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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________ 
FORM 10-Q
________________________________________________________  
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021.
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to            
Commission File Number 000-20288
 _________________________________________________________________________
COLUMBIA BANKING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
 _______________________________________________________________
Washington91-1422237
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification Number)
1301 A Street
Tacoma, Washington 98402-2156
(Address of principal executive offices and zip code)
(253) 305-1900
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, No Par ValueCOLBThe Nasdaq Stock Market LLC
(Title of each class)(Trading symbol)(Name of each exchange on which registered)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes ☐  No x
The number of shares of common stock outstanding at October 31, 2021 was 78,523,358


TABLE OF CONTENTS
 
 Page
PART I — FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II — OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

i

Glossary of Acronyms, Abbreviations, and Terms

The acronyms, abbreviations, and terms listed below are used in various sections of the Form 10-Q, including “Item 1. Financial Statements” and “Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations.”
ACLAllowance for Credit LossesFASBFinancial Accounting Standards Board
ASCAccounting Standards CodificationFDICFederal Deposit Insurance Corporation
ASC 326Codification related to measurement of credit losses on financial instrumentsFHLBFederal Home Loan Bank of Des Moines
ASUAccounting Standards UpdateFRBFederal Reserve Bank
ATMAutomated Teller MachineGAAPGenerally Accepted Accounting Principles
Bank of CommerceBank of Commerce HoldingsGDPGross Domestic Product
B&OBusiness and OccupationIntermountainIntermountain Community Bancorp
Basel IIIA comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013LIBORLondon Interbank Offering Rate
BOLIBank Owned Life InsuranceNasdaqNational Association of Securities Dealer Automated Quotations
Capital RulesRisk-based capital standards currently applicable to the Company and the Bank.N/MNot meaningful
CARES ActCoronavirus Aid Relief and Economic Security ActOPPOOther Personal Property Owned
CDICore Deposit IntangibleOREOOther Real Estate Owned
CECLCurrent Expected Credit LossesPacific ContinentalPacific Continental Corporation
CEOChief Executive OfficerPPPPaycheck Protection Program
CET1Common Equity Tier 1RSARestricted Stock Awards
CFOChief Financial OfficerRSURestricted Stock Units
COVID-19Novel CoronavirusSBASmall Business Administration
DCFDiscounted Cash FlowSECSecurities and Exchange Commission
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection ActTDRsTroubled Debt Restructurings
EPSEarnings Per ShareWest CoastWest Coast Bancorp

ii
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
(Unaudited)
September 30,
2021		December 31,
2020
ASSETS(in thousands)
Cash and due from banks$193,715 $218,899 
Interest-earning deposits with banks703,760 434,867 
Total cash and cash equivalents897,475 653,766 
Debt securities available for sale at fair value (amortized cost of $4,773,742 and $4,997,529, respectively)
4,831,919 5,210,134 
Debt securities held to maturity at amortized cost (fair value of $2,071,051 and $—, respectively)
2,075,158 — 
Equity securities13,425 13,425 
FHLB stock at cost10,280 10,280 
Loans held for sale11,355 26,481 
Loans, net of unearned income9,521,385 9,427,660 
Less: ACL142,785 149,140 
Loans, net9,378,600 9,278,520 
Interest receivable52,886 54,831 
Premises and equipment, net157,488 162,059 
OREO381 553 
Goodwill765,842 765,842 
Other intangible assets, net21,123 26,734 
Other assets386,530 382,154 
Total assets$18,602,462 $16,584,779 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing$7,971,680 $6,913,214 
Interest-bearing7,981,719 6,956,648 
Total deposits15,953,399 13,869,862 
FHLB advances7,372 7,414 
Securities sold under agreements to repurchase40,040 73,859 
Subordinated debentures35,000 35,092 
Other liabilities243,384 250,945 
Total liabilities16,279,195 14,237,172 
Commitments and contingent liabilities (Note 10)
Shareholders’ equity:
September 30,
2021		December 31,
2020
(in thousands)
Preferred stock (no par value)
Authorized shares2,000 2,000 
Common stock (no par value)
Authorized shares115,000 115,000 
Issued73,944 73,782 1,670,076 1,660,998 
Outstanding71,760 71,598 
Retained earnings651,308 575,248 
Accumulated other comprehensive income72,717 182,195 
Treasury stock at cost2,184 2,184 (70,834)(70,834)
Total shareholders’ equity2,323,267 2,347,607 
Total liabilities and shareholders’ equity$18,602,462 $16,584,779 

See accompanying Notes to unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.
(Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
(in thousands except per share amounts)
Interest Income
Loans$105,168 $105,739 $305,195 $318,601 
Taxable securities26,374 19,102 73,940 58,533 
Tax-exempt securities2,714 2,340 8,299 6,899 
Deposits in banks284 203 595 480 
Total interest income134,540 127,384 388,029 384,513 
Interest Expense
Deposits1,468 2,005 4,379 7,741 
FHLB advances and FRB borrowings73 166 217 6,191 
Subordinated debentures435 468 1,371 1,404 
Other borrowings24 19 66 178 
Total interest expense2,000 2,658 6,033 15,514 
Net Interest Income132,540 124,726 381,996 368,999 
Provision (recapture) for credit losses— 7,400 (6,300)82,400 
Net interest income after provision (recapture) for credit losses132,540 117,326 388,296 286,599 
Noninterest Income
Deposit account and treasury management fees6,893 6,658 19,952 20,538 
Card revenue4,889 3,834 13,395 10,431 
Financial services and trust revenue4,250 3,253 11,876 9,481 
Loan revenue5,184 6,645 17,067 16,842 
Bank owned life insurance1,585 1,585 4,780 4,799 
Investment securities gains, net— — 314 16,674 
Other1,157 497 2,470 2,173 
Total noninterest income23,958 22,472 69,854 80,938 
Noninterest Expense
Compensation and employee benefits54,679 55,133 159,865 156,018 
Occupancy9,695 8,734 27,739 26,743 
Data processing and software8,515 7,095 24,368 22,175 
Legal and professional fees4,894 3,000 10,973 8,585 
Amortization of intangibles1,835 2,193 5,611 6,713 
B&O taxes1,583 1,559 4,332 3,427 
Advertising and promotion678 680 2,026 2,822 
Regulatory premiums1,214 826 3,431 1,894 
Net cost (benefit) of operation of OREO4 (160)52 (348)
Other6,910 6,055 19,285 22,190 
Total noninterest expense90,007 85,115 257,682 250,219 
Income before income taxes66,491 54,683 200,468 117,318 
Income tax provision13,474 9,949 40,559 21,374 
Net Income$53,017 $44,734 $159,909 $95,944 
Earnings per common share
Basic$0.75 $0.63 $2.25 $1.35 
Diluted$0.74 $0.63 $2.24 $1.35 
Weighted average number of common shares outstanding71,036 70,726 70,965 70,870 
Weighted average number of diluted common shares outstanding71,186 70,762 71,155 70,906 

See accompanying Notes to unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Columbia Banking System, Inc.
(Unaudited) 
Three Months Ended
September 30,
20212020
(in thousands)
Net income$53,017 $44,734 
Other comprehensive loss, net of tax:
Unrealized loss from securities:
Net unrealized holding loss from available for sale debt securities arising during the period, net of tax of $6,671 and $436
(22,022)(1,442)
Amortization of net unrealized gain for the reclassification of available for sale securities to held to maturity, net of tax of $141 and $0
(465)— 
Net unrealized loss from securities, net of reclassification adjustment (22,487)(1,442)
Pension plan liability adjustment:
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of $(35) and $(24)
114 80 
Pension plan liability adjustment, net114 80 
Unrealized loss from cash flow hedging instruments:
Net unrealized loss in cash flow hedging instruments arising during the period, net of tax of $0 and $19
— (62)
Reclassification adjustment for net gain in cash flow hedging instruments included in income, net of tax of $612 and $621
(2,019)(2,052)
Net unrealized loss from cash flow hedging instruments, net of reclassification adjustment(2,019)(2,114)
Other comprehensive loss(24,392)(3,476)
Total comprehensive income$28,625 $41,258 
Nine Months Ended
 September 30,
20212020
(in thousands)
Net income$159,909 $95,944 
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from securities:
Net unrealized holding gain (loss) from available for sale debt securities arising during the period, net of tax of $31,134 and $(36,690)
(102,777)121,114 
Reclassification adjustment of net gain from available for sale debt securities arising during the period, net of tax of $73 and $58
(241)(191)
Amortization of net unrealized gain for the reclassification of available for sale securities to held to maturity, net of tax of $246 and $0
(810)— 
Net unrealized gain (loss) from securities, net of reclassification adjustment(103,828)120,923 
Pension plan liability adjustment:
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of $(104) and $(72)
344 239 
Pension plan liability adjustment, net344 239 
Unrealized gain from cash flow hedging instruments:
Net unrealized gain in cash flow hedging instruments arising during the period, net of tax of $0 and $(6,218)
— 20,526 
Reclassification adjustment for net gain in cash flow hedging instruments included in income, net of tax of $1,815 and $1,349
(5,994)(4,454)
Net unrealized gain (loss) from cash flow hedging instruments, net of reclassification adjustment(5,994)16,072 
Other comprehensive income (loss)(109,478)137,234 
Total comprehensive income$50,431 $233,178 

See accompanying Notes to unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia Banking System, Inc.
(Unaudited)
Common StockRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury StockTotal
Shareholders’
Equity
Shares OutstandingAmount
For the Three Months Ended September 30, 2021(in thousands except per share amounts)
Balance at July 1, 202171,742 $1,664,953 $642,018 $97,109 $(70,834)$2,333,246 
Net income— — 53,017 — — 53,017 
Other comprehensive loss— — — (24,392)— (24,392)
Issuance of common stock - employee stock purchase plan33 1,253 — — — 1,253 
Issuance of common stock - RSAs and RSUs, net of canceled awards(14)3,899 — — — 3,899 
Purchase and retirement of common stock(1)(29)— — — (29)
Cash dividends declared on common stock ($0.58 per share) (1)
— — (43,727)— — (43,727)
Balance at September 30, 202171,760 $1,670,076 $651,308 $72,717 $(70,834)$2,323,267 
For the Nine Months Ended September 30, 2021
Balance at January 1, 202171,598 $1,660,998 $575,248 $182,195 $(70,834)$2,347,607 
Net income— — 159,909 — — 159,909 
Other comprehensive loss— — — (109,478)— (109,478)
Issuance of common stock - employee stock purchase plan74 2,351 — — — 2,351 
Activity in deferred compensation plan— (8)— — — (8)
Issuance of common stock - RSAs and RSUs, net of canceled awards178 10,835 — — — 10,835 
Purchase and retirement of common stock(90)(4,100)— — — (4,100)
Cash dividends declared on common stock ($1.14 per share)
— — (83,849)— — (83,849)
Balance at September 30, 202171,760 $1,670,076 $651,308 $72,717 $(70,834)$2,323,267 
__________
(1) Dividends declared per common share - regular for the three months ended September 30, 2021 includes both the July 29, 2021 declaration of $0.28 and the September 30, 2021 declaration of $0.30.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Columbia Banking System, Inc.
(Unaudited)
Common StockRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury StockTotal
Shareholders’
Equity
Shares OutstandingAmount
For the Three Months Ended September 30, 2020(in thousands except per share amounts)
Balance at July 1, 202071,586 $1,654,129 $512,383 $181,077 $(70,834)$2,276,755 
Net income— — 44,734 — — 44,734 
Other comprehensive loss— — — (3,476)— (3,476)
Issuance of common stock - employee stock purchase plan39 1,083 — — — 1,083 
Activity in deferred compensation plan— (2)— — — (2)
Issuance of common stock - RSAs and RSUs, net of canceled awards(12)3,009 — — — 3,009 
Purchase and retirement of common stock— (16)— — — (16)
Cash dividends declared on common stock ($0.28 per share)
— — (20,106)— — (20,106)
Balance at September 30, 202071,613 $1,658,203 $537,011 $177,601 $(70,834)$2,301,981 
For the Nine Months Ended September 30, 2020
Balance at January 1, 202072,124 $1,650,753 $519,676 $40,367 $(50,834)$2,159,962 
Adjustment to opening retained earnings pursuant to adoption of ASU 2016-13— — (2,457)— — (2,457)
Net income— — 95,944 — — 95,944 
Other comprehensive income— — — 137,234 — 137,234 
Issuance of common stock - employee stock purchase plan65 2,028 — — — 2,028 
Activity in deferred compensation plan— 2 — — — 2 
Issuance of common stock - RSAs and RSUs, net of canceled awards222 7,918 — — — 7,918 
Purchase and retirement of common stock(67)(2,498)— — — (2,498)
Cash dividends declared on common stock ($1.06 per share)
— — (76,152)— — (76,152)
Purchase of treasury stock(731)— — — (20,000)(20,000)
Balance at September 30, 202071,613 $1,658,203 $537,011 $177,601 $(70,834)$2,301,981 

See accompanying Notes to unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
Nine Months Ended September 30,
20212020
(in thousands)
Cash Flows From Operating Activities
Net income$159,909 $95,944 
Adjustments to reconcile net income to net cash provided by operating activities
Provision (recapture) for credit losses(6,300)82,400 
Stock-based compensation expense10,835 7,918 
Depreciation, amortization and accretion11,383 14,456 
Investment securities gain, net(314)(16,674)
Net realized gain on sale of premises and equipment, loans held for investment and OPPO(268)(953)
Net realized (gain) loss on sale and valuation adjustments of OREO40 (64)
Gain on bank owned life insurance death benefit(209)— 
Originations of loans held for sale (263,367)(356,962)
Proceeds from sales of loans held for sale278,187 350,273 
Change in fair value of loans held for sale306 — 
Net change in:
Interest receivable1,945 (9,879)
Interest payable(52)(399)
Other assets15,761 (53,996)
Other liabilities(18,755)31,703 
Net cash provided by operating activities189,101 143,767 
Cash Flows From Investing Activities
Loans originated, net of principal collected108,551 (938,624)
Investment in low income housing tax credit partnerships(1,106)— 
Purchases of:
Debt securities available for sale(2,408,578)(996,951)
Debt securities held to maturity(112,372)— 
Loans held for investment(176,545)— 
Premises and equipment(4,334)(7,538)
FHLB stock(1)(53,240)
Proceeds from:
Sales of debt securities available for sale26,914 194,105 
Sales of equity securities— 3,000 
Principal repayments and maturities of debt securities available for sale586,288 406,767 
Principal repayments and maturities of debt securities held to maturity42,653 — 
Sales of premises and equipment and loans held for investment4,287 2,128 
Redemption of FHLB stock1 91,080 
Sales of OREO and OPPO132 1,034 
Bank owned life insurance death benefit671 1,050 
Net cash used in investing activities(1,933,439)(1,297,189)
Cash Flows From Financing Activities
Net increase in deposits2,083,537 2,915,565 
Net decrease in sweep repurchase agreements(33,819)(37,471)
Proceeds from:
FHLB advances20 1,331,000 
FRB borrowings10 222,010 
Other borrowings— 9,222 
Employee stock purchase plan2,351 2,028 
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
Nine Months Ended September 30,
20212020
Payments for:
Repayment of FHLB advances(20)(2,277,000)
Repayment of FRB borrowings(10)(222,010)
Repayment of other borrowings— (9,222)
Common stock dividends(59,922)(75,630)
Purchase of treasury stock— (20,000)
Purchase and retirement of common stock(4,100)(2,498)
Net cash provided by financing activities1,988,047 1,835,994 
Increase in cash and cash equivalents243,709 682,572 
Cash and cash equivalents at beginning of period653,766 247,673 
Cash and cash equivalents at end of period$897,475 $930,245 
Supplemental Information:
Interest paid$6,085 $15,913 
Income taxes paid, net of refunds$45,122 $32,745 
Non-cash investing and financing activities
Transfer of debt securities available for sale to debt securities held to maturity$2,012,123 $— 
Loans transferred to OREO$— $1,033 
Premises and equipment expenditures incurred but not yet paid$87 $301 
Change in dividends payable included in other liabilities$23,927 $522 

See accompanying Notes to unaudited Consolidated Financial Statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
1.Basis of Presentation, Significant Accounting Policies and Reclassifications
Basis of Presentation
The interim unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The Consolidated Financial Statements include the accounts of Columbia Banking System, Inc. (“we”, “our”, “Columbia” or the “Company”) and its subsidiaries, including its wholly owned banking subsidiary Columbia State Bank (“Columbia Bank” or the “Bank”) and Columbia Trust Company (“Columbia Trust”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of results to be anticipated for the year ending December 31, 2021. The accompanying interim unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2020 Annual Report on Form 10-K.
Significant Accounting Policies
The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2020 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2020 Form 10-K disclosure for the year ended December 31, 2020.
Reclassifications
Certain amounts reported in prior periods have been reclassified in the Consolidated Financial Statements to conform to the current presentation. Specifically, amounts related to software expense, which prior to January 1, 2021 had historically been included in “Other” noninterest expense, have been combined with data processing expense in the row titled “Data processing and software” in the Consolidated Statements of Income. The reclassifications have no effect on net income or shareholders’ equity as previously reported.
2.Accounting Pronouncements Recently Adopted or Issued
Accounting Standards Adopted in 2021
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of the cessation of LIBOR, the amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this ASU are elective and were effective March 12, 2020 for all entities. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The guidance issued in this ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The ASU is effective for interim and annual reporting periods beginning after December 15, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.
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In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) - Scope. The amendments in this ASU clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Certain provisions, if elected, apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform. Amendments in this ASU to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The ASU is effective for interim and annual reporting periods beginning on January 7, 2021. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.
Recently Issued Accounting Standards, Not Yet Adopted
There are no recently issued accounting standards that are applicable to the Company and not yet adopted.
3.Securities
During the second quarter of 2021, the Company transferred, at fair value, $2.01 billion of U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations from the available for sale classification to the held to maturity classification. The net unrealized after tax gain of $15.5 million remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfer.
The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of debt securities:
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
September 30, 2021(in thousands)
Available for sale
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$3,333,804 $63,072 $(18,015)$3,378,861 
Other asset-backed securities417,128 4,803 (6,022)415,909 
State and municipal securities769,775 16,370 (4,972)781,173 
U.S. government agency and government-sponsored enterprise securities253,035 4,169 (1,228)255,976 
Total available for sale$4,773,742 $88,414 $(30,237)$4,831,919 
Held to maturity
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$2,075,158 $2,052 $(6,159)$2,071,051 
Total held to maturity$2,075,158 $2,052 $(6,159)$2,071,051 
December 31, 2020
Available for sale
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$3,640,351 $178,579 $(4,543)$3,814,387 
Other asset-backed securities349,904 9,651 (2,076)357,479 
State and municipal securities729,066 25,098 (592)753,572 
U.S. government agency and government-sponsored enterprise securities278,208 6,545 (57)284,696 
Total available for sale$4,997,529 $219,873 $(7,268)$5,210,134 
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There was no allowance for credit losses on both available for sale securities and held to maturity securities as of September 30, 2021 and December 31, 2020. 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.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income. There were no amounts of accrued interest reversed against interest income for the three and nine months ended September 30, 2021 and 2020.
Accrued interest receivable for debt securities is included in “Interest receivable” on the Company’s Consolidated Balance Sheet and is not reflected in the balances in the table above. At September 30, 2021 and December 31, 2020, accrued interest receivable for securities available for sale was $15.6 million and $17.1 million, respectively. Accrued interest for securities held to maturity was $4.2 million at September 30, 2021. There was no accrued interest receivable related to securities held to maturity at December 31, 2020, as the Company did not have held to maturity securities at that date. The Company does not measure an allowance for credit losses for accrued interest receivable.
The following table provides the proceeds and both gross realized gains and losses on sales and calls of debt securities available for sale as well as other securities gains and losses for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Proceeds from sales of debt securities available for sale$— $— $26,914 $194,105 
Gross realized gains from sales of debt securities available for sale$— $— $751 $435 
Gross realized losses from sales of debt securities available for sale— — (437)(186)
Other securities gains (1)— — — 16,425 
Investment securities gains, net$— $— $314 $16,674 
__________
(1) Other securities gains includes gain from sale of Visa Class B restricted stock and subsequent write up to fair value of remaining Visa Class B shares. For additional information, please see Note 13.

The following table provides the unrealized gains and losses on equity securities at the reporting date:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Gains recognized during the period on equity securities (1)$— $— $— $16,425 
Less: Gains recognized during the period on equity securities sold during the period (1)— — — (3,000)
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date (1)$— $— $— $13,425 
__________
(1) Visa Class B restricted stock owned by the Company was carried at a zero-cost basis prior to June 2020 due to existing transfer restrictions 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 sale of shares by the Company of Visa Class B restricted shares during the three months ended June 30, 2020 resulted in an observable market price. As a result, the Company adjusted the carrying value of its remaining shares of Visa Class B restricted shares upward to this observable market price.
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The scheduled contractual maturities of debt securities at the period presented below are as follows:
September 30, 2021
Available for saleHeld to maturity
Amortized CostFair ValueAmortized CostFair Value
(in thousands)
Due within one year$61,198 $61,791 $— $— 
Due after one year through five years781,405 807,659 72,430 72,215 
Due after five years through ten years1,526,384 1,559,371 1,235,888 1,233,393 
Due after ten years2,404,755 2,403,098 766,840 765,443 
Total debt securities$4,773,742 $4,831,919 $2,075,158 $2,071,051 
The following table summarizes the carrying value of securities pledged as collateral to secure public funds, borrowings and other purposes as permitted or required by law:
September 30, 2021
(in thousands)
To secure public funds$490,494 
To secure borrowings99,665 
Other securities pledged254,716 
Total securities pledged as collateral$844,875 
The following table shows the gross unrealized losses and fair value of the Company’s debt securities available for sale for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates presented:
Less than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
September 30, 2021(in thousands)
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$1,744,928 $(15,723)$69,031 $(2,292)$1,813,959 $(18,015)
Other asset-backed securities170,492 (3,490)89,936 (2,532)260,428 (6,022)
State and municipal securities315,235 (4,406)20,961 (566)336,196 (4,972)
U.S. government agency and government-sponsored enterprise securities101,669 (633)49,405 (595)151,074 (1,228)
Total$2,332,324 $(24,252)$229,333 $(5,985)$2,561,657 $(30,237)
December 31, 2020
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$575,329 $(3,728)$18,527 $(815)$593,856 $(4,543)
Other asset-backed securities143,764 (2,076)70 — 143,834 (2,076)
State and municipal securities86,471 (592)— — 86,471 (592)
U.S. government agency and government-sponsored enterprise securities74,943 (57)— — 74,943 (57)
Total$880,507 $(6,453)$18,597 $(815)$899,104 $(7,268)
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Debt securities available for sale
At September 30, 2021, there were 137 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligation securities in an unrealized loss position. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company concluded an allowance for credit losses is unnecessary at September 30, 2021.
At September 30, 2021, there were 21 other asset-backed securities in an unrealized loss position. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company concluded an allowance for credit losses is unnecessary at September 30, 2021.
At September 30, 2021, there were 109 state and municipal government securities in an unrealized loss position. The unrealized losses on state and municipal securities were caused by interest rate changes or widening of market spreads subsequent to the purchase of the individual securities. Management monitors published credit ratings of these securities for adverse changes. As of September 30, 2021, none of the rated obligations of state and local government entities held by the Company had a below investment grade credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company concluded an allowance for credit losses is unnecessary at September 30, 2021.
At September 30, 2021, there were 11 U.S. government securities in an unrealized loss position. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company concluded an allowance for credit losses is unnecessary at September 30, 2021.
Equity Securities without Readily Determinable Fair Values
Visa Class B Restricted Shares
In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into publicly traded Visa Class A common shares. This conversion will not occur until the settlement of certain litigation which is indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account not be sufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Visa Class B conversion ratio to unrestricted Visa Class A shares.
During the second quarter of 2020, the Company sold 17,360 shares of Visa Class B restricted stock, which resulted in an observable market price. As a result, the Company adjusted the carrying value of its remaining Visa Class B restricted shares upward to this observable market price. At September 30, 2021, the Company owned 77,683 Visa Class B shares, which had a carrying value of $13.4 million.
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4.Loans
The Company’s loan portfolio includes originated and purchased loans. The following is an analysis of the loan portfolio by segment and class (net of unearned income):
September 30, 2021December 31, 2020
(dollars in thousands)
Commercial loans:
Commercial real estate$4,088,484 $4,062,313 
Commercial business3,436,351 3,597,968 
Agriculture815,985 779,627 
Construction326,569 268,663 
Consumer loans:
One-to-four family residential real estate823,877 683,570 
Other consumer30,119 35,519 
Total loans9,521,385 9,427,660 
Less: Allowance for credit losses(142,785)(149,140)
Total loans, net$9,378,600 $9,278,520 
At September 30, 2021 and December 31, 2020, the Company had 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.
At September 30, 2021 and December 31, 2020, $3.21 billion and $3.46 billion of commercial and residential real estate loans were pledged as collateral on FHLB advances and additional borrowing capacity. The Company has also pledged $200.1 million and $200.4 million of commercial loans to the FRB for additional borrowing capacity at September 30, 2021 and December 31, 2020, respectively.
Accrued interest receivable for loans is included in “Interest receivable” on the Company’s Consolidated Balance Sheet and is not reflected in the balances in the table above. At September 30, 2021 and December 31, 2020, accrued interest receivable for loans was $33.0 million and $37.8 million, respectively. The Company does not measure an allowance for credit losses for accrued interest receivable.
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The following is an aging of the recorded investment of the loan portfolio at the dates presented:
Current
Loans		30 - 59
Days
Past Due		60 - 89
Days
Past Due		Greater
than 90
Days Past
Due		Total
Past Due		Nonaccrual
Loans		Total Loans
September 30, 2021(in thousands)
Commercial loans:
Commercial real estate$4,081,036 $3,803 $774 $— $4,577 $2,871 $4,088,484 
Commercial business3,421,381 1,334 1,531 — 2,865 12,105 3,436,351 
Agriculture808,279 — — — — 7,706 815,985 
Construction326,569 — — — — — 326,569 
Consumer loans:
One-to-four family residential real estate822,170 10 206 — 216 1,491 823,877 
Other consumer30,020 96 — — 96 3 30,119 
Total$9,489,455 $5,243 $2,511 $— $7,754 $24,176 $9,521,385 
Current
Loans		30 - 59
Days
Past Due		60 - 89
Days
Past Due		Greater
than 90
Days Past
Due		Total
Past Due		Nonaccrual
Loans		Total Loans
December 31, 2020(in thousands)
Commercial loans:
Commercial real estate$4,037,309 $17,292 $— $— $17,292 $7,712 $4,062,313 
Commercial business3,578,905 1,282 4,559 — 5,841 13,222 3,597,968 
Agriculture767,102 911 — — 911 11,614 779,627 
Construction268,304 — 142 — 142 217 268,663 
Consumer loans:
One-to-four family residential real estate677,627 2,283 1,659 — 3,942 2,001 683,570 
Other consumer35,450 24 5 — 29 40 35,519 
Total$9,364,697 $21,792 $6,365 $— $28,157 $34,806 $9,427,660 
Loan payments are considered timely when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof is received on the due date of the scheduled payment. In addition, the risk rating on loans modified in association with the CARES Act or Interagency guidance did not change. These loans are not considered past due until after the deferral period is over and scheduled payments resume. Accrued interest on these COVID-19 modified loans is due, in full, when the deferral period ends. The credit quality of these loans will be reevaluated after the deferral period ends.
Nonaccrual loans are generally loans placed on a nonaccrual basis when they become 90 days past due or when there are otherwise serious doubts about the collectability of principal or interest within the existing terms of the loan. The Company’s policy is to write-off all accrued interest on loans when they are placed on nonaccrual status.
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The following table summarizes written-off interest on nonaccrual loans for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Commercial loans$83 $387 $507 $1,835 
Consumer loans16 6 25 19 
Total$99 $393 $532 $1,854 
The following summarizes the amortized cost of nonaccrual loans for which there was no related ACL for the periods indicated:
September 30, 2021December 31, 2020
(in thousands)
Commercial loans:
Commercial real estate$942 $6,393 
Commercial business6,861 6,382 
Agriculture5,792 8,136 
Consumer loans:
One-to-four family residential real estate502 — 
Total$14,097 $20,911 
The following is an analysis of loans classified as TDR for the periods indicated:
Three Months Ended September 30, 2021Three Months Ended September 30, 2020
Number of TDR ModificationsPre-Modification
Outstanding
Recorded
Investment 		Post-Modification
Outstanding
Recorded
Investment 		Number of TDR ModificationsPre-Modification
Outstanding
Recorded
Investment 		Post-Modification
Outstanding
Recorded
Investment
(dollars in thousands)
Commercial loans:
Commercial business— $— $— 4 $795 $795 
Agriculture— — — 1 2,600 2,600 
Consumer loans:
One-to-four family residential real estate1 15 15 4 618 618 
Total1 $15 $15 9 $4,013 $4,013 

Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Number of TDR ModificationsPre-Modification
Outstanding
Recorded
Investment 		Post-Modification
Outstanding
Recorded
Investment 		Number of TDR ModificationsPre-Modification
Outstanding
Recorded
Investment 		Post-Modification
Outstanding
Recorded
Investment
(dollars in thousands)
Commercial loans:
Commercial real estate
1 $628 $628 — $— $— 
Commercial business
11 2,600 2,600 10 2,757 2,757 
Agriculture
— — — 2 3,495 3,495 
Consumer loans:
One-to-four family residential real estate
3 155 155 6 814 814 
Total15 $3,383 $3,383 18 $7,066 $7,066 
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The Company’s loans classified as TDR are loans that have been modified or with respect to which the borrower has been granted special concessions due to financial difficulties that, if not for the challenges of the borrower, the Company would not otherwise consider. The TDR modifications or concessions are made to increase the likelihood that these borrowers with financial difficulties will be able to satisfy their debt obligations as amended. The concessions granted in the restructurings, summarized in the table above, largely consisted of maturity extensions, interest rate modifications or a combination of both. In limited circumstances, a reduction in the principal balance of the loan could also be made as a concession. Loans classified as TDR are included with the loans collectively measured for credit losses.
The Company had commitments to lend $1.3 million of additional funds on loans classified as TDR as of September 30, 2021. The Company had $651 thousand of such commitments at December 31, 2020. The Company had no loans classified as TDR that defaulted within 12 months of being classified as TDR during the three months and nine months ended September 30, 2021 and 2020.
Financial institutions are required to maintain records of the volume of loans involved in modifications to which troubled debt restructuring relief is applicable. At September 30, 2021, the Company had 9 short–term deferments on $32.8 million of loans, gross of unearned income. These short–term deferments are not classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms.
The Company offered PPP loans to provide financial support to small and medium-size businesses to cover payroll and certain other expenses during the COVID-19 pandemic. The PPP was established by the CARES Act and is implemented by the U.S. SBA with support from the U.S. Department of Treasury. The program, which was amended by the Paycheck Protection Flexibility Act of 2020, provides small businesses with funds to pay up to 24 weeks of payroll costs including benefits, as well as interest on mortgages, rent and utilities. Funds are provided to small businesses in the form of loans that will be fully forgiven when used for permitted purposes and when at least 60% of the funds are used for payroll costs and applicable employment levels are maintained in accordance with the requirements of the amended PPP. At September 30, 2021, we had $337.0 million of PPP loans outstanding, which are included in commercial business loans.
5.Allowance for Credit Losses and Allowance for Unfunded Commitments and Letters of Credit
The ACL is determined through quarterly assessments of expected credit losses within the loan portfolio and is deducted from the loan’s amortized cost basis to present the net amount of loans expected to be collected. We estimate the ACL using relevant and reliable available information, which is derived from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Additions to and recaptures from the ACL are charged to current period earnings through the provision for credit losses. Loan amounts that are determined to be uncollectible are charged directly against the ACL and netted against amounts recovered on previously charged-off loans.
For the purpose of calculating portfolio level reserves, we have segmented our loan portfolio into two portfolio segments (Commercial and Consumer). The Commercial and Consumer portfolio segments are then further broken down into loan classes by risk characteristics. The risk characteristics include regulatory call codes, type of industry and collateral type.
The ACL is comprised of reserves measured on a collective (pool) basis using a quantitative DCF model for all loan classes with similar risk characteristics and then qualitatively adjusted for large loan concentrations, policy exemptions granted and other factors. The quantitative DCF model utilizes anticipated period cash flows determined on a loan-level basis. The anticipated cash flows take into account contractual principal and interest payments, anticipated segment level prepayments, probability of defaults and historical loss given defaults. The majority of our loan classes utilize regression models to calculate probability of defaults, in which macroeconomic factors are correlated to historical quarterly defaults. The Commercial segment multi-factor models utilize a mix of 15 macroeconomic factors, including the four most commonly used factors: Real GDP, National Unemployment Rate, Disposable Personal Income and Private Inventories. The Consumer segment multi-factor models utilize a mix of three macroeconomic factors: National Unemployment Rate, Home Price Index and Disposable Income. The Company utilizes an 18 month reasonable and supportable forecast for the macroeconomic factors, after which the probability of default reverts to its historical mean using a straight-line basis constructed on each macroeconomic factor’s absolute historical quarterly change.
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Loans are individually measured for credit losses if they do not share similar risk characteristics of other loans within their respective pools. Individually measured loans are primarily nonaccrual and collateral dependent with balances equal to or greater than $500,000 and for which foreclosure is probable. Commercial real estate loans are secured by commercial real estate, including owner occupied and non-owner occupied commercial real estate, as well as multifamily residential real estate. Commercial business loans are primarily secured by non-real estate collateral, including equipment and other non-real estate fixed assets, inventory, receivables and cash. Agricultural loans are secured by farmland and other agricultural real estate, as well as equipment, inventory, such as crops and livestock, non-real estate fixed assets, and cash. Construction loans are secured by one-to-four family residential real estate and commercial real estate in varying stages of development. One-to-four family residential real estate loans are secured by one-to-four family residential properties. Other consumer loans are secured by personal property. For loans measured on an individual basis, the Company calculates the allowance as the difference between the amortized cost of the loan and the fair market value of the collateral. The fair market value of the collateral is determined by either the discounted expected future cash flows from the operation of the collateral or the appraised value of the collateral, less costs to sell. If the fair value of the collateral is greater than the amortized cost of the loan, no reserve is recorded.
The Company also records an allowance for credit losses on unfunded loan commitments and letters of credit. We estimate expected credit losses on unfunded commitments in which we are exposed to credit risk, unless we have the option to unconditionally cancel the obligation. Expected credit losses are calculated based on the likelihood that funding will occur and an estimate of what will be funded by analyzing the most recent four-quarter utilization rates, current utilization and our quantitative ACL rate. The allowance for unfunded commitments and letters of credit is included in “Other Liabilities” on the Consolidated Balance Sheets, with changes to the balance being charged to noninterest expense.
We do not measure an allowance for credit losses on accrued interest receivable balances because these balances are written-off in a timely manner as a reduction to interest income when loans are placed on nonaccrual status.
The following tables show a detailed analysis of the ACL for the periods indicated:
Beginning BalanceCharge-offsRecoveriesProvision
(Recapture)		Ending Balance
Three Months Ended September 30, 2021(in thousands)
Commercial loans:
Commercial real estate$53,250 $— $518 $(2,016)$51,752 
Commercial business57,554 (1,183)328 (1,138)55,561 
Agriculture7,920 — 6 1,039 8,965 
Construction6,559 — 8 (200)6,367 
Consumer loans:
One-to-four family residential real estate16,519 — 203 2,133 18,855 
Other consumer1,186 (296)213 182 1,285 
Total$142,988 $(1,479)$1,276 $— $142,785 
Beginning BalanceCharge-offsRecoveriesProvision
(Recapture)		Ending Balance
Nine Months Ended September 30, 2021(in thousands)
Commercial loans:
Commercial real estate$68,934 $(316)$570 $(17,436)$51,752 
Commercial business45,250 (5,493)4,416 11,388 55,561 
Agriculture9,052 (122)23 12 8,965 
Construction7,636 — 575 (1,844)6,367 
Consumer loans:
One-to-four family residential real estate16,875 (146)757 1,369 18,855 
Other consumer1,393 (808)489 211 1,285 
Total$149,140 $(6,885)$6,830 $(6,300)$142,785 
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Beginning BalanceCharge-offsRecoveriesProvision
(Recapture)		Ending Balance
Three Months Ended September 30, 2020(in thousands)
Commercial loans:
Commercial real estate$50,233 $— $65 $11,026 $61,324 
Commercial business53,186 (3,164)1,124 (574)50,572 
Agriculture14,868 (1,269)27 (1,165)12,461 
Construction7,953 — 11 999 8,963 
Consumer loans:
One-to-four family residential real estate23,711 (16)1,301 (2,889)22,107 
Other consumer1,595 (133)76 3 1,541 
Total$151,546 $(4,582)$2,604 $7,400 $156,968 
Beginning BalanceImpact of Adopting ASC 326Charge-offsRecoveriesProvision
(Recapture)		Ending Balance
Nine Months Ended September 30, 2020(in thousands)
Commercial loans:
Commercial real estate$20,340 $7,533 $(101)$92 $33,460 $61,324 
Commercial business30,292 762 (10,290)2,795 27,013 50,572 
Agriculture15,835 (9,325)(5,995)69 11,877 12,461 
Construction8,571 (1,750)— 688 1,454 8,963 
Consumer loans:
One-to-four family residential real estate7,435 4,237 (26)2,005 8,456 22,107 
Other consumer883 778 (599)330 149 1,541 
Unallocated612 (603)— — (9)— 
Total83,968 1,632 (17,011)5,979 82,400 156,968 
The $6.4 million decrease in the ACL at September 30, 2021 compared to the ACL at December 31, 2020 was primarily due to a slight improvement in the economic outlook, which remains impacted by the COVID-19 pandemic and its impact on our borrowers. Specifically regarding the forecast used in the September 30, 2021 estimate, management expects the forecasted national unemployment rate to return to pre-pandemic levels in 2023. Additionally, the commercial real estate index decline is expected to continue through 2021, followed by a slight increase in 2022. The home price index is projected to moderate over the forecast period and real GDP growth is projected to continue to be above average during this time. The models used for calculating the ACL are sensitive to changes in these and other economic factors, which could result in volatility as these assumptions change over time. The ACL at September 30, 2021 does not include a reserve for the PPP loans as these loans are fully guaranteed by the SBA.
Changes in the allowance for unfunded commitments and letters of credit, a component of “Other liabilities” in the Consolidated Balance Sheets, are summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Beginning 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 credit500 800 2,200 4,600 
Ending balance$10,500 $9,600 $10,500 $9,600 
Credit Quality Indicators
The extension of credit in the form of loans or other credit products to consumer and commercial clients is one of our principal business activities. Our policies and 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.
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We evaluate the credit quality of our loan portfolio using regulatory risk ratings, which are based on relevant information about the borrower’s financial condition, including current financial condition, historical payment experience, credit documentation and current economic trends. Risk ratings are reviewed and updated whenever appropriate, with more periodic reviews as the risk and dollar value of the loss on the loan increases. All loans risk rated special mention or worse with amortized costs exceeding $100,000 are reviewed at least quarterly with more frequent review for specific loans.
Pass rated loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. Special Mention rated loans have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans with a risk rating of Substandard or worse are reviewed to assess the ability of our borrowers to service all interest and principal obligations and, as a result, the risk rating or accrual status may be adjusted accordingly. Loans risk rated as Substandard reflect loans where a loss is possible if loan weaknesses are not corrected. Doubtful rated loans have a high probability of loss; however, the amount of loss has not yet been determined. Loss rated loans are considered uncollectible and when identified, are charged-off.
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The following is an analysis of the credit quality of our loan portfolio as of the periods indicated:
Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
 Term Loans
Amortized Cost Basis by Origination Year
20212020201920182017PriorTotal (1)
September 30, 2021(in thousands)
Commercial loans:
Commercial real estate
Pass$1,250,051 $490,402 $460,118 $359,635 $342,653 $823,529 $58,180 $4,263 $3,788,831 
Special mention21,356 10,947 24,415 9,575 26,238 29,400 — 2,199 124,130 
Substandard10,148 1,659 53,222 5,944 25,747 76,825 1,978 — 175,523 
Total commercial real estate$1,281,555 $503,008 $537,755 $375,154 $394,638 $929,754 $60,158 $6,462 $4,088,484 
Commercial business
Pass$864,775 $418,353 $279,874 $224,100 $140,381 $260,224 $1,033,171 $21,028 $3,241,906 
Special mention109 19 6,223 1,487 145 127 59,678 244 68,032 
Substandard5,412 3,911 22,329 27,519 20,825 28,389 16,382 1,646 126,413 
Total commercial business$870,296 $422,283 $308,426 $253,106 $161,351 $288,740 $1,109,231 $22,918 $3,436,351 
Agriculture
Pass$150,807 $78,668 $73,200 $31,159 $48,274 $78,461 $283,932 $1,770 $746,271 
Special mention3,158 1,078 700 186 64 — 3,913 — 9,099 
Substandard6,429 7,398 7,676 1,830 4,709 1,140 30,823 610 60,615 
Total agriculture$160,394 $87,144 $81,576 $33,175 $53,047 $79,601 $318,668 $2,380 $815,985 
Construction
Pass$174,463 $80,720 $8,279 $3,238 $2,110 $4,569 $32,315 $310 $306,004 
Substandard— — 20,511 — — 54 — — 20,565 
Total construction$174,463 $80,720 $28,790 $3,238 $2,110 $4,623 $32,315 $310 $326,569 
Consumer loans:
One-to-four family residential real estate
Pass$290,818 $131,779 $48,990 $40,142 $18,438 $55,278 $234,434 $1,426 $821,305 
Substandard1,235 398 193 — 85 527 62 72 2,572 
Total one-to-four family real estate$292,053 $132,177 $49,183 $40,142 $18,523 $55,805 $234,496 $1,498 $823,877 
Other consumer
Pass$5,483 $2,841 $1,895 $1,467 $582 $947 $15,662 $1,201 $30,078 
Substandard— 15 — — 1 2 23 — 41 
Total consumer$5,483 $2,856 $1,895 $1,467 $583 $949 $15,685 $1,201 $30,119 
Total$2,784,244 $1,228,188 $1,007,625 $706,282 $630,252 $1,359,472 $1,770,553 $34,769 $9,521,385 
Less:
Allowance for credit losses142,785 
Loans, net$9,378,600 
__________
(1) Loans that are on short-term deferments are treated as Pass loans and will not be reported as past due provided that they are performing in accordance with the modified terms.
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Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Term Loans
Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
December 31, 2020(in thousands)
Commercial loans:
Commercial real estate
Pass$674,444 $645,328 $478,881 $502,112 $408,972 $946,980 $52,049 $11,332 $3,720,098 
Special mention3,348 39,374 21,285 30,232 46,197 50,115 5 2,139 192,695 
Substandard2,916 24,860 13,571 15,652 43,735 41,138 3,389 4,259 149,520 
Total commercial real estate$680,708 $709,562 $513,737 $547,996 $498,904 $1,038,233 $55,443 $17,730 $4,062,313 
Commercial business
Pass$1,087,400 $366,435 $324,360 $199,010 $218,313 $214,677 $1,000,725 $11,540 $3,422,460 
Special mention3,002 26,361 8,471 24,582 7,004 10,650 22,426 — 102,496 
Substandard3,625 7,376 11,061 5,905 6,396 3,743 32,134 2,772 73,012 
Total commercial business$1,094,027 $400,172 $343,892 $229,497 $231,713 $229,070 $1,055,285 $14,312 $3,597,968 
Agriculture
Pass$142,163 $90,612 $44,434 $58,366 $58,893 $59,396 $244,135 $9,299 $707,298 
Special mention— 90 285 33 — — 85 13 506 
Substandard5,193 12,480 5,868 4,258 284 3,502 38,780 1,458 71,823 
Total agriculture$147,356 $103,182 $50,587 $62,657 $59,177 $62,898 $283,000 $10,770 $779,627 
Construction
Pass$134,693 $66,974 $10,066 $3,498 $763 $1,805 $29,323 $3,753 $250,875 
Substandard— 17,732 — — — 56 — — 17,788 
Total construction$134,693 $84,706 $10,066 $3,498 $763 $1,861 $29,323 $3,753 $268,663 
Consumer loans:
One-to-four family real estate
Pass$161,021 $77,756 $62,696 $29,737 $20,889 $78,098 $243,325 $3,655 $677,177 
Special mention— — 332 — — 195 — — 527 
Substandard— 849 227 1,166 344 1,968 1,005 307 5,866 
Total one-to-four family real estate$161,021 $78,605 $63,255 $30,903 $21,233 $80,261 $244,330 $3,962 $683,570 
Other consumer
Pass$5,548 $3,109 $3,886 $989 $244 $1,060 $19,911 $474 $35,221 
Substandard30 — — 5 — 170 53 40 298 
Total consumer$5,578 $3,109 $3,886 $994 $244 $1,230 $19,964 $514 $35,519 
Total$2,223,383 $1,379,336 $985,423 $875,545 $812,034 $1,413,553 $1,687,345 $51,041 $9,427,660 
Less:
Allowance for credit losses149,140 
Loans, net$9,278,520 
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6.Other Real Estate Owned
The following tables set forth activity in OREO for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Balance, beginning of period$381 $747 $553 $552 
Transfers in— 475 — 1,033 
Valuation adjustments— — (140)— 
Proceeds from sale of OREO property— (681)(132)(1,026)
Gain on sale of OREO, net— 82 100 64 
Balance, end of period$381 $623 $381 $623 
At September 30, 2021, there were no foreclosed residential real estate properties held as OREO. Additionally, there were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process.
7.Goodwill and Other Intangible Assets
In accordance with the Intangibles – Goodwill and Other topic of the FASB ASC, goodwill is not amortized but is reviewed for potential impairment at the reporting unit level. Management analyzes its goodwill for impairment on an annual basis on July 31 and between annual tests in certain circumstances such as material adverse changes in legal, business, regulatory and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company performed an annual impairment assessment as of July 31, 2021 and concluded that there was no impairment.
Our CDIs are evaluated for impairment if events and circumstances indicate a possible impairment. Each CDI is amortized on an accelerated basis over an estimated life of 10 years.
The following table sets forth activity for goodwill and other intangible assets for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Goodwill
Total goodwill$765,842 $765,842 $765,842 $765,842 
Other intangible assets, net
CDI:
Gross CDI balance at beginning of period105,473 105,473 105,473 105,473 
Accumulated amortization at beginning of period(83,434)(75,454)(79,658)(70,934)
CDI, net at beginning of period22,039 30,019 25,815 34,539 
CDI current period amortization(1,835)(2,193)(5,611)(6,713)
Total CDI, net at end of period20,204 27,826 20,204 27,826 
Intangible assets not subject to amortization919 919 919 919 
Other intangible assets, net at end of period21,123 28,745 21,123 28,745 
Total goodwill and other intangible assets at end of period$786,965 $794,587 $786,965 $794,587 
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The following table provides the estimated future amortization expense of our CDI for the remaining three months ending December 31, 2021 and the succeeding four years:
Year ending December 31,
(in thousands)
2021$1,653 
20225,880 
20234,552 
20243,432 
20252,415 
8. Revolving Line of Credit
The Company has a $15.0 million short-term credit facility with an unaffiliated bank, for which the term was extended through May 26, 2022 as a result of an amendment executed during the second quarter of 2021. This facility has a variable interest rate and provides the Company additional liquidity, if needed, for various corporate activities including the repurchase of shares of Columbia Banking System, Inc. common stock. There was no outstanding balance at both September 30, 2021 and December 31, 2020. 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.
9.Derivatives, Hedging Activities and Balance Sheet Offsetting
The Company is exposed to certain risks arising from both its business and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into interest rate-based derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.
The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company used an interest rate collar as part of its interest rate risk management strategy. Interest rate collars designated as cash flow hedges involve the payments of variable-rate amounts if interest rates rise above the cap strike rate on the contract and receipts of variable-rate amounts if interest rates fall below the floor strike rate on the contract. These derivative contracts were used to hedge the variable cash flows associated with existing variable-rate assets.
With respect to derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives are reclassified to interest income as interest payments are received on the Company’s variable-rate assets. During the next 12 months, the Company estimates that there will be $10.4 million reclassified as an increase to interest income.
The Company may use derivatives to hedge the risk or changes in the fair values of interest rate lock commitments and residential mortgage loans held for sale. These derivatives are not designated as hedging instruments. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes interest rate forward loan sales contracts in its derivative risk management strategy.
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The Company enters into forward delivery contracts to sell residential mortgage loans to broker-dealers at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were no counterparty default losses on forward contracts during the three and nine months ended September 30, 2021 and 2020. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker-dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the broker-dealer equal to the increase or decrease in the market value of the forward contract. At September 30, 2021 and December 31, 2020, the Bank had commitments to originate mortgage loans held for sale totaling $30.6 million and $31.9 million, respectively, and forward sales commitments of $27.5 million and $26.5 million, respectively, which are used to hedge both on-balance sheet and off-balance sheet exposures.
In addition, the Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively converts the customer’s variable rate loan into a fixed rate. The Company then enters into a corresponding swap agreement with a third-party in order to offset its exposure on the variable and fixed components of the customer agreement. As the interest rate swap agreements with the customers and third parties are not designated as hedges under the Derivatives and Hedging topic of the FASB ASC, the instruments are marked to market in earnings. The notional amount of open interest rate swap agreements at September 30, 2021 and December 31, 2020 was $587.9 million and $597.9 million, respectively.
The following table presents the fair value of derivatives, as well as their classification on the Consolidated Balance Sheet as of the dates presented:
Asset DerivativesLiability Derivatives
September 30, 2021December 31, 2020September 30, 2021December 31, 2020
Balance Sheet
Location		Fair ValueBalance Sheet
Location		Fair ValueBalance Sheet
Location		Fair ValueBalance Sheet
Location		Fair Value
(in thousands)
Derivatives not designated as hedging instruments:
Interest rate lock commitmentsOther assets$482 Other assets$1,096 Other liabilities$— Other liabilities$— 
Interest rate forward loan sales contractsOther assets$— Other assets$— Other liabilities$79 Other liabilities$165 
Interest rate swap contractsOther assets$29,139 Other assets$46,184 Other liabilities$29,139 Other liabilities$46,637 
The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income (loss) for the periods indicated:
Amount of Gain or (Loss) Recognized in Accumulated Other Comprehensive Income on Derivative Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Three Months Ended September 30,Three Months Ended September 30,
2021202020212020
(in thousands)(in thousands)
Interest rate collar$— $(81) Interest income $2,631 $2,673 
Nine Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)(in thousands)
Interest rate collar$— $26,744  Interest income $7,809 $5,803 
In January 2019, the Company entered into a $500.0 million notional interest rate collar with a five-year term. In October 2020, the collar was terminated and resulted in a $34.4 million realized gain that was recorded in accumulated other comprehensive income, net of deferred income taxes. The gain will amortize through February 2024 into interest income. The gain will be amortized in this manner as long as the cash flows pertaining to the hedged item are expected to occur.
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The following table summarizes the types of derivatives not designated as hedging instruments and the gains (losses) recorded during the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Interest rate lock commitments$(103)$169 $(614)$169 
Interest rate forward loan sales contracts(57)(3)86 (3)
Interest rate swap contracts(22)(2)50 (475)
Total derivative gains (losses)$(182)$164 $(478)$(309)
The gains and losses on the Company’s mortgage banking derivatives are included in loan revenue. Mark-to-market gains and losses on the Company’s interest rate swap contracts are recorded to “Other” noninterest expense.
The Company is party to interest rate swap contracts and repurchase agreements that are subject to enforceable master netting arrangements or similar agreements. Under these agreements, the Company may have the right to net settle multiple contracts with the same counterparty.
The following tables show the gross interest rate swap contracts, collar agreements and repurchase agreements in the Consolidated Balance Sheets and the respective collateral received or pledged in the form of cash or other financial instruments. The collateral amounts in these tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of over-collateralization are not shown.
Gross Amounts of Recognized Assets/LiabilitiesGross Amounts Offset in the Consolidated Balance SheetsNet Amounts of Assets/Liabilities Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance Sheets
Collateral Pledged/ReceivedNet Amount
September 30, 2021(in thousands)
Assets
Interest rate swap contracts$29,139 $— $29,139 $(370)$28,769 
Liabilities
Interest rate swap contracts$29,139 $— $29,139 $(26,670)$2,469 
Repurchase agreements$40,040 $— $40,040 $(40,040)$— 
December 31, 2020
Assets
Interest rate swap contracts$46,184 $— $46,184 $— $46,184 
Liabilities
Interest rate swap contracts$46,637 $— $46,637 $(46,637)$— 
Repurchase agreements$73,859 $— $73,859 $(73,859)$— 
The Company’s agreements with each of its derivative counterparties provide that if the Company defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
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The following table presents the class of collateral pledged for repurchase agreements as well as the remaining contractual maturity of the repurchase agreements:
Remaining contractual maturity of the agreements
Overnight and continuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
September 30, 2021(in thousands)
Class of collateral pledged for repurchase agreements
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$40,040 $— $— $— $40,040 
Gross amount of recognized liabilities for repurchase agreements40,040 
Amounts related to agreements not included in offsetting disclosure$— 
The collateral utilized for the Company’s repurchase agreements is subject to market fluctuations as well as prepayments of principal. The Company monitors the risk of the fair value of its pledged collateral falling below acceptable amounts based on the type of the underlying repurchase agreement. The pledged collateral related to the Company’s $40.0 million sweep repurchase agreements, which mature on an overnight basis, is monitored on a daily basis as the underlying sweep accounts can have frequent transaction activity and the amount of pledged collateral is adjusted as necessary.
10.Commitments and Contingent Liabilities
Lease Commitments: The Company’s lease commitments consist primarily of leased locations under various non-cancellable operating leases that expire between 2021 and 2043. The majority of the leases contain renewal options and provisions for increases in rental rates based on an agreed upon index or predetermined escalation schedule.
Financial Instruments with Off-Balance Sheet Risk: In the normal course of business, the Company makes loan commitments (typically unfunded loans and unused lines of credit) and issues standby letters of credit to accommodate the financial needs of its customers. At September 30, 2021 and December 31, 2020, the Company’s loan commitments amounted to $3.11 billion and $2.80 billion, respectively.
Standby letters of credit commit the Company to make payments on behalf of customers under specified conditions. Historically, no significant losses have been incurred by the Company under standby letters of credit. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies, including collateral requirements, where appropriate. Standby letters of credit were $25.1 million and $29.9 million at September 30, 2021 and December 31, 2020, respectively.
Legal Proceedings: The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from their regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.
11.Shareholders’ Equity
Dividends:
The following table summarizes year-to-date dividend activity:
DeclaredRegular Cash Dividends Per Common ShareRecord DatePaid Date
January 28, 2021$0.28 February 10, 2021February 24, 2021
April 29, 2021$0.28 May 12, 2021May 26, 2021
July 29, 2021$0.28 August 11, 2021August 25, 2021
September 30, 2021$0.30 October 13, 2021October 27, 2021
The payment of cash dividends is subject to federal regulatory requirements for capital levels and other restrictions. In addition, the cash dividends paid by Columbia Bank to the Company are subject to both federal and state regulatory requirements.
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Share Repurchase Program:
For the three and nine months ended September 30, 2021, the Company did not purchase any common shares under its share repurchase program.
12.Accumulated Other Comprehensive Income
The following table shows changes in accumulated other comprehensive income (loss) by component for the periods indicated:
Unrealized Gains and Losses on Available for Sale Securities (1)Unrealized Gains and Losses on Pension Plan Liability (1)Unrealized Gains and Losses on Hedging Instruments (1)Total (1)
Three Months Ended September 30, 2021(in thousands)
Beginning balance$81,833 $(5,603)$20,879 $97,109 
Other comprehensive loss before reclassifications
(22,022)— — (22,022)
Amounts reclassified from accumulated other comprehensive income (2)
(465)114 (2,019)(2,370)
Net current-period other comprehensive income (loss)(22,487)114 (2,019)(24,392)
Ending balance$59,346 $(5,489)$18,860 $72,717 
Three Months Ended September 30, 2020
Beginning balance$155,403 $(3,815)$29,489 $181,077 
Other comprehensive loss before reclassifications
(1,442)— (62)(1,504)
Amounts reclassified from accumulated other comprehensive income (2)
— 80 (2,052)(1,972)
Net current-period other comprehensive income (loss)
(1,442)80 (2,114)(3,476)
Ending balance$153,961 $(3,735)$27,375 $177,601 
Nine Months Ended September 30, 2021
Beginning balance$163,174 $(5,833)$24,854 $182,195 
Other comprehensive loss before reclassifications
(102,777)— — (102,777)
Amounts reclassified from accumulated other comprehensive income (2)
(1,051)344 (5,994)(6,701)
Net current-period other comprehensive income (loss)
(103,828)344 (5,994)(109,478)
Ending balance$59,346 $(5,489)$18,860 $72,717 
Nine Months Ended September 30, 2020
Beginning balance$33,038 $(3,974)$11,303 $40,367 
Other comprehensive income before reclassifications
121,114 — 20,526 141,640 
Amounts reclassified from accumulated other comprehensive income (2)
(191)239 (4,454)(4,406)
Net current-period other comprehensive income
120,923 239 16,072 137,234 
Ending balance$153,961 $(3,735)$27,375 $177,601 
__________
(1) All amounts are net of tax. Amounts in parentheses indicate debits.
(2) See following table for details about these reclassifications.
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The following table shows details regarding the reclassifications from accumulated other comprehensive income (loss) for the periods indicated:
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Three Months Ended September 30,Nine Months Ended September 30,Affected line Item in the Consolidated
2021202020212020Statement of Income
(in thousands)
Unrealized gains on available for sale debt securities
$— $— $314 $249 Investment securities gains, net
Amortization of unrealized gains related to securities transfer606 — 1,056 — Loan interest income
606 — 1,370 249 Total before tax
(141)— (319)(58)Income tax provision
$465 $— $1,051 $191 Net of tax
Amortization of pension plan liability actuarial losses$(149)$(104)$(448)$(311)Compensation and employee benefits
(149)(104)(448)(311)Total before tax
35 24 104 72 Income tax provision
$(114)$(80)$(344)$(239)Net of tax
Unrealized gains from hedging instruments
$2,631 $2,673 $7,809 $5,803 Loans
2,631 2,673 7,809 5,803 Total before tax
(612)(621)(1,815)(1,349)Income tax provision
$2,019 $2,052 $5,994 $4,454 Net of tax
13.Fair Value Accounting and Measurement
The Fair Value Measurements and Disclosures topic of the FASB ASC defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value. We hold fixed and variable rate interest-bearing securities, investments in marketable equity securities and certain other financial instruments, which are carried at fair value. Fair value is determined based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available.
The valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our own market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets that are accessible at the measurement date.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.
Fair values are determined as follows:
Debt securities at fair value are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors. These fair value calculations are considered a Level 2 input method under the provisions of the Fair Value Measurements and Disclosures topic of the FASB ASC for all debt securities.
Loans held for sale include the fair value of residential mortgage loans originated as held for sale determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. The change in fair value of loans held for sale is primarily driven by changes in interest rates subsequent to loan funding and changes in the fair value of the related servicing asset, resulting in revaluation adjustments to the recorded fair value.
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The fair values of the interest rate lock commitments and interest rate forward loan sales contracts are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3.
Interest rate contracts and the interest rate collar are valued in models, which use as their basis, readily observable market parameters and are classified within Level 2 of the valuation hierarchy.
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The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at the dates presented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
Fair ValueFair Value Measurements at Reporting Date Using
Level 1Level 2Level 3
September 30, 2021(in thousands)
Assets
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations$3,378,861 $— $3,378,861 $— 
Other asset-backed securities415,909 — 415,909 — 
State and municipal securities781,173 — 781,173 — 
U.S. government agency and government-sponsored enterprise securities255,976 — 255,976 — 
Total debt securities available for sale$4,831,919 $— $4,831,919 $— 
Loans held for sale$10,847 $— $10,847 $— 
Other assets:
Interest rate lock commitments$482 $— $— $482 
Interest rate contracts$29,139 $— $29,139 $— 
Liabilities
Other liabilities:
Interest rate forward loan sales contracts$79 $— $79 $— 
Interest rate contracts$29,139 $— $29,139 $— 
Fair ValueFair Value Measurements at Reporting Date Using
Level 1Level 2Level 3
December 31, 2020(in thousands)
Assets
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations$3,814,387 $— $3,814,387 $— 
Other asset-backed securities357,479 — 357,479 — 
State and municipal securities753,572 — 753,572 — 
U.S. government agency and government-sponsored enterprise securities284,696 — 284,696 — 
Total debt securities available for sale$5,210,134 $— $5,210,134 $— 
Loans held for sale$14,760 $— $14,760 $— 
Other assets:
Interest rate lock commitments$1,096 $— $— $1,096 
Interest rate contracts$46,184 $— $46,184 $— 
Liabilities
Other liabilities:
Interest rate forward loan sales contracts$165 $— $165 $— 
Interest rate contracts$46,637 $— $46,637 $— 
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Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the dates presented:
Fair Value at September 30, 2021Valuation TechniqueUnobservable InputRange (Weighted Average)
(dollars in thousands)
Interest rate lock commitments$482 Internal pricing modelPull-through rate
77.76% - 100.00%
(90.62%)
Fair Value at September 30, 2020Valuation TechniqueUnobservable InputRange (Weighted Average)
(dollars in thousands)
Interest rate lock commitments$169 Internal pricing modelPull-through rate
85.85% - 96.45%
(88.47%)
An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments (and an increase in the fair value measurement). Conversely, a decrease in the pull-through rate will result in a negative fair value adjustment (and a decrease in the fair value measurement).
The following table includes a rollforward of interest rate lock commitments which utilize Level 3 inputs to determine the fair value on a recurring basis.
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Balance at the beginning of the period$585 $— $1,096 $— 
Change included in earnings1,864 169 5,708 169 
Settlements(1,967)— (6,322)— 
Balance at the end of the period$482 $169 $482 $169 
Nonrecurring Measurements
Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as collateral dependent loans. The following valuation techniques and inputs were used to estimate the fair value of collateral dependent loans and equity securities without readily determinable fair value.
Collateral dependent loans - A collateral dependent loan is a loan in which repayment is expected to be provided solely by the underlying collateral. The fair market value of the collateral is determined by either the discounted expected future cash flows from the operation of the collateral or the appraised value of the collateral, less costs to sell. The collateral dependent loan valuations are performed in conjunction with the allowance for credit losses process on a quarterly basis.
Equity securities without readily determinable fair value - The Company measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in earnings. Our equity securities without readily determinable fair values consist of 77,683 Visa Class B shares. These shares are currently subject to certain transfer restrictions and will be convertible into Visa Class A shares upon final resolution of certain litigation matters involving Visa. For additional information, please see Note 3 of this report.
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The following table presents the carrying value of equity securities, without readily determinable fair values, still held as of September 30, 2021, that are measured under the measurement alternative and related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable.
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Equity securities without readily determinable fair values(in thousands)
Carrying value, beginning of period$13,425 $13,425 $13,425 $— 
Upward carrying value changes— — — 13,425 
Carrying value, end of period$13,425 $13,425 $13,425 $13,425 
The following tables set forth information related to the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the current and prior year quarterly periods:
Fair Value atFair Value Measurements 
at Reporting Date Using		Gains (Losses) During the Three Months Ended September 30, 2021Gains (Losses) During the Nine Months Ended September 30, 2021
September 30, 2021Level 1Level 2Level 3
(in thousands)
Collateral dependent loans$1,845 $— $— $1,845 $(958)$(958)
Fair Value at Fair Value Measurements 
at Reporting Date Using		Gains (Losses) During the Three Months Ended September 30, 2020Gains (Losses) During the Nine Months Ended September 30, 2020
September 30, 2020Level 1Level 2Level 3
(in thousands)
Collateral dependent loans$11,899 $— $— $11,899 $(153)$4,941 

The losses on collateral dependent loans disclosed above represent the amount of the allowance for credit losses and/or charge-offs during the period applicable to loans held at period-end. The amount of the allowance is included in the ACL.
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Quantitative information about Level 3 fair value measurements
The range and weighted average of the significant unobservable inputs used to fair value our Level 3 nonrecurring assets, along with the valuation techniques used, are shown in the following table:
Fair Value at September 30, 2021Valuation TechniqueUnobservable InputRange (Weighted Average) (1)
(dollars in thousands)
Collateral dependent loans (2)$1,845 Fair Market Value of CollateralAdjustment to Stated Value
0.00% - 97.46% (71.44%)
__________
(1) Discount applied to appraised value or stated value (in the case of accounts receivable, fixed and intangible assets and inventory).
(2) Collateral consists of cash, accounts receivable, intangible assets, fixed assets inventory and real estate.
Fair Value at September 30, 2020Valuation TechniqueUnobservable InputRange (Weighted Average) (1)
(dollars in thousands)
Collateral dependent loans (2)$11,899 Fair Market Value of CollateralAdjustment to Stated Value
0.00% - 100.00% (15.57%)
__________
(1) Discount applied to appraised value or stated value (in the case of accounts receivable, fixed assets and inventory).
(2) Collateral consists of cash, accounts receivable, fixed assets, inventory and real estate.
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The following tables summarize carrying amounts and estimated fair values of selected financial instruments by level within the fair value hierarchy at the dates presented:
September 30, 2021
Carrying
Amount		Fair
Value		Level 1Level 2Level 3
(in thousands)
Assets
Cash and due from banks$193,715 $193,715 $193,715 $— $— 
Interest-earning deposits with banks703,760 703,760 703,760 — — 
Debt securities available for sale4,831,919 4,831,919 — 4,831,919 — 
Debt securities held to maturity2,075,158 2,071,051 — 2,071,051 — 
FHLB stock10,280 10,280 — 10,280 — 
Loans held for sale11,355 11,355 — 11,355 — 
Loans9,378,600 9,758,940 — — 9,758,940 
Interest rate contracts29,139 29,139 — 29,139 — 
Interest rate lock commitments482 482 — — 482 
Liabilities
Time deposits$330,720 $329,962 $— $329,962 $— 
FHLB advances7,372 8,739 — 8,739 — 
Repurchase agreements40,040 40,040 — 40,040 — 
Subordinated debentures35,000 35,231 — 35,231 — 
Interest rate contracts29,139 29,139 — 29,139 — 
Interest rate forward loan sales contracts79 79 — 79 — 
December 31, 2020
Carrying
Amount		Fair
Value		Level 1Level 2Level 3
(in thousands)
Assets
Cash and due from banks$218,899 $218,899 $218,899 $— $— 
Interest-earning deposits with banks434,867 434,867 434,867 — — 
Debt securities available for sale5,210,134 5,210,134 — 5,210,134 — 
FHLB stock10,280 10,280 — 10,280 — 
Loans held for sale26,481 26,481 — 26,481 — 
Loans9,278,520 9,720,592 — — 9,720,592 
Interest rate contracts46,184 46,184 — 46,184 — 
Interest rate lock commitments1,096 1,096 — — 1,096 
Liabilities
Time deposits$338,845 $338,815 $— $338,815 $— 
FHLB advances7,414 9,295 — 9,295 — 
Repurchase agreements73,859 73,859 — 73,859 — 
Subordinated debentures35,092 35,414 — 35,414 — 
Interest rate contracts46,637 46,637 — 46,637 — 
Interest rate forward loan sales contracts165 165 — 165 — 
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The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale sold under the mandatory delivery method and accounted for under the fair value option as of the dates presented:
September 30, 2021December 31, 2020
Fair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal BalanceFair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal Balance
(in thousands)
$10,847 $10,645 $202 $14,760 $14,252 $508 
Residential mortgage loans held for sale that are sold under the mandatory delivery method and accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported in loan revenue. For the three and nine months ended September 30, 2021, the Company recorded net decreases in fair value of $161 thousand and $306 thousand, respectively, representing the change in fair value reflected in earnings. For the three and nine months ended September 30, 2020, there were no changes in fair value recorded for such loans held for sale, as we did not have loans held for sale under the mandatory delivery method prior to September 2020. At September 30, 2021 and December 31, 2020, there were no residential mortgage loans held for sale for which the fair value option was elected that were 90 days or more past due, in nonaccrual status or both.
14.Earnings Per Common Share
The Company applies the two-class method of computing basic and diluted EPS. Under the two-class method, EPS is determined for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The Company has issued restricted shares under share-based compensation plans which qualify as participating securities.
The following table sets forth the computation of basic and diluted EPS for the periods presented:
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
(in thousands except per share amounts)
Basic EPS:
Net income$53,017 $44,734 $159,909 $95,944 
Less: Earnings allocated to participating securities:
Nonvested restricted shares91 164 317 487 
Earnings allocated to common shareholders$52,926 $44,570 $159,592 $95,457 
Weighted average common shares outstanding71,03670,72670,965 70,870 
Basic earnings per common share$0.75 $0.63 $2.25 $1.35 
Diluted EPS:
Earnings allocated to common shareholders$52,926 $44,570 $159,592 $95,457 
Weighted average common shares outstanding71,03670,72670,965 70,870 
Dilutive effect of equity awards150 36 190 36 
Weighted average diluted common shares outstanding71,18670,76271,155 70,906 
Diluted earnings per common share$0.74 $0.63 $2.24 $1.35 
Potentially dilutive RSAs and RSUs that were not included in the computation of diluted EPS because to do so would be anti-dilutive269 596 198 487 
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15.Revenue from Contracts with Customers
Revenue in the scope of Topic 606, Revenue from Contracts with Customers is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The vast majority of the Company’s revenue is specifically outside the scope of Topic 606. For in-scope revenue, the following is a description of principal activities, separated by the timing of revenue recognition from which the Company generates its revenue from contracts with customers.
a.Revenue earned at a point in time - Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees, overdraft fees, interchange fees and foreign exchange transaction fees. Revenue is primarily based on the number and type of transactions and is generally derived from transactional information accumulated by our systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer’s transaction. The Company is the principal in each of these contracts, with the exception of interchange fees, in which case we are acting as the agent and record revenue net of expenses paid to the principal.
b.Revenue earned over time - The Company earns revenue from contracts with customers in a variety of ways where the revenue is earned over a period of time - generally monthly. Examples of this type of revenue are deposit account maintenance fees, investment advisory fees, merchant revenue and safe deposit box fees. Revenue is generally derived from transactional information accumulated by our systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer.
The Company recognizes revenue from contracts with customers when it satisfies its performance obligations. The Company’s performance obligations are typically satisfied as services are rendered and our contracts generally do not include multiple performance obligations. As a result, there are no contract balances as payments and services are rendered simultaneously. Payment is generally collected at the time services are rendered, monthly or quarterly. Unsatisfied performance obligations at the report date are not material to our Consolidated Financial Statements.
In certain cases, other parties are involved with providing products and services to our customers. If the Company is principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (arranging for another party to provide goods or services), the Company reports its net fee or commission retained as revenue.
Rebates, waivers and reversals are recorded as a reduction of the transaction price either when the revenue is recognized by the Company or at the time the rebate, waiver or reversal is earned by the customer.
Practical expedients
The Company applies the practical expedient in paragraph 606-10-32-18 and does not adjust the consideration from customers for the effects of a significant financing component if at contract inception the period between when the entity transfers the goods or services and when the customer pays for that good or service will be one year or less.
The Company pays sales commissions to its employees in accordance with certain incentive plans and in connection with obtaining certain contracts with customers. The Company applies the practical expedient in paragraph 340-40-25-4 and expenses such sales commissions when incurred if the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are included in compensation and employee benefits expense.
For the Company’s contracts that have an original expected duration of one year or less, the Company uses the practical expedient in paragraph 606-10-50-14 and has not disclosed the amount of the transaction price allocated to unsatisfied performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue.
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Disaggregation of revenue
The following table shows the disaggregation of revenue from contracts with customers for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Noninterest income:
Revenue from contracts with customers:
Deposit account and treasury management fees$6,893 $6,658 $19,952 $20,538 
Card revenue4,889 3,834 13,395 10,431 
Financial services and trust revenue4,250 3,253 11,876 9,481 
Total revenue from contracts with customers16,032 13,745 45,223 40,450 
Other sources of noninterest income7,926 8,727 24,631 40,488 
Total noninterest income$23,958 $22,472 $69,854 $80,938 
16.Subsequent Events
On October 1, 2021, the Company completed its previously announced merger with Bank of Commerce, for a total consideration of approximately $256.3 million. Through the merger, the Company acquired 100% of the voting equity interests of Bank of Commerce. The operating results of the Company for the nine months ended September 30, 2021 do not include the operating results of Bank of Commerce as the acquisition did not close until after the close of business on September 30, 2021. It is not practical to present other financial information related to the acquisition at this time because the fair value measurement of assets acquired and liabilities assumed has not been finalized.
On October 12, 2021, Columbia Banking System, Inc. and Umpqua Holdings Corporation (“Umpqua”) jointly announced a definitive agreement to combine, creating the second largest regionally focused bank by market share on the West Coast with assets exceeding $50 billion. Upon closing, this combination will create a broad network of more than 300 locations across Washington, Oregon, Idaho, California and Nevada under the Umpqua brand with wealth management services and products offered under the Columbia brand. The name of our parent company will remain Columbia Banking System, Inc. and our stock will continue to be traded under the “COLB” symbol. There can be no assurances this transaction will close on a timely basis or at all.
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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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,
20212020
Average
Balances		Interest
Earned / Paid		Average
Rate		Average
Balances		Interest
Earned / Paid		Average
Rate
(dollars in thousands)
ASSETS
Loans, net (1)(2)$9,526,052 $106,345 4.43 %$9,744,336 $106,945 4.37 %
Taxable securities5,929,321 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 banks749,585 284 0.15 %800,058 203 0.10 %
Total interest-earning assets16,820,771 136,439 3.22 %14,492,435 129,212 3.55 %
Other earning assets245,907 235,735 
Noninterest-earning assets1,263,431 1,237,315 
Total assets$18,330,109 $15,965,485 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts3,790,201 741 0.08 %3,200,407 947 0.12 %
Interest-bearing demand1,581,598 298 0.07 %1,296,076 337 0.10 %
Savings accounts1,391,221 54 0.02 %1,072,472 36 0.01 %
Interest-bearing public funds, other than certificates of deposit729,382 232 0.13 %621,786 397 0.25 %
Certificates of deposit329,547 143 0.17 %336,954 288 0.34 %
Total interest-bearing deposits7,821,949 1,468 0.07 %6,527,695 2,005 0.12 %
FHLB advances and FRB borrowings7,382 73 3.92 %54,173 166 1.22 %
Subordinated debentures35,000 435 4.93 %35,161 468 5.30 %
Other borrowings and interest-bearing liabilities55,815 24 0.17 %42,090 19 0.18 %
Total interest-bearing liabilities7,920,146 2,000 0.10 %6,659,119 2,658 0.16 %
Noninterest-bearing deposits7,820,301 6,790,790 
Other noninterest-bearing liabilities225,513 221,805 
Shareholders’ equity2,364,149 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,
 20212020
Average
Balances		Interest
Earned / Paid		Average
Rate		Average
Balances		Interest
Earned / Paid		Average
Rate
(dollars in thousands)
ASSETS
Loans, net (1)(2)$9,592,178 $308,730 4.30 %$9,370,101 $322,347 4.60 %
Taxable securities5,286,406 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 banks650,203 595 0.12 %458,987 480 0.14 %
Total interest-earning assets16,143,956 $393,770 3.26 %13,549,356 $390,093 3.85 %
Other earning assets244,269 234,044 
Noninterest-earning assets1,247,801 1,256,525 
Total assets$17,636,026 $15,039,925 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts3,625,688 2,132 0.08 %2,925,672 3,649 0.17 %
Interest-bearing demand1,526,312 849 0.07 %1,211,958 1,160 0.13 %
Savings accounts1,311,118 139 0.01 %982,507 117 0.02 %
Interest-bearing public funds, other than certificates of deposit698,745 753 0.14 %512,548 1,693 0.44 %
Certificates of deposit331,910 506 0.20 %351,973 1,122 0.43 %
Total interest-bearing deposits7,493,773 4,379 0.08 %5,984,658 7,741 0.17 %
FHLB advances and FRB borrowings7,395 217 3.92 %455,303 6,191 1.82 %
Subordinated debentures35,034 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 liabilities7,587,989 $6,033 0.11 %6,516,874 $15,514 0.32 %
Noninterest-bearing deposits7,482,888 6,073,718 
Other noninterest-bearing liabilities223,911 202,105 
Shareholders’ equity2,341,238 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 $1.8 million for the nine months ended September 30, 2021 and 2020, respectively.
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The following table sets forth the total dollar amount of change in interest income and interest expense. The changes have been segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in volume and changes in rates. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates:
Three Months Ended September 30, 2021 Compared to 2020 Increase (Decrease) Due to
VolumeRateTotal (1)
(in thousands)
Interest Income
Loans, net$(2,419)$1,819 $(600)
Taxable securities11,256 (3,984)7,272 
Tax exempt securities1,067 (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 demand66 (105)(39)
Savings accounts12 6 18 
Interest-bearing public funds, other than certificates of deposit59 (224)(165)
Certificates of deposit(6)(139)(145)
Total interest on deposits285 (822)(537)
FHLB advances and FRB borrowings(233)140 (93)
Subordinated debentures(2)(31)(33)
Other borrowings and interest-bearing liabilities6 (1)5 
Interest expense$56 $(714)$(658)
__________
(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.
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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
 VolumeRateTotal (1)
(in thousands)
Interest Income
Loans, net$7,507 $(21,124)$(13,617)
Taxable securities29,642 (14,235)15,407 
Tax exempt securities3,621 (1,849)1,772 
Interest earning deposits with banks181 (66)115 
Interest income$40,951 $(37,274)$3,677 
Interest Expense
Deposits:
Money market accounts729 (2,246)(1,517)
Interest-bearing demand253 (564)(311)
Savings accounts36 (14)22 
Interest-bearing public funds, other than certificates of deposit470 (1,410)(940)
Certificates of deposit(61)(555)(616)
Total interest on deposits1,427 (4,789)(3,362)
FHLB advances and FRB borrowings(9,332)3,358 (5,974)
Subordinated debentures(7)(26)(33)
Other borrowings59 (171)(112)
Interest expense$(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 $82.4 million during the same period in 2020. The decrease in the provision for the first nine months of 2021 was due to the same factors discussed above for the quarterly provision for credit losses and the prior year provision was driven by the onset of the COVID-19 pandemic. The amount of provision was calculated in accordance with the Company’s methodology for determining the ACL, discussed in Note 5 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:
Three Months Ended September 30,Nine Months Ended September 30,
20212020$ Change% Change20212020$ Change% Change
(dollars in thousands)
Deposit account and treasury management fees$6,893 $6,658 $235 4 %$19,952 $20,538 $(586)(3)%
Card revenue4,889 3,834 1,055 28 %13,395 10,431 2,964 28 %
Financial services and trust revenue4,250 3,253 997 31 %11,876 9,481 2,395 25 %
Loan revenue5,184 6,645 (1,461)(22)%17,067 16,842 225 1 %
Bank owned life insurance1,585 1,585 — — %4,780 4,799 (19)— %
Investment securities gains, net— — — N/A314 16,674 (16,360)(98)%
Other1,157 497 660 133 %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 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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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 $16.4 million. Based on the existing transfer restriction and uncertainty regarding the outcome of Visa’s litigation that must be settled before the Visa Class B restricted shares may be converted into publicly traded Visa Class A common shares, the shares were previously carried at a zero-cost basis. This decrease was offset by increases in card revenue and financial services and trust revenue.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:
Three Months Ended September 30,Nine Months Ended September 30,
20212020$ Change% Change20212020$ Change% Change
(dollars in thousands)
Compensation and employee benefits$54,679 $55,133 $(454)(1)%$159,865 $156,018 $3,847 2 %
Occupancy9,695 8,734 961 11 %27,739 26,743 996 4 %
Data processing and software8,515 7,095 1,420 20 %24,368 22,175 2,193 10 %
Legal and professional fees4,894 3,000 1,894 63 %10,973 8,585 2,388 28 %
Amortization of intangibles1,835 2,193 (358)(16)%5,611 6,713 (1,102)(16)%
B&O taxes1,583 1,559 24 2 %4,332 3,427 905 26 %
Advertising and promotion678 680 (2)— %2,026 2,822 (796)(28)%
Regulatory premiums1,214 826 388 47 %3,431 1,894 1,537 81 %
Net cost (benefit) of operation of OREO
4 (160)164 (103)%52 (348)400 (115)%
Other6,910 6,055 855 14 %19,285 22,190 (2,905)(13)%
Total noninterest expense$90,007 $85,115 $4,892 6 %$257,682 $250,219 $7,463 3 %
The following table shows the impact of the acquisition-related expenses for the periods indicated to the various components of noninterest expense:
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
(in thousands)
Acquisition-related expenses:
Data processing$1 $— $1 $— 
Legal and professional fees2,153 — 2,663 — 
Other38 — 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 30,Nine Months Ended September 30,
2021202020212020
(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, 2021December 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 securities415,909 357,479 
State and municipal securities781,173 753,572 
U.S. government agency and government-sponsored enterprise securities255,976 284,696 
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 securities13,425 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, 2021% of TotalDecember 31, 2020% of Total
(dollars in thousands)
Commercial loans:
Commercial real estate$4,088,484 42.9 %$4,062,313 43.0 %
Commercial business3,436,351 36.1 %3,597,968 38.2 %
Agriculture815,985 8.6 %779,627 8.3 %
Construction326,569 3.4 %268,663 2.8 %
Consumer loans:
One-to-four family residential real estate823,877 8.7 %683,570 7.3 %
Other consumer30,119 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, 2020Ended (1)Re-deferralNew DeferralSeptember 30, 2021% Change
(dollars in thousands)
Number of deferrals70 (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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The following table provides additional detail related to the net discount (premium) of acquired and purchased loans by acquisition:
September 30, 2021December 31, 2020
(in thousands)
Acquisition:
Pacific Continental$6,353 $8,442 
Intermountain843 1,090 
West Coast1,234 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, 2021December 31, 2020
(dollars in thousands)
Nonperforming assets
Nonaccrual loans:
Commercial loans:
Commercial real estate$2,871 $7,712 
Commercial business12,105 13,222 
Agriculture7,706 11,614 
Construction— 217 
Consumer loans:
One-to-four family residential real estate1,491 2,001 
Other consumer3 40 
Total nonaccrual loans24,176 34,806 
OREO and OPPO381 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 loans0.25 %0.37 %
Nonperforming assets to period-end assets0.13 %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,
 2021202020212020
(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 estate518 65 570 92 
Commercial business328 1,124 4,416 2,795 
Agriculture6 27 23 69 
Construction8 11 575 688 
Consumer loans:
One-to-four family residential real estate203 1,301 757 2,005 
Other consumer213 76 489 330 
Total recoveries1,276 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 balance142,785 156,968 142,785 156,968 
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 loans1.50 %1.62 %1.50 %1.62 %
Allowance for unfunded commitments and letters of credit
Beginning 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 credit500 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, 2021December 31, 2020
Balance% of
Total		Balance% of
Total
(dollars in thousands)
Demand and other noninterest-bearing$7,971,680 50.0 %$6,913,214 49.8 %
Money market3,076,833 19.3 %2,780,922 20.1 %
Interest-bearing demand1,646,816 10.3 %1,433,083 10.3 %
Savings1,416,376 8.9 %1,169,721 8.4 %
Interest-bearing public funds, other than certificates of deposit740,281 4.6 %656,273 4.7 %
Certificates of deposit, less than $250,000190,402 1.2 %201,805 1.5 %
Certificates of deposit, $250,000 or more108,483 0.7 %108,935 0.8 %
Certificates of deposit insured by the CD Option of IntraFi Network Deposits26,835 0.2 %23,105 0.2 %
Brokered certificates of deposit5,000 — %5,000 — %
Reciprocal money market accounts770,693 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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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, 2021December 31, 2020September 30, 2021December 31, 2020
CET1 risk-based capital ratio12.79 %12.88 %12.71 %13.08 %
Tier 1 risk-based capital ratio12.79 %12.88 %12.71 %13.08 %
Total risk-based capital ratio14.25 %14.45 %13.87 %14.33 %
Leverage ratio8.43 %8.86 %8.42 %9.08 %
Capital conservation buffer6.25 %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,
2021202020212020
(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 securities422 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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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
We are exposed to interest rate risk, which is the risk that changes in prevailing interest rates will adversely affect assets, liabilities, capital, income and expenses at different times or in different amounts. Generally, there are four sources of interest rate risk as described below:
Repricing risk—Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities.
Basis risk—Basis risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different instruments with the same maturity.
Yield curve risk—Yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument.
Option risk—In banking, option risks are known as borrower options to prepay loans and depositor options to make deposits, withdrawals, and early redemptions. Option risk arises whenever a bank’s products give customers the right, but not the obligation, to alter the quantity or the timing of cash flows. We are also exposed to option risk in callable bonds as the counterparty may call the bonds during a low rate environment resulting in reinvestment of the proceeds at lower yields. Option risk is also present in the investment portfolio as mortgage-backed securities could prepay.
Since our earnings are primarily dependent on our ability to generate net interest income, we actively monitor and manage the effects of adverse changes in interest rates on our results of operations. Management of our interest rate risk is overseen by our board of directors, which is responsible for establishing policies and interest rate limits and approving these policies and interest rate limits annually. These policies include our asset/liability management policy, which provides guidelines for controlling our exposure to interest rate risk. These guidelines direct management to assess the impact of changes in interest rates upon both earnings and capital. These guidelines also establish limits for interest rate risk sensitivity.
We maintain an Asset/Liability Management Committee which is responsible for developing, monitoring and reviewing asset/liability processes, interest rate risk exposures, strategies and tactics. The Asset/Liability Management Committee reports on a periodic basis to our board of directors. It is the responsibility of management to execute the approved policies, develop and implement risk management strategies and to report to the board of directors on a regular basis.
Interest Rate Risk Sensitivity
We use a number of measures to monitor and manage interest rate risk, including income simulations and interest sensitivity (gap) analysis. An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Basic assumptions in the model include prepayment speeds on mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently subjective and may not be realized and, as a result, actual results will differ from our projections. In addition, variances in the timing, magnitude and frequency of interest rate changes, overall market conditions including volumes and pricing, and changes in management strategies, among other factors, will also result in variances between the projected and actual results.
The following table summarizes the expected impact if interest rates gradually increased or decreased over a one or two year period, based on the results of the simulation model as of September 30, 2021:
Year oneYear two
Change in basis points (bps)Change in net interest income% Change in net interest incomeChange in net interest income% Change in net interest income
(dollars in thousands)
+200$3,903 0.84 %$37,256 8.12 %
-100$(6,591)(1.41)%$(27,066)(5.90)%
The projections are based on the current interest rate environment and we assume our balance sheet remains constant during the next two years. Short-term market interest rates are near historical lows. Loan interest rate indexes such as Prime and LIBOR are also near historical lows. Since we don’t assume negative interest rates, the downward repricing of Prime and LIBOR loans is more limited than during a higher interest rate environment. Our ability to reprice deposits downward is also limited given our low cost of funds.
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The limited increase in net interest income in the first year of the rising interest rate scenario is mainly due to the ramp up period of the interest rate scenario combined with floating rate loans where the floor rate exceeds the fully indexed rate. In year two of this scenario, net interest income increases as yields on new loan production and investment security purchases rise faster than our funding costs and the existing floating rate loans increase from the floor level. The decrease in net interest income in the falling rate scenario is due to loan production and investment security purchases at rates lower than the existing portfolios combined with our inability to materially lower funding costs.
On January 23, 2019, the Company entered into an interest rate collar derivative transaction with a $500.0 million notional value based on one month LIBOR. In October 2020, the collar was terminated and resulted in a $34.4 million realized gain that was recorded in accumulated other comprehensive income, net of deferred income taxes. The gain will amortize into interest income through February 2024 which is in line with the initial term of the interest rate collar. The gain will be amortized in this manner as long as the cash flows pertaining to the hedged item are expected to occur.
Net interest income sensitivity excludes the amortization of premiums, discounts and deferred fees on the existing loan portfolio although the amortization of the collar is included in loan interest income.
Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is (i) accumulated and communicated to our management (including the CEO and CFO) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
The Company and its subsidiaries are party to routine litigation arising in the ordinary course of business. Management believes that, based on information currently known to it, any liabilities arising from such litigation will not have a material adverse impact on the Company’s financial conditions, results of operations or cash flows.
Item 1A. RISK FACTORS
Refer to Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of risk factors relating to the Company’s business. The Company believes that there has been no material change in its risk factors as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2020 other than as set forth below.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.
Before the merger with Umpqua and the subsequent merger of Columbia State Bank and Umpqua Bank (the “bank merger”) may be completed, various approvals, consents and non-objections must be obtained from the FRB and the FDIC and other regulatory authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.
The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reducing the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.
In addition, despite the parties’ commitments to using their reasonable best efforts to comply with conditions imposed by regulators, under the terms of the merger agreement, neither Columbia nor Umpqua, nor any of their respective subsidiaries, is permitted (without the written consent of the other party), to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the merger and the bank merger.

Failure to complete the merger could negatively impact Columbia.
If the merger is not completed for any reason, including as a result of Columbia shareholders or Umpqua shareholders failing to approve certain matters in connection with the merger at each company’s respective special meeting, there may be various adverse consequences and Columbia may experience negative reactions from the financial markets and from its customers and employees. For example, Columbia’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of Columbia’s common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. Columbia also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against Columbia to perform its obligations under the merger agreement. If the merger agreement is terminated under certain circumstances, Columbia may be required to pay a termination fee of $145 million to Umpqua.
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Additionally, Columbia has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing of a joint proxy statement/prospectus in connection with the merger, and all filing and other fees paid in connection with the merger. If the merger is not completed, Columbia would have to pay these expenses without realizing the expected benefits of the merger.

Combining Columbia and Umpqua may be more difficult, costly or time-consuming than expected, and Columbia may fail to realize the anticipated benefits of the merger.
The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Columbia and Umpqua. To realize the anticipated benefits and cost savings from the merger, Columbia and Umpqua must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized without adversely affecting current revenues and future growth. If Columbia and Umpqua are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the merger could be less than anticipated, and integration may result in additional and unforeseen expenses.
An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.
Columbia and Umpqua have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on Columbia during this transition period and for an undetermined period after completion of the merger on the combined company.
Furthermore, the board of directors and executive leadership of the combined company will consist of former directors and executive officers from each of Columbia and Umpqua. Combining the boards of directors and management teams of each company into a single board and a single management team could require the reconciliation of differing priorities and philosophies.

The combined company may be unable to retain Columbia and/or Umpqua personnel successfully after the merger is completed.
The success of the merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by Columbia and Umpqua. It is possible that these employees may decide not to remain with Columbia or Umpqua, as applicable, while the merger is pending or with the combined company after the merger is consummated. If Columbia and Umpqua are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Columbia and Umpqua could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer. Columbia and Umpqua also may not be able to locate or retain suitable replacements for any key employees who leave either company.

Columbia will be subject to business uncertainties and contractual restrictions while the merger is pending.
Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Columbia. These uncertainties may impair Columbia’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Columbia to seek to change existing business relationships with Columbia. In addition, subject to certain exceptions, Columbia has agreed to operate its business in the ordinary course in all material respects and to refrain from taking certain actions that may adversely affect its ability to consummate the transactions contemplated by the merger agreement on a timely basis without the consent of Umpqua. These restrictions may prevent Columbia from pursuing attractive business opportunities that may arise prior to the completion of the merger.
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Columbia has incurred and is expected to incur substantial costs related to the merger and integration.
Columbia has incurred and expects to incur a number of non-recurring costs associated with the merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, closing, integration and other related costs. Some of these costs are payable by Columbia regardless of whether or not the merger is completed.

Shareholder litigation related to the merger could prevent or delay the completion of the merger, result in the payment of damages or otherwise negatively impact the business and operations of Columbia.
Shareholders may bring claims in connection with the proposed merger and, among other remedies, may seek damages or an injunction preventing the merger from closing. If any plaintiff were successful in obtaining an injunction prohibiting Columbia or Umpqua from completing the merger or any other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in costs to Columbia, including costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the merger. Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of Columbia.

The merger agreement may be terminated in accordance with its terms and the merger may not be completed.
The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include, among other things: (i) approval by each of the Columbia shareholders and the Umpqua shareholders of certain matters relating to the merger at each company’s respective special meeting; (ii) the receipt of required regulatory approvals, including the approval of the FRB and the FDIC; and (iii) the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement or making the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement illegal. Each party’s obligation to complete the merger is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the merger agreement and (c) the receipt by each party of an opinion from its counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986.
These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the requisite shareholder approvals, or Umpqua or Columbia may elect to terminate the merger agreement in certain other circumstances.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)Not applicable
(b)Not applicable
(c)The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2021:
PeriodTotal Number of Common Shares Purchased (1)Average Price Paid per Common ShareTotal Number of Shares Purchased as Part of Publicly Announced Plan (2)Maximum Number of Remaining Shares That May Yet Be Purchased Under the Plan (2)
7/1/2021 - 7/31/2021528 $34.59 — 3,500,000 
8/1/2021 - 8/31/2021202 35.47 — 3,500,000 
9/1/2021 - 9/30/2021103 37.53 — 3,500,000 
833 35.17 — 
__________
(1) Common shares repurchased by the Company during the quarter consisted of cancellation of shares of common stock to pay the shareholders’ withholding taxes.
(2) As described in our Annual Report on Form 10-K for the year ended December 31, 2020, the board of directors approved a stock repurchase program to repurchase up to 3.5 million shares of its outstanding stock, up to a maximum aggregate purchase price of $100.0 million through December 31, 2021.
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Item 3.DEFAULTS UPON SENIOR SECURITIES
None.
Item 4.MINE SAFETY DISCLOSURES
Not applicable.
Item 5.OTHER INFORMATION
None.
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Item 6.EXHIBITS
31.1+
31.2+
32+
101.INS+XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+XBRL Taxonomy Extension Schema
101.CAL+XBRL Taxonomy Extension Calculation Linkbase
101.LAB+XBRL Taxonomy Extension Label Linkbase
101.PRE+XBRL Taxonomy Extension Presentation Linkbase
101.DEF+XBRL Taxonomy Extension Definition Linkbase
104+Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).
_______

+ Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
COLUMBIA BANKING SYSTEM, INC.
Date:November 4, 2021By/s/ CLINT E. STEIN
Clint E. Stein
President and
Chief Executive Officer
(Principal Executive Officer)
Date:November 4, 2021By/s/ AARON JAMES DEER
Aaron James Deer
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date:November 4, 2021By/s/ BROCK M. LAKELY
Brock M. Lakely
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)

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