COLUMBIA BANKING SYSTEM, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

This discussion should be read in conjunction with the unaudited Consolidated
Financial Statements of Columbia 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 the December 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.
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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 ended
September 30, 2021 and 2020, respectively. The incremental accretion income on
acquired loans was $884 thousand and $1.7 million for the three months ended
September 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 ended September 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 ended September 30, 2021 and 2020, respectively.
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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 ended
September 30, 2021 and 2020, respectively. The incremental accretion income on
acquired loans was $2.8 million and $4.8 million for the nine months ended
September 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 ended September 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 ended September 30, 2021 and 2020,
respectively.
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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:
                                                                  Three 

Ended months September 30, 2021 Compared to

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 September 30, 2021 Compared to

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.

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Comparison of current year-to-date to prior year period
For the nine months ended September 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
of Visa'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 Ended September 30,                                                  Nine Months 

Ended September 30,

                                       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 $ 90,007 $ 85,115 $

  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 $ 2,200 $ 4,600


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 ended September 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 ended December 31, 2020.
FINANCIAL CONDITION
Total assets were $18.60 billion at September 30, 2021, an increase of $2.02
billion from December 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 at September 30, 2021, a decrease of $378.2 million from
December 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 of September 30, 2021, an
increase of $2.04 billion from December 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
At September 30, 2021, the Company's investment portfolio primarily consisted of
debt securities available for sale totaling $4.83 billion compared to $5.21
billion at December 31, 2020 and debt securities held to maturity of $2.08
billion at September 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 at
September 30, 2021. The average duration of our debt securities held to maturity
was approximately 5 years and 7 months at September 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.
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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.
At September 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 at December 31, 2020. The change in valuation was the result of
fluctuations in market interest rates during the nine months ended September 30,
2021, in addition to there being less securities classified as available for
sale at September 30, 2021 than December 31, 2020 as a result of the
aforementioned transfer to the held to maturity classification. At September 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 by U.S.
government agencies or U.S. government-sponsored enterprises. These securities
carry the explicit and/or implicit guarantee of the U.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 of September 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

we titles of government agencies and state-sponsored companies

                                                                  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 $ 5,223,559


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 $ 16,584,779

Nonperforming loans to period-end loans                                         0.25  %                    0.37  %
Nonperforming assets to period-end assets                                       0.13  %                    0.21  %


At September 30, 2021, nonperforming assets were $24.6 million, compared to
$35.4 million at December 31, 2020. Nonperforming assets decreased $10.8 million
during the nine months ended September 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.
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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.
At September 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) at December 31, 2020 and an
ACL of $157.0 million or 1.62% of total loans (excluding loans held for sale) at
September 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 at
September 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


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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 from
December 31, 2020. The second round of PPP loans during the nine months ended
September 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 extended FDIC deposit insurance coverage on time deposits. The Company
also participates in a similar program to offer extended FDIC 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. At September 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  %


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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
both September 30, 2021 and December 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. At September 30, 2021 and December 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 on November 1, 2017. These subordinated debentures, which are
unsecured, were callable on June 30, 2021 and have a stated maturity date of
June 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 of Columbia
Banking System, Inc. common stock. At both September 30, 2021 and December 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 at September 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.
At September 30, 2021, we had commitments to extend credit of $3.13 billion
compared to $2.83 billion at December 31, 2020.
Capital Resources
Shareholders' equity at September 30, 2021 was $2.32 billion, compared to $2.35
billion at December 31, 2020. Shareholders' equity was 12% and 14% of total
period-end assets at September 30, 2021 and December 31, 2020, respectively.
Regulatory Capital
In July 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 the Basel
III capital framework and various provisions of the Dodd-Frank Act, which were
fully phased in as of January 1, 2019. As of September 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 of FDIC 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" at September 30, 2021 and December 31,
2020.

As part of its response to the impact of COVID-19, the U.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 of September 30,
2021 and December 31, 2020 exclude the impact of the increased allowance for
credit losses related to the adoption of CECL.
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  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:
                                                                 Company                                            Columbia Bank
                                              September 30, 2021          

December 31, 2020 September 30, 2021 December 31, 2020
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 ended December 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 ended
September 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 ended September 30, 2021 and 2020,
respectively, and an addition to net interest income of $5.7 million and $5.6
million for the nine months ended September 30, 2021 and 2020, respectively.
(2) Beginning 2021, interest reversals on nonaccrual loans is no longer a
component of this non-GAAP measure.
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