COLUMBIA BANKING SYSTEM, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
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This discussion should be read in conjunction with the unaudited Consolidated Financial Statements ofColumbia Banking System, Inc. (referred to in this report as "we", "our", "Columbia" and "the Company") and notes thereto presented elsewhere in this report and with theDecember 31, 2020 audited Consolidated Financial Statements and its accompanying notes included in our Annual Report on Form 10-K. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date one year earlier. 37
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Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions that are not historical facts,
and statements identified by words such as "expects," "anticipates," "intends,"
"plans," "believes," "should," "projects," "seeks," "estimates" or the negative
version of those words or other comparable words or phrases of a future or
forward-looking nature, as well as the continuing effects of the COVID-19
pandemic on the Company's business, operations, financial performance and
prospects. Forward-looking statements are based on current beliefs and
expectations of management and are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control. In addition, forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change. In addition to the factors set forth in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report and the factors set forth in the section titled "Risk
Factors" in the Company's Form 10-K, and Quarterly Reports on Form 10-Q, the
following factors, among others, could cause actual results to differ materially
from the anticipated results expressed or implied by forward-looking statements:
•national and global economic conditions could be less favorable than expected
or could have a more direct and pronounced effect on us than expected and
adversely affect our ability to continue internal growth and maintain the
quality of our earning assets;
•the markets where we operate and make loans could face challenges;
•the risks presented by the economy, which could adversely affect credit
quality, collateral values, including real estate collateral, investment values,
liquidity and loan originations and loan portfolio delinquency rates;
•risks related to the proposed merger with Umpqua Holdings Corporation
("Umpqua") including, among others, (i) failure to complete the merger with
Umpqua or unexpected delays related to the merger or either party's inability to
obtain regulatory or shareholder approvals or satisfy other closing conditions
required to complete the merger, (ii) regulatory approvals resulting in the
imposition of conditions that could adversely affect the combined company or the
expected benefits of the transaction, (iii) certain restrictions during the
pendency of the proposed transaction with Umpqua that may impact the parties'
ability to pursue certain business opportunities or strategic transactions, (iv)
diversion of management's attention from ongoing business operations and
opportunities, (v) cost savings and any revenue synergies from the merger may
not be fully realized or may take longer than anticipated to be realized, (vi)
the integration of each party's management, personnel and operations will not be
successfully achieved or may be materially delayed or will be more costly or
difficult than expected, (vii) deposit attrition, customer or employee loss
and/or revenue loss as a result of the announcement of the proposed merger,
(viii) expenses related to the proposed merger being greater than expected, and
(ix) shareholder litigation that could prevent or delay the closing of the
proposed merger or otherwise negatively impact the Company's business and
operations;
•the efficiencies and enhanced financial and operating performance we expect to
realize from investments in personnel, acquisitions (including the recent
acquisition of Bank of Commerce and infrastructure may not be realized;
•the ability to successfully integrate Bank of Commerce , or to integrate future
acquired entities;
•interest rate changes could significantly reduce net interest income and
negatively affect asset yields and funding sources;
•the effect of the discontinuation or replacement of LIBOR;
•results of operations following strategic expansion, including the impact of
acquired loans on our earnings, could differ from expectations;
•changes in the scope and cost of FDIC insurance and other coverages;
•changes in accounting policies or procedures as may be required by the FASB or
other regulatory agencies could materially affect our financial statements and
how we report those results, and expectations and preliminary analysis relating
to how such changes will affect our financial results could prove incorrect;
•changes in laws and regulations affecting our businesses, including changes in
the enforcement and interpretation of such laws and regulations by applicable
governmental and regulatory agencies;
•increased competition among financial institutions and nontraditional providers
of financial services;
•continued consolidation in the financial services industry resulting in the
creation of larger financial institutions that have greater resources could
change the competitive landscape;
•the goodwill we have recorded in connection with acquisitions could become
impaired, which may have an adverse impact on our earnings and capital;
•our ability to identify and address cyber-security risks, including security
breaches, "denial of service attacks," "hacking" and identity theft;
•any material failure or interruption of our information and communications
systems;
•inability to keep pace with technological changes;
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•our ability to effectively manage credit risk, interest rate risk, market risk,
operational risk, legal risk, liquidity risk and regulatory and compliance risk;
•failure to maintain effective internal control over financial reporting or
disclosure controls and procedures;
•the effect of geopolitical instability, including wars, conflicts and terrorist
attacks;
•our profitability measures could be adversely affected if we are unable to
effectively manage our capital;
•natural disasters, including earthquakes, tsunamis, flooding, fires and other
unexpected events;
•the effect of COVID-19 and other infectious illness outbreaks that may arise in
the future, which has created significant impacts and uncertainties in U.S. and
global markets;
•changes in governmental policy and regulation, including measures taken in
response to economic, business, political and social conditions, including with
regard to COVID-19; and
•the effects of any damage to our reputation resulting from developments related
to any of the items identified above.
You should take into account that forward-looking statements speak only as of
the date of this report. Given the described uncertainties and risks, we cannot
guarantee our future performance or results of operations and you should not
place undue reliance on forward-looking statements. 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 under federal
securities laws.
CRITICAL ACCOUNTING POLICIES
Management has identified the accounting policies related to the ACL, business
combinations and the valuation and recoverability of goodwill as critical to an
understanding of our financial statements. These policies and related estimates
are discussed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the headings "Allowance for Credit
Losses," "Business Combinations" and "Valuation and Recoverability of Goodwill "
in our 2020 Annual Report on Form 10-K. There have not been any material changes
in our critical accounting policies as compared to those disclosed in our 2020
Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Our results of operations are dependent to a large degree on our net interest
income. We also generate noninterest income from our broad range of products and
services including treasury management, wealth management and debit and credit
cards. Our operating expenses consist primarily of compensation and employee
benefits, occupancy, data processing and software and legal and professional
fees. Like most financial institutions, our interest income and cost of funds
are affected significantly by general economic conditions, particularly changes
in market interest rates, and by government policies and actions of regulatory
authorities.
Earnings Summary
Comparison of current quarter to prior year period
The Company reported net income for the third quarter of $53.0 million or $0.74
per diluted common share, compared to $44.7 million or $0.63 per diluted common
share for the third quarter of 2020. Net interest income for the three months
ended September 30, 2021 was $132.5 million , an increase of $7.8 million from
the prior year period. The increase was primarily a result of an increase in
interest income from securities.
The company recorded no provision for credit losses for the third quarter of
2021 compared to a provision of $7.4 million for the third quarter of 2020. The
decrease in provision expense for the third quarter of 2021 compared to the
third quarter of 2020 was principally the result of an improved economic
forecast as the economy recovers from the COVID-19 pandemic.
Noninterest income for the current quarter was $24.0 million , an increase of
$1.5 million from the prior year period. The increase was largely due to a gain
on the sale of our health savings accounts to a third party in addition to
higher card revenue and financial services and trust revenue, partially offset
by a decrease in mortgage banking revenue.
Total noninterest expense for the quarter ended September 30, 2021 was $90.0
million , an increase of $4.9 million from the prior year period. This increase
was primarily driven by higher legal and professional fees and data processing
and software expense.
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Comparison of current year-to-date to prior year period
The Company reported net income for the nine months ended September 30, 2021 of
$159.9 million or $2.24 per diluted common share, compared to $95.9 million or
$1.35 per diluted common share for the same period in 2020. Net interest income
for the nine months ended September 30, 2021 was $382.0 million , an increase of
$13.0 million from the prior year period. The increase was primarily a result of
an increase in interest income from securities and a reduction in interest
expense on FHLB advances and deposits, partially offset by a decline in interest
income from loans.
The provision for credit losses for the nine months ended September 30, 2021 was
a recapture of $6.3 million compared to a provision of $82.4 million for the
first nine months of 2020. The decrease in the provision for the first nine
months of 2021 compared to the same period in 2020 was due to an improved
economic forecast as the economy recovers from the COVID-19 pandemic, which had
its onset during the prior year-to-date period.
Noninterest income for the nine months ended September 30, 2021 was $69.9
million , a decrease of $11.1 million from the prior year period. The decrease
was primarily due to the prior year period including a $16.4 million gain from
the sale and upward adjustment to the carrying value of the Visa Class B
restricted shares to the market price, partially offset by increases in card
revenue and financial services and trust revenue.
For the nine months ended September 30, 2021 , noninterest expense was $257.7
million , an increase of $7.5 million from $250.2 million for the same period in
2020. The increase from the prior year period was most attributable to increases
in compensation and employee benefits expenses and legal and professional fees.
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Net Interest Income
The following table sets forth the average balances of all major categories of
interest-earning assets and interest-bearing liabilities, the total dollar
amounts of interest income on interest-earning assets and interest expense on
interest-bearing liabilities, the average yield earned on interest-earning
assets and average cost of interest-bearing liabilities by category and, in
total, net interest income and net interest margin:
Three Months Ended September 30, Three Months Ended September 30,
2021 2020
Average Interest Average Average Interest Average
Balances Earned / Paid Rate Balances Earned / Paid Rate
(dollars in thousands)
ASSETS
Loans, net (1)(2) $ 9,526,052 $ 106,345 4.43 % $ 9,744,336 $ 106,945 4.37 %
Taxable securities 5,929,321 26,374 1.76 % 3,511,690 19,102 2.16 %
Tax exempt securities (2) 615,813 3,436 2.21 % 436,351 2,962 2.70 %
Interest-earning deposits with banks 749,585 284 0.15 % 800,058 203 0.10 %
Total interest-earning assets 16,820,771 136,439 3.22 % 14,492,435
129,212 3.55 % Other earning assets 245,907 235,735 Noninterest-earning assets 1,263,431 1,237,315 Total assets$ 18,330,109 $ 15,965,485 LIABILITIES AND SHAREHOLDERS' EQUITY Money market accounts 3,790,201 741 0.08 % 3,200,407 947 0.12 % Interest-bearing demand 1,581,598 298 0.07 % 1,296,076 337 0.10 % Savings accounts 1,391,221 54 0.02 % 1,072,472 36 0.01 % Interest-bearing public funds, other than certificates of deposit 729,382 232 0.13 % 621,786 397 0.25 % Certificates of deposit 329,547 143 0.17 % 336,954 288 0.34 % Total interest-bearing deposits 7,821,949 1,468 0.07 % 6,527,695 2,005 0.12 % FHLB advances and FRB borrowings 7,382 73 3.92 % 54,173 166 1.22 % Subordinated debentures 35,000 435 4.93 % 35,161 468 5.30 % Other borrowings and interest-bearing liabilities 55,815 24 0.17 % 42,090 19 0.18 % Total interest-bearing liabilities 7,920,146 2,000 0.10 % 6,659,119 2,658 0.16 % Noninterest-bearing deposits 7,820,301 6,790,790 Other noninterest-bearing liabilities 225,513 221,805 Shareholders' equity 2,364,149 2,293,771 Total liabilities & shareholders' equity$ 18,330,109 $ 15,965,485 Net interest income (tax equivalent)$ 134,439 $
126,554
Net interest margin (tax equivalent) 3.17 % 3.47 % __________ (1)Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was$11.3 million and$5.0 million for the three months endedSeptember 30, 2021 and 2020, respectively. The incremental accretion income on acquired loans was$884 thousand and$1.7 million for the three months endedSeptember 30, 2021 and 2020, respectively. (2)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was$1.2 million for both the three months endedSeptember 30, 2021 and 2020. The tax equivalent yield adjustment to interest earned on tax exempt securities was$722 thousand and$622 thousand for the three months endedSeptember 30, 2021 and 2020, respectively. 41 -------------------------------------------------------------------------------- Table of Contents The following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities, the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities, the average yield earned on interest-earning assets and average cost of interest-bearing liabilities by category and, in total, net interest income and net interest margin: Nine Months Ended September 30, Nine Months Ended September 30, 2021 2020 Average Interest Average Average Interest Average Balances Earned / Paid Rate Balances Earned / Paid Rate (dollars in thousands) ASSETS Loans, net (1)(2)$ 9,592,178 $ 308,730 4.30 %$ 9,370,101 $ 322,347 4.60 % Taxable securities 5,286,406 73,940 1.87 % 3,304,295 58,533 2.37 % Tax exempt securities (2) 615,169 10,505 2.28 % 415,973 8,733 2.80 % Interest-earning deposits with banks 650,203 595 0.12 % 458,987 480 0.14 % Total interest-earning assets 16,143,956$ 393,770 3.26 % 13,549,356$ 390,093 3.85 % Other earning assets 244,269 234,044 Noninterest-earning assets 1,247,801 1,256,525 Total assets$ 17,636,026 $ 15,039,925 LIABILITIES AND SHAREHOLDERS' EQUITY Money market accounts 3,625,688 2,132 0.08 % 2,925,672 3,649 0.17 % Interest-bearing demand 1,526,312 849 0.07 % 1,211,958 1,160 0.13 % Savings accounts 1,311,118 139 0.01 % 982,507 117 0.02 % Interest-bearing public funds, other than certificates of deposit 698,745 753 0.14 % 512,548 1,693 0.44 % Certificates of deposit 331,910 506 0.20 % 351,973 1,122 0.43 % Total interest-bearing deposits 7,493,773 4,379 0.08 % 5,984,658 7,741 0.17 % FHLB advances and FRB borrowings 7,395 217 3.92 % 455,303 6,191 1.82 % Subordinated debentures 35,034 1,371 5.23 % 35,207 1,404 5.33 % Other borrowings and interest-bearing liabilities 51,787 66 0.17 % 41,706 178 0.57 % Total interest-bearing liabilities 7,587,989$ 6,033 0.11 % 6,516,874$ 15,514 0.32 % Noninterest-bearing deposits 7,482,888 6,073,718 Other noninterest-bearing liabilities 223,911 202,105 Shareholders' equity 2,341,238 2,247,228 Total liabilities & shareholders' equity$ 17,636,026 $ 15,039,925 Net interest income (tax equivalent)$ 387,737 $ 374,579 Net interest margin (tax equivalent) 3.21 % 3.69 % __________ (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$26.0 million and$12.5 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The incremental accretion income on acquired loans was$2.8 million and$4.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. (2)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was$3.5 million and$3.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was$2.2 million and$1.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. 42 -------------------------------------------------------------------------------- Table of Contents The following table sets forth the total dollar amount of change in interest income and interest expense. The changes have been segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in volume and changes in rates. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates: Three
Ended months
2020 Increase (Decrease) Due to
Volume Rate Total (1)
(in thousands)
Interest Income
Loans, net $ (2,419) $ 1,819 $ (600)
Taxable securities 11,256 (3,984) 7,272
Tax exempt securities 1,067 (593) 474
Interest-earning deposits with banks (14) 95 81
Interest income $ 9,890 $ (2,663) $ 7,227
Interest Expense
Deposits:
Money market accounts $ 154 $ (360) $ (206)
Interest-bearing demand 66 (105) (39)
Savings accounts 12 6 18
Interest-bearing public funds, other than certificates of
deposit 59 (224) (165)
Certificates of deposit (6) (139) (145)
Total interest on deposits 285 (822) (537)
FHLB advances and FRB borrowings (233) 140 (93)
Subordinated debentures (2) (31) (33)
Other borrowings and interest-bearing liabilities 6 (1) 5
Interest expense $ 56 $ (714) $ (658)
__________
(1) The variation in interest not due solely to volume or rate has been prorated to the absolute dollar amount of each variation.
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The following table sets forth the total dollar amount of change in interest
income and interest expense. The changes have been segregated for each major
category of interest-earning assets and interest-bearing liabilities into
amounts attributable to changes in volume and changes in rates. Changes
attributable to the combined effect of volume and interest rates have been
allocated proportionately to the changes due to volume and the changes due to
interest rates:
Nine months ended
2020 Increase (Decrease) Due to
Volume Rate Total (1)
(in thousands)
Interest Income
Loans, net $ 7,507 $ (21,124) $ (13,617)
Taxable securities 29,642 (14,235) 15,407
Tax exempt securities 3,621 (1,849) 1,772
Interest earning deposits with banks 181 (66) 115
Interest income $ 40,951 $ (37,274) $ 3,677
Interest Expense
Deposits:
Money market accounts 729 (2,246) (1,517)
Interest-bearing demand 253 (564) (311)
Savings accounts 36 (14) 22
Interest-bearing public funds, other than certificates of
deposit 470 (1,410) (940)
Certificates of deposit (61) (555) (616)
Total interest on deposits 1,427 (4,789) (3,362)
FHLB advances and FRB borrowings (9,332) 3,358 (5,974)
Subordinated debentures (7) (26) (33)
Other borrowings 59 (171) (112)
Interest expense $ (7,853) $ (1,628) $ (9,481)
__________
(1) The change in interest not due solely to volume or rate has been allocated
in proportion to the absolute dollar amount of the change in each.
Comparison of current quarter to prior year period
Net interest income for the third quarter of 2021 was $132.5 million , up from
$124.7 million for the same quarter in 2020. The increase was mainly due to an
increase in interest income from securities due to higher average balances.
The Company's net interest margin (tax equivalent) decreased to 3.17% in the
third quarter of 2021, from 3.47% for the prior year period. This decrease was
driven by lower average rates on securities and a higher ratio of taxable
securities to our overall interest-earning assets, which was partially offset by
higher loan yields, impacted by accelerated fee recognition due to substantial
PPP loan forgiveness and payoffs. The Company's operating net interest margin
(tax equivalent)1 decreased to 3.16% from 3.46% during the third quarter of
2020. The decrease was due to the items previously noted for the decrease in the
net interest margin.
Comparison of current year-to-date to prior year period
Net interest income for the nine months ended September 30, 2021 was $382.0
million , compared to $369.0 million for the prior year period. The increase was
mainly due to an increase in interest income from securities and a reduction in
interest expense on FHLB advances and deposits, partially offset by a decrease
in interest income for loans. The increase in interest income from securities
was due to higher average balances. The decrease in interest expense was due to
lower average balances of FHLB advances and lower rates on deposits. The decline
in interest income from loans was mainly due to lower average rates.
1 Operating net interest margin (tax equivalent) is a non-GAAP financial
measure. See the "Non-GAAP financial measures" section in this Management's
Discussion and Analysis
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The Company's net interest margin (tax equivalent) decreased to 3.21% for the
first nine months of 2021, from 3.69% for the prior year period. The decrease in
the Company's net interest margin (tax equivalent) was driven by lower average
rates on loans and securities as well as a higher ratio of taxable securities to
our overall earning assets. The Company's operating net interest margin (tax
equivalent)2 for the nine months ended September 30, 2021 was 3.20% compared to
3.69% for the nine months ended September 30, 2020 . The decrease was due to the
items previously noted for the decrease in the net interest margin.
Provision for Credit Losses
Comparison of current quarter to prior year period
During the third quarter of 2021, the Company recorded no net provision for
credit losses compared to a $7.4 million net provision during the third quarter
of 2020. This was principally the result of an improved economic forecast as the
economy recovers from the COVID-19 pandemic.
The net provision recapture for credit losses recorded during the current
quarter also reflected management's ongoing assessment of the credit quality of
the Company's loan portfolio. Other factors affecting the provision include net
charge-offs, credit quality migration, and the size and composition of the loan
portfolio and changes in the economic environment during the third quarter of
2021. The amount of provision was calculated in accordance with the Company's
methodology for determining the ACL, discussed in Note 5 to the Consolidated
Financial Statements in "Item 1. Financial Statements (unaudited)" of this
report.
Comparison of current year-to-date to prior year period
The provision recapture for credit losses for the nine months ended
September 30, 2021 was $6.3 million compared to a net provision of $82.4 million
during the same period in 2020. The decrease in the provision for the first nine
months of 2021 was due to the same factors discussed above for the quarterly
provision for credit losses and the prior year provision was driven by the onset
of the COVID-19 pandemic. The amount of provision was calculated in accordance
with the Company's methodology for determining the ACL, discussed in Note 5 to
the Consolidated Financial Statements in "Item 1. Financial Statements
(unaudited)" of this report.
Noninterest Income
The following table presents the significant components of noninterest income
and the related dollar and percentage change from period to period:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 $ Change % Change 2021 2020
$ Change % Change
(dollars in thousands)
Deposit account and
treasury management fees $ 6,893 $ 6,658 $ 235 4 % $ 19,952 $ 20,538 $ (586) (3) %
Card revenue 4,889 3,834 1,055 28 % 13,395 10,431 2,964 28 %
Financial services and
trust revenue 4,250 3,253 997 31 % 11,876 9,481 2,395 25 %
Loan revenue 5,184 6,645 (1,461) (22) % 17,067 16,842 225 1 %
Bank owned life insurance 1,585 1,585 - - % 4,780 4,799 (19) - %
Investment securities
gains, net - - - N/A 314 16,674 (16,360) (98) %
Other 1,157 497 660 133 % 2,470 2,173 297 14 %
Total noninterest income $ 23,958 $ 22,472 $ 1,486 7 % $ 69,854 $ 80,938 $ (11,084) (14) %
Comparison of current quarter to prior year period
Noninterest income was $24.0 million for the third quarter of 2021, compared to
$22.5 million for the same period in 2020. The increase was primarily due to a
$750 thousand gain related to the sale of our health savings accounts to a third
party which was recorded to other noninterest income, as well as higher card
revenue and financial services revenue partially offset by a decrease in
mortgage banking due to a decrease in the mortgage pipeline and total volume of
funded loans.
2 The net operating interest margin (tax equivalent) is a non-GAAP financial measure. See the “Non-GAAP Financial Measures†section in this MD&A.
45 -------------------------------------------------------------------------------- Table of Contents Comparison of current year-to-date to prior year period For the nine months endedSeptember 30, 2021 , noninterest income was$69.9 million compared to$80.9 million for the same period in 2020, a decrease of$11.1 million . The decrease was principally due to the sale of 17,360 shares of Visa Class B restricted stock during the second quarter of 2020 for a gain of$3.0 million , which resulted in an observable market price. As a result, the Company 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 . Based on the existing transfer restriction and uncertainty regarding the outcome ofVisa's litigation that must be settled before the Visa Class B restricted shares may be converted into publicly traded Visa Class A common shares, the shares were previously carried at a zero-cost basis. This decrease was offset by increases in card revenue and financial services and trust revenue. Noninterest Expense The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period: Three Months EndedSeptember 30 , Nine Months
Ended
2021 2020 $ Change % Change 2021 2020 $ Change % Change
(dollars in thousands)
Compensation and employee
benefits $ 54,679 $ 55,133 $ (454) (1) % $ 159,865 $ 156,018 $ 3,847 2 %
Occupancy 9,695 8,734 961 11 % 27,739 26,743 996 4 %
Data processing and
software 8,515 7,095 1,420 20 % 24,368 22,175 2,193 10 %
Legal and professional fees 4,894 3,000 1,894 63 % 10,973 8,585 2,388 28 %
Amortization of intangibles 1,835 2,193 (358) (16) % 5,611 6,713 (1,102) (16) %
B&O taxes 1,583 1,559 24 2 % 4,332 3,427 905 26 %
Advertising and promotion 678 680 (2) - % 2,026 2,822 (796) (28) %
Regulatory premiums 1,214 826 388 47 % 3,431 1,894 1,537 81 %
Net cost (benefit) of
operation of OREO 4 (160) 164 (103) % 52 (348) 400 (115) %
Other 6,910 6,055 855 14 % 19,285 22,190 (2,905) (13) %
Total non-interest charges
4,892 6 %$ 257,682 $ 250,219 $ 7,463 3 %
The following table shows the impact of acquisition-related costs for the periods indicated on the various components of non-interest costs:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Acquisition-related expenses:
Data processing $ 1 $ - $ 1 $ -
Legal and professional fees 2,153 - 2,663 -
Other 38 - 38 -
Total impact of acquisition-related expense to
noninterest expense (1) $ 2,192 $ - $ 2,702 $ -
__________
(1) The Company completed the acquisition of Bank of Commerce on October 1,
2021 . See Note 16 of the Consolidated Financial Statements in "Item 1. Financial
Statements (unaudited)" of this report for further information regarding this
transaction.
Comparison of current quarter to prior year period
Noninterest expense was $90.0 million for the third quarter of 2021, an increase
of $4.9 million from $85.1 million for the prior year period. This increase was
mostly attributable to increases in legal and professional fees and data
processing and software expense. The increase in legal and professional fees was
due to the acquisition-related professional services associated with our
acquisition of Bank of Commerce . With this acquisition there is an expectation
of elevated acquisition-related expenses for the next several quarters.
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Comparison of current year-to-date to prior year period
For the nine months ended September 30, 2021 , noninterest expense was $257.7
million , compared to $250.2 million for the same period in 2020, an increase of
$7.5 million . The increase from the prior year period was mostly attributable to
increases in compensation and employee benefits expense and legal and
professional fees. The largest increases in compensation and employee benefits
were stock compensation, incentives and commissions while the increase in legal
and professional fees was the result of acquisition-related professional fees
associated with our acquisition of Bank of Commerce .
The provision for unfunded loan commitments for the periods indicated are as
follows:
Three Months Ended September Nine Months Ended September
30, 30,
2021 2020 2021 2020
(in thousands)
Provision for unfunded loan commitments $ 500 $
800
Income Taxes We recorded an income tax provision of$13.5 million for the third quarter of 2021, compared to a provision of$9.9 million for the same period in 2020, with effective tax rates of 20% and 18% for the third quarter of 2021 and 2020, respectively. For the nine months endedSeptember 30, 2021 and 2020, we recorded income tax provisions of$40.6 million and$21.4 million , respectively, with effective tax rates of 20% for the current year and 18% for the prior year period. Our effective tax rate remains lower than the statutory tax rate due to tax-exempt income from municipal securities, BOLI and certain loan receivables. For additional information, please refer to the Company's annual report on Form 10-K for the year endedDecember 31, 2020 . FINANCIAL CONDITION Total assets were$18.60 billion atSeptember 30, 2021 , an increase of$2.02 billion fromDecember 31, 2020 . Cash and cash equivalents increased$243.7 million . Loans increased$93.7 million during the first nine months of 2021, which was primarily the result of new loan production partially offset by loan payments and a decrease in line utilization. Debt securities available for sale were$4.83 billion atSeptember 30, 2021 , a decrease of$378.2 million fromDecember 31, 2020 which was due to maturities and repayments and the Company transferring securities with a fair value of$2.01 billion from the available for sale classification to the held to maturity classification, partially offset by purchases. Total liabilities were$16.28 billion as ofSeptember 30, 2021 , an increase of$2.04 billion fromDecember 31, 2020 . The increase was primarily due to an increase in demand and other noninterest-bearing deposits supported by PPP loan funds being deposited into our clients' deposit accounts at the Bank, stimulus funds being distributed by the federal government and reduced expenditures by consumers and business clients.Investment Securities AtSeptember 30, 2021 , the Company's investment portfolio primarily consisted of debt securities available for sale totaling$4.83 billion compared to$5.21 billion atDecember 31, 2020 and debt securities held to maturity of$2.08 billion atSeptember 30, 2021 . The decrease in the debt securities available for sale from year-end is due to a transfer of securities with a fair value of$2.01 billion from the available for sale classification to the held to maturity classification,$2.41 billion in purchases, partially offset by$612.9 million in maturities, repayments and sales, a$134.2 million decline in unrealized gains and$27.6 million in premium amortization. The increase in debt securities held to maturity from year-end is due to the$2.01 billion transfer of securities into the held to maturity classification and purchases of$112.4 million , partially offset by$42.7 million in premium amortization and a$6.7 million decrease in unrealized gains. The average duration of our debt securities available for sale was approximately 4 years and 9 months atSeptember 30, 2021 . The average duration of our debt securities held to maturity was approximately 5 years and 7 months atSeptember 30, 2021 . These durations take into account calls, where appropriate, and consensus prepayment speeds. The investment securities are used by the Company as a component of its balance sheet management strategies. From time-to-time, securities may be sold to reposition the portfolio in response to strategies developed by the Company's asset liability management committee. In accordance with our investment strategy, management monitors market conditions with a view to realize gains on its available for sale securities portfolio when prudent. 47 -------------------------------------------------------------------------------- Table of Contents The Company performs a quarterly assessment to determine whether a decline in fair value below amortized cost exists. Amortized cost includes adjustments made to the cost of an investment for accretion, amortization, collection of cash and previous credit losses recognized in earnings. When the fair value of an available for sale debt security falls below the amortized cost basis, it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss would be recorded directly to earnings with a corresponding allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves, the allowance would be reversed up to a maximum of the previously recorded credit losses. If the Company intends to sell an impaired available for sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment would be immediately recognized in earnings with no corresponding allowance for credit losses. AtSeptember 30, 2021 , the market value of debt securities available for sale had a net unrealized gain of$58.2 million compared to a net unrealized gain of$212.6 million atDecember 31, 2020 . The change in valuation was the result of fluctuations in market interest rates during the nine months endedSeptember 30, 2021 , in addition to there being less securities classified as available for sale atSeptember 30, 2021 thanDecember 31, 2020 as a result of the aforementioned transfer to the held to maturity classification. AtSeptember 30, 2021 , the Company had$2.56 billion of debt securities available for sale with gross unrealized losses of$30.2 million ; however, we did not consider these investment securities to have an indicated credit loss. All of the Company's debt securities held to maturity were issued byU.S. government agencies orU.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of theU.S. government, are widely recognized as "risk free," and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as ofSeptember 30, 2021 . The following table sets forth our securities portfolio by type for the dates indicated: September 30, 2021 December 31, 2020 (in thousands) Debt securities available for sale:U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$ 3,378,861 $ 3,814,387 Other asset-backed securities 415,909 357,479 State and municipal securities 781,173 753,572
255,976 284,696 Total debt securities available for sale, at fair value$ 4,831,919 $ 5,210,134 Debt securities held to maturity:U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$ 2,075,158 $ - Total debt securities held to maturity, at amortized cost$ 2,075,158 $ - Equity securities 13,425 13,425 Total investment securities $
6 920 502
For further information on our investment portfolio and equity securities
transactions, see Note 3 to the Consolidated Financial Statements in "Item 1.
Financial Statements (unaudited)" of this report.
Credit Risk Management
The extension of credit in the form of loans or other credit substitutes to
individuals and businesses is one of our principal business activities. Our
policies, as well as applicable laws, and regulations, require risk analysis as
well as ongoing portfolio and credit management. We manage our credit risk
through lending limit constraints, credit review, approval policies, and
extensive, ongoing internal monitoring. We also manage credit risk through
diversification of the loan portfolio by type of loan, type of industry and type
of borrower and by limiting the aggregation of debt to a single borrower.
In analyzing our existing portfolio, we review our consumer and residential loan
portfolios by their performance as a pool of loans, since no single loan is
individually significant or judged by its risk rating, size or potential risk of
loss. In contrast, the monitoring process for the commercial business, real
estate construction, and commercial real estate portfolios includes periodic
reviews of individual loans with risk ratings assigned to each loan and
performance judged on a loan-by-loan basis.
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We review these loans to assess the ability of our borrowers to service all
interest and principal obligations and, as a result, the risk rating may be
adjusted accordingly. In the event that full collection of principal and
interest is not reasonably assured, the loan is appropriately downgraded and, if
warranted, placed on nonaccrual status even though the loan may be current as to
principal and interest payments. Additionally, we assess whether an individually
measured allowance is required for collateral dependent nonaccrual loans with
balances equal to or greater than $500,000 and with respect to which foreclosure
is probable. For the individually measured collateral dependent nonaccrual loan,
the allowance for credit losses is equal to the difference between amortized
cost of the loan and the determined value of the collateral. However, if the
determined value of the collateral is greater than the amortized cost of the
loan, no allowance for credit losses will be added for these loans.
For additional discussion on our methodology in managing credit risk within our
loan portfolio, see the "Allowance for Credit Losses" section in this
Management's Discussion and Analysis and Note 1 to the Consolidated Financial
Statements in "Item 8. Financial Statements and Supplementary Data" of the
Company's 2020 Annual Report on Form 10-K.
Loan policies, credit quality criteria, portfolio guidelines and other controls
are established under the guidance of our Chief Credit Officer and approved, as
appropriate, by the Board of Directors. Credit Administration , together with the
management loan committee, has the responsibility for administering the credit
approval process. As another part of its control process, we use an internal
credit review and examination function to provide reasonable assurance that
loans and commitments are made and maintained as prescribed by our credit
policies. Examinations are performed to ensure continued performance and proper
risk assessment.
Loan Portfolio Analysis
Our wholly owned banking subsidiary Columbia State Bank is a full service
commercial bank, which originates a wide variety of loans, and focuses its
lending efforts on originating commercial real estate and commercial business
loans. The following table sets forth our loan portfolio by type of loan for the
dates indicated:
September 30, December 31,
2021 % of Total 2020 % of Total
(dollars in thousands)
Commercial loans:
Commercial real estate $ 4,088,484 42.9 % $ 4,062,313 43.0 %
Commercial business 3,436,351 36.1 % 3,597,968 38.2 %
Agriculture 815,985 8.6 % 779,627 8.3 %
Construction 326,569 3.4 % 268,663 2.8 %
Consumer loans:
One-to-four family residential real estate 823,877 8.7 % 683,570 7.3 %
Other consumer 30,119 0.3 % 35,519 0.4 %
Total loans $ 9,521,385 100.0 % $ 9,427,660 100.0 %
Loans held for sale $ 11,355 $ 26,481
Total loans increased $93.7 million from year-end 2020. This increase includes
$543.3 million of new PPP loans as well as new non-PPP loan originations,
partially offset by $857.9 million of PPP loan pay downs and forgiveness from
the SBA as well as contractual payments and prepayments on non-PPP loans. The
PPP loans were originated to provide financial support to small and medium-size
businesses to cover payroll and certain other expenses during the COVID-19
pandemic. To further assist our borrowers, the Company also offered loan
deferrals to support borrowers during the COVID-19 pandemic.
The following table provides additional detail related to the Company's COVID-19
deferrals:
December 31, September 30,
2020 Ended (1) Re-deferral New Deferral 2021 % Change
(dollars in thousands)
Number of deferrals 70 (75) 3 11 9 (87.1) %
Balance of deferrals (2) $ 146,725 $ (143,923) $ 17,213 $ 12,780 $ 32,795 (77.6) %
__________
1) Ended includes re-deferrals that have ended.
2) Balance of deferrals are gross of unearned income.
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Table of Contents The following table provides additional details regarding the net discount (premium) of loans acquired and purchased by acquisition:
September 30, 2021 December 31, 2020
(in thousands)
Acquisition:
Pacific Continental $ 6,353 $ 8,442
Intermountain 843 1,090
West Coast 1,234 1,695
All other purchased and acquired net discount (premium) (4,699) 957
Total net discount at period end $ 3,731 $ 12,184
Commercial Real Estate Loans: Commercial real estate loans are secured by
properties located within our primary market areas and typically, have
loan-to-value ratios of 80% or lower at origination. Our underwriting standards
for commercial and multifamily residential loans generally require that the
loan-to-value ratio for these loans not exceed 75% of appraised value, cost, or
discounted cash flow value, as appropriate, and that commercial properties
maintain debt coverage ratios (net operating income divided by annual debt
servicing) of 1.2 or better. However, underwriting standards can be influenced
by competition and other factors. We endeavor to maintain the highest practical
underwriting standards while balancing the need to remain competitive in our
lending practices.
Commercial Business Loans: Our commercial business lending is directed toward
meeting the credit and related deposit and treasury management needs of small to
medium sized businesses. Commercial and industrial loans are primarily
underwritten based on the identified cash flows of the borrower's operations and
secondarily on the underlying collateral provided by the borrower and/or the
strength of the guarantor. The majority of these loan provide financing for
working capital and capital expenditures. Loan terms, including, loan maturity,
fixed or adjustable interest rate and collateral considerations, are based on
factors such as the loan purpose, collateral type and industry and are
underwritten on an individual loan basis.
Agriculture Loans: Agricultural lending includes agricultural real estate and
production loans and lines of credit within our primary market area. We are
committed to our Pacific Northwest communities offering seasonal and longer-term
loans and operating lines of credit by lending officers with expertise in the
agricultural communities we serve. Typical loan-to-value ratios on term loans
can range from 55% to 80% depending upon the type of loan. Operating lines of
credit require the borrower to provide a 20% to 25% equity investment. The debt
coverage ratio is generally 1.25 or better on all term loans.
Construction Loans: We originate a variety of real estate construction loans.
Underwriting guidelines for these loans vary by loan type but include
loan-to-value limits, term limits and loan advance limits, as applicable. Our
underwriting guidelines for commercial and multifamily residential real estate
construction loans generally require that the loan-to-value ratio not exceed 75%
and stabilized debt coverage ratios (net operating income divided by annual debt
service) of 1.2 or better. As noted above, underwriting standards can be
influenced by competition and other factors. However, we endeavor to maintain
the highest practical underwriting standards while balancing the need to remain
competitive in our lending practices.
One-to-four Family Residential Real Estate Loans: One-to-four family residential
loans, including home equity loans and lines of credit, are secured by
properties located within our primary market areas and, typically, have
loan-to-value ratios of 80% or lower at origination.
Other Consumer Loans: Consumer loans include automobile loans, boat and
recreational vehicle financing, and other miscellaneous personal loans.
Foreign Loans: The Company has no material foreign activities. Substantially all
of the Company's loans and unfunded commitments are geographically concentrated
in its service areas within the states of Washington , Oregon and Idaho .
For additional information on our loan portfolio, including amounts pledged as
collateral on borrowings, see Note 4 to the Consolidated Financial Statements
in "Item 1. Financial Statements (unaudited)" of this report.
Nonperforming Assets
Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans
placed on a nonaccrual basis when the loan becomes past due 90 days or when
there are otherwise serious doubts about the collectability of principal or
interest within the existing terms of the loan, (ii) OREO and (iii) OPPO, if
applicable.
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The following table sets forth, at the dates indicated, information with respect
to our nonaccrual loans and total nonperforming assets:
September 30, 2021 December 31, 2020
(dollars in thousands)
Nonperforming assets
Nonaccrual loans:
Commercial loans:
Commercial real estate $ 2,871 $ 7,712
Commercial business 12,105 13,222
Agriculture 7,706 11,614
Construction - 217
Consumer loans:
One-to-four family residential real estate 1,491 2,001
Other consumer 3 40
Total nonaccrual loans 24,176 34,806
OREO and OPPO 381 553
Total nonperforming assets $ 24,557 $ 35,359
Loans, net of unearned income $ 9,521,385 $ 9,427,660
Total assets $
18 602 462
Nonperforming loans to period-end loans 0.25 % 0.37 % Nonperforming assets to period-end assets 0.13 % 0.21 % AtSeptember 30, 2021 , nonperforming assets were$24.6 million , compared to$35.4 million atDecember 31, 2020 . Nonperforming assets decreased$10.8 million during the nine months endedSeptember 30, 2021 , primarily due to decreases in commercial real estate and agriculture nonaccrual loans. For information on OREO, see Note 6 to the Consolidated Financial Statements in "Item 1. Financial Statements (unaudited)" of this report. 51 -------------------------------------------------------------------------------- Table of Contents Allowance for Credit Losses The ACL is an accounting estimate of expected credit losses in our loan portfolio at the balance sheet date. The provision for credit losses is the expense recognized in the Consolidated Statements of Income to adjust the ACL to the levels deemed appropriate by management, as measured by the Company's credit loss estimation methodologies. The allowance for unfunded commitments and letters of credit is maintained at a level believed by management to be sufficient to absorb estimated expected losses related to these unfunded credit facilities at the balance sheet date. AtSeptember 30, 2021 , our ACL was$142.8 million , or 1.50% of total loans (excluding loans held for sale). This compares with an ACL of$149.1 million , or 1.58% of total loans (excluding loans held for sale) atDecember 31, 2020 and an ACL of$157.0 million or 1.62% of total loans (excluding loans held for sale) atSeptember 30, 2020 . The decrease from year end was primarily due to an improved economic forecast as the economy recovers from the COVID-19 pandemic. The ACL atSeptember 30, 2021 does not include a reserve for the PPP loans as they are fully guaranteed by the SBA. The following table provides an analysis of the Company's ACL at the dates and the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (dollars in thousands) Beginning Balance$ 142,988 $ 151,546 $ 149,140 $ 83,968 Impact of adopting ASC 326 - - - 1,632 Charge-offs: Commercial loans: Commercial real estate - - (316) (101) Commercial business (1,183) (3,164) (5,493) (10,290) Agriculture - (1,269) (122) (5,995) Consumer loans: One-to-four family residential real estate - (16) (146) (26) Other consumer (296) (133) (808) (599) Total charge-offs (1,479) (4,582) (6,885) (17,011) Recoveries: Commercial loans: Commercial real estate 518 65 570 92 Commercial business 328 1,124 4,416 2,795 Agriculture 6 27 23 69 Construction 8 11 575 688 Consumer loans: One-to-four family residential real estate 203 1,301 757 2,005 Other consumer 213 76 489 330 Total recoveries 1,276 2,604 6,830 5,979 Net charge-offs (203) (1,978) (55) (11,032) Provision (recapture) for credit losses - 7,400 (6,300) 82,400 Ending balance 142,785 156,968 142,785 156,968 Total loans, net at end of period, excluding loans held for sale$ 9,521,385 $ 9,688,947 $ 9,521,385 $ 9,688,947 ACL to period-end loans 1.50 % 1.62 % 1.50 % 1.62 %
Provision for unfunded commitments and letters of credit Opening balance
$ 10,000$ 8,800 $ 8,300$ 3,430 Impact of adopting ASC 326 - - - 1,570 Net changes in the allowance for unfunded commitments and letters of credit 500 800 2,200 4,600 Ending balance $ 10,500$ 9,600 $ 10,500 $ 9,600 52
-------------------------------------------------------------------------------- Table of Contents Liquidity and Sources of Funds Our primary sources of funds are customer deposits. Additionally, we utilize advances from the FHLB, borrowings from the FRB, sweep repurchase agreements, subordinated debentures assumed in acquisitions and a revolving line of credit to supplement our funding needs. These funds, together with loan repayments, loan sales, retained earnings, equity and other borrowed funds are used to make loans, to acquire securities, meet deposit withdrawals and maturing liabilities, to acquire other assets and to fund continuing operations. Deposit Activities Our deposit products include a wide variety of transaction accounts, savings accounts and time deposit accounts. We have established a branch system to serve our consumer and business depositors. Deposits increased$2.08 billion fromDecember 31, 2020 . The second round of PPP loans during the nine months endedSeptember 30, 2021 had an impact on our deposits, as our clients deposited these funds into their accounts. In addition, management's strategy for funding asset growth is to make use of public funds and brokered and other wholesale deposits on an as-needed basis. The Company participates in the CD Option of IntraFi Network Deposits program, which is a network that allows participating banks to offer extendedFDIC deposit insurance coverage on time deposits. The Company also participates in a similar program to offer extendedFDIC deposit insurance coverage on money market accounts. These extended deposit insurance programs are generally available only to existing customers and are not used as a means of generating additional liquidity. AtSeptember 30, 2021 , brokered deposits, reciprocal money market accounts and other wholesale deposits (excluding public funds) totaled$802.5 million , or 5.0% of total deposits, compared to$605.9 million or 4.4% at year-end 2020. These deposits have varied maturities. The following table sets forth the Company's deposit base by type of product for the dates indicated: September 30, 2021 December 31, 2020 % of % of Balance Total Balance Total (dollars in thousands) Demand and other noninterest-bearing$ 7,971,680 50.0 %$ 6,913,214 49.8 % Money market 3,076,833 19.3 % 2,780,922 20.1 % Interest-bearing demand 1,646,816 10.3 % 1,433,083 10.3 % Savings 1,416,376 8.9 % 1,169,721 8.4 % Interest-bearing public funds, other than certificates of deposit 740,281 4.6 % 656,273 4.7 % Certificates of deposit, less than$250,000 190,402 1.2 % 201,805 1.5 % Certificates of deposit,$250,000 or more 108,483 0.7 % 108,935
0.8% Certificates of deposit insured by the CD Option of IntraFi Network Deposits
26,835 0.2 % 23,105 0.2
%
Brokered certificates of deposit 5,000 - % 5,000 - % Reciprocal money market accounts 770,693 4.8 % 577,804 4.2 % Total deposits$ 15,953,399 100.0 %$ 13,869,862 100.0 % 53
-------------------------------------------------------------------------------- Table of Contents Borrowings We rely on FHLB advances and FRB borrowings as another source of both short and long-term funding. FHLB advances and FRB borrowings are secured by investment securities, and residential, commercial and commercial real estate loans. At bothSeptember 30, 2021 andDecember 31, 2020 , we had FHLB advances of$7.4 million . We also utilize wholesale and retail repurchase agreements to supplement our funding sources. Our wholesale repurchase agreements are secured by mortgage-backed securities. AtSeptember 30, 2021 andDecember 31, 2020 , we had deposit customer sweep-related repurchase agreements of$40.0 million and$73.9 million , respectively, which mature on a daily basis. Subordinated debentures are another source of funding. The Company assumed$35.0 million in aggregate principal amount with its acquisition of Pacific Continental onNovember 1, 2017 . These subordinated debentures, which are unsecured, were callable onJune 30, 2021 and have a stated maturity date ofJune 30, 2026 . The Company has a$15.0 million short-term credit facility with an unaffiliated bank. This facility provides the Company additional liquidity, if needed, for various corporate activities including the repurchase of shares ofColumbia Banking System, Inc. common stock. At bothSeptember 30, 2021 andDecember 31, 2020 , there was no balance associated with this credit facility. The credit agreement requires the Company to comply with certain covenants including those related to asset quality and capital levels. The Company was in compliance with all covenants associated with this facility atSeptember 30, 2021 . Management anticipates we will continue to rely on FHLB advances, FRB borrowings, the short-term credit facility and wholesale and retail repurchase agreements in the future. We will use those funds primarily to make loans and purchase securities. Contractual Obligations, Commitments & Off-Balance Sheet Arrangements We are party to many contractual financial obligations, including repayments of borrowings, operating and equipment lease payments, off-balance sheet commitments to extend credit and investments in affordable housing partnerships. AtSeptember 30, 2021 , we had commitments to extend credit of$3.13 billion compared to$2.83 billion atDecember 31, 2020 . Capital Resources Shareholders' equity atSeptember 30, 2021 was$2.32 billion , compared to$2.35 billion atDecember 31, 2020 . Shareholders' equity was 12% and 14% of total period-end assets atSeptember 30, 2021 andDecember 31, 2020 , respectively.Regulatory Capital InJuly 2013 , the federal bank regulators approved the Capital Rules (as discussed in our 2020 Annual Report on Form 10-K, "Item 1. Business-Supervision and Regulation and -Regulatory Capital Requirements"), which implement theBasel III capital framework and various provisions of the Dodd-Frank Act, which were fully phased in as ofJanuary 1, 2019 . As ofSeptember 30, 2021 , we and the Bank met all capital adequacy requirements under the Capital Rules.FDIC regulations set forth the qualifications necessary for a bank to be classified as "well-capitalized," primarily for assignment ofFDIC insurance premium rates. Failure to qualify as "well-capitalized" can negatively impact a bank's ability to expand and to engage in certain activities. The Company and the Bank qualified as "well-capitalized" atSeptember 30, 2021 andDecember 31, 2020 . As part of its response to the impact of COVID-19, theU.S. federal regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company elected to adopt the interim final rule. As a result, certain capital ratios and amounts as ofSeptember 30, 2021 andDecember 31, 2020 exclude the impact of the increased allowance for credit losses related to the adoption of CECL. 54 -------------------------------------------------------------------------------- Table of Contents The following table presents the capital ratios and the capital conservation buffer, as applicable, for the Company and its banking subsidiary as of the dates presented below: CompanyColumbia Bank September 30, 2021
CET1 risk-based capital ratio
12.79 % 12.88 % 12.71 % 13.08 % Tier 1 risk-based capital ratio 12.79 % 12.88 % 12.71 % 13.08 % Total risk-based capital ratio 14.25 % 14.45 % 13.87 % 14.33 % Leverage ratio 8.43 % 8.86 % 8.42 % 9.08 % Capital conservation buffer 6.25 % 6.45 % 5.87 % 6.33 % Stock Repurchase Program As described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , our board of directors approved a stock repurchase program to repurchase up to 3.5 million shares, up to a maximum aggregate purchase price of$100.0 million . There were no share repurchases during the three or nine months endedSeptember 30, 2021 . Non-GAAP Financial Measures The Company considers operating net interest margin (tax equivalent) to be a useful measurement as it more closely reflects the ongoing operating performance of the Company. Additionally, presentation of the operating net interest margin allows readers to compare certain aspects of the Company's net interest margin to other organizations that may not have had significant acquisitions. Despite the usefulness of the operating net interest margin (tax equivalent) to the Company, there is no standardized definition for it and, as a result, the Company's calculations may not be comparable with other organizations. The Company encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure. The following table reconciles the Company's calculation of the operating net interest margin (tax equivalent) to the net interest margin (tax equivalent) for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (dollars in thousands) Operating net interest margin non-GAAP reconciliation: Net interest income (tax equivalent) (1)$ 134,439 $ 126,554 $ 387,737 $ 374,579 Adjustments to arrive at operating net interest income (tax equivalent): Incremental accretion income on acquired loans (884) (1,665) (2,795) (4,831) Premium amortization on acquired securities 422 701 1,474 2,803 Interest reversals on nonaccrual loans (2) - 393 - 1,854 Operating net interest income (tax equivalent) (1)$ 133,977 $ 125,983 $ 386,416 $ 374,405 Average interest earning assets$ 16,820,771 $ 14,492,435 $ 16,143,956 $ 13,549,356 Net interest margin (tax equivalent) (1) 3.17 % 3.47 % 3.21 % 3.69 % Operating net interest margin (tax equivalent) (1) 3.16 % 3.46 % 3.20 % 3.69 % __________ (1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of$1.9 million and$1.8 million for the three months endedSeptember 30, 2021 and 2020, respectively, and an addition to net interest income of$5.7 million and$5.6 million for the nine months endedSeptember 30, 2021 and 2020, respectively. (2) Beginning 2021, interest reversals on nonaccrual loans is no longer a component of this non-GAAP measure. 55
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