $50,727 $95,944 $148,322

Earnings per common share

Basic $0.63 $0.52 $0.70 $1.35 $2.04

Diluted $0.63 $0.52 $0.70 $1.35 $2.04

Dividends declared per common share -$0.28 $0.28 $0.28 $0.84 $0.84 regular

Dividends declared per common share -- - - 0.22 0.28 special

Dividends declared per $0.28 $0.28 $0.28 $1.06 $1.12 common share - total

Weighted average number of common 70,726 70,679 71,803 70,870 72,256 shares outstanding

Weighted average number of diluted 70,762 70,711 71,803 70,906 72,257 common shares outstanding

FINANCIAL STATISTICS

Columbia Banking Three Months Ended Nine Months Ended System, Inc.

Unaudited September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

Earnings (dollars in thousands except per share amounts)

Net interest income$124,726 $121,851 $122,450 $368,999 $368,588

Provision for $7,400 $33,500 $299 $82,400 $1,879 credit losses

Noninterest income $22,472 $37,259 $28,030 $80,938 $75,374

Noninterest expense$85,115 $80,833 $87,076 $250,219 $258,504

Net income $44,734 $36,582 $50,727 $95,944 $148,322

Per Common Share

Earnings (basic) $0.63 $0.52 $0.70 $1.35 $2.04

Earnings (diluted) $0.63 $0.52 $0.70 $1.35 $2.04

Book value $32.14 $31.80 $29.90 $32.14 $29.90

Tangible book value per common share $21.05 $20.67 $18.78 $21.05 $18.78 (1)

Averages

Total assets $15,965,485 $15,148,488 $13,459,774 $15,039,925 $13,202,917

Interest-earning $14,492,435 $13,657,719 $11,941,578 $13,549,356 $11,704,702 assets

Loans $9,744,336 $9,546,099 $8,694,592 $9,370,101 $8,568,746

Securities, including equity $3,948,041 $3,591,693 $3,102,213 $3,720,268 $3,070,582 securities and FHLB stock

Deposits $13,318,485 $12,220,415 $10,668,767 $12,058,376 $10,376,841

Interest-bearing $6,527,695 $6,037,107 $5,517,171 $5,984,658 $5,307,212 deposits

Interest-bearing $6,659,119 $6,514,012 $5,989,042 $6,516,874 $5,878,492 liabilities

Noninterest-bearing$6,790,790 $6,183,308 $5,151,596 $6,073,718 $5,069,629 deposits

Shareholders' $2,293,771 $2,254,349 $2,152,916 $2,247,228 $2,098,364 equity

Financial Ratios

Return on average 1.12 %0.97 %1.51 %0.85 %1.50 %assets

Return on average 7.80 %6.49 %9.42 %5.69 %9.42 %common equity

Return on average tangible common 12.41 %10.53 %15.67 %9.31 %15.98 %equity (1)

Average equity to 14.37 %14.88 %16.00 %14.94 %15.89 %average assets

Shareholders' equity to total 14.18 %14.30 %15.71 %14.18 %15.71 %assets

Tangible common shareholders' 9.76 %9.79 %10.48 %9.76 %10.48 %equity to tangible assets (1)

Net interest margin3.47 %3.64 %4.14 %3.69 %4.28 %(tax equivalent)

Efficiency ratio (tax equivalent) 56.95 %50.09 %56.91 %54.78 %57.25 %(2)

Operating efficiency ratio 56.33 %54.91 %58.65 %56.16 %57.50 %(tax equivalent) (1)

Noninterest expense2.13 %2.13 %2.59 %2.22 %2.61 %ratio

September 30, June 30, December 31,

Period-end 2020 2020 2019

Total assets $16,233,424 $15,920,944 $14,079,524

Loans, net of $9,688,947 $9,771,898 $8,743,465 unearned income

Allowance for $156,968 $151,546 $83,968 credit losses

Securities, including equity $4,305,425 $3,723,492 $3,794,262 securities and FHLB stock

Deposits $13,600,260 $13,131,477 $10,684,708

Shareholders' $2,301,981 $2,276,755 $2,159,962 equity

Nonperforming assets

Nonaccrual loans $47,231 $53,732 $33,060

Other real estate owned ("OREO") and other personal 623 747 552 property owned ("OPPO")

Total nonperforming$47,854 $54,479 $33,612 assets

Nonperforming loans0.49 %0.55 %0.38 % to period-end loans

Nonperforming assets to 0.29 %0.34 %0.24 % period-end assets

Allowance for credit losses to 1.62 %1.55 %0.96 % period-end loans

Net loan charge-offs (for $1,978 $4,028 $306 the three months ended)

__________

This is a non-GAAP measure. See section titled "Non-GAAP Financial(1) Measures" on the last three pages of this earnings release for a reconciliation to the most comparable GAAP measure.

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

QUARTERLY FINANCIAL STATISTICS

Columbia Banking Three Months Ended System, Inc.

Unaudited September 30, June 30, March 31, December 31, September 30,

2020 2020 2020 2019 2019

Earnings (dollars in thousands except per share amounts)

Net interest income$124,726 $121,851 $122,422 $124,817 $122,450

Provision for $7,400 $33,500 $41,500 $1,614 $299 credit losses

Noninterest income $22,472 $37,259 $21,207 $21,807 $28,030

Noninterest expense$85,115 $80,833 $84,271 $86,978 $87,076

Net income $44,734 $36,582 $14,628 $46,129 $50,727

Per Common Share

Earnings (basic) $0.63 $0.52 $0.20 $0.64 $0.70

Earnings (diluted) $0.63 $0.52 $0.20 $0.64 $0.70

Book value $32.14 $31.80 $30.93 $29.95 $29.90

Averages

Total assets $15,965,485 $15,148,488 $13,995,632 $13,750,840 $13,459,774

Interest-earning $14,492,435 $13,657,719 $12,487,550 $12,231,779 $11,941,578 assets

Loans $9,744,336 $9,546,099 $8,815,755 $8,742,246 $8,694,592

Securities, including equity $3,948,041 $3,591,693 $3,618,567 $3,453,554 $3,102,213 securities and FHLB stock

Deposits $13,318,485 $12,220,415 $10,622,379 $10,959,434 $10,668,767

Interest-bearing $6,527,695 $6,037,107 $5,383,203 $5,610,850 $5,517,171 deposits

Interest-bearing $6,659,119 $6,514,012 $6,375,931 $6,058,319 $5,989,042 liabilities

Noninterest-bearing$6,790,790 $6,183,308 $5,239,176 $5,348,584 $5,151,596 deposits

Shareholders' $2,293,771 $2,254,349 $2,193,051 $2,170,879 $2,152,916 equity

Financial Ratios

Return on average 1.12 %0.97 %0.42 %1.34 %1.51 %assets

Return on average 7.80 %6.49 %2.67 %8.50 %9.42 %common equity

Average equity to 14.37 %14.88 %15.67 %15.79 %16.00 %average assets

Shareholders' equity to total 14.18 %14.30 %15.77 %15.34 %15.71 %assets

Net interest margin3.47 %3.64 %4.00 %4.11 %4.14 %(tax equivalent)

Period-end

Total assets $16,233,424 $15,920,944 $14,038,503 $14,079,524 $13,757,760

Loans, net of $9,688,947 $9,771,898 $8,933,321 $8,743,465 $8,756,355 unearned income

Allowance for $156,968 $151,546 $122,074 $83,968 $82,660 credit losses

Securities, including equity $4,305,425 $3,723,492 $3,591,408 $3,794,262 $3,397,252 securities and FHLB stock

Deposits $13,600,260 $13,131,477 $10,812,756 $10,684,708 $10,855,716

Shareholders' $2,301,981 $2,276,755 $2,213,602 $2,159,962 $2,161,577 equity

Goodwill $765,842 $765,842 $765,842 $765,842 $765,842

Other intangible $28,745 $30,938 $33,148 $35,458 $37,908 assets, net

Nonperforming assets

Nonaccrual loans $47,231 $53,732 $47,647 $33,060 $37,021

OREO and OPPO 623 747 510 552 625

Total nonperforming$47,854 $54,479 $48,157 $33,612 $37,646 assets

Nonperforming loans0.49 %0.55 %0.53 %0.38 %0.42 %to period-end loans

Nonperforming assets to 0.29 %0.34 %0.34 %0.24 %0.27 %period-end assets

Allowance for credit losses to 1.62 %1.55 %1.37 %0.96 %0.94 %period-end loans

Net loan charge-offs $1,978 $4,028 $5,026 $306 $(1,844) (recoveries)

LOAN PORTFOLIO COMPOSITION

Columbia Banking System, Inc.

Unaudited September June 30, March 31, December 31,September 30, 30,

2020 2020 2020 2019 2019

Loan Portfolio (dollars in thousands) Composition - Dollars

Commercial loans:

Commercial $4,027,035$4,032,643$3,969,974$3,945,853$3,746,365real estate

Commercial 3,836,009 3,859,513 3,169,668 2,989,613 3,057,669 business

Agriculture 850,290 845,950 754,491 765,371 777,619

Construction273,176 304,015 308,186 361,533 479,171

Consumer loans:

One-to-four family 665,432 692,837 690,506 637,325 654,077 residential real estate

Other 37,005 36,940 40,496 43,770 41,454 consumer

Total loans 9,688,947 9,771,898 8,933,321 8,743,465 8,756,355

Less: Allowance (156,968) (151,546) (122,074) (83,968) (82,660) for credit losses

Total loans,$9,531,979$9,620,352$8,811,247$8,659,497$8,673,695net

Loans held $24,407 $28,803 $9,701 $17,718 $15,036 for sale

SeptemberJune March DecemberSeptember 30, 30, 31, 31, 30,

Loan Portfolio Composition 2020 2020 2020 2019 2019 - Percentages

Commercial loans:

Commercial real estate 41.5 % 41.2 %44.5 %45.1 %42.7 %

Commercial business 39.6 % 39.5 %35.5 %34.2 %34.9 %

Agriculture 8.8 % 8.7 %8.4 %8.8 %8.9 %

Construction 2.8 % 3.1 %3.4 %4.1 %5.5 %

Consumer loans:

One-to-four family 6.9 % 7.1 %7.7 %7.3 %7.5 % residential real estate

Other consumer 0.4 % 0.4 %0.5 %0.5 %0.5 %

Total loans 100.0% 100.0%100.0%100.0 %100.0%

DEPOSIT COMPOSITION

Columbia Banking System, Inc.

Unaudited

September 30,June 30, March 31, December 31, September 30,

2020 2020 2020 2019 2019

Deposit Composition(dollars in thousands) - Dollars

Demand and other $6,897,054 $6,719,437 $5,323,908 $5,328,146 $5,320,435 noninterest-bearing

Money market 2,708,949 2,586,376 2,313,717 2,322,644 2,295,229

Interest-bearing 1,322,618 1,274,058 1,131,874 1,150,437 1,059,502 demand

Savings 1,109,155 1,035,723 905,931 882,050 892,438

Interest-bearing public funds, other635,980 623,496 405,810 301,203 629,797 than certificates of deposit

Certificates of deposit, less than 204,578 210,357 214,449 218,764 223,249 $250,000

Certificates of deposit, $250,000 105,041 104,330 109,659 151,995 107,506 or more

Certificates of deposit insured by 22,609 17,078 17,171 17,065 17,252 CDARS(r)

Brokered certificates of 5,000 8,427 12,259 12,259 18,852 deposit

Reciprocal money 589,276 552,195 377,980 300,158 291,542 market accounts

Subtotal 13,600,260 13,131,477 10,812,758 10,684,721 10,855,802

Valuation adjustment resulting from - - (2) (13) (86) acquisition accounting

Total deposits $13,600,260$13,131,477$10,812,756$10,684,708$10,855,716

SeptemberJune March DecemberSeptember 30, 30, 31, 31, 30,

Deposit Composition - 2020 2020 2020 2019 2019 Percentages

Demand and other 50.7 % 51.2 %49.2 %49.9 % 49.0 % noninterest-bearing

Money market 19.9 % 19.7 %21.4 %21.7 % 21.1 %

Interest-bearing demand 9.7 % 9.7 %10.5 %10.8 % 9.8 %

Savings 8.2 % 7.9 %8.4 %8.3 % 8.2 %

Interest-bearing public funds, other than 4.7 % 4.7 %3.8 %2.8 % 5.8 % certificates of deposit

Certificates of deposit, 1.5 % 1.6 %2.0 %2.0 % 2.1 % less than $250,000

Certificates of deposit, 0.8 % 0.8 %1.0 %1.4 % 1.0 % $250,000 or more

Certificates of deposit 0.2 % 0.1 %0.2 %0.2 % 0.2 % insured by CDARS(r)

Brokered certificates of - % 0.1 %0.1 %0.1 % 0.2 % deposit

Reciprocal money market 4.3 % 4.2 %3.4 %2.8 % 2.6 % accounts

Total 100.0% 100.0%100.0%100.0% 100.0%

AVERAGE BALANCES AND RATES

Columbia Banking System, Inc.

Unaudited

Three Months Ended Three Months Ended

September 30, 2020 September 30, 2019

Average Interest AverageAverage Interest Average Balances Earned / Rate Balances Earned / Rate Paid Paid

(dollars in thousands)

ASSETS

Loans, net (1)(2) $9,744,336 $106,9454.37% $8,694,592 $114,0995.21%

Taxable securities 3,511,690 19,102 2.16% 2,654,490 16,457 2.46%

Tax exempt 436,351 2,962 2.70% 447,723 3,235 2.87% securities (2)

Interest-earning 800,058 203 0.10% 144,773 864 2.37% deposits with banks

Total interest-earning 14,492,435 129,212 3.55% 11,941,578 134,655 4.47% assets

Other earning 235,735 230,140 assets

Noninterest-earning1,237,315 1,288,056 assets

Total assets $15,965,485 $13,459,774

LIABILITIES AND SHAREHOLDERS' EQUITY

Money market $3,200,407 $947 0.12% $2,589,390 $2,840 0.44% accounts

Interest-bearing 1,296,076 337 0.10% 1,049,833 438 0.17% demand

Savings accounts 1,072,472 36 0.01% 893,395 49 0.02%

Interest-bearing public funds, other621,786 397 0.25% 602,674 2,879 1.90% than certificates of deposit

Certificates of 336,954 288 0.34% 381,879 657 0.68% deposit

Total interest-bearing 6,527,695 2,005 0.12% 5,517,171 6,863 0.49% deposits

FHLB advances and 54,173 166 1.22% 400,956 2,569 2.54% FRB borrowings

Subordinated 35,161 468 5.30% 35,346 468 5.25% debentures

Other borrowings and 42,090 19 0.18% 35,569 183 2.04% interest-bearing liabilities

Total interest-bearing 6,659,119 2,658 0.16% 5,989,042 10,083 0.67% liabilities

Noninterest-bearing6,790,790 5,151,596 deposits

Other noninterest-bearing221,805 166,220 liabilities

Shareholders' 2,293,771 2,152,916 equity

Total liabilities & shareholders' $15,965,485 $13,459,774 equity

Net interest income (tax $126,554 $124,572 equivalent)

Net interest margin (tax equivalent) 3.47% 4.14%

__________

Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The(1) amortization of net deferred loan fees was $5.0 million and $2.0 million for the three months ended September 30, 2020 and 2019, respectively. The incremental accretion income on acquired loans was $1.7 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively.

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.2 million(2) and $1.4 million for the three months ended September 30, 2020 and 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $622 thousand and $679 thousand for the three months ended September 30, 2020 and 2019, respectively.

AVERAGE BALANCES AND RATES

Columbia Banking System, Inc.

Unaudited

Three Months Ended Three Months Ended

September 30, 2020 June 30, 2020

Average Interest AverageAverage Interest Average Balances Earned / Rate Balances Earned / Rate Paid Paid

(dollars in thousands)

ASSETS

Loans, net (1)(2) $9,744,336 $106,9454.37% $9,546,099 $106,7374.50%

Taxable securities 3,511,690 19,102 2.16% 3,189,805 18,343 2.31%

Tax exempt 436,351 2,962 2.70% 401,888 2,857 2.86% securities (2)

Interest-earning 800,058 203 0.10% 519,927 136 0.11% deposits with banks

Total interest-earning 14,492,435 129,212 3.55% 13,657,719 128,073 3.77% assets

Other earning 235,735 234,019 assets

Noninterest-earning1,237,315 1,256,750 assets

Total assets $15,965,485 $15,148,488

LIABILITIES AND SHAREHOLDERS' EQUITY

Money market $3,200,407 $947 0.12% $2,939,657 $974 0.13% accounts

Interest-bearing 1,296,076 337 0.10% 1,213,182 339 0.11% demand

Savings accounts 1,072,472 36 0.01% 976,785 38 0.02%

Interest-bearing public funds, other621,786 397 0.25% 559,256 393 0.28% than certificates of deposit

Certificates of 336,954 288 0.34% 348,227 350 0.40% deposit

Total interest-bearing 6,527,695 2,005 0.12% 6,037,107 2,094 0.14% deposits

FHLB advances and 54,173 166 1.22% 407,035 1,796 1.77% FRB borrowings

Subordinated 35,161 468 5.30% 35,207 468 5.35% debentures

Other borrowings and 42,090 19 0.18% 34,663 23 0.27% interest-bearing liabilities

Total interest-bearing 6,659,119 2,658 0.16% 6,514,012 4,381 0.27% liabilities

Noninterest-bearing6,790,790 6,183,308 deposits

Other noninterest-bearing221,805 196,819 liabilities

Shareholders' 2,293,771 2,254,349 equity

Total liabilities & shareholders' $15,965,485 $15,148,488 equity

Net interest income (tax $126,554 $123,692 equivalent)

Net interest margin (tax equivalent) 3.47% 3.64%

__________

Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The(1) amortization of net deferred loan fees was $5.0 million and $5.1 million for the three months ended September 30, 2020 and June 30, 2020, respectively. The incremental accretion on acquired loans was $1.7 million for both the three months ended September 30, 2020 and June 30, 2020.

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.2 million(2) for both the three months ended September 30, 2020 and June 30, 2020. The tax equivalent yield adjustment to interest earned on tax exempt securities was $622 thousand and $600 thousand for the three months ended September 30, 2020 and June 30, 2020, respectively.

AVERAGE BALANCES AND RATES

Columbia Banking System, Inc.

Unaudited

Nine Months Ended Nine Months Ended

September 30, 2020 September 30, 2019

Average Interest AverageAverage Interest Average Balances Earned / Rate Balances Earned / Rate Paid Paid

(dollars in thousands)

ASSETS

Loans, net (1)(2) $9,370,101 $322,3474.60% $8,568,746 $341,7985.33%

Taxable securities 3,304,295 58,533 2.37% 2,599,595 49,790 2.56%

Tax exempt 415,973 8,733 2.80% 470,987 10,426 2.96% securities (2)

Interest-earning 458,987 480 0.14% 65,374 1,159 2.37% deposits with banks

Total interest-earning 13,549,356 $390,0933.85% 11,704,702 $403,1734.61% assets

Other earning 234,044 231,823 assets

Noninterest-earning1,256,525 1,266,392 assets

Total assets $15,039,925 $13,202,917

LIABILITIES AND SHAREHOLDERS' EQUITY

Money market $2,925,672 $3,649 0.17% $2,571,722 $8,321 0.43% accounts

Interest-bearing 1,211,958 1,160 0.13% 1,063,678 1,230 0.15% demand

Savings accounts 982,507 117 0.02% 893,738 136 0.02%

Interest-bearing public funds, other512,548 1,693 0.44% 380,853 4,831 1.70% than certificates of deposit

Certificates of 351,973 1,122 0.43% 397,221 1,819 0.61% deposit

Total interest-bearing 5,984,658 7,741 0.17% 5,307,212 16,337 0.41% deposits

FHLB advances and 455,303 6,191 1.82% 500,448 9,962 2.66% FRB borrowings

Subordinated 35,207 1,404 5.33% 35,392 1,404 5.30% debentures

Other borrowings and 41,706 178 0.57% 35,440 552 2.08% interest-bearing liabilities

Total interest-bearing 6,516,874 $15,514 0.32% 5,878,492 $28,255 0.64% liabilities

Noninterest-bearing6,073,718 5,069,629 deposits

Other noninterest-bearing202,105 156,432 liabilities

Shareholders' 2,247,228 2,098,364 equity

Total liabilities & shareholders' $15,039,925 $13,202,917 equity

Net interest income (tax $374,579 $374,918 equivalent)

Net interest margin (tax equivalent) 3.69% 4.28%

__________

Nonaccrual loans have been included in the table as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The(1) amortization of net deferred loan fees was $12.5 million and $6.3 million for the nine months ended September 30, 2020 and 2019, respectively. The incremental accretion on acquired loans was $4.8 million and $6.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.7 million(2) and $4.1 million for the nine months ended September 30, 2020 and 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.8 million and $2.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Non-GAAP Financial Measures

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

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

Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

Operating net interest margin(dollars in thousands) non-GAAP reconciliation:

Net interest income (tax $126,554 $123,692 $124,572 $374,579 $374,918 equivalent) (1)

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

Incremental accretion income on (1,665) (1,675) (2,072) (4,831) (6,770) acquired loans (2)

Premium amortization on701 975 1,386 2,803 4,816 acquired securities

Interest reversals on 393 673 174 1,854 1,462 nonaccrual loans

Operating net interest income$125,983 $123,665 $124,060 $374,405 $374,426 (tax equivalent) (1)

Average interest $14,492,435 $13,657,719 $11,941,578 $13,549,356 $11,704,702 earning assets

Net interest margin (tax 3.47 %3.64 %4.14 %3.69 %4.28 %equivalent) (1)

Operating net interest margin3.46 %3.64 %4.12 %3.69 %4.28 %(tax equivalent) (1)

Three Months Ended Nine Months Ended

September June 30, September September September 30, 30, 30, 30,

2020 2020 2019 2020 2019

Operating efficiency ratio(dollars in thousands) non-GAAP reconciliation:

Noninterest expense $85,115 $80,833 $87,076 $250,219 $258,504 (numerator A)

Adjustments to arrive at operating noninterest expense:

Net benefit of operation of 160 200 113 356 704 OREO and OPPO

Loss on asset - (220) (5) (224) (5) disposals

Business and Occupation ("B& (1,559) (1,244) (1,325) (3,427) (4,612) O") taxes

Operating noninterest $83,716 $79,569 $85,859 $246,924 $254,591 expense (numerator B)



Net interest income (tax $126,554 $123,692 $124,572 $374,579 $374,918 equivalent) (1)

Noninterest 22,472 37,259 28,030 80,938 75,374 income

Bank owned life insurance tax 422 430 406 1,276 1,234 equivalent adjustment

Total revenue (tax equivalent)$149,448 $161,381 $153,008 $456,793 $451,526 (denominator A)



Operating net interest income $125,983 $123,665 $124,060 $374,405 $374,426 (tax equivalent) (1)

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

Investment securities gain,- (16,425) - (16,674) (2,132) net

Gain on asset (247) (26) (6,104) (294) (6,104) disposals

Operating noninterest 22,647 21,238 22,332 65,246 68,372 income (tax equivalent)

Total operating revenue (tax $148,630 $144,903 $146,392 $439,651 $442,798 equivalent) (denominator B)

Efficiency ratio (tax equivalent)56.95 %50.09 %56.91 %54.78 %57.25 %(numerator A/ denominator A)

Operating efficiency ratio (tax equivalent)56.33 %54.91 %58.65 %56.16 %57.50 %(numerator B/ denominator B)

__________

Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of $1.8(1) million for both the three months ended September 30, 2020 and June 30, 2020, $2.1 million for the three months ended September 30, 2019 and $5.6 million and $6.3 million for the nine months ended September 30, 2020 and 2019, respectively.

Beginning January 2020, incremental accretion income on purchased credit(2) impaired loans is no longer presented separate from incremental accretion income on other acquired loans. Prior period amounts have been reclassified to conform with current period presentation.

Non-GAAP Financial Measures - Continued

The Company considers its pre-tax, pre-provision income to be a useful measurement in evaluating the earnings of the Company as it provides a method to assess income. Despite the usefulness of this measure to the Company, there is not a standardized definition for it. As a result, the Company's calculation may not always be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following table reconciles the Company's calculation of the pre-tax, pre-provision income:

Three Months Ended Nine Months Ended

SeptemberJune 30, SeptemberSeptember September 30, 30, 30, 30,

2020 2020 2019 2020 2019

Pre-tax, pre-provision (in thousands) income:

Income before income$54,683$44,777$63,105$117,318$183,579taxes

Provision for credit7,400 33,500 299 82,400 1,879 losses

Pre-tax, $62,083$78,277$63,404$199,718$185,458pre-provision income

The Company considers its tangible common equity ratio and tangible book value per share ratio to be useful measurements in evaluating the capital adequacy of the Company as they provide a method to assess management's success in utilizing our tangible capital. Despite the usefulness of these ratios to the Company, there is not a standardized definition for them. As a result, the Company's calculation may not always be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following tables reconcile the Company's calculation of the tangible common equity ratio:

September 30, June 30, September 30,

2020 2020 2019

Tangible common equity ratio and tangible book value per (dollars in thousands except per share common share non-GAAP amounts) reconciliation:

Shareholders' equity $2,301,981 $2,276,755 $2,161,577 (numerator A)

Adjustments to arrive at tangible common equity:

Goodwill (765,842) (765,842) (765,842)

Other intangible assets, net (28,745) (30,938) (37,908)

Tangible common equity $1,507,394 $1,479,975 $1,357,827 (numerator B)

Total assets (denominator A) $16,233,424 $15,920,944 $13,757,760

Adjustments to arrive at tangible assets:

Goodwill (765,842) (765,842) (765,842)

Other intangible assets, net (28,745) (30,938) (37,908)

Tangible assets (denominator $15,438,837 $15,124,164 $12,954,010 B)

Shareholders' equity to total assets (numerator A/ 14.18 %14.30 %15.71 %denominator A)

Tangible common shareholders' equity to tangible assets 9.76 %9.79 %10.48 %(numerator B/denominator B)

Common shares outstanding 71,613 71,586 72,288 (denominator C)

Book value per common share $32.14 $31.80 $29.90 (numerator A/denominator C)

Tangible book value per common share (numerator B/ $21.05 $20.67 $18.78 denominator C)

Non-GAAP Financial Measures - Continued

The Company considers its ratio of allowance for credit losses to period-end loans, excluding PPP loans, to be a useful measurement in evaluating the adequacy of the amount of allowance for credit losses to loans of the Company as PPP loans are guaranteed by the U.S. Small Business Administration and thus do not require the same amount of reserve for credit losses as do other loans. Despite the usefulness of this ratio to the Company, there is not a standardized definition for it. As a result, the Company's calculation may not always be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following table reconciles the Company's calculation of the allowance for credit losses to period-end loans:

September 30,June 30, September 30,

2020 2020 2019

Allowance for credit losses to period-end loans ratio non-GAAP (dollars in thousands) reconciliation:

Allowance for credit losses $156,968 $151,546 $82,660 ("ACL") (numerator)



Total loans, net of unearned 9,688,947 9,771,898 8,756,355 income (denominator A)

Less: PPP loans, net of unearned953,244 941,373 - income (0% ACL)

Total loans, net of PPP loans $8,735,703 $8,830,525 $8,756,355 (denominator B)



ACL to period-end loans 1.62 %1.55 %0.94 %(numerator / denominator A)

ACL to period-end loans, excluding PPP loans (numerator /1.80 %1.72 %0.94 %denominator B)

The Company also considers its return on average tangible common equity ratio to be a useful measurement as it evaluates the Company's ongoing ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the business can be evaluated, whether acquired or developed internally. Despite the usefulness of this ratio to the Company, there is not a standardized definition for it. As a result, the Company's calculation may not always be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following tables reconcile the Company's calculation of the return on average tangible common shareholders' equity ratio:

Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,

2020 2020 2019 2020 2019

Return on average tangible common(dollars in thousands) equity non-GAAP reconciliation:

Net income $44,734 $36,582 $50,727 $95,944 $148,322 (numerator A)

Adjustments to arrive at tangible income applicable to common shareholders:

Amortization of2,193 2,210 2,632 6,713 8,029 intangibles

Tax effect on intangible (461) (464) (553) (1,410) (1,686) amortization

Tangible income applicable to common $46,466 $38,328 $52,806 101,247 $154,665 shareholders (numerator B)

Average shareholders' $2,293,771 $2,254,349 $2,152,916 2,247,228 $2,098,364 equity (denominator A)

Adjustments to arrive at average tangible common equity:

Average (795,650) (797,855) (805,033) (797,853) (807,676) intangibles

Average tangible common$1,498,121 $1,456,494 $1,347,883 $1,449,375 $1,290,688 equity (denominator B)

Return on average common equity 7.80 %6.49 %9.42 %5.69 %9.42 %(numerator A/ denominator A) (1)

Return on average tangible common equity 12.41 %10.53 %15.67 %9.31 %15.98 %(numerator B/ denominator B) (2)

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(1) For the purpose of this ratio, interim net income has been annualized.

(2) For The purpose of this ratio, interim tangible income applicable to common shareholders has been annualized.

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SOURCE Columbia Banking System, Inc.