Columbia Banking System Announces Fourth Quarter and Full Year 2020 Results and Quarterly Cash Dividend

Rhea-AI Summary

Columbia Banking System reported a strong financial performance for Q4 and FY 2020, achieving a net income of $154.2 million and diluted earnings per share of $2.17. The fourth quarter net income was $58.3 million with earnings per share of $0.82. Deposits rose by $269.6 million in Q4 and $3.19 billion year-over-year. The company declared a regular cash dividend of $0.28 per share, payable on February 24, 2021. Overall, the bank's total assets increased to $16.58 billion with a stable net interest margin of 3.52%.

Positive

• Net income for FY 2020 of $154.2 million, a 20% increase over previous year.
• Record Q4 earnings of $58.3 million, indicating robust financial health.
• Deposits increased by $3.19 billion, demonstrating strong customer confidence.
• Declared a regular cash dividend of $0.28 per share, supporting shareholder returns.
• Nonperforming assets decreased to 0.21%, suggesting improved asset quality.

Negative

• Loan balances decreased by $261.3 million from the prior quarter, indicating potential challenges in lending.
• Reduction in PPP loans from $953.2 million to $651.6 million, leading to a decrease in income from these loans.

TACOMA, Wash., Jan. 28, 2021 /PRNewswire/ -- 

Notable Items for the Fourth Quarter and Fiscal Year 2020

• Full year 2020 net income of $154.2 million and diluted earnings per share of $2.17
• Record fourth quarter net income of $58.3 million and diluted earnings per share of $0.82
• Deposits increased $269.6 million, or 2%, during the fourth quarter of 2020 and $3.19 billion, or 30%, compared to December 31, 2019
• Net interest margin of 3.52%, an increase of 5 basis points from the linked quarter
• Nonperforming assets to period-end assets ratio decreased to 0.21%
• Loan balances subject to deferral were down 91% 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 fourth quarter 2020 earnings, "Our financial performance for the quarter and the year is a direct reflection of our bankers' determination and tireless efforts to maintain our normal business operations throughout the extended duration of the pandemic. Our account officers worked collectively with our credit administration team to create tailored solutions that best served our client's needs during these challenging times." Mr. Stein continued, "I would also like to recognize the efforts of our full team for the innovation and dedication they demonstrated in meeting the needs of our clients and communities amid the myriad challenges of 2020."

Balance Sheet

Total assets at December 31, 2020 were $16.58 billion, an increase of $351.4 million from the linked quarter. Loans were $9.43 billion, down $261.3 million from September 30, 2020 as loan originations of $468.1 million were more than offset by loan payments and a decrease in loan utilization as well as a decrease in PPP loans of $301.7 million principally due to loan forgiveness. Total PPP loans decreased from $953.2 million at September 30, 2020 to $651.6 million at December 31, 2020. Interest-earning deposits with banks were $434.9 million, a decrease of $301.6 million from the linked quarter. Debt securities available for sale were $5.21 billion at December 31, 2020, an increase of $928.4 million from $4.28 billion at September 30, 2020 as a result of substantial purchases during the quarter. Total deposits at December 31, 2020 were $13.87 billion, an increase of $269.6 million from September 30, 2020 largely due to an increase of $253.4 million in interest-bearing deposits. The deposit mix remained fairly consistent from September 30, 2020 with 50% noninterest-bearing and 50% interest-bearing. 

Chris Merrywell, Columbia's Executive Vice President and Chief Operating Officer, stated, "Our teams worked diligently during the fourth quarter to process new loan requests and PPP forgiveness. We are very proud of their efforts to put our clients' needs first."

Income Statement

Net Interest Income

Net interest income for the fourth quarter of 2020 was $131.1 million, an increase of $6.4 million and $6.3 million from the linked quarter and the prior-year period, respectively. The increase in interest income from loans as compared to the linked quarter was a result of an increase of $4.0 million in PPP loan interest and fee income principally due to the forgiveness of PPP loans as well as a $1.7 million recovery of interest related to a nonaccrual loan that paid-off during the quarter. The increase in net interest income compared to the linked quarter also benefited from an increase in interest income from securities due to two securities that had prepayment activity which contributed $2.5 million in additional interest income. Higher average balances of securities as a result of recent purchases also contributed to the increase in net interest income.

Net interest income compared to the prior-year period increased as a result of a reduction in interest expense of $4.2 million on deposits due to the lower rate environment. Interest income from investment securities increased approximately $3.0 million primarily due to higher average balances. Net interest income also benefited from lower interest expense of $1.8 million on FHLB advances due to lower average balances. Partially offsetting these increases to net interest income was a $3.0 million decrease to interest income from loans 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 recorded a net provision recovery for credit losses for the fourth quarter of 2020 of $4.7 million compared to net provisions of $7.4 million for the linked quarter and $1.6 million for the comparable quarter in 2019. The net provision recovery for credit losses for the current quarter was primarily due to an improved economic forecast.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "We are obviously pleased with the credit metrics posted this quarter. The decline in NPAs and problem loans is notable along with the release from the provision. But, we understand we must remain diligent with respect to credit as government stimulus and other actions may have a delayed effect on the possible impacts to our loan portfolio."

Noninterest Income

Noninterest income was $23.6 million for the fourth quarter of 2020, an increase of $1.1 million from the linked quarter and $1.8 million from the fourth quarter of 2019. The increase compared to the linked quarter was principally due to loan revenue, specifically, mortgage banking revenue, as a result of a change in the way we sold a portion of our loans held for sale, during the quarter, resulting in more favorable pricing. Additionally, included in the current quarter is an increase of $758 thousand to the fair value of the mortgage loan pipeline. The increase in noninterest income during the fourth quarter of 2020 compared to the same quarter in 2019 was principally due to an increase in loan revenue partially offset by a decrease in deposit account and treasury management fees. The increase in loan revenue was due to mortgage banking revenue which increased $3.8 million due to higher loan volume. Partially offsetting this increase was a decrease in treasury management fees of $863 thousand and a decrease in overdraft fees of $889 thousand compared to the same quarter in 2019. The decrease in overdraft fees was due to an overall decrease in the number of transactions amidst the pandemic as well as clients generally carrying higher cash balances in their deposit accounts.

Noninterest Expense

Total noninterest expense for the fourth quarter of 2020 was $84.3 million, a decrease of $815 thousand compared to the third quarter of 2020 principally due to lower other noninterest expense as a result of the provision recapture for unfunded loan commitments totaling $1.3 million.

Compared to the fourth quarter of 2019, noninterest expense decreased $2.7 million principally due to decreases in other noninterest expense and legal and professional fees partially offset by an increase in regulatory premiums. Other noninterest expense decreased as a result of the provision recapture for unfunded loan commitments similar to the reduction for the linked quarter and a reduction of $857 thousand in travel and entertainment expense due to COVID-19. The decrease in legal and professional fees was principally due to lower fees on reciprocal money market accounts in 2020. Partially offsetting these decreases was an increase in regulatory premiums. During the fourth quarter of 2019, the Bank utilized a portion of its Small Bank Assessment Credit to pay for FDIC deposit insurance premiums. The final portion of the credit was utilized during the second quarter of 2020.

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

		Three Months Ended												Twelve Months Ended
		December 31, 2020				September 30, 2020				December 31, 2019				December 31, 2020				December 31, 2019
		(in thousands)
Provision (recapture) for unfunded loan commitments		$	(1,300)			$	800			$	(150)			$	3,300			$	(900)

Net Interest Margin

Columbia's net interest margin (tax equivalent) for the fourth quarter of 2020 was 3.52%, an increase of 5 basis points and a decrease of 59 basis points from the linked quarter and prior-year period, respectively. The increase in the net interest margin (tax equivalent) compared to the linked quarter was due to increased income on PPP loans due to forgiveness activity as well as a recovery of interest on a nonaccrual loan that paid-off during the quarter. Interest income on the securities portfolio also contributed to the rise in the net interest margin due to two securities that had prepayment activity. These increases were partially offset by a shift in the mix of interest-earning assets towards lower-yielding investment securities. Notably, the average cost of total deposits for the quarter was 5 basis points, a decrease of 1 basis point from the third quarter of 2020. The decrease in the net interest margin (tax equivalent) compared to the 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. For additional information regarding net interest margin, see the "Average Balances and Rates" tables.

Columbia's operating net interest margin (tax equivalent)¹ was 3.51% for the fourth quarter of 2020, which increased 5 points compared to the linked quarter and decreased 58 basis points compared to the prior-year period. The increase in the operating net interest margin for the fourth quarter of 2020 compared to the linked quarter and the decrease compared to the prior-year period were due to the items noted in the preceding paragraph.

The following table highlights the yield on our PPP loans for the periods indicated:

		Three Months Ended								Twelve Months Ended
		December 31, 2020				September 30, 2020				December 31, 2020
Paycheck Protection Program loans		(dollars in thousands)
Interest income		$	9,218			$	5,263			$	19,071
Average balance		$	822,970			$	948,034			$	601,602
Yield		4.46		%		2.21		%		3.17		%

Aaron James Deer, Columbia's Executive Vice President and Chief Financial Officer, stated, "We had a nice increase in the margin during the fourth quarter, although it was largely due to accelerated PPP fee amortization. The recent improvement in the rate outlook gives us some optimism for future asset yield improvement, but the near-term expectation is that loan and securities yields will remain under pressure."

Asset Quality

At December 31, 2020, nonperforming assets to total assets decreased to 0.21% compared to 0.29% at September 30, 2020. Total nonperforming assets decreased $12.5 million from the linked quarter due to decreases in commercial business, agriculture and commercial real estate nonaccrual loans.

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

		December 31, 2020				September 30, 2020				December 31, 2019
		(in thousands)
Nonaccrual loans:
Commercial loans:
Commercial real estate		$	7,712			$	10,362			$	3,799
Commercial business		13,222				19,313				20,937
Agriculture		11,614				14,913				5,023
Construction		217				217				—
Consumer loans:
One-to-four family residential real estate		2,001				2,405				3,292
Other consumer		40				21				9
Total nonaccrual loans		34,806				47,231				33,060
OREO and other personal property owned		553				623				552
Total nonperforming assets		$	35,359			$	47,854			$	33,612

Nonperforming assets to total loans was 0.37% at December 31, 2020 compared to 0.49% at September 30, 2020.

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

		Three Months Ended												Twelve Months Ended
		December 31, 2020				September 30, 2020				December 31, 2019				December 31, 2020				December 31, 2019
		(in thousands)
Beginning balance		$	156,968			$	151,546			$	82,660			$	83,968			$	83,369
Impact of adopting ASC 326		—				—				—				1,632				—
Charge-offs:
Commercial loans:
Commercial real estate		(1,318)				—				(452)				(1,419)				(2,160)
Commercial business		(2,106)				(3,164)				(2,845)				(12,396)				(11,290)
Agriculture		(432)				(1,269)				(51)				(6,427)				(245)
Construction		—				—				(10)				—				(242)
Consumer loans:
One-to-four family residential real estate		(58)				(16)				(192)				(84)				(1,196)
Other consumer		(167)				(133)				(18)				(766)				(82)
Total charge-offs		(4,081)				(4,582)				(3,568)				(21,092)				(15,215)
Recoveries:
Commercial loans:
Commercial real estate		39				65				576				131				3,377
Commercial business		643				1,124				1,698				3,438				3,066
Agriculture		103				27				110				172				299
Construction		21				11				312				709				3,641
Consumer loans:
One-to-four family residential real estate		78				1,301				549				2,083				1,773
Other consumer		69				76				17				399				165
Total recoveries		953				2,604				3,262				6,932				12,321
Net charge-offs		(3,128)				(1,978)				(306)				(14,160)				(2,894)
Provision (recapture) for credit losses		(4,700)				7,400				1,614				77,700				3,493
Ending balance		$	149,140			$	156,968			$	83,968			$	149,140			$	83,968

The allowance for credit losses to period-end loans was 1.58% at December 31, 2020 compared to 1.62% at September 30, 2020. Excluding PPP loans, the allowance for credit losses to period-end loan²] was 1.70% at December 31, 2020 compared to 1.80% at September 30, 2020.

Loan Deferrals

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

		December 31, 2020				September 30, 2020				June 30, 2020
		(in thousands)
Loan balances subject to deferral		$	146,725			$	114,372			$	1,595,615

Organizational Update

Two New Directors

The appointment of two new directors was announced following a regional search during the quarter. Laura Alvarez Schrag and Tracy Mack-Askew formally joined the board on January 1, 2021. Ms. Alvarez Schrag is President of Pondera Consulting and a resident of Nampa, Idaho and Ms. Mack-Askew is General Manager-HD Vocational Platform Development of Daimler Trucks North America and a resident of Portland, Oregon.

"Ms. Alvarez Schrag and Ms. Mack-Askew bring a wealth of expertise in organizational development, governance and operations to the Board," said Mr. Stein. "We look forward to benefiting from their business expertise and their knowledge of key Northwest markets."

COVID-19 Update

COVID-19 continues to impact our communities. We continue to monitor changing guidance from state and local healthcare officials and adjust our protocols accordingly. Social distancing, additional cleaning protocols and other safety measures we have taken enabled us to keep our branch lobbies open to serve clients throughout the quarter. Investments in additional video conferencing tools provided a smooth transition for team members resuming remote work arrangements as states reinstituted recommendations from earlier in the spring. Employees continue to balance the challenges of life and work amidst the pandemic, such as managing distance learning routines for their children. The variety of flexibility options we have provided have supported employees while maintaining service standards.

Warm Hearts Winter Drive

Our sixth annual Warm Hearts Winter Drive to benefit families and individuals struggling with homelessness during the winter months raised $315,025 for more than 65 homeless and relief shelters across the Northwest.

"In a year made particularly difficult by the pandemic, the Warm Hearts Winter Drive was as important as ever," said David Moore Devine, Columbia's Executive Vice President and Chief Marketing & Experience Officer. "I could not be prouder of the way our bankers and other employees across the Northwest stepped up to help their neighbors. Their efforts will make a tremendous difference in the communities we serve this winter."

The annual drive has raised nearly $1.5 million in combined donations since the program started in 2016.

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share on February 24, 2021 to shareholders of record as of the close of business on February 10, 2021.

Conference Call Information

Columbia's management will discuss the fourth quarter 2020 financial results on a conference call scheduled for Thursday, January 28, 2021 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://edge.media-server.com/mmc/p/vcquk5yf  

The conference call can also be accessed on Thursday, January 28, 2021 at 10:00 a.m. Pacific Time (1:00 p.m. ET) by calling 833-301-1160; Conference ID password:  3936658.

A replay of the call will be accessible beginning Friday, January 29, 2021 using the link below:
https://edge.media-server.com/mmc/p/vcquk5yf  

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. (NASDAQ: COLB) 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 #1 in Customer Satisfaction with Retail Banking in the Northwest region by J.D. Power³ in the 2020 U.S. 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.

¹ Operating net interest margin (tax equivalent) is a non-GAAP financial measure. See the section titled "Non-GAAP Financial Measures" in this earnings release for the reconciliation of operating net interest margin (tax equivalent) to net interest margin.
² Allowance for credit losses to period-end loans, excluding PPP is a non-GAAP financial measure. See the section titled "Non-GAAP Financial 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.
³ Columbia Bank received the highest score in the Northwest region of the J.D. Power 2020 U.S. Retail Banking Satisfaction Study of customer satisfaction with their own retail bank. Visit jdpower.com/awards.

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, including the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q (as applicable), factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (1) local, national and international economic conditions may be less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) 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
	(COLB-ER)

 

CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
Unaudited										December 31,				September 30,				December 31,
										2020				2020				2019
										(in thousands)
ASSETS
Cash and due from banks										$	218,899			$	193,823			$	223,541
Interest-earning deposits with banks										434,867				736,422				24,132
Total cash and cash equivalents										653,766				930,245				247,673
Debt securities available for sale at fair value (amortized cost of $4,997,529, $4,081,118 and $3,703,096, respectively)										5,210,134				4,281,720				3,746,142
Equity securities										13,425				13,425				—
Federal Home Loan Bank ("FHLB") stock at cost										10,280				10,280				48,120
Loans held for sale										26,481				24,407				17,718
Loans, net of unearned income										9,427,660				9,688,947				8,743,465
Less: Allowance for credit losses										149,140				156,968				83,968
Loans, net										9,278,520				9,531,979				8,659,497
Interest receivable										54,831				56,718				46,839
Premises and equipment, net										162,059				164,049				165,408
Other real estate owned										553				623				552
Goodwill										765,842				765,842				765,842
Other intangible assets, net										26,734				28,745				35,458
Other assets										382,154				425,391				346,275
Total assets										$	16,584,779			$	16,233,424			$	14,079,524
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing										$	6,913,214			$	6,897,054			$	5,328,146
Interest-bearing										6,956,648				6,703,206				5,356,562
Total deposits										13,869,862				13,600,260				10,684,708
FHLB advances										7,414				7,427				953,469
Securities sold under agreements to repurchase										73,859				26,966				64,437
Subordinated debentures										35,092				35,139				35,277
Other liabilities										250,945				261,651				181,671
Total liabilities										14,237,172				13,931,443				11,919,562
Commitments and contingent liabilities
Shareholders' equity:
	December 31,			September 30,			December 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			115,000			115,000
Issued	73,782			73,797			73,577			1,660,998				1,658,203				1,650,753
Outstanding	71,598			71,613			72,124
Retained earnings										575,248				537,011				519,676
Accumulated other comprehensive income										182,195				177,601				40,367
Treasury stock at cost	2,184			2,184			1,453			(70,834)				(70,834)				(50,834)
Total shareholders' equity										2,347,607				2,301,981				2,159,962
Total liabilities and shareholders' equity										$	16,584,779			$	16,233,424			$	14,079,524

 

CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.		Three Months Ended												Twelve Months Ended
Unaudited		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Interest Income		(in thousands except per share amounts)
Loans		$	107,402			$	105,739			$	110,384			$	426,003			$	448,041
Taxable securities		23,045				19,102				20,074				81,578				69,864
Tax-exempt securities		2,668				2,340				2,498				9,567				10,735
Deposits in banks		181				203				153				661				1,312
Total interest income		133,296				127,384				133,109				517,809				529,952
Interest Expense
Deposits		1,626				2,005				5,809				9,367				22,146
FHLB advances and Federal Reserve Bank ("FRB") borrowings		73				166				1,899				6,264				11,861
Subordinated debentures		467				468				467				1,871				1,871
Other borrowings		18				19				117				196				669
Total interest expense		2,184				2,658				8,292				17,698				36,547
Net Interest Income		131,112				124,726				124,817				500,111				493,405
Provision (recapture) for credit losses		(4,700)				7,400				1,614				77,700				3,493
Net interest income after provision (recapture) for credit losses		135,812				117,326				123,203				422,411				489,912
Noninterest Income
Deposit account and treasury management fees		6,481				6,658				8,665				27,019				35,695
Card revenue		3,497				3,834				3,767				13,928				15,198
Financial services and trust revenue		3,349				3,253				3,191				12,830				12,799
Loan revenue		7,960				6,645				3,625				24,802				13,465
Bank owned life insurance		1,619				1,585				1,650				6,418				6,294
Investment securities gains, net		36				—				—				16,710				2,132
Other		620				497				909				2,793				11,598
Total noninterest income		23,562				22,472				21,807				104,500				97,181
Noninterest Expense
Compensation and employee benefits		53,704				55,133				54,308				209,722				212,867
Occupancy		9,270				8,734				9,010				36,013				35,176
Data processing		4,566				4,510				4,792				19,370				19,164
Legal and professional fees		3,573				3,000				4,835				12,158				21,645
Amortization of intangibles		2,011				2,193				2,450				8,724				10,479
Business and Occupation ("B&O") taxes		1,543				1,559				1,234				4,970				5,846
Advertising and promotion		1,644				680				1,329				4,466				4,925
Regulatory premiums		1,062				826				18				2,956				1,920
Net cost (benefit) of operation of other real estate owned		33				(160)				(10)				(315)				(692)
Other		6,894				8,640				9,012				36,455				34,152
Total noninterest expense		84,300				85,115				86,978				334,519				345,482
Income before income taxes		75,074				54,683				58,032				192,392				241,611
Provision for income taxes		16,774				9,949				11,903				38,148				47,160
Net Income		$	58,300			$	44,734			$	46,129			$	154,244			$	194,451
Earnings per common share
Basic		$	0.82			$	0.63			$	0.64			$	2.17			$	2.68
Diluted		$	0.82			$	0.63			$	0.64			$	2.17			$	2.68
Dividends declared per common share - regular		$	0.28			$	0.28			$	0.28			$	1.12			$	1.12
Dividends declared per common share - special		—				—				—				0.22				0.28
Dividends declared per common share - total		$	0.28			$	0.28			$	0.28			$	1.34			$	1.40
Weighted average number of common shares outstanding		70,732				70,726				71,238				70,835				71,999
Weighted average number of diluted common shares outstanding		70,838				70,762				71,310				70,880				72,032

 

FINANCIAL STATISTICS
Columbia Banking System, Inc.		Three Months Ended												Twelve Months Ended
Unaudited		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Earnings		(dollars in thousands except per share amounts)
Net interest income		$	131,112			$	124,726			$	124,817			$	500,111			$	493,405
Provision (recapture) for credit losses		$	(4,700)			$	7,400			$	1,614			$	77,700			$	3,493
Noninterest income		$	23,562			$	22,472			$	21,807			$	104,500			$	97,181
Noninterest expense		$	84,300			$	85,115			$	86,978			$	334,519			$	345,482
Net income		$	58,300			$	44,734			$	46,129			$	154,244			$	194,451
Per Common Share
Earnings (basic)		$	0.82			$	0.63			$	0.64			$	2.17			$	2.68
Earnings (diluted)		$	0.82			$	0.63			$	0.64			$	2.17			$	2.68
Book value		$	32.79			$	32.14			$	29.95			$	32.79			$	29.95
Tangible book value per common share (1)		$	21.72			$	21.05			$	18.84			$	21.72			$	18.84
Averages
Total assets		$	16,477,246			$	15,965,485			$	13,750,840			$	15,401,219			$	13,341,024
Interest-earning assets		$	15,010,392			$	14,492,435			$	12,231,779			$	13,916,611			$	11,837,633
Loans		$	9,533,655			$	9,744,336			$	8,742,246			$	9,411,213			$	8,612,478
Securities, including equity securities and FHLB stock		$	4,765,158			$	3,948,041			$	3,453,554			$	3,982,918			$	3,167,112
Deposits		$	13,864,027			$	13,318,485			$	10,959,434			$	12,512,255			$	10,523,687
Interest-bearing deposits		$	6,873,405			$	6,527,695			$	5,610,850			$	6,208,058			$	5,383,746
Interest-bearing liabilities		$	6,954,287			$	6,659,119			$	6,058,319			$	6,626,825			$	5,923,818
Noninterest-bearing deposits		$	6,990,622			$	6,790,790			$	5,348,584			$	6,304,197			$	5,139,941
Shareholders' equity		$	2,311,070			$	2,293,771			$	2,170,879			$	2,263,276			$	2,116,642
Financial Ratios
Return on average assets		1.42		%		1.12		%		1.34		%		1.00		%		1.46		%
Return on average common equity		10.09		%		7.80		%		8.50		%		6.82		%		9.19		%
Return on average tangible common equity (1)		15.79		%		12.41		%		14.05		%		10.99		%		15.47		%
Average equity to average assets		14.03		%		14.37		%		15.79		%		14.70		%		15.87		%
Shareholders' equity to total assets		14.16		%		14.18		%		15.34		%		14.16		%		15.34		%
Tangible common shareholders' equity to tangible assets (1)		9.85		%		9.76		%		10.23		%		9.85		%		10.23		%
Net interest margin (tax equivalent)		3.52		%		3.47		%		4.11		%		3.65		%		4.24		%
Efficiency ratio (tax equivalent) (2)		53.70		%		56.95		%		58.34		%		54.50		%		57.52		%
Operating efficiency ratio (tax equivalent) (1)		53.03		%		56.33		%		58.07		%		55.34		%		57.64		%
Noninterest expense ratio		2.05		%		2.13		%		2.53		%		2.17		%		2.59		%
		December 31,				September 30,				December 31,
Period-end		2020				2020				2019
Total assets		$	16,584,779			$	16,233,424			$	14,079,524
Loans, net of unearned income		$	9,427,660			$	9,688,947			$	8,743,465
Allowance for credit losses		$	149,140			$	156,968			$	83,968
Securities, including equity securities and FHLB stock		$	5,233,839			$	4,305,425			$	3,794,262
Deposits		$	13,869,862			$	13,600,260			$	10,684,708
Shareholders' equity		$	2,347,607			$	2,301,981			$	2,159,962
Nonperforming assets
Nonaccrual loans		$	34,806			$	47,231			$	33,060
Other real estate owned ("OREO") and other personal property owned ("OPPO")		553				623				552
Total nonperforming assets		$	35,359			$	47,854			$	33,612
Nonperforming loans to period-end loans		0.37		%		0.49		%		0.38		%
Nonperforming assets to period-end assets		0.21		%		0.29		%		0.24		%
Allowance for credit losses to period-end loans		1.58		%		1.62		%		0.96		%
Net loan charge-offs (for the three months ended)		$	3,128			$	1,978			$	306

(1)	This is a non-GAAP measure. See section titled "Non-GAAP Financial 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 System, Inc.		Three Months Ended
Unaudited		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Earnings		(dollars in thousands except per share amounts)
Net interest income		$	131,112			$	124,726			$	121,851			$	122,422			$	124,817
Provision (recapture) for credit losses		$	(4,700)			$	7,400			$	33,500			$	41,500			$	1,614
Noninterest income		$	23,562			$	22,472			$	37,259			$	21,207			$	21,807
Noninterest expense		$	84,300			$	85,115			$	80,833			$	84,271			$	86,978
Net income		$	58,300			$	44,734			$	36,582			$	14,628			$	46,129
Per Common Share
Earnings (basic)		$	0.82			$	0.63			$	0.52			$	0.20			$	0.64
Earnings (diluted)		$	0.82			$	0.63			$	0.52			$	0.20			$	0.64
Book value		$	32.79			$	32.14			$	31.80			$	30.93			$	29.95
Averages
Total assets		$	16,477,246			$	15,965,485			$	15,148,488			$	13,995,632			$	13,750,840
Interest-earning assets		$	15,010,392			$	14,492,435			$	13,657,719			$	12,487,550			$	12,231,779
Loans		$	9,533,655			$	9,744,336			$	9,546,099			$	8,815,755			$	8,742,246
Securities, including equity securities and FHLB stock		$	4,765,158			$	3,948,041			$	3,591,693			$	3,618,567			$	3,453,554
Deposits		$	13,864,027			$	13,318,485			$	12,220,415			$	10,622,379			$	10,959,434
Interest-bearing deposits		$	6,873,405			$	6,527,695			$	6,037,107			$	5,383,203			$	5,610,850
Interest-bearing liabilities		$	6,954,287			$	6,659,119			$	6,514,012			$	6,375,931			$	6,058,319
Noninterest-bearing deposits		$	6,990,622			$	6,790,790			$	6,183,308			$	5,239,176			$	5,348,584
Shareholders' equity		$	2,311,070			$	2,293,771			$	2,254,349			$	2,193,051			$	2,170,879
Financial Ratios
Return on average assets		1.42		%		1.12		%		0.97		%		0.42		%		1.34		%
Return on average common equity		10.09		%		7.80		%		6.49		%		2.67		%		8.50		%
Average equity to average assets		14.03		%		14.37		%		14.88		%		15.67		%		15.79		%
Shareholders' equity to total assets		14.16		%		14.18		%		14.30		%		15.77		%		15.34		%
Net interest margin (tax equivalent)		3.52		%		3.47		%		3.64		%		4.00		%		4.11		%
Period-end
Total assets		$	16,584,779			$	16,233,424			$	15,920,944			$	14,038,503			$	14,079,524
Loans, net of unearned income		$	9,427,660			$	9,688,947			$	9,771,898			$	8,933,321			$	8,743,465
Allowance for credit losses		$	149,140			$	156,968			$	151,546			$	122,074			$	83,968
Securities, including equity securities and FHLB stock		$	5,233,839			$	4,305,425			$	3,723,492			$	3,591,408			$	3,794,262
Deposits		$	13,869,862			$	13,600,260			$	13,131,477			$	10,812,756			$	10,684,708
Shareholders' equity		$	2,347,607			$	2,301,981			$	2,276,755			$	2,213,602			$	2,159,962
Goodwill		$	765,842			$	765,842			$	765,842			$	765,842			$	765,842
Other intangible assets, net		$	26,734			$	28,745			$	30,938			$	33,148			$	35,458
Nonperforming assets
Nonaccrual loans		$	34,806			$	47,231			$	53,732			$	47,647			$	33,060
OREO and OPPO		553				623				747				510				552
Total nonperforming assets		$	35,359			$	47,854			$	54,479			$	48,157			$	33,612
Nonperforming loans to period-end loans		0.37		%		0.49		%		0.55		%		0.53		%		0.38		%
Nonperforming assets to period-end assets		0.21		%		0.29		%		0.34		%		0.34		%		0.24		%
Allowance for credit losses to period-end loans		1.58		%		1.62		%		1.55		%		1.37		%		0.96		%
Net loan charge-offs		$	3,128			$	1,978			$	4,028			$	5,026			$	306

 

LOAN PORTFOLIO COMPOSITION
Columbia Banking System, Inc.
Unaudited		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Loan Portfolio Composition - Dollars		(dollars in thousands)
Commercial loans:
Commercial real estate		$	4,062,313			$	4,027,035			$	4,032,643			$	3,969,974			$	3,945,853
Commercial business		3,597,968				3,836,009				3,859,513				3,169,668				2,989,613
Agriculture		779,627				850,290				845,950				754,491				765,371
Construction		268,663				273,176				304,015				308,186				361,533
Consumer loans:
One-to-four family residential real estate		683,570				665,432				692,837				690,506				637,325
Other consumer		35,519				37,005				36,940				40,496				43,770
Total loans		9,427,660				9,688,947				9,771,898				8,933,321				8,743,465
Less:  Allowance for credit losses		(149,140)				(156,968)				(151,546)				(122,074)				(83,968)
Total loans, net		$	9,278,520			$	9,531,979			$	9,620,352			$	8,811,247			$	8,659,497
Loans held for sale		$	26,481			$	24,407			$	28,803			$	9,701			$	17,718

 

		December 31,			September 30,			June 30,			March 31,			December 31,
Loan Portfolio Composition - Percentages		2020			2020			2020			2020			2019
Commercial loans:
Commercial real estate		43.0	%		41.5	%		41.2	%		44.5	%		45.1	%
Commercial business		38.2	%		39.6	%		39.5	%		35.5	%		34.2	%
Agriculture		8.3	%		8.8	%		8.7	%		8.4	%		8.8	%
Construction		2.8	%		2.8	%		3.1	%		3.4	%		4.1	%
Consumer loans:
One-to-four family residential real estate		7.3	%		6.9	%		7.1	%		7.7	%		7.3	%
Other consumer		0.4	%		0.4	%		0.4	%		0.5	%		0.5	%
Total loans		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

 

DEPOSIT COMPOSITION
Columbia Banking System, Inc.
Unaudited
		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Deposit Composition - Dollars		(dollars in thousands)
Demand and other noninterest-bearing		$	6,913,214			$	6,897,054			$	6,719,437			$	5,323,908			$	5,328,146
Money market		2,780,922				2,708,949				2,586,376				2,313,717				2,322,644
Interest-bearing demand		1,433,083				1,322,618				1,274,058				1,131,874				1,150,437
Savings		1,169,721				1,109,155				1,035,723				905,931				882,050
Interest-bearing public funds, other than certificates of deposit		656,273				635,980				623,496				405,810				301,203
Certificates of deposit, less than $250,000		201,805				204,578				210,357				214,449				218,764
Certificates of deposit, $250,000 or more		108,935				105,041				104,330				109,659				151,995
Certificates of deposit insured by CDARS®		23,105				22,609				17,078				17,171				17,065
Brokered certificates of deposit		5,000				5,000				8,427				12,259				12,259
Reciprocal money market accounts		577,804				589,276				552,195				377,980				300,158
Subtotal		13,869,862				13,600,260				13,131,477				10,812,758				10,684,721
Valuation adjustment resulting from acquisition accounting		—				—				—				(2)				(13)
Total deposits		$	13,869,862			$	13,600,260			$	13,131,477			$	10,812,756			$	10,684,708

 

		December 31,			September 30,			June 30,			March 31,			December 31,
Deposit Composition - Percentages		2020			2020			2020			2020			2019
Demand and other noninterest-bearing		49.8	%		50.7	%		51.2	%		49.2	%		49.9	%
Money market		20.1	%		19.9	%		19.7	%		21.4	%		21.7	%
Interest-bearing demand		10.3	%		9.7	%		9.7	%		10.5	%		10.8	%
Savings		8.4	%		8.2	%		7.9	%		8.4	%		8.3	%
Interest-bearing public funds, other than certificates of deposit		4.7	%		4.7	%		4.7	%		3.8	%		2.8	%
Certificates of deposit, less than $250,000		1.5	%		1.5	%		1.6	%		2.0	%		2.0	%
Certificates of deposit, $250,000 or more		0.8	%		0.8	%		0.8	%		1.0	%		1.4	%
Certificates of deposit insured by CDARS®		0.2	%		0.2	%		0.1	%		0.2	%		0.2	%
Brokered certificates of deposit		—	%		—	%		0.1	%		0.1	%		0.1	%
Reciprocal money market accounts		4.2	%		4.3	%		4.2	%		3.4	%		2.8	%
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
		December 31, 2020											December 31, 2019
		Average Balances				Interest Earned / Paid				Average Rate			Average Balances				Interest Earned / Paid				Average Rate
		(dollars in thousands)
ASSETS
Loans, net (1)(2)		$	9,533,655			$	108,576			4.53	%		$	8,742,246			$	111,754			5.07	%
Taxable securities		4,207,607				23,045				2.18	%		3,011,521				20,074				2.64	%
Tax exempt securities (2)		557,551				3,377				2.41	%		442,033				3,163				2.84	%
Interest-earning deposits with banks		711,579				181				0.10	%		35,979				153				1.69	%
Total interest-earning assets		15,010,392				135,179				3.58	%		12,231,779				135,144				4.38	%
Other earning assets		239,798											231,456
Noninterest-earning assets		1,227,056											1,287,605
Total assets		$	16,477,246										$	13,750,840
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts		$	3,395,343			$	732			0.09	%		$	2,649,404			$	2,277			0.34	%
Interest-bearing demand		1,359,222				293				0.09	%		1,065,531				446				0.17	%
Savings accounts		1,141,165				36				0.01	%		888,895				47				0.02	%
Interest-bearing public funds, other than certificates of deposit		638,107				310				0.19	%		616,938				2,413				1.55	%
Certificates of deposit		339,568				255				0.30	%		390,082				626				0.64	%
Total interest-bearing deposits		6,873,405				1,626				0.09	%		5,610,850				5,809				0.41	%
FHLB advances and FRB borrowings		7,420				73				3.91	%		379,975				1,899				1.98	%
Subordinated debentures		35,115				467				5.29	%		35,299				467				5.25	%
Other borrowings and interest-bearing liabilities		38,347				18				0.19	%		32,195				117				1.44	%
Total interest-bearing liabilities		6,954,287				2,184				0.12	%		6,058,319				8,292				0.54	%
Noninterest-bearing deposits		6,990,622											5,348,584
Other noninterest-bearing liabilities		221,267											173,058
Shareholders' equity		2,311,070											2,170,879
Total liabilities & shareholders' equity		$	16,477,246										$	13,750,840
Net interest income (tax equivalent)						$	132,995										$	126,852
Net interest margin (tax equivalent)										3.52	%										4.11	%

(1)	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 amortization of net deferred loan fees was $9.1 million and $2.1 million for the three months ended December 31, 2020 and 2019, respectively. The incremental accretion income on acquired loans was $1.3 million and $2.3 million for the three months ended December 31, 2020 and 2019, respectively.
(2)	Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.2 million and $1.4 million for the three months ended December 31, 2020 and 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $709 thousand and $665 thousand for the three months ended December 31, 2020 and 2019, respectively.

 

AVERAGE BALANCES AND RATES
Columbia Banking System, Inc.
Unaudited
		Three Months Ended											Three Months Ended
		December 31, 2020											September 30, 2020
		Average Balances				Interest Earned / Paid				Average Rate			Average Balances				Interest Earned / Paid				Average Rate
		(dollars in thousands)
ASSETS
Loans, net (1)(2)		$	9,533,655			$	108,576			4.53	%		$	9,744,336			$	106,945			4.37	%
Taxable securities		4,207,607				23,045				2.18	%		3,511,690				19,102				2.16	%
Tax exempt securities (2)		557,551				3,377				2.41	%		436,351				2,962				2.70	%
Interest-earning deposits with banks		711,579				181				0.10	%		800,058				203				0.10	%
Total interest-earning assets		15,010,392				135,179				3.58	%		14,492,435				129,212				3.55	%
Other earning assets		239,798											235,735
Noninterest-earning assets		1,227,056											1,237,315
Total assets		$	16,477,246										$	15,965,485
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts		$	3,395,343			$	732			0.09	%		$	3,200,407			$	947			0.12	%
Interest-bearing demand		1,359,222				293				0.09	%		1,296,076				337				0.10	%
Savings accounts		1,141,165				36				0.01	%		1,072,472				36				0.01	%
Interest-bearing public funds, other than certificates of deposit		638,107				310				0.19	%		621,786				397				0.25	%
Certificates of deposit		339,568				255				0.30	%		336,954				288				0.34	%
Total interest-bearing deposits		6,873,405				1,626				0.09	%		6,527,695				2,005				0.12	%
FHLB advances and FRB borrowings		7,420				73				3.91	%		54,173				166				1.22	%
Subordinated debentures		35,115				467				5.29	%		35,161				468				5.30	%
Other borrowings and interest-bearing liabilities		38,347				18				0.19	%		42,090				19				0.18	%
Total interest-bearing liabilities		6,954,287				2,184				0.12	%		6,659,119				2,658				0.16	%
Noninterest-bearing deposits		6,990,622											6,790,790
Other noninterest-bearing liabilities		221,267											221,805
Shareholders' equity		2,311,070											2,293,771
Total liabilities & shareholders' equity		$	16,477,246										$	15,965,485
Net interest income (tax equivalent)						$	132,995										$	126,554
Net interest margin (tax equivalent)										3.52	%										3.47	%

(1)	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 amortization of net deferred loan fees was $9.1 million and $5.0 million for the three months ended December 31, 2020 and September 30, 2020, respectively. The incremental accretion on acquired loans was $1.3 million and $1.7 million the three months ended December 31, 2020 and September 30, 2020, respectively.
(2)	Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.2 million for both the three months ended December 31, 2020 and September 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $709 thousand and $622 thousand for the three months ended December 31, 2020 and September 30, 2020, respectively.

 

AVERAGE BALANCES AND RATES
Columbia Banking System, Inc.
Unaudited
		Twelve Months Ended											Twelve Months Ended
		December 31, 2020											December 31, 2019
		Average Balances				Interest Earned / Paid				Average Rate			Average Balances				Interest Earned / Paid				Average Rate
		(dollars in thousands)
ASSETS
Loans, net (1)(2)		$	9,411,213			$	430,923			4.58	%		$	8,612,478			$	453,552			5.27	%
Taxable securities		3,531,357				81,578				2.31	%		2,703,423				69,864				2.58	%
Tax exempt securities (2)		451,561				12,110				2.68	%		463,689				13,589				2.93	%
Interest-earning deposits with banks		522,480				661				0.13	%		58,043				1,312				2.26	%
Total interest-earning assets		13,916,611				$	525,272			3.77	%		11,837,633				$	538,317			4.55	%
Other earning assets		235,491											231,731
Noninterest-earning assets		1,249,117											1,271,660
Total assets		$	15,401,219										$	13,341,024
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts		$	3,043,731			$	4,381			0.14	%		$	2,591,303			$	10,598			0.41	%
Interest-bearing demand		1,248,975				1,453				0.12	%		1,064,145				1,676				0.16	%
Savings accounts		1,022,388				153				0.01	%		892,518				183				0.02	%
Interest-bearing public funds, other than certificates of deposit		544,109				2,003				0.37	%		440,359				7,244				1.65	%
Certificates of deposit		348,855				1,377				0.39	%		395,421				2,445				0.62	%
Total interest-bearing deposits		6,208,058				9,367				0.15	%		5,383,746				22,146				0.41	%
FHLB advances and FRB borrowings		342,721				6,264				1.83	%		470,082				11,861				2.52	%
Subordinated debentures		35,184				1,871				5.32	%		35,368				1,871				5.29	%
Other borrowings and interest-bearing liabilities		40,862				196				0.48	%		34,622				669				1.93	%
Total interest-bearing liabilities		6,626,825				$	17,698			0.27	%		5,923,818				$	36,547			0.62	%
Noninterest-bearing deposits		6,304,197											5,139,941
Other noninterest-bearing liabilities		206,921											160,623
Shareholders' equity		2,263,276											2,116,642
Total liabilities & shareholders' equity		$	15,401,219										$	13,341,024
Net interest income (tax equivalent)						$	507,574										$	501,770
Net interest margin (tax equivalent)										3.65	%										4.24	%

(1)	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 amortization of net deferred loan fees was $21.6 million and $8.4 million for the twelve months ended December 31, 2020 and 2019, respectively. The incremental accretion on acquired loans was $6.2 million and $9.1 million for the twelve months ended December 31, 2020 and 2019, respectively.
(2)	Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $4.9 million and $5.5 million for the twelve months ended December 31, 2020 and 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.5 million and $2.9 million for the twelve months ended December 31, 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												Twelve Months Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Operating net interest margin non-GAAP reconciliation:		(dollars in thousands)
Net interest income (tax equivalent) (1)		$	132,995			$	126,554			$	126,852			$	507,574			$	501,770
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on acquired loans (2)		(1,323)				(1,665)				(2,316)				(6,154)				(9,086)
Premium amortization on acquired securities		606				701				1,204				3,409				6,020
Interest reversals on nonaccrual loans		146				393				209				2,000				1,671
Operating net interest income (tax equivalent) (1)		$	132,424			$	125,983			$	125,949			$	506,829			$	500,375
Average interest earning assets		$	15,010,392			$	14,492,435			$	12,231,779			$	13,916,611			$	11,837,633
Net interest margin (tax equivalent) (1)		3.52		%		3.47		%		4.11		%		3.65		%		4.24		%
Operating net interest margin (tax equivalent) (1)		3.51		%		3.46		%		4.09		%		3.64		%		4.23		%
		Three Months Ended												Twelve Months Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Operating efficiency ratio non-GAAP reconciliation:		(dollars in thousands)
Noninterest expense (numerator A)		$	84,300			$	85,115			$	86,978			$	334,519			$	345,482
Adjustments to arrive at operating noninterest expense:
Net benefit (cost) of operation of OREO and OPPO		(32)				160				10				324				714
Loss on asset disposals		—				—				—				(224)				(5)
Business and Occupation ("B&O") taxes		(1,543)				(1,559)				(1,234)				(4,970)				(5,846)
Operating noninterest expense (numerator B)		$	82,725			$	83,716			$	85,754			$	329,649			$	340,345
Net interest income (tax equivalent) (1)		$	132,995			$	126,554			$	126,852			$	507,574			$	501,770
Noninterest income		23,562				22,472				21,807				104,500				97,181
Bank owned life insurance tax equivalent adjustment		430				422				439				1,706				1,673
Total revenue (tax equivalent) (denominator A)		$	156,987			$	149,448			$	149,098			$	613,780			$	600,624
Operating net interest income (tax equivalent) (1)		$	132,424			$	125,983			$	125,949			$	506,829			$	500,375
Adjustments to arrive at operating noninterest income (tax equivalent):
Investment securities gain, net		(36)				—				—				(16,710)				(2,132)
Gain on asset disposals		(381)				(247)				(530)				(675)				(6,634)
Operating noninterest income (tax equivalent)		23,575				22,647				21,716				88,821				90,088
Total operating revenue (tax equivalent) (denominator B)		$	155,999			$	148,630			$	147,665			$	595,650			$	590,463
Efficiency ratio (tax equivalent) (numerator A/denominator A)		53.70		%		56.95		%		58.34		%		54.50		%		57.52		%
Operating efficiency ratio (tax equivalent) (numerator B/denominator B)		53.03		%		56.33		%		58.07		%		55.34		%		57.64		%

(1)	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 $1.9 million, $1.8 million, and $2.0 million for the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, respectively; and $7.5 million and $8.4 million for the twelve months ended December 31, 2020 and 2019, respectively.
(2)	Beginning January 2020, incremental accretion income on purchased credit 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												Twelve Months Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Pre-tax, pre-provision income:		(in thousands)
Income before income taxes		$	75,074			$	54,683			$	58,032			$	192,392			$	241,611
Provision (recapture) for credit losses		(4,700)				7,400				1,614				77,700				3,493
Pre-tax, pre-provision income		$	70,374			$	62,083			$	59,646			$	270,092			$	245,104

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:

		December 31,				September 30,				December 31,
		2020				2020				2019
Tangible common equity ratio and tangible book value per common share non-GAAP reconciliation:		(dollars in thousands except per share amounts)
Shareholders' equity (numerator A)		$	2,347,607			$	2,301,981			$	2,159,962
Adjustments to arrive at tangible common equity:
Goodwill		(765,842)				(765,842)				(765,842)
Other intangible assets, net		(26,734)				(28,745)				(35,458)
Tangible common equity (numerator B)		$	1,555,031			$	1,507,394			$	1,358,662
Total assets (denominator A)		$	16,584,779			$	16,233,424			$	14,079,524
Adjustments to arrive at tangible assets:
Goodwill		(765,842)				(765,842)				(765,842)
Other intangible assets, net		(26,734)				(28,745)				(35,458)
Tangible assets (denominator B)		$	15,792,203			$	15,438,837			$	13,278,224
Shareholders' equity to total assets (numerator A/denominator A)		14.16		%		14.18		%		15.34		%
Tangible common shareholders' equity to tangible assets (numerator B/denominator B)		9.85		%		9.76		%		10.23		%
Common shares outstanding (denominator C)		71,598				71,613				72,124
Book value per common share (numerator A/denominator C)		$	32.79			$	32.14			$	29.95
Tangible book value per common share (numerator B/denominator C)		$	21.72			$	21.05			$	18.84

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:

		December 31,				September 30,				December 31,
		2020				2020				2019
Allowance for credit losses to period-end loans ratio non-GAAP reconciliation:		(dollars in thousands)
Allowance for credit losses ("ACL") (numerator)		$	149,140			$	156,968			$	83,968
Total loans, net of unearned income (denominator A)		9,427,660				9,688,947				8,743,465
Less: PPP loans, net of unearned income (0% ACL)		651,585				953,244				—
Total loans, net of PPP loans (denominator B)		$	8,776,075			$	8,735,703			$	8,743,465
ACL to period-end loans (numerator / denominator A)		1.58		%		1.62		%		0.96		%
ACL to period-end loans, excluding PPP loans (numerator / denominator B)		1.70		%		1.80		%		0.96		%

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												Twelve Months Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Return on average tangible common equity non-GAAP reconciliation:		(dollars in thousands)
Net income (numerator A)		$	58,300			$	44,734			$	46,129			$	154,244			$	194,451
Adjustments to arrive at tangible income applicable to common shareholders:
Amortization of intangibles		2,011				2,193				2,450				8,724				10,479
Tax effect on intangible amortization		(422)				(461)				(515)				(1,832)				(2,201)
Tangible income applicable to common shareholders (numerator B)		$	59,889			$	46,466			$	48,064			161,136				$	202,729
Average shareholders' equity (denominator A)		$	2,311,070			$	2,293,771			$	2,170,879			2,263,276				$	2,116,642
Adjustments to arrive at average tangible common equity:
Average intangibles		(793,510)				(795,650)				(802,446)				(796,762)				(806,358)
Average tangible common equity (denominator B)		$	1,517,560			$	1,498,121			$	1,368,433			$	1,466,514			$	1,310,284
Return on average common equity (numerator A/denominator A) (1)		10.09		%		7.80		%		8.50		%		6.82		%		9.19		%
Return on average tangible common equity (numerator B/denominator B) (2)		15.79		%		12.41		%		14.05		%		10.99		%		15.47		%

(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