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Press Release


Columbia Banking System Announces Third Quarter 2020 Results and Quarterly Cash Dividend

Company Release - 10/29/2020 9:00 AM ET

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

Columbia Banking System Logo. (PRNewsFoto/Columbia Banking System, Inc.)

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



September 30, 2020


June 30, 2020


September 30, 2019


September 30, 2020


September 30, 2019



(in thousands)

Provision (recapture) for unfunded loan commitments


$

800



$

2,800



$

(400)



$

4,600



$

(750)























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, 2020


June 30, 2020


September 30, 2020

Paycheck Protection Program loans


(dollars in thousands)

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, 2020


June 30, 2020


December 31, 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 real estate


2,405



2,662



3,292


Other consumer


21



11



9


Total nonaccrual loans


47,231



53,732



33,060


OREO and other personal property owned


623



747



552


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 30, 2020


June 30, 2020


September 30, 2019


September 30, 2020


September 30, 2019



(in thousands)

Beginning balance


$

151,546



$

122,074



$

80,517



$

83,968



$

83,369


Impact of adopting ASC 326








1,632




Charge-offs:











Commercial loans:











Commercial real estate






(466)



(101)



(1,708)


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 estate


(16)





(202)



(26)



(1,004)


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 estate


65



13



1,731



92



2,801


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 estate


1,301



422



440



2,005



1,224


Other consumer


76



130



74



330



148


Total recoveries


2,604



1,612



5,216



5,979



9,059


Net (charge-offs) recoveries


(1,978)



(4,028)



1,844



(11,032)



(2,588)


Provision for credit losses


7,400



33,500



299



82,400



1,879


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, 2020


June 30, 2020



(in thousands)

Loan balances subject to deferral


$

114,372



$

1,595,615











 

[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.

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 banks







$

193,823



$

217,461



$

223,541


Interest-earning deposits with banks







736,422



880,232



24,132


Total cash and cash equivalents







930,245



1,097,693



247,673


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


4,281,720



3,693,787



3,746,142


Equity securities







13,425



13,425




Federal Home Loan Bank ("FHLB") stock at cost






10,280



16,280



48,120


Loans held for sale







24,407



28,803



17,718


Loans, net of unearned income







9,688,947



9,771,898



8,743,465


Less: Allowance for credit losses






156,968



151,546



83,968


Loans, net







9,531,979



9,620,352



8,659,497


Interest receivable







56,718



59,149



46,839


Premises and equipment, net







164,049



164,362



165,408


Other real estate owned







623



747



552


Goodwill







765,842



765,842



765,842


Other intangible assets, net







28,745



30,938



35,458


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 agreements to repurchase






26,966



51,479



64,437


Subordinated debentures







35,139



35,185



35,277


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:













September 30,


June 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

73,797



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 comprehensive income






177,601



181,077



40,367


Treasury stock at cost

2,184



2,184



1,453



(70,834)



(70,834)



(50,834)


Total shareholders' equity







2,301,981



2,276,755



2,159,962


Total liabilities and shareholders' equity






$

16,233,424



$

15,920,944



$

14,079,524


 

CONSOLIDATED STATEMENTS OF INCOME









Columbia Banking System, Inc.


Three Months Ended


Nine Months Ended

Unaudited


September 30,


June 30,


September 30,


September 30,


September 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 securities


19,102



18,343



16,457



58,533



49,790


Tax-exempt securities


2,340



2,257



2,556



6,899



8,237


Deposits in banks


203



136



864



480



1,159


Total interest income


127,384



126,232



132,533



384,513



396,843


Interest Expense











Deposits


2,005



2,094



6,863



7,741



16,337


FHLB advances and Federal Reserve Bank ("FRB")  borrowings


166



1,796



2,569



6,191



9,962


Subordinated debentures


468



468



468



1,404



1,404


Other borrowings


19



23



183



178



552


Total interest expense


2,658



4,381



10,083



15,514



28,255


Net Interest Income


124,726



121,851



122,450



368,999



368,588


Provision for credit losses


7,400



33,500



299



82,400



1,879


Net interest income after provision for credit losses


117,326



88,351



122,151



286,599



366,709


Noninterest Income











Deposit account and treasury management fees


6,658



6,092



9,015



20,538



27,030


Card revenue


3,834



3,079



4,006



10,431



11,431


Financial services and trust revenue


3,253



3,163



3,226



9,481



9,608


Loan revenue


6,645



5,607



3,855



16,842



9,840


Bank owned life insurance


1,585



1,618



1,528



4,799



4,644


Investment securities gains, net




16,425





16,674



2,132


Other


497



1,275



6,400



2,173



10,689


Total noninterest income


22,472



37,259



28,030



80,938



75,374


Noninterest Expense











Compensation and employee benefits


55,133



46,043



54,459



156,018



158,559


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 professional fees


3,000



3,483



5,683



8,585



16,810


Amortization of intangibles


2,193



2,210



2,632



6,713



8,029


Business and Occupation ("B&O") taxes


1,559



1,244



1,325



3,427



4,612


Advertising and promotion


680



837



1,752



2,822



3,596


Regulatory premiums


826



1,034



(38)



1,894



1,902


Net benefit of operation of other real estate owned


(160)



(200)



(90)



(348)



(682)


Other


8,640



11,916



7,606



29,561



25,140


Total noninterest expense


85,115



80,833



87,076



250,219



258,504


Income before income taxes


54,683



44,777



63,105



117,318



183,579


Provision for income taxes


9,949



8,195



12,378



21,374



35,257


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 - regular


$

0.28



$

0.28



$

0.28



$

0.84



$

0.84


Dividends declared per common share - special








0.22



0.28


   Dividends declared per common share - total


$

0.28



$

0.28



$

0.28



$

1.06



$

1.12


Weighted average number of common shares outstanding


70,726



70,679



71,803



70,870



72,256


Weighted average number of diluted common shares outstanding


70,762



70,711



71,803



70,906



72,257


 

FINANCIAL STATISTICS









Columbia Banking System, Inc.


Three Months Ended


Nine Months Ended

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 credit losses


$

7,400



$

33,500



$

299



$

82,400



$

1,879


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 (1)


$

21.05



$

20.67



$

18.78



$

21.05



$

18.78


Averages











Total assets


$

15,965,485



$

15,148,488



$

13,459,774



$

15,039,925



$

13,202,917


Interest-earning assets


$

14,492,435



$

13,657,719



$

11,941,578



$

13,549,356



$

11,704,702


Loans


$

9,744,336



$

9,546,099



$

8,694,592



$

9,370,101



$

8,568,746


Securities, including equity securities and FHLB stock


$

3,948,041



$

3,591,693



$

3,102,213



$

3,720,268



$

3,070,582


Deposits


$

13,318,485



$

12,220,415



$

10,668,767



$

12,058,376



$

10,376,841


Interest-bearing deposits


$

6,527,695



$

6,037,107



$

5,517,171



$

5,984,658



$

5,307,212


Interest-bearing liabilities


$

6,659,119



$

6,514,012



$

5,989,042



$

6,516,874



$

5,878,492


Noninterest-bearing deposits


$

6,790,790



$

6,183,308



$

5,151,596



$

6,073,718



$

5,069,629


Shareholders' equity


$

2,293,771



$

2,254,349



$

2,152,916



$

2,247,228



$

2,098,364


Financial Ratios











Return on average assets


1.12

%


0.97

%


1.51

%


0.85

%


1.50

%

Return on average common equity


7.80

%


6.49

%


9.42

%


5.69

%


9.42

%

Return on average tangible common equity (1)


12.41

%


10.53

%


15.67

%


9.31

%


15.98

%

Average equity to average assets


14.37

%


14.88

%


16.00

%


14.94

%


15.89

%

Shareholders' equity to total assets


14.18

%


14.30

%


15.71

%


14.18

%


15.71

%

Tangible common shareholders' equity to tangible assets (1)


9.76

%


9.79

%


10.48

%


9.76

%


10.48

%

Net interest margin (tax equivalent)


3.47

%


3.64

%


4.14

%


3.69

%


4.28

%

Efficiency ratio (tax equivalent) (2)


56.95

%


50.09

%


56.91

%


54.78

%


57.25

%

Operating efficiency ratio (tax equivalent) (1)


56.33

%


54.91

%


58.65

%


56.16

%


57.50

%

Noninterest expense ratio


2.13

%


2.13

%


2.59

%


2.22

%


2.61

%



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 unearned income


$

9,688,947



$

9,771,898



$

8,743,465






Allowance for credit losses


$

156,968



$

151,546



$

83,968






Securities, including equity securities and FHLB stock


$

4,305,425



$

3,723,492



$

3,794,262






Deposits


$

13,600,260



$

13,131,477



$

10,684,708






Shareholders' equity


$

2,301,981



$

2,276,755



$

2,159,962






Nonperforming assets











Nonaccrual loans


$

47,231



$

53,732



$

33,060






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


623



747



552






Total nonperforming assets


$

47,854



$

54,479



$

33,612






Nonperforming loans to period-end loans


0.49

%


0.55

%


0.38

%





Nonperforming assets to period-end assets


0.29

%


0.34

%


0.24

%





Allowance for credit losses to period-end loans


1.62

%


1.55

%


0.96

%





Net loan charge-offs (for the three months ended)


$

1,978



$

4,028



$

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


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 credit losses


$

7,400



$

33,500



$

41,500



$

1,614



$

299


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 assets


$

14,492,435



$

13,657,719



$

12,487,550



$

12,231,779



$

11,941,578


Loans


$

9,744,336



$

9,546,099



$

8,815,755



$

8,742,246



$

8,694,592


Securities, including equity securities and FHLB stock


$

3,948,041



$

3,591,693



$

3,618,567



$

3,453,554



$

3,102,213


Deposits


$

13,318,485



$

12,220,415



$

10,622,379



$

10,959,434



$

10,668,767


Interest-bearing deposits


$

6,527,695



$

6,037,107



$

5,383,203



$

5,610,850



$

5,517,171


Interest-bearing liabilities


$

6,659,119



$

6,514,012



$

6,375,931



$

6,058,319



$

5,989,042


Noninterest-bearing deposits


$

6,790,790



$

6,183,308



$

5,239,176



$

5,348,584



$

5,151,596


Shareholders' equity


$

2,293,771



$

2,254,349



$

2,193,051



$

2,170,879



$

2,152,916


Financial Ratios











Return on average assets


1.12

%


0.97

%


0.42

%


1.34

%


1.51

%

Return on average common equity


7.80

%


6.49

%


2.67

%


8.50

%


9.42

%

Average equity to average assets


14.37

%


14.88

%


15.67

%


15.79

%


16.00

%

Shareholders' equity to total assets


14.18

%


14.30

%


15.77

%


15.34

%


15.71

%

Net interest margin (tax equivalent)


3.47

%


3.64

%


4.00

%


4.11

%


4.14

%

Period-end











Total assets


$

16,233,424



$

15,920,944



$

14,038,503



$

14,079,524



$

13,757,760


Loans, net of unearned income


$

9,688,947



$

9,771,898



$

8,933,321



$

8,743,465



$

8,756,355


Allowance for credit losses


$

156,968



$

151,546



$

122,074



$

83,968



$

82,660


Securities, including equity securities and FHLB stock


$

4,305,425



$

3,723,492



$

3,591,408



$

3,794,262



$

3,397,252


Deposits


$

13,600,260



$

13,131,477



$

10,812,756



$

10,684,708



$

10,855,716


Shareholders' equity


$

2,301,981



$

2,276,755



$

2,213,602



$

2,159,962



$

2,161,577


Goodwill


$

765,842



$

765,842



$

765,842



$

765,842



$

765,842


Other intangible assets, net


$

28,745



$

30,938



$

33,148



$

35,458



$

37,908


Nonperforming assets











Nonaccrual loans


$

47,231



$

53,732



$

47,647



$

33,060



$

37,021


OREO and OPPO


623



747



510



552



625


Total nonperforming assets


$

47,854



$

54,479



$

48,157



$

33,612



$

37,646


Nonperforming loans to period-end loans


0.49

%


0.55

%


0.53

%


0.38

%


0.42

%

Nonperforming assets to period-end assets


0.29

%


0.34

%


0.34

%


0.24

%


0.27

%

Allowance for credit losses to period-end loans


1.62

%


1.55

%


1.37

%


0.96

%


0.94

%

Net loan charge-offs (recoveries)


$

1,978



$

4,028



$

5,026



$

306



$

(1,844)


 

LOAN PORTFOLIO COMPOSITION









Columbia Banking System, Inc.











Unaudited


September 30,


June 30,


March 31,


December 31,


September 30,



2020


2020


2020


2019


2019

Loan Portfolio Composition - Dollars


(dollars in thousands)

Commercial loans:











Commercial real estate


$

4,027,035



$

4,032,643



$

3,969,974



$

3,945,853



$

3,746,365


Commercial business


3,836,009



3,859,513



3,169,668



2,989,613



3,057,669


Agriculture


850,290



845,950



754,491



765,371



777,619


Construction


273,176



304,015



308,186



361,533



479,171


Consumer loans:











One-to-four family residential real estate


665,432



692,837



690,506



637,325



654,077


Other consumer


37,005



36,940



40,496



43,770



41,454


Total loans


9,688,947



9,771,898



8,933,321



8,743,465



8,756,355


Less:  Allowance for credit losses


(156,968)



(151,546)



(122,074)



(83,968)



(82,660)


Total loans, net


$

9,531,979



$

9,620,352



$

8,811,247



$

8,659,497



$

8,673,695


Loans held for sale


$

24,407



$

28,803



$

9,701



$

17,718



$

15,036


 



September 30,


June 30,


March 31,


December 31,


September 30,

Loan Portfolio Composition - Percentages


2020


2020


2020


2019


2019

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 residential real estate


6.9

%


7.1

%


7.7

%


7.3

%


7.5

%

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


(dollars in thousands)

Demand and other noninterest-bearing


$

6,897,054



$

6,719,437



$

5,323,908



$

5,328,146



$

5,320,435


Money market


2,708,949



2,586,376



2,313,717



2,322,644



2,295,229


Interest-bearing demand


1,322,618



1,274,058



1,131,874



1,150,437



1,059,502


Savings


1,109,155



1,035,723



905,931



882,050



892,438


Interest-bearing public funds, other than certificates of deposit


635,980



623,496



405,810



301,203



629,797


Certificates of deposit, less than $250,000


204,578



210,357



214,449



218,764



223,249


Certificates of deposit, $250,000 or more


105,041



104,330



109,659



151,995



107,506


Certificates of deposit insured by CDARS®


22,609



17,078



17,171



17,065



17,252


Brokered certificates of deposit


5,000



8,427



12,259



12,259



18,852


Reciprocal money market accounts


589,276



552,195



377,980



300,158



291,542


Subtotal


13,600,260



13,131,477



10,812,758



10,684,721



10,855,802


Valuation adjustment resulting from acquisition accounting






(2)



(13)



(86)


Total deposits


$

13,600,260



$

13,131,477



$

10,812,756



$

10,684,708



$

10,855,716


 



September 30,


June 30,


March 31,


December 31,


September 30,

Deposit Composition - Percentages


2020


2020


2020


2019


2019

Demand and other noninterest-bearing


50.7

%


51.2

%


49.2

%


49.9

%


49.0

%

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 certificates of deposit


4.7

%


4.7

%


3.8

%


2.8

%


5.8

%

Certificates of deposit, less than $250,000


1.5

%


1.6

%


2.0

%


2.0

%


2.1

%

Certificates of deposit, $250,000 or more


0.8

%


0.8

%


1.0

%


1.4

%


1.0

%

Certificates of deposit insured by CDARS®


0.2

%


0.1

%


0.2

%


0.2

%


0.2

%

Brokered certificates of deposit


%


0.1

%


0.1

%


0.1

%


0.2

%

Reciprocal money market accounts


4.3

%


4.2

%


3.4

%


2.8

%


2.6

%

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
Balances


Interest
Earned / Paid


Average
Rate


Average
Balances


Interest
Earned / Paid


Average
Rate



(dollars in thousands)

ASSETS













Loans, net (1)(2)


$

9,744,336



$

106,945



4.37

%


$

8,694,592



$

114,099



5.21

%

Taxable securities


3,511,690



19,102



2.16

%


2,654,490



16,457



2.46

%

Tax exempt securities (2)


436,351



2,962



2.70

%


447,723



3,235



2.87

%

Interest-earning deposits with banks


800,058



203



0.10

%


144,773



864



2.37

%

Total interest-earning assets


14,492,435



129,212



3.55

%


11,941,578



134,655



4.47

%

Other earning assets


235,735







230,140






Noninterest-earning assets


1,237,315







1,288,056






Total assets


$

15,965,485







$

13,459,774






LIABILITIES AND SHAREHOLDERS' EQUITY

Money market accounts


$

3,200,407



$

947



0.12

%


$

2,589,390



$

2,840



0.44

%

Interest-bearing demand


1,296,076



337



0.10

%


1,049,833



438



0.17

%

Savings accounts


1,072,472



36



0.01

%


893,395



49



0.02

%

Interest-bearing public funds, other than certificates of deposit


621,786



397



0.25

%


602,674



2,879



1.90

%

Certificates of deposit


336,954



288



0.34

%


381,879



657



0.68

%

Total interest-bearing deposits


6,527,695



2,005



0.12

%


5,517,171



6,863



0.49

%

FHLB advances and FRB borrowings


54,173



166



1.22

%


400,956



2,569



2.54

%

Subordinated debentures


35,161



468



5.30

%


35,346



468



5.25

%

Other borrowings and interest-bearing liabilities


42,090



19



0.18

%


35,569



183



2.04

%

Total interest-bearing liabilities


6,659,119



2,658



0.16

%


5,989,042



10,083



0.67

%

Noninterest-bearing deposits


6,790,790







5,151,596






Other noninterest-bearing liabilities


221,805







166,220






Shareholders' equity


2,293,771







2,152,916






Total liabilities & shareholders' equity


$

15,965,485







$

13,459,774






Net interest income (tax equivalent)


$

126,554







$

124,572




Net interest margin (tax equivalent)


3.47

%






4.14

%

__________

(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 $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.

(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 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
Balances


Interest
Earned / Paid


Average
Rate


Average
Balances


Interest
Earned / Paid


Average
Rate



(dollars in thousands)

ASSETS













Loans, net (1)(2)


$

9,744,336



$

106,945



4.37

%


$

9,546,099



$

106,737



4.50

%

Taxable securities


3,511,690



19,102



2.16

%


3,189,805



18,343



2.31

%

Tax exempt securities (2)


436,351



2,962



2.70

%


401,888



2,857



2.86

%

Interest-earning deposits with banks


800,058



203



0.10

%


519,927



136



0.11

%

Total interest-earning assets


14,492,435



129,212



3.55

%


13,657,719



128,073



3.77

%

Other earning assets


235,735







234,019






Noninterest-earning assets


1,237,315







1,256,750






Total assets


$

15,965,485







$

15,148,488






LIABILITIES AND SHAREHOLDERS' EQUITY

Money market accounts


$

3,200,407



$

947



0.12

%


$

2,939,657



$

974



0.13

%

Interest-bearing demand


1,296,076



337



0.10

%


1,213,182



339



0.11

%

Savings accounts


1,072,472



36



0.01

%


976,785



38



0.02

%

Interest-bearing public funds, other than certificates of deposit


621,786



397



0.25

%


559,256



393



0.28

%

Certificates of deposit


336,954



288



0.34

%


348,227



350



0.40

%

Total interest-bearing deposits


6,527,695



2,005



0.12

%


6,037,107



2,094



0.14

%

FHLB advances and FRB borrowings


54,173



166



1.22

%


407,035



1,796



1.77

%

Subordinated debentures


35,161



468



5.30

%


35,207



468



5.35

%

Other borrowings and interest-bearing liabilities


42,090



19



0.18

%


34,663



23



0.27

%

Total interest-bearing liabilities


6,659,119



2,658



0.16

%


6,514,012



4,381



0.27

%

Noninterest-bearing deposits


6,790,790







6,183,308






Other noninterest-bearing liabilities


221,805







196,819






Shareholders' equity


2,293,771







2,254,349






Total liabilities & shareholders' equity


$

15,965,485







$

15,148,488






Net interest income (tax equivalent)


$

126,554







$

123,692




Net interest margin (tax equivalent)


3.47

%






3.64

%

__________

(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 $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.

(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 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
Balances


Interest
Earned / Paid


Average
Rate


Average
Balances


Interest
Earned / Paid


Average
Rate



(dollars in thousands)

ASSETS













Loans, net (1)(2)


$

9,370,101



$

322,347



4.60

%


$

8,568,746



$

341,798



5.33

%

Taxable securities


3,304,295



58,533



2.37

%


2,599,595



49,790



2.56

%

Tax exempt securities (2)


415,973



8,733



2.80

%


470,987



10,426



2.96

%

Interest-earning deposits with banks


458,987



480



0.14

%


65,374



1,159



2.37

%

Total interest-earning assets


13,549,356



$

390,093



3.85

%


11,704,702



$

403,173



4.61

%

Other earning assets


234,044







231,823






Noninterest-earning assets


1,256,525







1,266,392






Total assets


$

15,039,925







$

13,202,917






LIABILITIES AND SHAREHOLDERS' EQUITY

Money market accounts


$

2,925,672



$

3,649



0.17

%


$

2,571,722



$

8,321



0.43

%

Interest-bearing demand


1,211,958



1,160



0.13

%


1,063,678



1,230



0.15

%

Savings accounts


982,507



117



0.02

%


893,738



136



0.02

%

Interest-bearing public funds, other than certificates of deposit


512,548



1,693



0.44

%


380,853



4,831



1.70

%

Certificates of deposit


351,973



1,122



0.43

%


397,221



1,819



0.61

%

Total interest-bearing deposits


5,984,658



7,741



0.17

%


5,307,212



16,337



0.41

%

FHLB advances and FRB borrowings


455,303



6,191



1.82

%


500,448



9,962



2.66

%

Subordinated debentures


35,207



1,404



5.33

%


35,392



1,404



5.30

%

Other borrowings and interest-bearing liabilities


41,706



178



0.57

%


35,440



552



2.08

%

Total interest-bearing liabilities


6,516,874



$

15,514



0.32

%


5,878,492



$

28,255



0.64

%

Noninterest-bearing deposits


6,073,718







5,069,629






Other noninterest-bearing liabilities


202,105







156,432






Shareholders' equity


2,247,228







2,098,364






Total liabilities & shareholders' equity


$

15,039,925







$

13,202,917






Net interest income (tax equivalent)


$

374,579







$

374,918




Net interest margin (tax equivalent)


3.69

%






4.28

%

__________

(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 $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.

(2)

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.7 million 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 non-GAAP reconciliation:


(dollars in thousands)

Net interest income (tax equivalent) (1)


$

126,554



$

123,692



$

124,572



$

374,579



$

374,918


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











Incremental accretion income on acquired loans (2)


(1,665)



(1,675)



(2,072)



(4,831)



(6,770)


Premium amortization on acquired securities


701



975



1,386



2,803



4,816


Interest reversals on nonaccrual loans


393



673



174



1,854



1,462


Operating net interest income (tax equivalent) (1)


$

125,983



$

123,665



$

124,060



$

374,405



$

374,426


Average interest earning assets


$

14,492,435



$

13,657,719



$

11,941,578



$

13,549,356



$

11,704,702


Net interest margin (tax equivalent) (1)


3.47

%


3.64

%


4.14

%


3.69

%


4.28

%

Operating net interest margin (tax equivalent) (1)


3.46

%


3.64

%


4.12

%


3.69

%


4.28

%

 



Three Months Ended


Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,



2020


2020


2019


2020


2019

Operating efficiency ratio non-GAAP reconciliation:


(dollars in thousands)

Noninterest expense (numerator A)


$

85,115



$

80,833



$

87,076



$

250,219



$

258,504


Adjustments to arrive at operating noninterest expense:











Net benefit of operation of OREO and OPPO


160



200



113



356



704


Loss on asset disposals




(220)



(5)



(224)



(5)


Business and Occupation ("B&O") taxes


(1,559)



(1,244)



(1,325)



(3,427)



(4,612)


Operating noninterest expense (numerator B)


$

83,716



$

79,569



$

85,859



$

246,924



$

254,591













Net interest income (tax equivalent) (1)


$

126,554



$

123,692



$

124,572



$

374,579



$

374,918


Noninterest income


22,472



37,259



28,030



80,938



75,374


Bank owned life insurance tax equivalent adjustment


422



430



406



1,276



1,234


Total revenue (tax equivalent) (denominator A)


$

149,448



$

161,381



$

153,008



$

456,793



$

451,526













Operating net interest income (tax equivalent) (1)


$

125,983



$

123,665



$

124,060



$

374,405



$

374,426


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











Investment securities gain, net




(16,425)





(16,674)



(2,132)


Gain on asset disposals


(247)



(26)



(6,104)



(294)



(6,104)


Operating noninterest income (tax equivalent)


22,647



21,238



22,332



65,246



68,372


Total operating revenue (tax equivalent) (denominator B)


$

148,630



$

144,903



$

146,392



$

439,651



$

442,798


Efficiency ratio (tax equivalent) (numerator A/denominator A)


56.95

%


50.09

%


56.91

%


54.78

%


57.25

%

Operating efficiency ratio (tax equivalent) (numerator B/denominator B)


56.33

%


54.91

%


58.65

%


56.16

%


57.50

%

__________

(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 $1.8 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.

(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


Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,



2020


2020


2019


2020


2019

Pre-tax, pre-provision income:


(in thousands)

Income before income taxes


$

54,683



$

44,777



$

63,105



$

117,318



$

183,579


Provision for credit losses


7,400



33,500



299



82,400



1,879


Pre-tax, pre-provision income


$

62,083



$

78,277



$

63,404



$

199,718



$

185,458


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 common share non-GAAP reconciliation:


(dollars in thousands except per share amounts)

Shareholders' equity (numerator A)


$

2,301,981



$

2,276,755



$

2,161,577


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 (numerator B)


$

1,507,394



$

1,479,975



$

1,357,827


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 B)


$

15,438,837



$

15,124,164



$

12,954,010


Shareholders' equity to total assets (numerator A/denominator A)


14.18

%


14.30

%


15.71

%

Tangible common shareholders' equity to tangible assets (numerator B/denominator B)


9.76

%


9.79

%


10.48

%

Common shares outstanding (denominator C)


71,613



71,586



72,288


Book value per common share (numerator A/denominator C)


$

32.14



$

31.80



$

29.90


Tangible book value per common share (numerator B/denominator C)


$

21.05



$

20.67



$

18.78


 

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 reconciliation:


(dollars in thousands)

Allowance for credit losses ("ACL") (numerator)


$

156,968



$

151,546



$

82,660









Total loans, net of unearned income (denominator A)


9,688,947



9,771,898



8,756,355


Less: PPP loans, net of unearned income (0% ACL)


953,244



941,373




Total loans, net of PPP loans (denominator B)


$

8,735,703



$

8,830,525



$

8,756,355









ACL to period-end loans (numerator / denominator A)


1.62

%


1.55

%


0.94

%

ACL to period-end loans, excluding PPP loans (numerator / denominator B)


1.80

%


1.72

%


0.94

%

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 equity non-GAAP reconciliation:


(dollars in thousands)

Net income (numerator A)


$

44,734



$

36,582



$

50,727



$

95,944



$

148,322