EX-99.1 2 a991colb3q2019earnings.htm PRESS RELEASE - EARNINGS AND DIVIDEND
Exhibit 99.1
FOR IMMEDIATE RELEASE
October 24, 2019
Columbia Banking System Announces Third Quarter 2019 Results,
and Quarterly Cash Dividend
Highlights

• | Quarterly net income of $50.7 million and diluted earnings per share of $0.70, inclusive of a $4.7 million gain, net of tax, from the sale-leaseback of owned real estate

• | Net loans increased $109.4 million, or 5.1% on an annualized basis from loan production of $383.0 million

• | Nonperforming assets to period end assets ratio improved for the seventh consecutive quarter to 0.27%

• | Repurchased 676 thousand shares of common stock during the quarter

• | Regular cash dividend declared of $0.28 per share

TACOMA, Washington, October 24, 2019 -- Hadley Robbins, President and Chief Executive Officer of Columbia Banking System and Columbia Bank (NASDAQ: COLB) (“Columbia”), said today upon the release of Columbia’s third quarter 2019 earnings, “Third quarter results reflected our focus on executing on our fundamentals. We responsibly built loan totals, increased deposits, and improved our credit quality metrics. Operating expenses were well controlled and meaningful progress was made in moving a number of digital initiatives to completion. Net income for the quarter was one of our strongest at $50.7 million and is a tribute to the dedication and hard work of the Columbia Bank team.”

Balance Sheet
Total assets at September 30, 2019 were $13.76 billion, an increase of $667.0 million from the linked quarter. Loans were $8.76 billion, up $109.4 million, or 5.1% annualized, from June 30, 2019 as a result of loan originations of $383.0 million and increased seasonal line utilization partially offset by payments. Securities available for sale were $3.37 billion at September 30, 2019, an increase of $503.2 million from $2.86 billion at June 30, 2019. Total deposits at September 30, 2019 were $10.86 billion, an increase of $644.1 million from June 30, 2019. Deposit mix remained fairly consistent from June 30, 2019 with 49% noninterest-bearing and 51% interest-bearing. The average cost of total deposits for the quarter was 26 basis points, an increase of 6 basis points from the second quarter of 2019, which was impacted by the increase in public funds. For additional information regarding this calculation, see the “Net Interest Margin” section.
Greg Sigrist, Columbia’s Executive Vice President and Chief Financial Officer, stated, “We selectively increased public funds by approximately $300 million in the third quarter as an alternative funding source, with a corresponding increase in our investment securities, as we expanded our interest rate risk strategy to partially mitigate the impact of further interest rate cuts. Although this did increase our cost of deposits by 6 basis points, our relationship deposit franchise is well intact and continues to benefit from having nearly half of our deposits in noninterest-bearing accounts.”
Income Statement
Net Interest Income
Net interest income for the third quarter of 2019 was $122.5 million, a decrease of $2.7 million and $346 thousand from the linked quarter and the prior year period, respectively. After taking into consideration the $4.9 million of interest recoveries on nonaccrual loans received in the second quarter of 2019, net interest income was $2.2 million higher than the second quarter of 2019. This increase was due to lower Federal Home Loan Bank (“FHLB”) interest expense and higher interest income on interest earning assets due to higher average volumes, partially offset by higher deposit interest expense due to higher average balances and rates on interest-bearing public funds, excluding certificates of deposit. Net interest income compared to the prior year period was relatively unchanged. The increase in interest income from higher average balances of interest-earning assets in the third quarter of 2019 was offset by higher interest expense from higher average balances of FHLB advances and interest-bearing public funds, excluding certificates of deposit. For additional information regarding net interest income, see the “Net Interest Margin” section and the “Average Balances and Rates” tables.
2

Noninterest Income
Noninterest income was $28.0 million for the third quarter of 2019, an increase of $2.4 million and $7.0 million from the second quarter of 2019 and the prior year period, respectively. The linked quarter increase was principally due to a $5.9 million gain from the sale-leaseback of owned real estate during the third quarter of 2019. This gain was partially offset by $3.0 million in bank-owned life insurance (“BOLI”) benefits and a $667 thousand gain on disposal of loans realized during the second quarter of 2019. The increase from the prior year period was primarily due to the previously noted sale-leaseback gain in the third quarter of 2019.
Noninterest Expense
Total noninterest expense for the third quarter of 2019 was $87.1 million, an increase of $348 thousand and $4.2 million from the linked quarter and the prior year period, respectively. The increase in noninterest expense was a result of higher salaries, other compensation and incentive plan expenses, which were partially offset by lower provision for off-balance sheet reserves during the quarter. After removing acquisition-related expenses of $1.1 million from the third quarter of 2018, year over year noninterest expense increased $5.3 million, or 7%. This increase was primarily driven by higher compensation and employee benefits expense, which was partially offset by a decrease in regulatory premium expenses. The Bank’s Federal Deposit Insurance Corporation (“FDIC”) deposit insurance expense was reduced due to the utilization of a portion of our FDIC Small Bank Assessment Credit.
Net Interest Margin
Beginning January 2019, our net interest margin was calculated using the actual number of days on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.
3

Columbia’s net interest margin (tax equivalent) for the third quarter of 2019 was 4.14%, a decrease of 26 basis points and 23 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 was driven by the previously noted $4.9 million, or 17 basis points, of loan interest recoveries received in the second quarter of 2019. The remainder of the decline was largely driven by the net impact of the approximately $300 million increase in securities and public funds as part of the expanded interest rate risk strategy. Additionally, a benefit from deposit inflows was largely offset by lower yields on loans and investments. Further, the decline related to the interest rate environment was offset by changes in the mix and volume of interest-earning assets as well as lower levels of FHLB advances. Compared to the prior year period, the decreased net interest margin (tax equivalent) was driven by higher rates on our deposits and borrowings as well as lower accretion income on acquired loans as reflected in the table below.
Columbia’s operating net interest margin (tax equivalent)(2) was 4.12% for the third quarter of 2019, which decreased 26 and 22 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 2019 compared to the linked quarter and the prior year quarter were due to the items previously noted in the preceding paragraph, except for the lower accretion income, which is not included in the operating net interest margin.
The following table shows the impact to interest income resulting from income accretion on acquired loan portfolios as well as the net interest margin and operating net interest margin:

|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2019 |  | 2019 |  | 2018 |  | 2018 |  | 2019 |  | 2018
|  | (dollars in thousands)
Incremental accretion income due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchased credit impaired loans |  | $ | 113 |  |  | $ | 579 |  |  | $ | 288 |  |  | $ | 395 |  |  | $ | 585 |  |  | $ | 980 |  |  | $ | 1,240 |
Other acquired loans |  | 1,959 |  |  | 2,084 |  |  | 1,747 |  |  | 2,218 |  |  | 2,643 |  |  | 5,790 |  |  | 8,703 |
Incremental accretion income |  | $ | 2,072 |  |  | $ | 2,663 |  |  | $ | 2,035 |  |  | $ | 2,613 |  |  | $ | 3,228 |  |  | $ | 6,770 |  |  | $ | 9,943 |
Net interest margin (tax equivalent) (1) |  | 4.14 | % |  | 4.40 | % |  | 4.32 | % |  | 4.36 | % |  | 4.37 | % |  | 4.28 | % |  | 4.32 | %
Operating net interest margin (tax equivalent) (1)(2) |  | 4.12 | % |  | 4.38 | % |  | 4.33 | % |  | 4.34 | % |  | 4.34 | % |  | 4.28 | % |  | 4.29 | %

__________
(1) Beginning January 2019, net interest margin (tax equivalent) and operating net interest margin (tax equivalent) were calculated using the actual number of days on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.
(2) 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.
4

Asset Quality
At September 30, 2019, nonperforming assets to total assets were 0.27% compared to 0.31% at June 30, 2019. Total nonperforming assets decreased $2.5 million from the linked quarter due to a decrease in both nonaccrual loans and OREO.
Andy McDonald, Columbia’s Executive Vice President and Chief Credit Officer, commented, “Our credit metrics continue to perform better than our peer group average. This is reflective of the commitment our bankers have to our risk disciplines as well as the diligent efforts of our special assets team. The quarter benefited from $1.8 million in net recoveries which allowed us to keep our credit cost to a minimum.”
The following table sets forth information regarding nonaccrual loans and total nonperforming assets:

|  | September 30, 2019 |  | June 30, 2019 |  | December 31, 2018
|  | (in thousands)
Nonaccrual loans: |  |  |  |  |  |
Commercial business |  | $ | 24,408 |  |  | $ | 23,997 |  |  | $ | 35,513 |
Real estate: |  |  |  |  |  |
One-to-four family residential |  | 574 |  |  | 860 |  |  | 1,158 |
Commercial and multifamily residential |  | 10,083 |  |  | 11,843 |  |  | 14,904 |
Total real estate |  | 10,657 |  |  | 12,703 |  |  | 16,062 |
Real estate construction: |  |  |  |  |  |
One-to-four family residential |  | — |  |  | — |  |  | 318 |
Consumer |  | 1,956 |  |  | 2,338 |  |  | 2,949 |
Total nonaccrual loans |  | 37,021 |  |  | 39,038 |  |  | 54,842 |
OREO and other personal property owned |  | 625 |  |  | 1,118 |  |  | 6,049 |
Total nonperforming assets |  | $ | 37,646 |  |  | $ | 40,156 |  |  | $ | 60,891 |

5

The following table provides an analysis of the Company’s allowance for loan and lease losses:

|  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2019 |  | June 30, 2019 |  | September 30, 2018 |  | September 30, 2019 |  | September 30, 2018
|  | (in thousands)
Beginning balance, loans excluding PCI loans |  | $ | 77,248 |  |  | $ | 80,029 |  |  | $ | 75,368 |  |  | $ | 79,758 |  |  | $ | 68,739 |
Beginning balance, PCI loans |  | 3,269 |  |  | 3,245 |  |  | 4,782 |  |  | 3,611 |  |  | 6,907 |
Beginning balance |  | 80,517 |  |  | 83,274 |  |  | 80,150 |  |  | 83,369 |  |  | 75,646 |
Charge-offs: |  |  |  |  |  |  |  |  |  |
Commercial business |  | (2,365 | ) |  | (4,118 | ) |  | (606 | ) |  | (7,732 | ) |  | (8,858 | )
One-to-four family residential real estate |  | — |  |  | — |  |  | — |  |  | (2 | ) |  | — |
Commercial and multifamily residential real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | (223 | )
One-to-four family residential real estate construction |  | — |  |  | — |  |  | — |  |  | (170 | ) |  | — |
Consumer |  | (285 | ) |  | (354 | ) |  | (277 | ) |  | (1,117 | ) |  | (773 | )
Purchased credit impaired |  | (722 | ) |  | (815 | ) |  | (1,208 | ) |  | (2,626 | ) |  | (3,786 | )
Total charge-offs |  | (3,372 | ) |  | (5,287 | ) |  | (2,091 | ) |  | (11,647 | ) |  | (13,640 | )
Recoveries: |  |  |  |  |  |  |  |  |  |
Commercial business |  | 358 |  |  | 547 |  |  | 547 |  |  | 1,385 |  |  | 2,892 |
One-to-four family residential real estate |  | 65 |  |  | 20 |  |  | 21 |  |  | 102 |  |  | 389 |
Commercial and multifamily residential real estate |  | 184 |  |  | 33 |  |  | 213 |  |  | 248 |  |  | 1,012 |
One-to-four family residential real estate construction |  | 2,471 |  |  | 661 |  |  | 583 |  |  | 3,192 |  |  | 616 |
Commercial and multifamily residential real estate construction |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |
Consumer |  | 326 |  |  | 178 |  |  | 266 |  |  | 742 |  |  | 796 |
Purchased credit impaired |  | 1,812 |  |  | 872 |  |  | 945 |  |  | 3,389 |  |  | 3,096 |
Total recoveries |  | 5,216 |  |  | 2,312 |  |  | 2,575 |  |  | 9,059 |  |  | 8,801 |
Net (charge-offs) recoveries |  | 1,844 |  |  | (2,975 | ) |  | 484 |  |  | (2,588 | ) |  | (4,839 | )
Provision for loan and lease losses, excluding PCI loans |  | 1,600 |  |  | 251 |  |  | 3,655 |  |  | 3,195 |  |  | 15,180 |
Recapture of loan and lease losses, PCI loans |  | (1,301 | ) |  | (33 | ) |  | (502 | ) |  | (1,316 | ) |  | (2,200 | )
Provision for loan and lease losses |  | 299 |  |  | 218 |  |  | 3,153 |  |  | 1,879 |  |  | 12,980 |
Ending balance, loans excluding PCI loans |  | 79,602 |  |  | 77,248 |  |  | 79,770 |  |  | 79,602 |  |  | 79,770 |
Ending balance, PCI loans |  | 3,058 |  |  | 3,269 |  |  | 4,017 |  |  | 3,058 |  |  | 4,017 |
Ending balance |  | $ | 82,660 |  |  | $ | 80,517 |  |  | $ | 83,787 |  |  | $ | 82,660 |  |  | $ | 83,787 |

The allowance for loan and lease losses to period end loans was 0.94% at September 30, 2019 compared to 0.93% at June 30, 2019. For the third quarter of 2019, Columbia recorded a net provision for loan and lease losses of $299 thousand compared to a net provision of $218 thousand for the linked quarter and a net provision of $3.2 million for the comparable quarter last year. The net provision for loan and lease losses recorded during the third quarter of 2019 consisted of $1.6 million of provision expense for loans, excluding PCI loans, and a provision recapture of $1.3 million for PCI loans.
6

Organizational Update
During the quarter, the Company announced the upcoming retirement of Mr. Robbins and its related succession planning activities. Mr. Robbins stated, “I am proud to pass the torch to Clint who has a 14 year proven track record of success in helping grow Columbia Bank to where we are today. The various roles that Clint has held while at Columbia Bank have prepared him well for this next phase of his career. He is very well respected among our investors, community leaders and employees.”
During the first nine months of 2019, the Bank received the following accolades:

• | Hadley Robbins was named to the inaugural Power 100 list of the most influential leaders in the region by the Puget Sound Business Journal;

• | Selected as one of the Top Corporate Philanthropists for 2019 by the Portland Business Journal;

• | Received an Extraordinary Banking Award for 2019 by the Institute of Extraordinary Banking;

• | Named to the list of Top Workplaces in 2018 by Portland’s Oregonian;

• | Honored as one of Oregon’s Most Admired Companies in 2018 by the Portland Business Journal;

• | For the 13th consecutive year, named as one of Washington’s Best Workplaces by Puget Sound Business Journal;

• | Winner of the 2018 Corporate Citizenship Award for midsize companies in Washington state from the Puget Sound Business Journal;

• | Selected as Best Bank and Best Large Business in The Best of South Sound reader’s choice poll for 2019 by So uth Sound Magazine;

• | Received the Corporate Award of the Year for work with Small Business Association Loans to minority owned businesses from the Or egon Association of Minority Entrepreneurs;

• | Selected as one of the Best Banks in the Best of The Mid-Valley, in the annual reader’s poll by the Salem Statesman Journal;

• | Columbia Bank’s Board of Directors was awarded the Governance Award for their service to the Bank and the community by Seattle Business Magazine;

• | Recognized as one of the Best Places to Work in Idaho by Populus Marketing Research;

• | Awarded the 2018 National Association of Secretaries of State Medallion for outstanding work to improve lives in Washington communities from The State of Washington Secretary of State’s Office; and

• | Selected as one of America’s Best Banks of 2019 among the nation’s 100 largest publicly traded banks and thrifts by Forbes.

7

Cash Dividend Announcement
Columbia will pay a regular cash dividend of $0.28 per common share on November 20, 2019 to shareholders of record as of the close of business on November 6, 2019.
Conference Call Information
Columbia’s management will discuss the third quarter 2019 financial results on a conference call scheduled for Thursday, October 24, 2019 at 10:00 a.m. Pacific Daylight Time (1:00 p.m. EDT). Interested parties may join the live-streamed event by using the site:
https://engage.vevent.com/rt/columbiabankingsysteminc~102419
The conference call can also be accessed on Thursday, October 24, 2019 at 10:00 a.m. Pacific Daylight Time (1:00 p.m. EDT) by calling 888-286-8956; Conference ID: 7935679.
A replay of the call can be accessed beginning Friday, October 25, 2019 using the site:
https://engage.vevent.com/rt/columbiabankingsysteminc~102419
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. For the 13th consecutive year, the bank was named in 2019 as one of Puget Sound Business Journal's “Washington’s Best Workplaces.” For the 8th consecutive year, Columbia was included in the 2019 Forbes America’s Best Banks list.
More information about Columbia can be found on its website at www.columbiabank.com.
8

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. 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 SEC’s 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) changes in interest rates could significantly reduce net interest income and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (4) costs or difficulties related to the integration of acquisitions may be greater than expected; (5) competitive pressure among financial institutions may increase significantly; (6) failure to maintain effective internal controls over financial reporting or disclosure controls and procedures may adversely affect our business; (7) reliance on and cost of technology may increase; and (8) legislation or regulatory requirements or changes may 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: | Hadley S. Robbins,
| President and
| Chief Executive Officer
| Gregory A. Sigrist,
| Executive Vice President and
| Chief Financial Officer
| Investor Relations
| InvestorRelations@columbiabank.com
| 253-305-1921

9

CONSOLIDATED BALANCE SHEETS |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  | September 30, |  | June 30, |  | December 31,
|  |  |  |  |  |  | 2019 |  | 2019 |  | 2018
|  |  |  |  |  |  | (in thousands)
ASSETS |  |
Cash and due from banks |  |  |  |  |  |  | $ | 278,461 |  |  | $ | 224,327 |  |  | $ | 260,180 |
Interest-earning deposits with banks |  |  |  |  |  |  | 20,144 |  |  | 34,332 |  |  | 17,407 |
Total cash and cash equivalents |  |  |  |  |  |  | 298,605 |  |  | 258,659 |  |  | 277,587 |
Debt securities available for sale at fair value |  |  |  |  |  | 3,367,572 |  |  | 2,864,418 |  |  | 3,167,448 |
Federal Home Loan Bank (“FHLB”) stock at cost |  |  |  |  |  | 29,680 |  |  | 29,800 |  |  | 25,960 |
Loans held for sale |  |  |  |  |  |  | 15,036 |  |  | 12,189 |  |  | 3,849 |
Loans, net of unearned income |  |  |  |  |  |  | 8,756,355 |  |  | 8,646,990 |  |  | 8,391,511 |
Less: allowance for loan and lease losses |  |  |  |  |  | 82,660 |  |  | 80,517 |  |  | 83,369 |
Loans, net |  |  |  |  |  |  | 8,673,695 |  |  | 8,566,473 |  |  | 8,308,142 |
Interest receivable |  |  |  |  |  |  | 48,503 |  |  | 46,878 |  |  | 45,323 |
Premises and equipment, net |  |  |  |  |  |  | 165,431 |  |  | 167,295 |  |  | 168,788 |
Other real estate owned |  |  |  |  |  |  | 625 |  |  | 1,118 |  |  | 6,019 |
Goodwill |  |  |  |  |  |  | 765,842 |  |  | 765,842 |  |  | 765,842 |
Other intangible assets, net |  |  |  |  |  |  | 37,908 |  |  | 40,540 |  |  | 45,937 |
Other assets |  |  |  |  |  |  | 354,863 |  |  | 337,596 |  |  | 280,250 |
Total assets |  |  |  |  |  |  | $ | 13,757,760 |  |  | $ | 13,090,808 |  |  | $ | 13,095,145 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing |  |  |  |  |  |  | $ | 5,320,435 |  |  | $ | 5,082,219 |  |  | $ | 5,227,216 |
Interest-bearing |  |  |  |  |  |  | 5,535,281 |  |  | 5,129,380 |  |  | 5,230,910 |
Total deposits |  |  |  |  |  |  | 10,855,716 |  |  | 10,211,599 |  |  | 10,458,126 |
FHLB advances |  |  |  |  |  |  | 492,482 |  |  | 495,496 |  |  | 399,523 |
Securities sold under agreements to repurchase |  |  |  |  |  | 24,489 |  |  | 50,226 |  |  | 61,094 |
Subordinated debentures |  |  |  |  |  |  | 35,323 |  |  | 35,370 |  |  | 35,462 |
Other liabilities |  |  |  |  |  |  | 188,173 |  |  | 164,479 |  |  | 107,291 |
Total liabilities |  |  |  |  |  |  | 11,596,183 |  |  | 10,957,170 |  |  | 11,061,496 |
Commitments and contingent liabilities |  |  |  |  |  |  |  |  |  |  |
| September 30, |  | June 30, |  | December 31, |  |  |  |  |  |
| 2019 |  | 2019 |  | 2018 |  |  |  |  |  |
| (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 | 73,588 |  |  | 73,548 |  |  | 73,249 |  |  | 1,648,335 |  |  | 1,648,335 |  |  | 1,642,246 |
Outstanding | 72,288 |  |  | 72,924 |  |  | 73,249 |  |  |  |  |  |  |
Retained earnings |  |  |  |  |  |  | 493,738 |  |  | 463,429 |  |  | 426,708 |
Accumulated other comprehensive income (loss) |  |  |  |  |  | 64,884 |  |  | 47,150 |  |  | (35,305 | )
Treasury stock at cost | 1,300 |  |  | 624 |  |  | — |  |  | (45,380 | ) |  | (21,863 | ) |  | — |
Total shareholders’ equity |  |  |  |  |  |  | 2,161,577 |  |  | 2,133,638 |  |  | 2,033,649 |
Total liabilities and shareholders’ equity |  |  |  |  |  | $ | 13,757,760 |  |  | $ | 13,090,808 |  |  | $ | 13,095,145 |

10

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,
|  | 2019 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Interest Income |  | (in thousands except per share amounts)
Loans |  | $ | 112,656 |  |  | $ | 116,585 |  |  | $ | 109,748 |  |  | $ | 337,657 |  |  | $ | 318,187 |
Taxable securities |  | 16,457 |  |  | 15,918 |  |  | 14,654 |  |  | 49,790 |  |  | 39,285 |
Tax-exempt securities |  | 2,556 |  |  | 2,712 |  |  | 3,069 |  |  | 8,237 |  |  | 9,196 |
Deposits in banks |  | 864 |  |  | 207 |  |  | 104 |  |  | 1,159 |  |  | 600 |
Total interest income |  | 132,533 |  |  | 135,422 |  |  | 127,575 |  |  | 396,843 |  |  | 367,268 |
Interest Expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 6,863 |  |  | 4,976 |  |  | 3,193 |  |  | 16,337 |  |  | 8,274 |
FHLB advances |  | 2,569 |  |  | 4,708 |  |  | 966 |  |  | 9,962 |  |  | 2,351 |
Subordinated debentures |  | 468 |  |  | 468 |  |  | 468 |  |  | 1,404 |  |  | 1,404 |
Other borrowings |  | 183 |  |  | 154 |  |  | 152 |  |  | 552 |  |  | 288 |
Total interest expense |  | 10,083 |  |  | 10,306 |  |  | 4,779 |  |  | 28,255 |  |  | 12,317 |
Net Interest Income |  | 122,450 |  |  | 125,116 |  |  | 122,796 |  |  | 368,588 |  |  | 354,951 |
Provision for loan and lease losses |  | 299 |  |  | 218 |  |  | 3,153 |  |  | 1,879 |  |  | 12,980 |
Net interest income after provision for loan and lease losses |  | 122,151 |  |  | 124,898 |  |  | 119,643 |  |  | 366,709 |  |  | 341,971 |
Noninterest Income |  |  |  |  |  |  |  |  |  |
Deposit account and treasury management fees |  | 9,015 |  |  | 9,035 |  |  | 9,266 |  |  | 27,030 |  |  | 26,689 |
Card revenue |  | 4,006 |  |  | 3,763 |  |  | 3,714 |  |  | 11,431 |  |  | 16,143 |
Financial services and trust revenue |  | 3,226 |  |  | 3,425 |  |  | 2,975 |  |  | 9,608 |  |  | 8,924 |
Loan revenue |  | 3,855 |  |  | 3,596 |  |  | 3,282 |  |  | 9,840 |  |  | 9,522 |
Bank owned life insurance |  | 1,528 |  |  | 1,597 |  |  | 1,402 |  |  | 4,644 |  |  | 4,540 |
Investment securities gains (losses), net |  | — |  |  | 285 |  |  | (62 | ) |  | 2,132 |  |  | (73 | )
Other |  | 6,400 |  |  | 3,947 |  |  | 442 |  |  | 10,689 |  |  | 2,109 |
Total noninterest income |  | 28,030 |  |  | 25,648 |  |  | 21,019 |  |  | 75,374 |  |  | 67,854 |
Noninterest Expense |  |  |  |  |  |  |  |  |  |
Compensation and employee benefits |  | 54,459 |  |  | 52,015 |  |  | 49,419 |  |  | 158,559 |  |  | 148,938 |
Occupancy |  | 8,645 |  |  | 8,712 |  |  | 8,321 |  |  | 26,166 |  |  | 27,718 |
Data processing |  | 5,102 |  |  | 4,601 |  |  | 4,466 |  |  | 14,372 |  |  | 14,957 |
Legal and professional fees |  | 5,683 |  |  | 6,554 |  |  | 4,695 |  |  | 16,810 |  |  | 12,103 |
Amortization of intangibles |  | 2,632 |  |  | 2,649 |  |  | 3,070 |  |  | 8,029 |  |  | 9,346 |
Business and Occupation ("B&O") taxes (1) |  | 1,325 |  |  | 1,411 |  |  | 1,478 |  |  | 4,612 |  |  | 4,254 |
Advertising and promotion |  | 1,752 |  |  | 870 |  |  | 1,472 |  |  | 3,596 |  |  | 4,523 |
Regulatory premiums |  | (38 | ) |  | 956 |  |  | 904 |  |  | 1,902 |  |  | 2,778 |
Net cost (benefit) of operation of other real estate owned |  | (90 | ) |  | (705 | ) |  | 485 |  |  | (682 | ) |  | 1,244 |
Other (1) |  | 7,606 |  |  | 9,665 |  |  | 8,531 |  |  | 25,140 |  |  | 27,610 |
Total noninterest expense |  | 87,076 |  |  | 86,728 |  |  | 82,841 |  |  | 258,504 |  |  | 253,471 |
Income before income taxes |  | 63,105 |  |  | 63,818 |  |  | 57,821 |  |  | 183,579 |  |  | 156,354 |
Provision for income taxes |  | 12,378 |  |  | 12,094 |  |  | 11,406 |  |  | 35,257 |  |  | 28,220 |
Net Income |  | $ | 50,727 |  |  | $ | 51,724 |  |  | $ | 46,415 |  |  | $ | 148,322 |  |  | $ | 128,134 |
Earnings per common share |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.70 |  |  | $ | 0.71 |  |  | $ | 0.63 |  |  | $ | 2.04 |  |  | $ | 1.75 |
Diluted |  | $ | 0.70 |  |  | $ | 0.71 |  |  | $ | 0.63 |  |  | $ | 2.04 |  |  | $ | 1.75 |
Dividends declared per common share - regular |  | $ | 0.28 |  |  | $ | 0.28 |  |  | $ | 0.26 |  |  | $ | 0.84 |  |  | $ | 0.74 |
Dividends declared per common share - special |  | — |  |  | 0.14 |  |  | — |  |  | 0.28 |  |  | — |
Dividends declared per common share - total |  | $ | 0.28 |  |  | $ | 0.42 |  |  | $ | 0.26 |  |  | $ | 1.12 |  |  | $ | 0.74 |
Weighted average number of common shares outstanding |  | 71,803 |  |  | 72,451 |  |  | 72,427 |  |  | 72,256 |  |  | 72,370 |
Weighted average number of diluted common shares outstanding |  | 71,803 |  |  | 72,451 |  |  | 72,432 |  |  | 72,257 |  |  | 72,374 |

__________
(1) Beginning the first quarter of 2019, B&O taxes were reported separately from other taxes, licenses and fees, which are now reported under “other noninterest expense.” Prior periods have been reclassified to conform to current period presentation.
11

FINANCIAL STATISTICS |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  | Three Months Ended |  | Nine Months Ended
Unaudited |  | September 30, |  | June 30, |  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Earnings |  | (dollars in thousands except per share amounts)
Net interest income |  | $ | 122,450 |  |  | $ | 125,116 |  |  | $ | 122,796 |  |  | $ | 368,588 |  |  | $ | 354,951 |
Provision for loan and lease losses |  | $ | 299 |  |  | $ | 218 |  |  | $ | 3,153 |  |  | $ | 1,879 |  |  | $ | 12,980 |
Noninterest income |  | $ | 28,030 |  |  | $ | 25,648 |  |  | $ | 21,019 |  |  | $ | 75,374 |  |  | $ | 67,854 |
Noninterest expense |  | $ | 87,076 |  |  | $ | 86,728 |  |  | $ | 82,841 |  |  | $ | 258,504 |  |  | $ | 253,471 |
Acquisition-related expense (included in noninterest expense) |  | $ | — |  |  | $ | — |  |  | $ | 1,081 |  |  | $ | — |  |  | $ | 8,168 |
Net income |  | $ | 50,727 |  |  | $ | 51,724 |  |  | $ | 46,415 |  |  | $ | 148,322 |  |  | $ | 128,134 |
Per Common Share |  |  |  |  |  |  |  |  |  |
Earnings (basic) |  | $ | 0.70 |  |  | $ | 0.71 |  |  | $ | 0.63 |  |  | $ | 2.04 |  |  | $ | 1.75 |
Earnings (diluted) |  | $ | 0.70 |  |  | $ | 0.71 |  |  | $ | 0.63 |  |  | $ | 2.04 |  |  | $ | 1.75 |
Book value |  | $ | 29.90 |  |  | $ | 29.26 |  |  | $ | 27.05 |  |  | $ | 29.90 |  |  | $ | 27.05 |
Tangible book value per common share (1) |  | $ | 18.78 |  |  | $ | 18.20 |  |  | $ | 15.93 |  |  | $ | 18.78 |  |  | $ | 15.93 |
Averages |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 13,459,774 |  |  | $ | 13,096,413 |  |  | $ | 12,805,131 |  |  | $ | 13,202,917 |  |  | $ | 12,646,678 |
Interest-earning assets |  | $ | 11,941,578 |  |  | $ | 11,606,727 |  |  | $ | 11,326,629 |  |  | $ | 11,704,702 |  |  | $ | 11,168,143 |
Loans |  | $ | 8,694,592 |  |  | $ | 8,601,819 |  |  | $ | 8,456,632 |  |  | $ | 8,568,746 |  |  | $ | 8,398,596 |
Securities, including equity securities and FHLB stock |  | $ | 3,102,213 |  |  | $ | 2,969,749 |  |  | $ | 2,849,495 |  |  | $ | 3,070,582 |  |  | $ | 2,720,625 |
Deposits |  | $ | 10,668,767 |  |  | $ | 10,186,370 |  |  | $ | 10,478,800 |  |  | $ | 10,376,841 |  |  | $ | 10,359,896 |
Interest-bearing deposits |  | $ | 5,517,171 |  |  | $ | 5,174,875 |  |  | $ | 5,376,300 |  |  | $ | 5,307,212 |  |  | $ | 5,390,859 |
Interest-bearing liabilities |  | $ | 5,989,042 |  |  | $ | 5,841,425 |  |  | $ | 5,620,997 |  |  | $ | 5,878,492 |  |  | $ | 5,619,943 |
Noninterest-bearing deposits |  | $ | 5,151,596 |  |  | $ | 5,011,496 |  |  | $ | 5,102,500 |  |  | $ | 5,069,629 |  |  | $ | 4,969,037 |
Shareholders’ equity |  | $ | 2,152,916 |  |  | $ | 2,096,157 |  |  | $ | 1,983,317 |  |  | $ | 2,098,364 |  |  | $ | 1,962,506 |
Financial Ratios |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 1.51 | % |  | 1.58 | % |  | 1.45 | % |  | 1.50 | % |  | 1.35 | %
Return on average common equity |  | 9.42 | % |  | 9.87 | % |  | 9.36 | % |  | 9.42 | % |  | 8.71 | %
Return on average tangible common equity (1) |  | 15.67 | % |  | 16.71 | % |  | 16.74 | % |  | 15.98 | % |  | 15.80 | %
Average equity to average assets |  | 16.00 | % |  | 16.01 | % |  | 15.49 | % |  | 15.89 | % |  | 15.52 | %
Shareholders equity to total assets |  | 15.71 | % |  | 16.30 | % |  | 15.29 | % |  | 15.71 | % |  | 15.29 | %
Tangible common shareholders’ equity to tangible assets (1) |  | 10.48 | % |  | 10.80 | % |  | 9.61 | % |  | 10.48 | % |  | 9.61 | %
Net interest margin (tax equivalent) (2) |  | 4.14 | % |  | 4.40 | % |  | 4.37 | % |  | 4.28 | % |  | 4.32 | %
Efficiency ratio (tax equivalent) (3) |  | 56.91 | % |  | 56.57 | % |  | 56.67 | % |  | 57.25 | % |  | 58.97 | %
Operating efficiency ratio (tax equivalent) (1) |  | 58.65 | % |  | 56.34 | % |  | 54.83 | % |  | 57.50 | % |  | 56.13 | %
Noninterest expense ratio |  | 2.59 | % |  | 2.65 | % |  | 2.59 | % |  | 2.61 | % |  | 2.67 | %
Core noninterest expense ratio (1) |  | 2.59 | % |  | 2.65 | % |  | 2.55 | % |  | 2.61 | % |  | 2.59 | %
|  | September 30, |  | June 30, |  | December 31, |  |  |  |
Period end |  | 2019 |  | 2019 |  | 2018 |  |  |  |
Total assets |  | $ | 13,757,760 |  |  | $ | 13,090,808 |  |  | $ | 13,095,145 |  |  |  |  |
Loans, net of unearned income |  | $ | 8,756,355 |  |  | $ | 8,646,990 |  |  | $ | 8,391,511 |  |  |  |  |
Allowance for loan and lease losses |  | $ | 82,660 |  |  | $ | 80,517 |  |  | $ | 83,369 |  |  |  |  |
Securities, including equity securities and FHLB stock |  | $ | 3,397,252 |  |  | $ | 2,894,218 |  |  | $ | 3,193,408 |  |  |  |  |
Deposits |  | $ | 10,855,716 |  |  | $ | 10,211,599 |  |  | $ | 10,458,126 |  |  |  |  |
Shareholders’ equity |  | $ | 2,161,577 |  |  | $ | 2,133,638 |  |  | $ | 2,033,649 |  |  |  |  |
Nonperforming assets |  |  |  |  |  |  |  |  |  |
Nonaccrual loans |  | $ | 37,021 |  |  | $ | 39,038 |  |  | $ | 54,842 |  |  |  |  |
Other real estate owned (“OREO”) and other personal property owned (“OPPO”) |  | 625 |  |  | 1,118 |  |  | 6,049 |  |  |  |  |
Total nonperforming assets |  | $ | 37,646 |  |  | $ | 40,156 |  |  | $ | 60,891 |  |  |  |  |
Nonperforming loans to period-end loans |  | 0.42 | % |  | 0.45 | % |  | 0.65 | % |  |  |  |
Nonperforming assets to period-end assets |  | 0.27 | % |  | 0.31 | % |  | 0.46 | % |  |  |  |
Allowance for loan and lease losses to period-end loans |  | 0.94 | % |  | 0.93 | % |  | 0.99 | % |  |  |  |
Net loan charge-offs (recoveries) (for the three months ended) |  | $ | (1,844 | ) |  | $ | 2,975 |  |  | $ | 2,207 |  |  |  |  |

__________
(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) Beginning January 2019, net interest margin was calculated using the actual number of days and on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.
(3) Noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income on a tax equivalent basis.
12

QUARTERLY FINANCIAL STATISTICS |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  | Three Months Ended
Unaudited |  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
|  | 2019 |  | 2019 |  | 2019 |  | 2018 |  | 2018
Earnings |  | (dollars in thousands except per share amounts)
Net interest income |  | $ | 122,450 |  |  | $ | 125,116 |  |  | $ | 121,022 |  |  | $ | 123,888 |  |  | $ | 122,796 |
Provision for loan and lease losses |  | $ | 299 |  |  | $ | 218 |  |  | $ | 1,362 |  |  | $ | 1,789 |  |  | $ | 3,153 |
Noninterest income |  | $ | 28,030 |  |  | $ | 25,648 |  |  | $ | 21,696 |  |  | $ | 20,402 |  |  | $ | 21,019 |
Noninterest expense |  | $ | 87,076 |  |  | $ | 86,728 |  |  | $ | 84,700 |  |  | $ | 87,019 |  |  | $ | 82,841 |
Acquisition-related expense (included in noninterest expense) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 493 |  |  | $ | 1,081 |
Net income |  | $ | 50,727 |  |  | $ | 51,724 |  |  | $ | 45,871 |  |  | $ | 44,748 |  |  | $ | 46,415 |
Per Common Share |  |  |  |  |  |  |  |  |  |
Earnings (basic) |  | $ | 0.70 |  |  | $ | 0.71 |  |  | $ | 0.63 |  |  | $ | 0.61 |  |  | $ | 0.63 |
Earnings (diluted) |  | $ | 0.70 |  |  | $ | 0.71 |  |  | $ | 0.63 |  |  | $ | 0.61 |  |  | $ | 0.63 |
Book value |  | $ | 29.90 |  |  | $ | 29.26 |  |  | $ | 28.39 |  |  | $ | 27.76 |  |  | $ | 27.05 |
Averages |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 13,459,774 |  |  | $ | 13,096,413 |  |  | $ | 13,048,041 |  |  | $ | 12,957,754 |  |  | $ | 12,805,131 |
Interest-earning assets |  | $ | 11,941,578 |  |  | $ | 11,606,727 |  |  | $ | 11,561,627 |  |  | $ | 11,458,470 |  |  | $ | 11,326,629 |
Loans |  | $ | 8,694,592 |  |  | $ | 8,601,819 |  |  | $ | 8,406,664 |  |  | $ | 8,441,354 |  |  | $ | 8,456,632 |
Securities, including equity securities and FHLB stock |  | $ | 3,102,213 |  |  | $ | 2,969,749 |  |  | $ | 3,140,201 |  |  | $ | 2,998,638 |  |  | $ | 2,849,495 |
Deposits |  | $ | 10,668,767 |  |  | $ | 10,186,371 |  |  | $ | 10,271,016 |  |  | $ | 10,560,280 |  |  | $ | 10,478,800 |
Interest-bearing deposits |  | $ | 5,517,171 |  |  | $ | 5,174,875 |  |  | $ | 5,226,396 |  |  | $ | 5,298,590 |  |  | $ | 5,376,300 |
Interest-bearing liabilities |  | $ | 5,989,042 |  |  | $ | 5,841,425 |  |  | $ | 5,802,965 |  |  | $ | 5,599,646 |  |  | $ | 5,620,997 |
Noninterest-bearing deposits |  | $ | 5,151,596 |  |  | $ | 5,011,496 |  |  | $ | 5,044,620 |  |  | $ | 5,261,690 |  |  | $ | 5,102,500 |
Shareholders’ equity |  | $ | 2,152,916 |  |  | $ | 2,096,157 |  |  | $ | 2,044,832 |  |  | $ | 1,988,981 |  |  | $ | 1,983,317 |
Financial Ratios |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 1.51 | % |  | 1.58 | % |  | 1.41 | % |  | 1.38 | % |  | 1.45 | %
Return on average common equity |  | 9.42 | % |  | 9.87 | % |  | 8.97 | % |  | 9.00 | % |  | 9.36 | %
Average equity to average assets |  | 16.00 | % |  | 16.01 | % |  | 15.67 | % |  | 15.35 | % |  | 15.49 | %
Shareholders’ equity to total assets |  | 15.71 | % |  | 16.30 | % |  | 15.99 | % |  | 15.53 | % |  | 15.29 | %
Net interest margin (tax equivalent) (1) |  | 4.14 | % |  | 4.40 | % |  | 4.32 | % |  | 4.36 | % |  | 4.37 | %
Period end |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 13,757,760 |  |  | $ | 13,090,808 |  |  | $ | 13,064,436 |  |  | $ | 13,095,145 |  |  | $ | 12,956,596 |
Loans, net of unearned income |  | $ | 8,756,355 |  |  | $ | 8,646,990 |  |  | $ | 8,520,798 |  |  | $ | 8,391,511 |  |  | $ | 8,514,317 |
Allowance for loan and lease losses |  | $ | 82,660 |  |  | $ | 80,517 |  |  | $ | 83,274 |  |  | $ | 83,369 |  |  | $ | 83,787 |
Securities, including equity securities and FHLB stock |  | $ | 3,397,252 |  |  | $ | 2,894,218 |  |  | $ | 3,052,870 |  |  | $ | 3,193,408 |  |  | $ | 2,942,655 |
Deposits |  | $ | 10,855,716 |  |  | $ | 10,211,599 |  |  | $ | 10,369,009 |  |  | $ | 10,458,126 |  |  | $ | 10,603,957 |
Shareholders’ equity |  | $ | 2,161,577 |  |  | $ | 2,133,638 |  |  | $ | 2,088,620 |  |  | $ | 2,033,649 |  |  | $ | 1,981,395 |
Goodwill |  | $ | 765,842 |  |  | $ | 765,842 |  |  | $ | 765,842 |  |  | $ | 765,842 |  |  | $ | 765,842 |
Other intangible assets, net |  | $ | 37,908 |  |  | $ | 40,540 |  |  | $ | 43,189 |  |  | $ | 45,937 |  |  | $ | 48,827 |
Nonperforming assets |  |  |  |  |  |  |  |  |  |
Nonaccrual loans |  | $ | 37,021 |  |  | $ | 39,038 |  |  | $ | 52,615 |  |  | $ | 54,842 |  |  | $ | 60,332 |
OREO and OPPO |  | 625 |  |  | 1,118 |  |  | 6,075 |  |  | 6,049 |  |  | 7,415 |
Total nonperforming assets |  | $ | 37,646 |  |  | $ | 40,156 |  |  | $ | 58,690 |  |  | $ | 60,891 |  |  | $ | 67,747 |
Nonperforming loans to period-end loans |  | 0.42 | % |  | 0.45 | % |  | 0.62 | % |  | 0.65 | % |  | 0.71 | %
Nonperforming assets to period-end assets |  | 0.27 | % |  | 0.31 | % |  | 0.45 | % |  | 0.46 | % |  | 0.52 | %
Allowance for loan and lease losses to period-end loans |  | 0.94 | % |  | 0.93 | % |  | 0.98 | % |  | 0.99 | % |  | 0.98 | %
Net loan charge-offs (recoveries) |  | $ | (1,844 | ) |  | $ | 2,975 |  |  | $ | 1,457 |  |  | $ | 2,207 |  |  | $ | (484 | )

__________
(1) Beginning January 2019, net interest margin was calculated using the actual number of days and on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.
13

LOAN PORTFOLIO COMPOSITION |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
|  | 2019 |  | 2019 |  | 2019 |  | 2018 |  | 2018
Loan Portfolio Composition - Dollars |  | (dollars in thousands)
Commercial business |  | $ | 3,707,314 |  |  | $ | 3,644,051 |  |  | $ | 3,509,472 |  |  | $ | 3,438,422 |  |  | $ | 3,554,147 |
Real estate: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 273,079 |  |  | 279,091 |  |  | 282,673 |  |  | 238,367 |  |  | 232,924 |
Commercial and multifamily residential |  | 3,975,647 |  |  | 3,913,546 |  |  | 3,917,833 |  |  | 3,846,027 |  |  | 3,786,615 |
Total real estate |  | 4,248,726 |  |  | 4,192,637 |  |  | 4,200,506 |  |  | 4,084,394 |  |  | 4,019,539 |
Real estate construction: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 195,198 |  |  | 201,783 |  |  | 207,900 |  |  | 217,790 |  |  | 211,629 |
Commercial and multifamily residential |  | 261,786 |  |  | 255,452 |  |  | 240,458 |  |  | 284,394 |  |  | 349,328 |
Total real estate construction |  | 456,984 |  |  | 457,235 |  |  | 448,358 |  |  | 502,184 |  |  | 560,957 |
Consumer |  | 297,009 |  |  | 305,752 |  |  | 312,886 |  |  | 318,945 |  |  | 327,863 |
Purchased credit impaired |  | 81,777 |  |  | 84,730 |  |  | 88,257 |  |  | 89,760 |  |  | 95,936 |
Subtotal loans |  | 8,791,810 |  |  | 8,684,405 |  |  | 8,559,479 |  |  | 8,433,705 |  |  | 8,558,442 |
Less: Net unearned income |  | (35,455 | ) |  | (37,415 | ) |  | (38,681 | ) |  | (42,194 | ) |  | (44,125 | )
Loans, net of unearned income |  | 8,756,355 |  |  | 8,646,990 |  |  | 8,520,798 |  |  | 8,391,511 |  |  | 8,514,317 |
Less: Allowance for loan and lease losses |  | (82,660 | ) |  | (80,517 | ) |  | (83,274 | ) |  | (83,369 | ) |  | (83,787 | )
Total loans, net |  | 8,673,695 |  |  | 8,566,473 |  |  | 8,437,524 |  |  | 8,308,142 |  |  | 8,430,530 |
Loans held for sale |  | $ | 15,036 |  |  | $ | 12,189 |  |  | $ | 4,017 |  |  | $ | 3,849 |  |  | $ | 5,275 |

|  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
Loan Portfolio Composition - Percentages |  | 2019 |  | 2019 |  | 2019 |  | 2018 |  | 2018
Commercial business |  | 42.3 | % |  | 42.1 | % |  | 41.2 | % |  | 41.0 | % |  | 41.7 | %
Real estate: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 3.1 | % |  | 3.2 | % |  | 3.3 | % |  | 2.8 | % |  | 2.7 | %
Commercial and multifamily residential |  | 45.5 | % |  | 45.3 | % |  | 46.1 | % |  | 45.8 | % |  | 44.5 | %
Total real estate |  | 48.6 | % |  | 48.5 | % |  | 49.4 | % |  | 48.6 | % |  | 47.2 | %
Real estate construction: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 2.2 | % |  | 2.3 | % |  | 2.4 | % |  | 2.6 | % |  | 2.5 | %
Commercial and multifamily residential |  | 3.0 | % |  | 3.0 | % |  | 2.8 | % |  | 3.4 | % |  | 4.1 | %
Total real estate construction |  | 5.2 | % |  | 5.3 | % |  | 5.2 | % |  | 6.0 | % |  | 6.6 | %
Consumer |  | 3.4 | % |  | 3.5 | % |  | 3.7 | % |  | 3.8 | % |  | 3.9 | %
Purchased credit impaired |  | 0.9 | % |  | 1.0 | % |  | 1.0 | % |  | 1.1 | % |  | 1.1 | %
Subtotal loans |  | 100.4 | % |  | 100.4 | % |  | 100.5 | % |  | 100.5 | % |  | 100.5 | %
Less: Net unearned income |  | (0.4 | )% |  | (0.4 | )% |  | (0.5 | )% |  | (0.5 | )% |  | (0.5 | )%
Loans, net of unearned income |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

14

DEPOSIT COMPOSITION |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |
|  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
|  | 2019 |  | 2019 |  | 2019 |  | 2018 |  | 2018
Deposit Composition - Dollars |  | (dollars in thousands)
Demand and other noninterest-bearing |  | $ | 5,320,435 |  |  | $ | 5,082,219 |  |  | $ | 5,106,568 |  |  | $ | 5,227,216 |  |  | $ | 5,250,222 |
Money market (1) |  | 2,295,229 |  |  | 2,240,522 |  |  | 2,311,937 |  |  | 2,294,125 |  |  | 2,341,830 |
Interest-bearing demand (1) |  | 1,059,502 |  |  | 1,058,545 |  |  | 1,078,849 |  |  | 1,084,863 |  |  | 1,111,809 |
Savings (1) |  | 892,438 |  |  | 887,172 |  |  | 896,458 |  |  | 889,849 |  |  | 908,194 |
Interest-bearing public funds, other than certificates of deposit (1) |  | 629,797 |  |  | 270,398 |  |  | 269,156 |  |  | 233,938 |  |  | 220,840 |
Certificates of deposit, less than $250,000 |  | 223,249 |  |  | 228,920 |  |  | 236,014 |  |  | 243,849 |  |  | 251,792 |
Certificates of deposit, $250,000 or more |  | 107,506 |  |  | 105,782 |  |  | 101,965 |  |  | 89,473 |  |  | 90,387 |
Certificates of deposit insured by CDARS® |  | 17,252 |  |  | 16,559 |  |  | 22,890 |  |  | 23,580 |  |  | 23,841 |
Brokered certificates of deposit |  | 18,852 |  |  | 40,502 |  |  | 51,375 |  |  | 57,930 |  |  | 65,476 |
Reciprocal money market accounts |  | 291,542 |  |  | 281,247 |  |  | 294,096 |  |  | 313,692 |  |  | 340,044 |
Subtotal |  | 10,855,802 |  |  | 10,211,866 |  |  | 10,369,308 |  |  | 10,458,515 |  |  | 10,604,435 |
Valuation adjustment resulting from acquisition accounting |  | (86 | ) |  | (267 | ) |  | (299 | ) |  | (389 | ) |  | (478 | )
Total deposits |  | $ | 10,855,716 |  |  | $ | 10,211,599 |  |  | $ | 10,369,009 |  |  | $ | 10,458,126 |  |  | $ | 10,603,957 |

|  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | September 30,
Deposit Composition - Percentages |  | 2019 |  | 2019 |  | 2019 |  | 2018 |  | 2018
Demand and other noninterest-bearing |  | 49.0 | % |  | 49.8 | % |  | 49.2 | % |  | 50.0 | % |  | 49.5 | %
Money market (1) |  | 21.1 | % |  | 21.9 | % |  | 22.3 | % |  | 21.9 | % |  | 22.1 | %
Interest-bearing demand (1) |  | 9.8 | % |  | 10.4 | % |  | 10.4 | % |  | 10.4 | % |  | 10.5 | %
Savings (1) |  | 8.2 | % |  | 8.7 | % |  | 8.6 | % |  | 8.5 | % |  | 8.6 | %
Interest-bearing public funds, other than certificates of deposit (1) |  | 5.8 | % |  | 2.7 | % |  | 2.6 | % |  | 2.2 | % |  | 2.1 | %
Certificates of deposit, less than $250,000 |  | 2.1 | % |  | 2.2 | % |  | 2.3 | % |  | 2.3 | % |  | 2.4 | %
Certificates of deposit, $250,000 or more |  | 1.0 | % |  | 1.0 | % |  | 1.0 | % |  | 0.9 | % |  | 0.9 | %
Certificates of deposit insured by CDARS® |  | 0.2 | % |  | 0.2 | % |  | 0.2 | % |  | 0.2 | % |  | 0.2 | %
Brokered certificates of deposit |  | 0.2 | % |  | 0.4 | % |  | 0.5 | % |  | 0.6 | % |  | 0.6 | %
Reciprocal money market accounts |  | 2.6 | % |  | 2.7 | % |  | 2.9 | % |  | 3.0 | % |  | 3.1 | %
Total |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

__________
(1) Beginning July 2019, interest-bearing public funds, other than certificates of deposit, are presented separately in this table. Prior period amounts have been reclassified to conform to current period presentation.
15

AVERAGE BALANCES AND RATES |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended |  | Three Months Ended
|  | September 30, 2019 |  | September 30, 2018
|  | Average Balances |  | Interest Earned / Paid |  | Average Rate (3) |  | Average Balances |  | Interest Earned / Paid |  | Average Rate (3)
|  | (dollars in thousands)
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Loans, net (1)(2) |  | $ | 8,694,592 |  |  | $ | 114,099 |  |  | 5.21 | % |  | $ | 8,456,632 |  |  | $ | 110,925 |  |  | 5.20 | %
Taxable securities |  | 2,654,490 |  |  | 16,457 |  |  | 2.46 | % |  | 2,336,405 |  |  | 14,654 |  |  | 2.49 | %
Tax exempt securities (2) |  | 447,723 |  |  | 3,235 |  |  | 2.87 | % |  | 513,090 |  |  | 3,885 |  |  | 3.00 | %
Interest-earning deposits with banks |  | 144,773 |  |  | 864 |  |  | 2.37 | % |  | 20,502 |  |  | 104 |  |  | 2.01 | %
Total interest-earning assets |  | 11,941,578 |  |  | 134,655 |  |  | 4.47 | % |  | 11,326,629 |  |  | 129,568 |  |  | 4.54 | %
Other earning assets |  | 230,140 |  |  |  |  |  |  | 228,332 |  |  |  |  |
Noninterest-earning assets |  | 1,288,056 |  |  |  |  |  |  | 1,250,170 |  |  |  |  |
Total assets |  | $ | 13,459,774 |  |  |  |  |  |  | $ | 12,805,131 |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts (4) |  | 2,589,390 |  |  | 2,840 |  |  | 0.44 | % |  | 2,727,928 |  |  | 1,671 |  |  | 0.24 | %
Interest-bearing demand (4) |  | 1,049,833 |  |  | 438 |  |  | 0.17 | % |  | 1,089,324 |  |  | 437 |  |  | 0.16 | %
Savings accounts (4) |  | 893,395 |  |  | 49 |  |  | 0.02 | % |  | 888,997 |  |  | 31 |  |  | 0.01 | %
Interest-bearing public funds, other than certificates of deposit (4) |  | 602,674 |  |  | 2,879 |  |  | 1.90 | % |  | 229,855 |  |  | 510 |  |  | 0.88 | %
Certificates of deposit |  | 381,879 |  |  | 657 |  |  | 0.68 | % |  | 440,196 |  |  | 544 |  |  | 0.49 | %
Total interest-bearing deposits |  | 5,517,171 |  |  | 6,863 |  |  | 0.49 | % |  | 5,376,300 |  |  | 3,193 |  |  | 0.24 | %
FHLB advances |  | 400,956 |  |  | 2,569 |  |  | 2.54 | % |  | 167,531 |  |  | 966 |  |  | 2.29 | %
Subordinated debentures |  | 35,346 |  |  | 468 |  |  | 5.25 | % |  | 35,530 |  |  | 468 |  |  | 5.23 | %
Other borrowings and interest-bearing liabilities |  | 35,569 |  |  | 183 |  |  | 2.04 | % |  | 41,636 |  |  | 152 |  |  | 1.45 | %
Total interest-bearing liabilities |  | 5,989,042 |  |  | 10,083 |  |  | 0.67 | % |  | 5,620,997 |  |  | 4,779 |  |  | 0.34 | %
Noninterest-bearing deposits |  | 5,151,596 |  |  |  |  |  |  | 5,102,500 |  |  |  |  |
Other noninterest-bearing liabilities |  | 166,220 |  |  |  |  |  |  | 98,317 |  |  |  |  |
Shareholders’ equity |  | 2,152,916 |  |  |  |  |  |  | 1,983,317 |  |  |  |  |
Total liabilities & shareholders’ equity |  | $ | 13,459,774 |  |  |  |  |  |  | $ | 12,805,131 |  |  |  |  |
Net interest income (tax equivalent) |  | $ | 124,572 |  |  |  |  |  |  | $ | 124,789 |  |  |
Net interest margin (tax equivalent) |  | 4.14 | % |  |  |  |  |  | 4.37 | %

__________

(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 $2.0 million and $2.5 million for the three months ended September 30, 2019 and 2018, respectively. The incremental accretion income on acquired loans was $2.1 million and $3.2 million for the three months ended September 30, 2019 and 2018, respectively.

(2) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.4 million and $1.2 million for the three months ended September 30, 2019 and 2018, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $679 thousand and $816 thousand for the three months ended September 30, 2019 and 2018, respectively.

(3) | Beginning January 2019, average rates were calculated using the actual number of days and on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.

(4) | Beginning July 2019, interest-bearing public funds, other than certificates of deposit, are presented separately in this table. Prior period amounts have been reclassified to conform to current period presentation.

16

AVERAGE BALANCES AND RATES |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended |  | Three Months Ended
|  | September 30, 2019 |  | June 30, 2019
|  | Average Balances |  | Interest Earned / Paid |  | Average Rate (3) |  | Average Balances |  | Interest Earned / Paid |  | Average Rate (3)
|  | (dollars in thousands)
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Loans, net (1)(2) |  | $ | 8,694,592 |  |  | $ | 114,099 |  |  | 5.21 | % |  | $ | 8,601,819 |  |  | $ | 117,984 |  |  | 5.50 | %
Taxable securities |  | 2,654,490 |  |  | 16,457 |  |  | 2.46 | % |  | 2,506,672 |  |  | 15,918 |  |  | 2.55 | %
Tax exempt securities (2) |  | 447,723 |  |  | 3,235 |  |  | 2.87 | % |  | 463,077 |  |  | 3,433 |  |  | 2.97 | %
Interest-earning deposits with banks |  | 144,773 |  |  | 864 |  |  | 2.37 | % |  | 35,159 |  |  | 207 |  |  | 2.36 | %
Total interest-earning assets |  | 11,941,578 |  |  | 134,655 |  |  | 4.47 | % |  | 11,606,727 |  |  | 137,542 |  |  | 4.75 | %
Other earning assets |  | 230,140 |  |  |  |  |  |  | 233,273 |  |  |  |  |
Noninterest-earning assets |  | 1,288,056 |  |  |  |  |  |  | 1,256,413 |  |  |  |  |
Total assets |  | $ | 13,459,774 |  |  |  |  |  |  | $ | 13,096,413 |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts (4) |  | $ | 2,589,390 |  |  | $ | 2,840 |  |  | 0.44 | % |  | $ | 2,539,757 |  |  | $ | 2,896 |  |  | 0.46 | %
Interest-bearing demand (4) |  | 1,049,833 |  |  | 438 |  |  | 0.17 | % |  | 1,066,876 |  |  | 428 |  |  | 0.16 | %
Savings accounts (4) |  | 893,395 |  |  | 49 |  |  | 0.02 | % |  | 891,341 |  |  | 43 |  |  | 0.02 | %
Interest-bearing public funds, other than certificates of deposit (4) |  | 602,674 |  |  | 2,879 |  |  | 1.90 | % |  | 273,387 |  |  | 1,023 |  |  | 1.50 | %
Certificates of deposit |  | 381,879 |  |  | 657 |  |  | 0.68 | % |  | 403,514 |  |  | 586 |  |  | 0.58 | %
Total interest-bearing deposits |  | 5,517,171 |  |  | 6,863 |  |  | 0.49 | % |  | 5,174,875 |  |  | 4,976 |  |  | 0.39 | %
FHLB advances |  | 400,956 |  |  | 2,569 |  |  | 2.54 | % |  | 602,041 |  |  | 4,708 |  |  | 3.14 | %
Subordinated debentures |  | 35,346 |  |  | 468 |  |  | 5.25 | % |  | 35,392 |  |  | 468 |  |  | 5.30 | %
Other borrowings and interest-bearing liabilities |  | 35,569 |  |  | 183 |  |  | 2.04 | % |  | 29,117 |  |  | 154 |  |  | 2.12 | %
Total interest-bearing liabilities |  | 5,989,042 |  |  | 10,083 |  |  | 0.67 | % |  | 5,841,425 |  |  | 10,306 |  |  | 0.71 | %
Noninterest-bearing deposits |  | 5,151,596 |  |  |  |  |  |  | 5,011,496 |  |  |  |  |
Other noninterest-bearing liabilities |  | 166,220 |  |  |  |  |  |  | 147,335 |  |  |  |  |
Shareholders’ equity |  | 2,152,916 |  |  |  |  |  |  | 2,096,157 |  |  |  |  |
Total liabilities & shareholders’ equity |  | $ | 13,459,774 |  |  |  |  |  |  | $ | 13,096,413 |  |  |  |  |
Net interest income (tax equivalent) |  | $ | 124,572 |  |  |  |  |  |  | $ | 127,236 |  |  |
Net interest margin (tax equivalent) |  | 4.14 | % |  |  |  |  |  | 4.40 | %

__________

(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 $2.0 million and $2.1 million for the three months ended September 30, 2019 and June 30, 2019, respectively. The incremental accretion on acquired loans was $2.1 million and $2.7 million for the three months ended September 30, 2019 and June 30, 2019, respectively.

(2) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.4 million and $1.4 million for the three months ended September 30, 2019 and June 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $679 thousand and $721 thousand for the three months ended September 30, 2019 and June 30, 2019, respectively.

(3) | Beginning January 2019, average rates were calculated using the actual number of days and on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.

(4) | Beginning July 2019, interest-bearing public funds, other than certificates of deposit, are presented separately in this table. Prior period amounts have been reclassified to conform to current period presentation.

17

AVERAGE BALANCES AND RATES |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |  |  |
|  | Nine Months Ended |  | Nine Months Ended
|  | September 30, 2019 |  | September 30, 2018
|  | Average Balances |  | Interest Earned / Paid |  | Average Rate (3) |  | Average Balances |  | Interest Earned / Paid |  | Average Rate (3)
|  | (dollars in thousands)
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Loans, net (1)(2) |  | $ | 8,568,746 |  |  | $ | 341,798 |  |  | 5.33 | % |  | $ | 8,398,596 |  |  | $ | 321,542 |  |  | 5.12 | %
Taxable securities |  | 2,599,595 |  |  | 49,790 |  |  | 2.56 | % |  | 2,202,497 |  |  | 39,285 |  |  | 2.38 | %
Tax exempt securities (2) |  | 470,987 |  |  | 10,426 |  |  | 2.96 | % |  | 518,128 |  |  | 11,640 |  |  | 3.00 | %
Interest-earning deposits with banks |  | 65,374 |  |  | 1,159 |  |  | 2.37 | % |  | 48,922 |  |  | 600 |  |  | 1.64 | %
Total interest-earning assets |  | 11,704,702 |  |  | $ | 403,173 |  |  | 4.61 | % |  | 11,168,143 |  |  | $ | 373,067 |  |  | 4.47 | %
Other earning assets |  | 231,823 |  |  |  |  |  |  | 222,570 |  |  |  |  |
Noninterest-earning assets |  | 1,266,392 |  |  |  |  |  |  | 1,255,965 |  |  |  |  |
Total assets |  | $ | 13,202,917 |  |  |  |  |  |  | $ | 12,646,678 |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts (4) |  | $ | 2,571,722 |  |  | $ | 8,321 |  |  | 0.43 | % |  | $ | 2,704,471 |  |  | $ | 4,025 |  |  | 0.20 | %
Interest-bearing demand (4) |  | 1,063,678 |  |  | 1,230 |  |  | 0.15 | % |  | 1,097,523 |  |  | 1,161 |  |  | 0.14 | %
Savings accounts (4) |  | 893,738 |  |  | 136 |  |  | 0.02 | % |  | 880,561 |  |  | 102 |  |  | 0.02 | %
Interest-bearing public funds, other than certificates of deposit (4) |  | 380,853 |  |  | 4,831 |  |  | 1.70 | % |  | 247,068 |  |  | 1,367 |  |  | 0.74 | %
Certificates of deposit |  | 397,221 |  |  | 1,819 |  |  | 0.61 | % |  | 461,236 |  |  | 1,619 |  |  | 0.47 | %
Total interest-bearing deposits |  | 5,307,212 |  |  | 16,337 |  |  | 0.41 | % |  | 5,390,859 |  |  | 8,274 |  |  | 0.21 | %
FHLB advances |  | 500,448 |  |  | 9,962 |  |  | 2.66 | % |  | 150,054 |  |  | 2,351 |  |  | 2.09 | %
Subordinated debentures |  | 35,392 |  |  | 1,404 |  |  | 5.30 | % |  | 35,577 |  |  | 1,404 |  |  | 5.28 | %
Other borrowings and interest-bearing liabilities |  | 35,440 |  |  | 552 |  |  | 2.08 | % |  | 43,453 |  |  | 288 |  |  | 0.89 | %
Total interest-bearing liabilities |  | 5,878,492 |  |  | $ | 28,255 |  |  | 0.64 | % |  | 5,619,943 |  |  | $ | 12,317 |  |  | 0.29 | %
Noninterest-bearing deposits |  | 5,069,629 |  |  |  |  |  |  | 4,969,037 |  |  |  |  |
Other noninterest-bearing liabilities |  | 156,432 |  |  |  |  |  |  | 95,192 |  |  |  |  |
Shareholders’ equity |  | 2,098,364 |  |  |  |  |  |  | 1,962,506 |  |  |  |  |
Total liabilities & shareholders’ equity |  | $ | 13,202,917 |  |  |  |  |  |  | $ | 12,646,678 |  |  |  |  |
Net interest income (tax equivalent) |  | $ | 374,918 |  |  |  |  |  |  | $ | 360,750 |  |  |
Net interest margin (tax equivalent) |  | 4.28 | % |  |  |  |  |  | 4.32 | %

__________

(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 $6.3 million and $6.8 million for the nine months ended September 30, 2019 and 2018, respectively. The incremental accretion on acquired loans was $6.8 million and $9.9 million for the nine months ended September 30, 2019 and 2018, respectively.

(2) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $4.1 million and $3.4 million for the nine months ended September 30, 2019 and 2018, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.2 million and $2.4 million for the nine months ended September 30, 2019 and 2018, respectively.

(3) | Beginning January 2019, average rate was calculated using the actual number of days to be on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.

(4) | Beginning July 2019, interest-bearing public funds, other than certificates of deposit, are presented separately in this table. Prior period amounts have been reclassified to conform to current period presentation.

18

Non-GAAP Financial Measures
The Company considers its operating net interest margin 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 and operating efficiency ratio to the Company, there are no standardized definitions for them and, 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 and operating efficiency ratio:

|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | June 30, |  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Operating net interest margin non-GAAP reconciliation: |  | (dollars in thousands)
Net interest income (tax equivalent) (1) |  | $ | 124,572 |  |  | $ | 127,236 |  |  | $ | 124,789 |  |  | $ | 374,918 |  |  | $ | 360,750 |
Adjustments to arrive at operating net interest income (tax equivalent): |  |  |  |  |  |  |  |  |  |
Incremental accretion income on purchased credit impaired loans |  | (113 | ) |  | (579 | ) |  | (585 | ) |  | (980 | ) |  | (1,240 | )
Incremental accretion income on other acquired loans |  | (1,959 | ) |  | (2,084 | ) |  | (2,643 | ) |  | (5,790 | ) |  | (8,703 | )
Premium amortization on acquired securities |  | 1,386 |  |  | 1,651 |  |  | 1,859 |  |  | 4,816 |  |  | 6,065 |
Interest reversals on nonaccrual loans |  | 174 |  |  | 662 |  |  | 477 |  |  | 1,462 |  |  | 1,147 |
Operating net interest income (tax equivalent) (1) |  | $ | 124,060 |  |  | $ | 126,886 |  |  | $ | 123,897 |  |  | $ | 374,426 |  |  | $ | 358,019 |
Average interest earning assets |  | $ | 11,941,578 |  |  | $ | 11,606,727 |  |  | $ | 11,326,629 |  |  | $ | 11,704,702 |  |  | $ | 11,168,143 |
Net interest margin (tax equivalent) (1)(2) |  | 4.14 | % |  | 4.40 | % |  | 4.37 | % |  | 4.28 | % |  | 4.32 | %
Operating net interest margin (tax equivalent) (1)(2) |  | 4.12 | % |  | 4.38 | % |  | 4.34 | % |  | 4.28 | % |  | 4.29 | %

|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | June 30, |  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Operating efficiency ratio non-GAAP reconciliation: |  | (dollars in thousands)
Noninterest expense (numerator A) |  | $ | 87,076 |  |  | $ | 86,728 |  |  | $ | 82,841 |  |  | $ | 258,504 |  |  | $ | 253,471 |
Adjustments to arrive at operating noninterest expense: |  |  |  |  |  |  |  |  |  |
Acquisition-related expenses |  | — |  |  | — |  |  | (1,081 | ) |  | — |  |  | (8,168 | )
Net benefit (cost) of operation of OREO and OPPO |  | 113 |  |  | 705 |  |  | (485 | ) |  | 704 |  |  | (1,239 | )
Loss on asset disposals |  | (5 | ) |  | — |  |  | (110 | ) |  | (5 | ) |  | (111 | )
Business and Occupation (“B&O”) taxes |  | (1,325 | ) |  | (1,411 | ) |  | (1,478 | ) |  | (4,612 | ) |  | (4,254 | )
Operating noninterest expense (numerator B) |  | $ | 85,859 |  |  | $ | 86,022 |  |  | $ | 79,687 |  |  | $ | 254,591 |  |  | $ | 239,699 |
Net interest income (tax equivalent) (1) |  | $ | 124,572 |  |  | $ | 127,236 |  |  | $ | 124,789 |  |  | $ | 374,918 |  |  | $ | 360,750 |
Noninterest income |  | 28,030 |  |  | 25,648 |  |  | 21,019 |  |  | 75,374 |  |  | 67,854 |
Bank owned life insurance tax equivalent adjustment |  | 406 |  |  | 424 |  |  | 373 |  |  | 1,234 |  |  | 1,207 |
Total revenue (tax equivalent) (denominator A) |  | $ | 153,008 |  |  | $ | 153,308 |  |  | $ | 146,181 |  |  | $ | 451,526 |  |  | $ | 429,811 |
Operating net interest income (tax equivalent) (1) |  | $ | 124,060 |  |  | $ | 126,886 |  |  | $ | 123,897 |  |  | $ | 374,426 |  |  | $ | 358,019 |
Adjustments to arrive at operating noninterest income (tax equivalent): |  |  |  |  |  |  |  |  |  |
Investment securities loss (gain), net |  | — |  |  | (285 | ) |  | 62 |  |  | (2,132 | ) |  | 73 |
Gain on asset disposals |  | (6,104 | ) |  | — |  |  | (29 | ) |  | (6,104 | ) |  | (111 | )
Operating noninterest income (tax equivalent) |  | 22,332 |  |  | 25,787 |  |  | 21,425 |  |  | 68,372 |  |  | 69,023 |
Total operating revenue (tax equivalent) (denominator B) |  | $ | 146,392 |  |  | $ | 152,673 |  |  | $ | 145,322 |  |  | $ | 442,798 |  |  | $ | 427,042 |
Efficiency ratio (tax equivalent) (numerator A/denominator A) |  | 56.91 | % |  | 56.57 | % |  | 56.67 | % |  | 57.25 | % |  | 58.97 | %
Operating efficiency ratio (tax equivalent) (numerator B/denominator B) |  | 58.65 | % |  | 56.34 | % |  | 54.83 | % |  | 57.50 | % |  | 56.13 | %

__________
(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 $2.1 million, $2.1 million, and $2.0 million for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively; and $6.3 million and $5.8 million for the nine month periods ended September 30, 2019 and 2018, respectively.
(2) Beginning January 2019, net interest margin (tax equivalent) and operating net interest margin (tax equivalent) were calculated using the actual number of days and on an actual/actual basis. This change was done to provide more meaningful trend information for our net interest margin regardless of the number of days in the period. Prior periods, which were previously reported on a 30/360 basis, have been restated to conform to the current basis.
19

Non-GAAP Financial Measures - Continued
The Company also considers its core noninterest expense ratio to be a useful measurement as it more closely reflects the ongoing operating performance of the Company. Despite the usefulness of the core noninterest expense ratio to the Company, there is not a standardized definition for it, 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 table reconciles the Company’s calculation of the core noninterest expense ratio:

|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | June 30, |  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Core noninterest expense ratio non-GAAP reconciliation: |  | (dollars in thousands)
Noninterest expense (numerator A) |  | $ | 87,076 |  |  | $ | 86,728 |  |  | $ | 82,841 |  |  | $ | 258,504 |  |  | $ | 253,471 |
Adjustments to arrive at core noninterest expense: |  |  |  |  |  |  |  |  |  |
Acquisition-related expenses |  | — |  |  | — |  |  | (1,081 | ) |  | — |  |  | (8,168 | )
Core noninterest expense (numerator B) |  | $ | 87,076 |  |  | $ | 86,728 |  |  | $ | 81,760 |  |  | $ | 258,504 |  |  | $ | 245,303 |
Average assets (denominator) |  | $ | 13,459,774 |  |  | $ | 13,096,413 |  |  | $ | 12,805,131 |  |  | $ | 13,202,917 |  |  | $ | 12,646,678 |
Noninterest expense ratio (numerator A/denominator) (1) |  | 2.59 | % |  | 2.65 | % |  | 2.59 | % |  | 2.61 | % |  | 2.67 | %
Core noninterest expense ratio (numerator B/denominator) (2) |  | 2.59 | % |  | 2.65 | % |  | 2.55 | % |  | 2.61 | % |  | 2.59 | %

__________
(1) For the purpose of this ratio, interim noninterest expense has been annualized.
(2) For the purpose of this ratio, interim core noninterest expense has been annualized.
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,
|  | 2019 |  | 2019 |  | 2018
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) |  | $ | 2,161,577 |  |  | $ | 2,133,638 |  |  | $ | 1,981,395 |
Adjustments to arrive at tangible common equity: |  |  |  |  |  |
Goodwill |  | (765,842 | ) |  | (765,842 | ) |  | (765,842 | )
Other intangible assets, net |  | (37,908 | ) |  | (40,540 | ) |  | (48,827 | )
Tangible common equity (numerator B) |  | $ | 1,357,827 |  |  | $ | 1,327,256 |  |  | $ | 1,166,726 |
Total assets (denominator A) |  | $ | 13,757,760 |  |  | $ | 13,090,808 |  |  | $ | 12,956,596 |
Adjustments to arrive at tangible assets: |  |  |  |  |  |
Goodwill |  | (765,842 | ) |  | (765,842 | ) |  | (765,842 | )
Other intangible assets, net |  | (37,908 | ) |  | (40,540 | ) |  | (48,827 | )
Tangible assets (denominator B) |  | $ | 12,954,010 |  |  | $ | 12,284,426 |  |  | $ | 12,141,927 |
Shareholders’ equity to total assets (numerator A/denominator A) |  | 15.71 | % |  | 16.30 | % |  | 15.29 | %
Tangible common shareholders’ equity to tangible assets (numerator B/denominator B) |  | 10.48 | % |  | 10.80 | % |  | 9.61 | %
Common shares outstanding (denominator C) |  | 72,288 |  |  | 72,924 |  |  | 73,260 |
Book value per common share (numerator A/denominator C) |  | $ | 29.90 |  |  | $ | 29.26 |  |  | $ | 27.05 |
Tangible book value per common share (numerator B/denominator C) |  | $ | 18.78 |  |  | $ | 18.20 |  |  | $ | 15.93 |

20

Non-GAAP Financial Measures - Continued
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, and, 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,
|  | 2019 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Return on average tangible common equity non-GAAP reconciliation: |  | (dollars in thousands)
Net income (numerator A) |  | $ | 50,727 |  |  | $ | 51,724 |  |  | $ | 46,415 |  |  | $ | 148,322 |  |  | $ | 128,134 |
Adjustments to arrive at tangible income applicable to common shareholders: |  |  |  |  |  |  |  |  |  |
Amortization of intangibles |  | 2,632 |  |  | 2,649 |  |  | 3,070 |  |  | 8,029 |  |  | 9,346 |
Tax effect on intangible amortization |  | (553 | ) |  | (556 | ) |  | (645 | ) |  | (1,686 | ) |  | (1,963 | )
Tangible income applicable to common shareholders (numerator B) |  | $ | 52,806 |  |  | $ | 53,817 |  |  | $ | 48,840 |  |  | 154,665 |  |  | $ | 135,517 |
Average shareholders’ equity (denominator A) |  | $ | 2,152,916 |  |  | $ | 2,096,157 |  |  | $ | 1,983,317 |  |  | 2,098,364 |  |  | $ | 1,962,506 |
Adjustments to arrive at average tangible common equity: |  |  |  |  |  |  |  |  |  |
Average intangibles |  | (805,033 | ) |  | (807,678 | ) |  | (816,128 | ) |  | (807,676 | ) |  | (819,215 | )
Average tangible common equity (denominator B) |  | $ | 1,347,883 |  |  | $ | 1,288,479 |  |  | $ | 1,167,189 |  |  | $ | 1,290,688 |  |  | $ | 1,143,291 |
Return on average common equity (numerator A/denominator A) (1) |  | 9.42 | % |  | 9.87 | % |  | 9.36 | % |  | 9.42 | % |  | 8.71 | %
Return on average tangible common equity (numerator B/denominator B) (2) |  | 15.67 | % |  | 16.71 | % |  | 16.74 | % |  | 15.98 | % |  | 15.80 | %

__________
(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.
21