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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, 2022.
☐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 25, 2022 was 78,646,118


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 LossesFHLBFederal Home Loan Bank of Des Moines
ASCAccounting Standards CodificationFRBFederal Reserve Bank
ASUAccounting Standards UpdateGAAPGenerally Accepted Accounting Principles
Bank of CommerceBank of Commerce HoldingsGDPGross Domestic Product
B&OBusiness and OccupationLIBORLondon Interbank Offering Rate
Basel IIIA comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013OPPOOther Personal Property Owned
Capital RulesRisk-based capital standards currently applicable to the Company and the Bank.OREOOther Real Estate Owned
CDICore Deposit IntangiblePacific ContinentalPacific Continental Corporation
CECLCurrent Expected Credit LossesPCDPurchased Credit Deteriorated
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 ActSOFRSecured Overnight Financing Rate
EPSEarnings Per ShareTDRTroubled Debt Restructuring
FASBFinancial Accounting Standards BoardUmpquaUmpqua Holdings Corporation
FDICFederal Deposit Insurance Corporation

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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
(Unaudited)
September 30,
2022		December 31,
2021
ASSETS(in thousands)
Cash and due from banks$263,551 $153,414 
Interest-earning deposits with banks54,124 671,300 
Total cash and cash equivalents317,675 824,714 
Debt securities available for sale at fair value (amortized cost of $5,447,566 and $5,898,041, respectively)
4,700,821 5,910,999 
Debt securities held to maturity at amortized cost (fair value of $1,747,282 and $2,122,606, respectively)
2,079,285 2,148,327 
Equity securities13,425 13,425 
FHLB stock at cost10,560 10,280 
Loans held for sale1,251 9,774 
Loans, net of unearned income11,692,261 10,641,937 
Less: ACL154,871 155,578 
Loans, net11,537,390 10,486,359 
Interest receivable61,652 56,019 
Premises and equipment, net161,853 172,144 
OREO— 381 
Goodwill823,172 823,172 
Other intangible assets, net27,921 34,647 
Other assets670,364 455,092 
Total assets$20,405,369 $20,945,333 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing$8,911,267 $8,856,714 
Interest-bearing9,030,058 9,153,401 
Total deposits17,941,325 18,010,115 
FHLB advances14,322 7,359 
Securities sold under agreements to repurchase48,733 86,013 
Subordinated debentures10,000 10,000 
Junior subordinated debentures10,310 10,310 
Other liabilities265,198 232,794 
Total liabilities18,289,888 18,356,591 
Commitments and contingent liabilities (Note 11)
Shareholders’ equity:
September 30,
2022		December 31,
2021
(in thousands)
Preferred stock (no par value)
Authorized shares2,000 2,000 
Common stock (no par value)
Authorized shares115,000 115,000 
Issued80,831 80,695 1,940,385 1,930,187 
Outstanding78,647 78,511 
Retained earnings804,774 694,227 
Accumulated other comprehensive income (loss)(558,844)35,162 
Treasury stock at cost2,184 2,184 (70,834)(70,834)
Total shareholders’ equity2,115,481 2,588,742 
Total liabilities and shareholders’ equity$20,405,369 $20,945,333 

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,
2022202120222021
(in thousands except per share amounts)
Interest Income
Loans$130,908 $105,168 $349,060 $305,195 
Taxable securities31,987 26,374 103,771 73,940 
Tax-exempt securities3,662 2,714 11,142 8,299 
Deposits in banks1,191 284 2,373 595 
Total interest income167,748 134,540 466,346 388,029 
Interest Expense
Deposits4,446 1,468 8,706 4,379 
FHLB advances and FRB borrowings109 73 253 217 
Subordinated debentures220 435 536 1,371 
Other borrowings481 24 708 66 
Total interest expense5,256 2,000 10,203 6,033 
Net Interest Income162,492 132,540 456,143 381,996 
Provision (recapture) for credit losses5,250 — (450)(6,300)
Net interest income after provision (recapture) for credit losses157,242 132,540 456,593 388,296 
Noninterest Income
Deposit account and treasury management fees8,181 6,893 23,506 19,952 
Card revenue4,988 4,889 14,986 13,395 
Financial services and trust revenue4,292 4,250 13,116 11,876 
Loan revenue2,853 5,184 9,927 17,067 
Bank owned life insurance1,939 1,585 5,751 4,780 
Investment securities gains, net— — — 314 
Other4,374 1,157 8,527 2,470 
Total noninterest income26,627 23,958 75,813 69,854 
Noninterest Expense
Compensation and employee benefits60,744 54,679 181,209 159,865 
Occupancy10,469 9,695 31,110 27,739 
Data processing and software10,548 8,515 30,057 24,368 
Legal and professional fees4,022 4,894 15,739 10,973 
Amortization of intangibles2,219 1,835 6,726 5,611 
B&O taxes1,771 1,583 4,944 4,332 
Advertising and promotion830 678 2,764 2,026 
Regulatory premiums1,782 1,214 4,779 3,431 
Net cost (benefit) of operation of OREO(4)4 122 52 
Other9,065 6,910 24,428 19,285 
Total noninterest expense101,446 90,007 301,878 257,682 
Income before income taxes82,423 66,491 230,528 200,468 
Income tax provision17,481 13,474 49,256 40,559 
Net Income$64,942 $53,017 $181,272 $159,909 
Earnings per common share
Basic$0.83 $0.75 $2.32 $2.25 
Diluted$0.83 $0.74 $2.32 $2.24 
Weighted average number of common shares outstanding78,100 71,036 78,027 70,965 
Weighted average number of diluted common shares outstanding78,233 71,186 78,142 71,155 

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,
20222021
(in thousands)
Net income$64,942 $53,017 
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 $51,566 and $6,671
(170,224)(22,022)
Amortization of net unrealized gain for the reclassification of available for sale securities to held to maturity, net of tax of $632 and $141
(2,086)(465)
Net unrealized loss from securities, net of reclassification adjustment (172,310)(22,487)
Pension plan liability adjustment:
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of $(30) and $(35)
100 114 
Pension plan liability adjustment, net100 114 
Unrealized gain from cash flow hedging instruments:
Reclassification adjustment for net gain in cash flow hedging instruments included in income, net of tax of $612 and $612
(2,019)(2,019)
Net unrealized loss from cash flow hedging instruments, net of reclassification adjustment(2,019)(2,019)
Other comprehensive loss(174,229)(24,392)
Total comprehensive income (loss)$(109,287)$28,625 
Nine Months Ended
 September 30,
20222021
(in thousands)
Net income$181,272 $159,909 
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 $176,631 and $31,134
(583,072)(102,777)
Reclassification adjustment of net gain from available for sale debt securities arising during the period, net of tax of $0 and $73
— (241)
Amortization of net unrealized gain for the reclassification of available for sale securities to held to maturity, net of tax of $1,588 and $246
(5,242)(810)
Net unrealized loss from securities, net of reclassification adjustment (588,314)(103,828)
Pension plan liability adjustment:
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of $(91) and $(104)
301 344 
Pension plan liability adjustment, net301 344 
Unrealized gain from cash flow hedging instruments:
Reclassification adjustment for net gain in cash flow hedging instruments included in income, net of tax of $1,816 and $1,815
(5,993)(5,994)
Net unrealized loss from cash flow hedging instruments, net of reclassification adjustment(5,993)(5,994)
Other comprehensive loss(594,006)(109,478)
Total comprehensive income (loss)$(412,734)$50,431 

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, 2022(in thousands except per share amounts)
Balance at July 1, 202278,621 $1,935,180 $763,487 $(384,615)$(70,834)$2,243,218 
Net income— — 64,942 — — 64,942 
Other comprehensive loss— — — (174,229)— (174,229)
Issuance of common stock - employee stock purchase plan37 1,093 — — — 1,093 
Activity in deferred compensation plan— 1 — — — 1 
Issuance of common stock - RSAs and RSUs, net of canceled awards(10)4,149 — — — 4,149 
Purchase and retirement of common stock(1)(38)— — — (38)
Cash dividends declared on common stock ($0.30 per share)
— — (23,655)— — (23,655)
Balance at September 30, 202278,647 $1,940,385 $804,774 $(558,844)$(70,834)$2,115,481 
For the Nine Months Ended September 30, 2022
Balance at January 1, 202278,511 $1,930,187 $694,227 $35,162 $(70,834)$2,588,742 
Net income— — 181,272 — — 181,272 
Other comprehensive loss— — — (594,006)— (594,006)
Issuance of common stock - employee stock purchase plan68 2,110 — — — 2,110 
Activity in deferred compensation plan— 4 — — — 4 
Issuance of common stock - RSAs and RSUs, net of canceled awards177 12,059 — — — 12,059 
Purchase and retirement of common stock(109)(3,975)— — — (3,975)
Cash dividends declared on common stock ($0.90 per share)
— — (70,725)— — (70,725)
Balance at September 30, 202278,647 $1,940,385 $804,774 $(558,844)$(70,834)$2,115,481 

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)
— — (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 

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,
20222021
(in thousands)
Cash Flows From Operating Activities
Net income$181,272 $159,909 
Adjustments to reconcile net income to net cash provided by operating activities
Recapture for credit losses(450)(6,300)
Stock-based compensation expense12,059 10,835 
Depreciation, amortization and accretion35,971 11,383 
Investment securities gain, net— (314)
Net realized gain on sale of premises and equipment and loans held for investment(4,985)(268)
Net realized loss on sale and valuation adjustments of OREO181 40 
Gain on bank owned life insurance death benefit(610)(209)
Originations of loans held for sale (105,392)(263,367)
Proceeds from sales of loans held for sale113,698 278,187 
Change in fair value of loans held for sale217 306 
Net change in:
Interest receivable(5,633)1,945 
Interest payable(79)(52)
Other assets(27,620)15,761 
Other liabilities25,088 (18,755)
Net cash provided by operating activities223,717 189,101 
Cash Flows From Investing Activities
Loans originated, net of principal collected(1,069,862)108,551 
Investment in low income housing tax credit partnerships(1,229)(1,106)
Purchases of:
Debt securities available for sale(185,800)(2,408,578)
Debt securities held to maturity(97,658)(112,372)
Loans held for investment— (176,545)
Premises and equipment(5,557)(4,334)
FHLB stock(7,441)(1)
Proceeds from:
Sales of debt securities available for sale— 26,914 
Principal repayments and maturities of debt securities available for sale613,046 586,288 
Principal repayments and maturities of debt securities held to maturity149,562 42,653 
Sales of premises and equipment and loans held for investment36,973 4,287 
Redemption of FHLB stock7,161 1 
Sales of OREO and OPPO200 132 
Bank owned life insurance death benefit1,108 671 
Net cash used in investing activities(559,497)(1,933,439)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
(Unaudited)
Nine Months Ended September 30,
20222021
(in thousands)
Cash Flows From Financing Activities
Net increase (decrease) in deposits(68,238)2,083,537 
Net decrease in sweep repurchase agreements(37,280)(33,819)
Proceeds from:
FHLB advances186,030 20 
FRB borrowings30 10 
Employee stock purchase plan2,110 2,351 
Payments for:
Repayment of FHLB advances(179,030)(20)
Repayment of FRB borrowings(30)(10)
Common stock dividends(70,876)(59,922)
Purchase and retirement of common stock(3,975)(4,100)
Net cash provided by (used in) financing activities(171,259)1,988,047 
Increase (decrease) in cash and cash equivalents(507,039)243,709 
Cash and cash equivalents at beginning of period824,714 653,766 
Cash and cash equivalents at end of period$317,675 $897,475 
Supplemental Information:
Interest paid$10,282 $6,085 
Income taxes paid, net of refunds$48,952 $45,122 
Non-cash investing and financing activities
Transfer of debt securities available for sale to debt securities held to maturity$— $2,012,123 
Premises and equipment expenditures incurred but not yet paid$51 $87 
Change in dividends payable included in other liabilities$(151)$23,927 

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 and Significant Accounting Policies
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, 2022 are not necessarily indicative of results to be anticipated for the year ending December 31, 2022. The accompanying interim unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2021 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 2021 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2021 Annual Report on Form 10-K disclosure for the year ended December 31, 2021.
2.Accounting Pronouncements Recently Adopted or Issued
Accounting Standards Adopted in 2022
There are no recently issued accounting standards that are applicable to the Company that were adopted in 2022.
Recently Issued Accounting Standards, Not Yet Adopted
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value. Further, an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. Additionally, the amendments require the disclosures for equity securities subject to contractual sale restrictions to include the fair value of equity securities subject to contractual sale restrictions reflected on the balance sheet, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions. The ASU is effective for interim and annual reporting periods beginning after December 15, 2023; early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) - Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments require the disclosure of current-period gross charge-offs by year of origination for financing receivables and net investments in leases within scope. The ASU is effective for interim and annual reporting periods beginning after December 15, 2022; early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.
3.Business Combinations
Bank of Commerce
On October 1, 2021, the Company completed its acquisition of Bank of Commerce and its wholly-owned banking subsidiary Merchants Bank of Commerce. The Company acquired 100% of the equity interests of Bank of Commerce.
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The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the October 1, 2021 acquisition date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $57.3 million and a CDI of $15.9 million. The goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The Company paid this premium for a number of reasons, including to expand the Company’s current footprint and to enter the California market and the synergies and economies of scale expected from the acquisition. The goodwill is not deductible for income tax purposes.
The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed:
October 1, 2021
(in thousands)
Merger consideration$256,257 
Identifiable net assets acquired, at fair value
Assets acquired
Cash and cash equivalents$155,180 
Investment securities654,480 
FHLB stock7,463 
Loans, net allowance for credit loss1,084,984 
Interest receivable5,237 
Premises and equipment17,658 
Core deposit intangible15,932 
Other assets41,963 
Total assets acquired1,982,897 
Liabilities assumed
Deposits(1,737,584)
Subordinated debentures(10,000)
Junior subordinated debentures(10,310)
Other liabilities(26,076)
Total liabilities assumed(1,783,970)
Total fair value of identifiable net assets198,927 
Goodwill$57,330 
See Note 8, “Goodwill and Other Intangible Assets,” for further discussion of the accounting for goodwill and other intangible assets.
Of the $1.08 billion net loans acquired, $40.3 million exhibited credit deterioration on the date of purchase. The following table provides a summary of these PCD loans at acquisition:
October 1, 2021
(in thousands)
Par value of PCD loans acquired$43,419 
PCD ACL at acquisition(2,616)
Non-credit discount on PCD loans(525)
Purchase price of PCD loans$40,278 
The operating results of the Company reported herein include the operating results produced by the acquired assets and assumed liabilities for the period of January 1, 2022 to September 30, 2022. Disclosure of the amount of Bank of Commerce’s revenue and net income (excluding integration costs) included in Columbia’s Consolidated Statements of Income is impracticable due to the integration of the operations and accounting for this acquisition.
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For illustrative purposes only, the following table presents certain unaudited pro forma information for the nine months ended September 30, 2021. This unaudited, estimated pro forma financial information was calculated as if Bank of Commerce had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of Bank of Commerce with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, the pro forma amounts below do not reflect Columbia’s expectations as of the date of the pro forma information of further operating cost savings and other business synergies expected to be achieved, including revenue growth as a result of the acquisition. As a result, actual amounts would have differed from the unaudited pro forma information presented.
Unaudited Pro Forma for the
Nine Months Ended September 30,
2021
(in thousands, except per share amounts)
Total revenues (net interest income plus noninterest income)$495,378 
Net income$173,355 
Earnings per share - basic$2.23 
Earnings per share - diluted$2.23 
The following table shows the impact of the merger-related expenses related to the acquisition of Bank of Commerce for the periods indicated to the various components of noninterest expense:
 Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(in thousands)
Noninterest Expense
Compensation and employee benefits$205 $— $1,144 $— 
Occupancy8 — 928 — 
Data processing and software219 1 1,640 1 
Legal and professional fees133 2,153 378 2,663 
Advertising and promotion— — 18 — 
Other3 38 796 38 
Total impact of merger-related expenses to noninterest expense$568 $2,192 $4,904 $2,702 
In addition, related to the pending transaction with Umpqua, the Company recognized $2.7 million and $9.3 million of merger-related expenses for the three and nine months ended September 30, 2022. While full regulatory approval is still pending, integration planning efforts continue to move forward. See Note 17, “Subsequent Events,” for additional information.
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4.Securities
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, 2022(in thousands)
Available for sale
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$3,305,031 $514 $(452,678)$2,852,867 
Other asset-backed securities384,649 — (50,641)334,008 
State and municipal securities977,756 74 (150,996)826,834 
U.S. government agency and government-sponsored enterprise securities237,849 — (14,898)222,951 
U.S. government securities182,865 — (16,559)166,306 
Non-agency collateralized mortgage obligations359,416 2 (61,563)297,855 
Total available for sale$5,447,566 $590 $(747,335)$4,700,821 
Held to maturity
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$2,079,285 $— $(332,003)$1,747,282 
Total held to maturity$2,079,285 $— $(332,003)$1,747,282 
December 31, 2021
Available for sale
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$3,738,616 $45,077 $(38,092)$3,745,601 
Other asset-backed securities469,052 3,802 (9,791)463,063 
State and municipal securities983,704 18,525 (4,938)997,291 
U.S. government agency and government-sponsored enterprise securities252,755 3,095 (3,274)252,576 
U.S. government securities158,367 — (831)157,536 
Non-agency collateralized mortgage obligations295,547 340 (955)294,932 
Total available for sale$5,898,041 $70,839 $(57,881)$5,910,999 
Held to maturity
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$2,148,327 $50 $(25,771)$2,122,606 
Total held to maturity$2,148,327 $50 $(25,771)$2,122,606 
There was no allowance for credit losses on both available for sale securities and held to maturity securities as of September 30, 2022 and December 31, 2021. 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 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 or nine months ended September 30, 2022 and 2021.
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, 2022 and December 31, 2021, accrued interest receivable for securities available for sale was $17.6 million and $19.2 million, respectively. At September 30, 2022 and December 31, 2021, accrued interest receivable for securities held to maturity was $4.2 million and $4.4 million, respectively. The Company does not measure an allowance for credit losses for accrued interest receivable.
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The following table provides the proceeds and both gross realized gains and losses on sales and calls of debt securities available for sale as well as other securities gains and losses for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(in thousands)
Proceeds from sales of debt securities available for sale$— $— $— $26,914 
Gross realized gains from sales of debt securities available for sale$— $— $— $751 
Gross realized losses from sales of debt securities available for sale— — — (437)
Investment securities gains, net$— $— $— $314 
There were no gains or losses recognized on equity securities during the three and nine month periods ended September 30, 2022 and 2021.
The scheduled contractual maturities of debt securities at the period presented below are as follows:
September 30, 2022
Available for saleHeld to maturity
Amortized CostFair ValueAmortized CostFair Value
(in thousands)
Due within one year$78,736 $78,328 $— $— 
Due after one year through five years1,079,875 1,007,916 266,398 233,123 
Due after five years through ten years1,238,659 1,081,591 981,070 824,858 
Due after ten years3,050,296 2,532,986 831,817 689,301 
Total debt securities$5,447,566 $4,700,821 $2,079,285 $1,747,282 
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, 2022
(in thousands)
To secure public funds$548,175 
To secure borrowings84,099 
Other securities pledged245,958 
Total securities pledged as collateral$878,232 

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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, 2022(in thousands)
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$1,071,973 $(106,441)$1,757,493 $(346,237)$2,829,466 $(452,678)
Other asset-backed securities129,541 (14,741)204,467 (35,900)334,008 (50,641)
State and municipal securities601,998 (99,002)205,918 (51,994)807,916 (150,996)
U.S. government agency and government-sponsored enterprise securities83,992 (1,478)138,881 (13,420)222,873 (14,898)
U.S. government securities111,904 (10,996)54,402 (5,563)166,306 (16,559)
Non-agency collateralized mortgage obligations291,301 (60,781)5,664 (782)296,965 (61,563)
Total$2,290,709 $(293,439)$2,366,825 $(453,896)$4,657,534 $(747,335)
December 31, 2021
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$2,292,062 $(30,777)$176,946 $(7,315)$2,469,008 $(38,092)
Other asset-backed securities195,708 (4,823)117,751 (4,968)313,459 (9,791)
State and municipal securities237,354 (3,862)40,343 (1,076)277,697 (4,938)
U.S. government agency and government-sponsored enterprise securities100,813 (1,988)48,714 (1,286)149,527 (3,274)
U.S. government securities157,536 (831)— — 157,536 (831)
Non-agency collateralized mortgage obligations212,259 (955)— — 212,259 (955)
Total$3,195,732 $(43,236)$383,754 $(14,645)$3,579,486 $(57,881)
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Debt securities available for sale
At September 30, 2022, there were 650 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, 2022.
At September 30, 2022, there were 83 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, 2022.
At September 30, 2022, there were 603 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, 2022, 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, 2022.
At September 30, 2022, there were 23 U.S. government agency and government-sponsored enterprise 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, 2022.
At September 30, 2022, there were 10 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, 2022.
At September 30, 2022, there were 55 non-agency collateralized mortgage obligations 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, 2022.
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5.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, 2022December 31, 2021
(dollars in thousands)
Commercial loans:
Commercial real estate$5,375,051 $4,981,263 
Commercial business3,783,696 3,423,268 
Agriculture903,260 795,715 
Construction512,308 384,755 
Consumer loans:
One-to-four family residential real estate1,071,222 1,013,908 
Other consumer46,724 43,028 
Total loans11,692,261 10,641,937 
Less: Allowance for credit losses(154,871)(155,578)
Total loans, net$11,537,390 $10,486,359 
At September 30, 2022 and December 31, 2021, 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, Idaho and California.
At September 30, 2022 and December 31, 2021, $4.33 billion and $3.49 billion of commercial and residential real estate loans were pledged as collateral on FHLB advances and additional borrowing capacity. The Company also pledged $200.5 million of commercial loans to the FRB for additional borrowing capacity at September 30, 2022 and December 31, 2021.
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, 2022 and December 31, 2021, accrued interest receivable for loans was $39.9 million and $32.4 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, 2022(in thousands)
Commercial loans:
Commercial real estate$5,359,998 $4,753 $6,869 $— $11,622 $3,431 $5,375,051 
Commercial business3,764,976 7,565 3,974 — 11,539 7,181 3,783,696 
Agriculture900,462 509 110 — 619 2,179 903,260 
Construction512,171 137 — — 137 — 512,308 
Consumer loans:
One-to-four family residential real estate1,067,427 2,640 553 — 3,193 602 1,071,222 
Other consumer46,526 103 3 — 106 92 46,724 
Total$11,651,560 $15,707 $11,509 $— $27,216 $13,485 $11,692,261 
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, 2021(in thousands)
Commercial loans:
Commercial real estate$4,977,781 $— $1,610 $— $1,610 $1,872 $4,981,263 
Commercial business3,406,539 2,721 687 — 3,408 13,321 3,423,268 
Agriculture789,112 1,207 — — 1,207 5,396 795,715 
Construction384,755 — — — — — 384,755 
Consumer loans:
One-to-four family residential real estate1,010,343 921 211 — 1,132 2,433 1,013,908 
Other consumer42,998 11 — — 11 19 43,028 
Total$10,611,528 $4,860 $2,508 $— $7,368 $23,041 $10,641,937 
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.
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.
The following table summarizes written-off interest on nonaccrual loans for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(in thousands)
Commercial loans$288 $83 $427 $507 
Consumer loans6 16 14 25 
Total$294 $99 $441 $532 
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The following summarizes the amortized cost of nonaccrual loans for which there was no related ACL for the periods indicated:
September 30, 2022December 31, 2021
(in thousands)
Commercial loans:
Commercial real estate$3,113 $932 
Commercial business1,465 5,131 
Agriculture1,192 3,756 
Total$5,770 $9,819 
The following is an analysis of loans classified as TDR for the periods indicated:
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
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 business1 548 548 — $— $— 
Consumer loans:
One-to-four family residential real estate1 50 50 1 15 15 
Total2 $598 $598 1 $15 $15 

Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
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
1 548 548 11 2,600 2,600 
Agriculture
1 633 633 — — — 
Consumer loans:
One-to-four family residential real estate
1 50 50 3 155 155 
Total3 $1,231 $1,231 15 $3,383 $3,383 


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 $124 thousand of additional funds on loans classified as TDR as of September 30, 2022. The Company had $1.5 million of such commitments at December 31, 2021. The Company had no loans classified as TDR that defaulted within 12 months of being classified as TDR during the three and nine months ended September 30, 2022 and December 31, 2021.
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6.Allowance for Credit Losses and Allowance for Unfunded Commitments and Letters of Credit
The ACL is determined through quarterly assessments of the present value of expected future cash flows within the loan portfolio, which, are deducted from the loan’s amortized cost basis to determine the expected credit losses of the loan portfolio. 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, risk ratings 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.
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 the borrower is experiencing financial difficulty such that full satisfaction of the contractual terms of the loan is in question. 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 collateral dependent loans, 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.
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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, 2022(in thousands)
Commercial loans:
Commercial real estate$57,119 $— $11 $251 $57,381 
Commercial business51,985 (295)482 1,913 54,085 
Agriculture8,895 (706)98 1,146 9,433 
Construction5,914 — 9 2,224 8,147 
Consumer loans:
One-to-four family residential real estate24,626 — 331 (943)24,014 
Other consumer1,396 (431)187 659 1,811 
Total$149,935 $(1,432)$1,118 $5,250 $154,871 
Beginning BalanceCharge-offsRecoveriesProvision
(Recapture)		Ending Balance
Nine Months Ended September 30, 2022
Commercial loans:
Commercial real estate$61,254 $(299)$172 $(3,746)$57,381 
Commercial business54,712 (2,019)1,570 (178)54,085 
Agriculture8,148 (730)247 1,768 9,433 
Construction5,397 — 153 2,597 8,147 
Consumer loans:
One-to-four family residential real estate24,123 (3)916 (1,022)24,014 
Other consumer1,944 (918)654 131 1,811 
Total$155,578 $(3,969)$3,712 $(450)$154,871 
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
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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The $707 thousand decrease in the ACL at September 30, 2022 compared to the ACL at December 31, 2021 was primarily due to significant improvements in portfolio risk ratings. Additionally, problem loans decreased during the period and their percentage within the portfolio is now near pre-pandemic levels. Specifically regarding the forecast used in the September 30, 2022 estimate, management expects the forecasted national unemployment rate to be near pre-pandemic levels early in the forecast period, increasing a little later in the forecast period. Additionally, the commercial real estate index has slowed during the year and is expected to grow more slowly through the forecast period. The home price index is projected to moderate over the forecast period and real GDP growth has slowed during the year and is projected to continue to decline through the forecast period. 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, 2022 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,
2022202120222021
(in thousands)
Beginning balance$9,000 $10,000 $8,500 $8,300 
Net changes in the allowance for unfunded commitments and letters of credit(500)500 — 2,200 
Ending balance$8,500 $10,500 $8,500 $10,500 

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.
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 $250 thousand 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
20222021202020192018PriorTotal
September 30, 2022(in thousands)
Commercial loans:
Commercial real estate
Pass$983,823 $1,021,822 $688,119 $603,943 $431,582 $1,402,281 $71,235 $8,932 $5,211,737 
Special mention— 1,865 3,566 19,591 — 11,763 — — 36,785 
Substandard— 7,519 7,393 33,951 4,258 69,411 3,997 — 126,529 
Total commercial real estate$983,823 $1,031,206 $699,078 $657,485 $435,840 $1,483,455 $75,232 $8,932 $5,375,051 
Commercial business
Pass$436,851 $713,165 $364,061 $224,851 $180,781 $272,401 $1,413,129 $6,807 $3,612,046 
Special mention2,362 10,652 1,564 6,588 392 653 28,105 425 50,741 
Substandard93 3,297 3,823 17,399 21,636 28,945 44,645 1,071 120,909 
Total commercial business$439,306 $727,114 $369,448 $248,838 $202,809 $301,999 $1,485,879 $8,303 $3,783,696 
Agriculture
Pass$113,968 $129,433 $72,571 $69,576 $24,244 $103,310 $346,565 $1,160 $860,827 
Special mention— 140 — 4,306 — — 899 — 5,345 
Substandard548 1,343 5,126 524 20 1,761 27,766 — 37,088 
Total agriculture$114,516 $130,916 $77,697 $74,406 $24,264 $105,071 $375,230 $1,160 $903,260 
Construction
Pass$176,863 $221,956 $27,571 $14,115 $2,618 $3,466 $55,628 $7,121 $509,338 
Special mention— 745 — — — — — — 745 
Substandard— — — 1,727 448 50 — — 2,225 
Total construction$176,863 $222,701 $27,571 $15,842 $3,066 $3,516 $55,628 $7,121 $512,308 
Consumer loans:
One-to-four family residential real estate
Pass$126,882 $364,441 $126,287 $39,728 $40,319 $91,542 $278,903 $856 $1,068,958 
Substandard— — 76 — 543 1,141 260 244 2,264 
Total one-to-four family real estate$126,882 $364,441 $126,363 $39,728 $40,862 $92,683 $279,163 $1,100 $1,071,222 
Other consumer
Pass$7,115 $3,121 $1,479 $994 $1,579 $8,969 $23,328 $107 $46,692 
Substandard— 20 — — — 10 2 — 32 
Total consumer$7,115 $3,141 $1,479 $994 $1,579 $8,979 $23,330 $107 $46,724 
Total$1,848,505 $2,479,519 $1,301,636 $1,037,293 $708,420 $1,995,703 $2,294,462 $26,723 $11,692,261 
Less:
Allowance for credit losses154,871 
Loans, net$11,537,390 
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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
20212020201920182017PriorTotal
December 31, 2021(in thousands)
Commercial loans:
Commercial real estate
Pass$1,068,493 $760,545 $650,593 $492,348 $515,233 $1,180,115 $74,754 $3,644 $4,745,725 
Special mention2,252 — 19,016 6,196 163 27,270 — 2,199 57,096 
Substandard4,119 5,897 45,769 9,112 29,917 82,599 1,029 — 178,442 
Total commercial real estate$1,074,864 $766,442 $715,378 $507,656 $545,313 $1,289,984 $75,783 $5,843 $4,981,263 
Commercial business
Pass$891,957 $426,004 $280,823 $217,605 $144,363 $232,356 $1,028,616 $35,411 $3,257,135 
Special mention621 135 6,097 747 105 51 34,256 236 42,248 
Substandard4,329 4,610 18,393 28,066 20,568 27,462 18,796 1,661 123,885 
Total commercial business$896,907 $430,749 $305,313 $246,418 $165,036 $259,869 $1,081,668 $37,308 $3,423,268 
Agriculture
Pass$147,561 $87,964 $74,658 $29,739 $46,058 $79,693 $266,573 $5,448 $737,694 
Special mention162 — 445 — — — 565 — 1,172 
Substandard— 7,717 9,148 1,616 5,532 1,833 29,125 1,878 56,849 
Total agriculture$147,723 $95,681 $84,251 $31,355 $51,590 $81,526 $296,263 $7,326 $795,715 
Construction
Pass$228,661 $53,880 $35,795 $3,183 $3,285 $2,189 $55,765 $— $382,758 
Substandard— — 1,748 — — 249 — — 1,997 
Total construction$228,661 $53,880 $37,543 $3,183 $3,285 $2,438 $55,765 $— $384,755 
Consumer loans:
One-to-four family real estate
Pass$390,153 $140,799 $56,520 $51,549 $32,447 $111,307 $222,747 $1,347 $1,006,869 
Substandard85 470 183 562 234 4,736 485 284 7,039 
Total one-to-four family real estate$390,238 $141,269 $56,703 $52,111 $32,681 $116,043 $223,232 $1,631 $1,013,908 
Other consumer
Pass$7,045 $2,711 $1,950 $13,489 $560 $1,277 $15,853 $97 $42,982 
Substandard— — — — 1 13 23 9 46 
Total consumer$7,045 $2,711 $1,950 $13,489 $561 $1,290 $15,876 $106 $43,028 
Total$2,745,438 $1,490,732 $1,201,138 $854,212 $798,466 $1,751,150 $1,748,587 $52,214 $10,641,937 
Less:
Allowance for credit losses155,578 
Loans, net$10,486,359 
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7.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,
2022202120222021
(in thousands)
Balance, beginning of period$33 $381 $381 $553 
Valuation adjustments(33)— (182)(140)
Proceeds from sale of OREO property— — (200)(132)
Gain on sale of OREO, net— — 1 100 
Balance, end of period$— $381 $— $381 
At September 30, 2022, there were no foreclosed residential real estate properties held as OREO. Additionally, there were $85 thousand consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process.
8.Goodwill and Other Intangible Assets
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, 2022 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,
2022202120222021
(in thousands)
Goodwill
Total goodwill$823,172 $765,842 $823,172 $765,842 
Other intangible assets, net
CDI:
Gross CDI balance at beginning of period (1)88,931 105,473 88,931 105,473 
Accumulated amortization at beginning of period(59,710)(83,434)(55,203)(79,658)
CDI, net at beginning of period29,221 22,039 33,728 25,815 
CDI current period amortization(2,219)(1,835)(6,726)(5,611)
Total CDI, net at end of period27,002 20,204 27,002 20,204 
Intangible assets not subject to amortization919 919 919 919 
Other intangible assets, net at end of period27,921 21,123 27,921 21,123 
Total goodwill and other intangible assets at end of period$851,093 $786,965 $851,093 $786,965 
__________
(1) For the three and nine months ended September 30, 2022, the gross CDI balance, beginning of period excludes fully amortized amounts. Prior period columns have not been adjusted.
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The following table provides the estimated future amortization expense of our CDI for the remaining three months ending December 31, 2022 and the succeeding four years:
Total
(in thousands)
Remainder of 2022$1,972 
20237,082 
20245,673 
20254,366 
20263,225 
9. Revolving Line of Credit
The Company has a $15.0 million short-term credit facility with an unaffiliated bank. This facility, which expires May 25, 2023, has a variable interest rate and provides the Company additional liquidity, if needed, for various corporate activities. There was no outstanding balance at both September 30, 2022 and December 31, 2021. 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, 2022.
10.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 as well as 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, 2022 and 2021. 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, 2022 and December 31, 2021, the Bank had commitments to originate mortgage loans held for sale totaling $7.9 million and $21.8 million, respectively, and forward sales commitments of $6.5 million and $18.5 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, 2022 and December 31, 2021 was $524.7 million and $570.2 million, respectively.
The following table presents the fair value of derivatives, as well as their classification on the Consolidated Balance Sheet as of the dates presented:
Asset DerivativesLiability Derivatives
September 30, 2022December 31, 2021September 30, 2022December 31, 2021
Balance Sheet
Location		Fair ValueBalance Sheet
Location		Fair ValueBalance Sheet
Location		Fair ValueBalance Sheet
Location		Fair Value
(in thousands)
Derivatives not designated as hedging instruments:
Interest rate lock commitmentsOther assets$— Other assets$356 Other liabilities$62 Other liabilities$— 
Interest rate forward loan sales contractsOther assets$119 Other assets$— Other liabilities$— Other liabilities$27 
Interest rate swap contractsOther assets$43,574 Other assets$24,257 Other liabilities$43,574 Other liabilities$24,257 

The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income (loss) for the periods indicated:
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,
20222021
(in thousands)
Interest rate collar Interest income $2,631 $2,631 
Nine Months Ended September 30,
20222021
(in thousands)
Interest rate collar Interest income $7,809 $7,809 
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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 $34.4 million realized gain that was recorded in accumulated other comprehensive income, net of deferred income taxes. The gain will amortize through February 2024 into interest income. The gain will be amortized in this manner as long as the cash flows pertaining to the hedged item are expected to occur.
The following table summarizes the types of derivatives not designated as hedging instruments and the gains (losses) recorded during the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(in thousands)
Interest rate lock commitments$(152)$(103)$(418)$(614)
Interest rate forward loan sales contracts139 (57)146 86 
Interest rate swap contracts— (22)— 50 
Total derivative gains (losses)$(13)$(182)$(272)$(478)
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, 2022(in thousands)
Assets
Interest rate swap contracts$43,574 $— $43,574 $(41,330)$2,244 
Liabilities
Interest rate swap contracts$43,574 $— $43,574 $(180)$43,394 
Repurchase agreements$48,733 $— $48,733 $(48,733)$— 
December 31, 2021
Assets
Interest rate swap contracts$24,257 $— $24,257 $(450)$23,807 
Liabilities
Interest rate swap contracts$24,257 $— $24,257 $(20,747)$3,510 
Repurchase agreements$86,013 $— $86,013 $(86,013)$— 
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, 2022(in thousands)
Class of collateral pledged for repurchase agreements
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$48,733 $— $— $— $48,733 
Gross amount of recognized liabilities for repurchase agreements48,733 
Amounts related to agreements not included in offsetting disclosure$— 
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 $48.7 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.
11.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 2022 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, 2022 and December 31, 2021, the Company’s loan commitments amounted to $3.84 billion and $3.50 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 $32.4 million and $36.0 million at September 30, 2022 and December 31, 2021, respectively. Commercial and similar letters of credit and other off-balance sheet liabilities were $27 thousand as of September 30, 2022, while there were none at December 31, 2021.
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.
12.Shareholders’ Equity
Dividends:
The following table summarizes year-to-date dividend activity:
DeclaredRegular Cash Dividends Per Common ShareRecord DatePaid Date
January 19, 2022$0.30 February 2, 2022February 16, 2022
April 21, 2022$0.30 May 4, 2022May 18, 2022
July 21, 2022$0.30 August 3, 2022August 17, 2022
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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Subsequent to quarter end, on October 5, 2022, the Company declared a regular quarterly cash dividend of $0.30 per common share payable on October 28, 2022 to shareholders of record at the close of business on October 17, 2022.
13.Accumulated Other Comprehensive Income (Loss)
The following table shows changes in accumulated other comprehensive income (loss) by component for the periods indicated:
Unrealized Gains and Losses on Available for Sale Securities (1)Unrealized Gains and Losses on Pension Plan Liability (1)Unrealized Gains and Losses on Hedging Instruments (1)Total (1)
Three Months Ended September 30, 2022(in thousands)
Beginning balance$(392,870)$(4,611)$12,866 $(384,615)
Other comprehensive loss before reclassifications
(170,224)— — (170,224)
Amounts reclassified from accumulated other comprehensive loss (2)
(2,086)100 (2,019)(4,005)
Net current-period other comprehensive income (loss)(172,310)100 (2,019)(174,229)
Ending balance$(565,180)$(4,511)$10,847 $(558,844)
Three Months Ended September 30, 2021
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 
Nine Months Ended September 30, 2022
Beginning balance$23,134 $(4,812)$16,840 $35,162 
Other comprehensive loss before reclassifications
(583,072)— — (583,072)
Amounts reclassified from accumulated other comprehensive income (2)
(5,242)301 (5,993)(10,934)
Net current-period other comprehensive income (loss)
(588,314)301 (5,993)(594,006)
Ending balance$(565,180)$(4,511)$10,847 $(558,844)
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 
__________
(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
2022202120222021Statement of Income
(in thousands)
Unrealized gains on available for sale debt securities
$— $— $— $314 Investment securities gains, net
Amortization of unrealized gains related to securities transfer2,718 606 6,830 1,056 Taxable securities
2,718 606 6,830 1,370 Total before tax
(632)(141)(1,588)(319)Income tax provision
$2,086 $465 $5,242 $1,051 Net of tax
Amortization of pension plan liability actuarial losses$(130)$(149)$(392)$(448)Compensation and employee benefits
(130)(149)(392)(448)Total before tax
30 35 91 104 Income tax provision
$(100)$(114)$(301)$(344)Net of tax
Unrealized gains from hedging instruments
$2,631 $2,631 $7,809 $7,809 Loans
2,631 2,631 7,809 7,809 Total before tax
(612)(612)(1,816)(1,815)Income tax provision
$2,019 $2,019 $5,993 $5,994 Net of tax
14.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.
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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.
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.
The following tables set 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, 2022(in thousands)
Assets
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations$2,852,867 $— $2,852,867 $— 
Other asset-backed securities334,008 — 334,008 — 
State and municipal securities826,834 — 826,834 — 
U.S. government agency and government-sponsored enterprise securities222,951 — 222,951 — 
U.S. government securities166,306 166,306 — — 
Non-agency collateralized mortgage obligations297,855 — 297,855 — 
Total debt securities available for sale$4,700,821 $166,306 $4,534,515 $— 
Loans held for sale$1,251 $— $1,251 $— 
Other assets:
Interest rate forward loan sales contracts$119 $— $119 $— 
Interest rate contracts$43,574 $— $43,574 $— 
Liabilities
Other liabilities:
Interest rate contracts$43,574 $— $43,574 $— 
Interest rate lock commitments$62 $— $— $62 
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Fair ValueFair Value Measurements at Reporting Date Using
Level 1Level 2Level 3
December 31, 2021(in thousands)
Assets
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations$3,745,601 $— $3,745,601 $— 
Other asset-backed securities463,063 — 463,063 — 
State and municipal securities997,291 — 997,291 — 
U.S. government agency and government-sponsored enterprise securities252,576 — 252,576 — 
U.S. government securities157,536 157,536 — — 
Non-agency collateralized mortgage294,932 — 294,932 — 
Total debt securities available for sale$5,910,999 $157,536 $5,753,463 $— 
Loans held for sale$9,570 $— $9,570 $— 
Other assets:
Interest rate lock commitments$356 $— $— $356 
Interest rate contracts$24,257 $— $24,257 $— 
Liabilities
Other liabilities:
Interest rate forward loan sales contracts$27 $— $27 $— 
Interest rate contracts$24,257 $— $24,257 $— 
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table provides a description of the valuation technique, significant unobservable inputs and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the dates presented:
Fair Value at September 30, 2022Valuation TechniqueUnobservable InputRange (Weighted Average)
(dollars in thousands)
Interest rate lock commitments$(62)Internal pricing modelPull-through rate
80.84% - 100.00%
(95.19%)
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%)
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).
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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,
2022202120222021
(in thousands)
Balance at the beginning of the period$90 $585 $356 $1,096 
Change included in earnings(13)1,864 133 5,708 
Settlements(139)(1,967)(551)(6,322)
Balance at the end of the period$(62)$482 $(62)$482 
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.
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.
The Company had no assets measured using fair value estimates on a nonrecurring basis during the current quarterly period. For the nine months ended September 30, 2022, the Company recorded a loss of $1.5 million on the nonrecurring measurement of collateral dependent loans.
The following table sets forth information related to the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the prior year quarterly period:
Fair Value at Fair 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)
The gains (losses) on collateral dependent loans disclosed above represent the amount of the allowance or provision recapture 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.
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 and fixed assets).
(2) Collateral consists of accounts receivable and fixed assets.
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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, 2022
Carrying
Amount		Fair
Value		Level 1Level 2Level 3
(in thousands)
Assets
Cash and due from banks$263,551 $263,551 $263,551 $— $— 
Interest-earning deposits with banks54,124 54,124 54,124 — — 
Debt securities available for sale4,700,821 4,700,821 166,306 4,534,515 — 
Debt securities held to maturity2,079,285 1,747,282 — 1,747,282 — 
FHLB stock10,560 10,560 — 10,560 — 
Loans held for sale1,251 1,251 — 1,251 — 
Loans11,537,390 11,353,412 — — 11,353,412 
Interest rate contracts43,574 43,574 — 43,574 — 
Interest rate forward loan sales contracts119 119 — 119 — 
Liabilities
Time deposits$371,230 $360,340 $— $360,340 $— 
FHLB advances14,322 14,290 — 14,290 — 
Repurchase agreements48,733 48,733 — 48,733 — 
Subordinated debentures10,000 10,013 — 10,013 — 
Junior subordinated debentures10,310 9,984 — 9,984 — 
Interest rate contracts43,574 43,574 — 43,574 — 
Interest rate lock commitments62 62 — — 62 
December 31, 2021
Carrying
Amount		Fair
Value		Level 1Level 2Level 3
(in thousands)
Assets
Cash and due from banks$153,414 $153,414 $153,414 $— $— 
Interest-earning deposits with banks671,300 671,300 671,300 — — 
Debt securities available for sale5,910,999 5,910,999 157,536 5,753,463 — 
Debt securities held to maturity2,148,327 2,122,606 — 2,122,606 — 
FHLB stock10,280 10,280 — 10,280 — 
Loans held for sale9,774 9,774 — 9,774 — 
Loans10,486,359 10,679,349 — — 10,679,349 
Interest rate contracts24,257 24,257 — 24,257 — 
Interest rate lock commitments356 356 — — 356 
Liabilities
Time deposits$445,957 $430,682 $— $430,682 $— 
FHLB advances7,359 8,752 — 8,752 — 
Repurchase agreements86,013 86,013 — 86,013 — 
Subordinated debentures10,000 10,125 — 10,125 — 
Junior subordinated debentures10,310 9,927 — 9,927 — 
Interest rate contracts24,257 24,257 — 24,257 — 
Interest rate forward loan sales contracts27 27 — 27 — 
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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, 2022December 31, 2021
Fair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal BalanceFair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal Balance
(in thousands)
$1,251 $1,299 $(48)$9,570 $9,401 $169 
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 months ended September 30, 2022, the Company recorded a net decrease in fair value of $47 thousand representing the change in fair value reflected in earnings. For the nine months ended September 30, 2022, the Company recorded a net decrease in fair value of $217 thousand, while the Company recorded net decreases in fair value of $161 thousand and $306 thousand, respectively, for the three and nine months ended September 30, 2021. At September 30, 2022 and December 31, 2021, 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.
15.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,
2022202120222021
(in thousands except per share amounts)
Basic EPS:
Net income$64,942 $53,017 $181,272 $159,909 
Less: Earnings allocated to participating securities:
Nonvested restricted shares— 91 49 317 
Earnings allocated to common shareholders$64,942 $52,926 $181,223 $159,592 
Weighted average common shares outstanding78,10071,03678,027 70,965 
Basic earnings per common share$0.83 $0.75 $2.32 $2.25 
Diluted EPS:
Earnings allocated to common shareholders$64,942 $52,926 $181,223 $159,592 
Weighted average common shares outstanding78,10071,03678,027 70,965 
Dilutive effect of equity awards133 150 115 190 
Weighted average diluted common shares outstanding78,23371,18678,142 71,155 
Diluted earnings per common share$0.83 $0.74 $2.32 $2.24 
Potentially dilutive RSAs and RSUs that were not included in the computation of diluted EPS because to do so would be anti-dilutive165 269 378 198 
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16.Revenue from Contracts with Customers
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,
2022202120222021
(in thousands)
Noninterest income:
Revenue from contracts with customers:
Deposit account and treasury management fees$8,181 $6,893 $23,506 $19,952 
Card revenue4,988 4,889 14,986 13,395 
Financial services and trust revenue4,292 4,250 13,116 11,876 
Total revenue from contracts with customers17,461 16,032 51,608 45,223 
Other sources of noninterest income9,166 7,926 24,205 24,631 
Total noninterest income$26,627 $23,958 $75,813 $69,854 
17.Subsequent Events
On October 25, 2022, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) approved the application of Columbia with respect to the previously announced combination of Columbia and Umpqua pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 11, 2021, by and among Umpqua, Columbia and Cascade Merger Sub, Inc. (“Merger Sub”). Completion of the transaction remains subject to receipt of required regulatory approvals, including approval from the FDIC, and other customary closing considerations set forth in the Merger Agreement.
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, 2021 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 Annual Report on 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;
•continued increases in inflation and the risk that inflation may differ, possibly materially, from expectations, and actions taken by the Federal Reserve in response to inflation and their potential impact on economic conditions including the possibility of a recession;
•risks related to the proposed merger with 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 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 proposed merger, (viii) expenses related to the proposed merger being greater than expected, and (ix) shareholder litigation that may 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 and infrastructure may not be realized;
•the ability to successfully 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;
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•inability to keep pace with technological changes;
•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, including the impacts of Russia’s invasion of Ukraine;
•our profitability measures could be adversely affected if we are unable to effectively manage our capital;
•the risks from climate change and its potential to disrupt our business and adversely impact the operations and creditworthiness of our customers;
•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 AND ESTIMATES
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 2021 Annual Report on Form 10-K. There have not been any material changes in our critical accounting policies and estimates as compared to those disclosed in our 2021 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.
In November 2020, the SEC amended the rules governing Management’s Discussion and Analysis, Selected Financial Data and Supplementary Financial Information, to modernize and simplify certain disclosure requirements. One update allows registrants to compare the results of the most recently completed quarter to the results of either the immediately preceding quarter or the corresponding quarter of the preceding year. We have adopted this change, as management believes that comparing current quarter results to those of the immediately preceding quarter is more useful in identifying current business trends and provides a more meaningful comparison. Accordingly, we have compared the results for the three months ended September 30, 2022 and June 30, 2022, where applicable throughout this Management’s Discussion and Analysis.
Earnings Summary
Comparison of current quarter to prior quarter
The Company reported net income for the third quarter of $64.9 million or $0.83 per diluted common share, compared to $58.8 million or $0.75 per diluted common share for the second quarter of 2022. Net interest income for the three months ended September 30, 2022 was $162.5 million, an increase of $15.0 million from the prior quarter. The increase was primarily due to higher loan interest income as a result of increased average rates and higher average balances. This was partially offset by lower interest income from securities due to decreased average balances and increased deposit interest expense driven by higher average rates on public fund deposits.
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The Company recorded a $5.3 million provision for credit losses for the third quarter of 2022 compared to a provision of $2.1 million for the second quarter of 2022. The increase in provision expense for the third quarter of 2022 as compared to the second quarter of 2022 was primarily related to loan growth, but also was impacted by a less favorable economic forecast. The prior quarter’s provision was primarily related to loan growth partially offset by improved credit quality.
Noninterest income for the quarter was $26.6 million, an increase of $1.6 million from the prior quarter. The increase was primarily due to a $3.7 million gain from the sale-leaseback of owned real estate. The gain was partially offset by decreased loan revenue principally as a result of lower mortgage banking revenue and loan-related fees. Overall mortgage production declined as a result of the higher rate environment.
Total noninterest expense for the quarter ended September 30, 2022 was $101.4 million, an increase of $6.1 million from the prior quarter. Merger-related expenses in the quarter were $3.2 million compared to $3.9 million for the prior quarter. The largest contributor to the decrease in noninterest expense was related to compensation and employee benefits driven by higher incentive expense. In addition, there was increased net loan expense and data processing and software expense.
Comparison of current year-to-date to prior year period
The Company reported net income for the nine months ended September 30, 2022 of $181.3 million or $2.32 per diluted common share, compared to $159.9 million or $2.24 per diluted common share for the same period in 2021. Net interest income for the nine months ended September 30, 2022 was $456.1 million, an increase of $74.1 million from the prior year period. The increase was primarily due to increases in interest income from loans and securities, which were a result of higher average balances partially related to the Bank of Commerce acquisition.
The provision for credit losses on loans for the nine months ended September 30, 2022 was a recapture of $450 thousand compared to a recapture of $6.3 million for the first nine months of 2021. The lower recapture for the first nine months of 2022 compared to the same period in 2021 was primarily due to loan growth.
Noninterest income for the nine months ended September 30, 2022 was $75.8 million, an increase of $6.0 million from the prior year period. The increase was primarily due to the previously noted $3.7 million gain from a sale-leaseback transaction and higher deposit account and treasury management fees. This was partially offset by lower mortgage banking revenue due to lower overall mortgage production as a result of the higher rate environment.
For the nine months ended September 30, 2022, noninterest expense was $301.9 million, an increase of $44.2 million from $257.7 million for the same period in 2021. The increase from the prior year period was primarily driven by higher compensation and employee benefits due to our acquisition of Bank of Commerce and the prior year period having substantial capitalized labor costs for PPP loan originations. Increased merger-related expenses also contributed to the increase from the prior year period.
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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, 2022June 30, 2022
Average
Balances		Interest
Earned / Paid		Average
Rate		Average
Balances		Interest
Earned / Paid		Average
Rate
(dollars in thousands)
ASSETS
Loans, net (1)(2)$11,513,653 $132,302 4.56 %$10,989,493 $112,142 4.09 %
Taxable securities6,419,977 31,987 1.98 %$6,761,383 $34,622 2.05 %
Tax exempt securities (2)710,137 4,635 2.59 %$729,916 $4,753 2.61 %
Interest-earning deposits with banks220,678 1,191 2.14 %$494,725 $887 0.72 %
Total interest-earning assets18,864,445 170,115 3.58 %$18,975,517 $152,404 3.22 %
Other earning assets306,200 $305,775 
Noninterest-earning assets1,527,607 $1,488,910 
Total assets$20,698,252 $20,770,202 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts4,342,054 1,378 0.13 %4,406,022 1,000 0.09 %
Interest-bearing demand2,085,124 419 0.08 %2,123,005 411 0.08 %
Savings accounts1,658,078 82 0.02 %1,638,334 78 0.02 %
Interest-bearing public funds, other than certificates of deposit724,502 2,410 1.32 %756,528 923 0.49 %
Certificates of deposit386,623 157 0.16 %411,115 52 0.05 %
Total interest-bearing deposits9,196,381 4,446 0.19 %9,335,004 2,464 0.11 %
FHLB advances and FRB borrowings11,512 109 3.76 %7,340 73 3.99 %
Subordinated debentures10,000 220 8.73 %10,000 172 6.90 %
Other borrowings and interest-bearing liabilities74,722 481 2.55 %62,017 153 0.99 %
Total interest-bearing liabilities9,292,615 5,256 0.22 %9,414,361 2,862 0.12 %
Noninterest-bearing deposits8,878,977 8,822,071 
Other noninterest-bearing liabilities255,648 235,159 
Shareholders’ equity2,271,012 2,298,611 
Total liabilities & shareholders’ equity$20,698,252 $20,770,202 
Net interest income (tax equivalent)$164,859 $149,542 
Net interest margin (tax equivalent)3.47 %3.16 %
__________
(1)Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $2.1 million and $2.8 million for the three months ended September 30, 2022 and June 30, 2022, respectively. The net incremental amortization on acquired loans was $871 thousand for the three months ended September 30, 2022 compared to net incremental amortization of $2.1 million for the three months ended June 30, 2022.
(2)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.4 million and $1.1 million for the three months ended September 30, 2022 and June 30, 2022, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $973 thousand and $998 thousand for the three months ended September 30, 2022, and June 30, 2022, 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,
 20222021
Average
Balances		Interest
Earned / Paid		Average
Rate		Average
Balances		Interest
Earned / Paid		Average
Rate
(dollars in thousands)
ASSETS
Loans, net (1)(2)$11,059,237 $352,625 4.26 %$9,592,178 $308,730 4.30 %
Taxable securities6,796,812 103,771 2.04 %5,286,406 73,940 1.87 %
Tax exempt securities (2)743,970 14,103 2.53 %615,169 10,505 2.28 %
Interest-earning deposits with banks434,043 2,373 0.73 %650,203 595 0.12 %
Total interest-earning assets19,034,062 $472,872 3.32 %16,143,956 $393,770 3.26 %
Other earning assets304,959 244,269 
Noninterest-earning assets1,468,076 1,247,801 
Total assets$20,807,097 $17,636,026 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Money market accounts4,425,567 3,338 0.10 %3,625,688 2,132 0.08 %
Interest-bearing demand2,077,850 1,204 0.08 %1,526,312 849 0.07 %
Savings accounts1,643,021 237 0.02 %1,311,118 139 0.01 %
Interest-bearing public funds, other than certificates of deposit752,473 3,621 0.64 %698,745 753 0.14 %
Certificates of deposit411,477 306 0.10 %331,910 506 0.20 %
Total interest-bearing deposits9,310,388 8,706 0.13 %7,493,773 4,379 0.08 %
FHLB advances and FRB borrowings8,751 253 3.87 %7,395 217 3.92 %
Subordinated debentures10,000 536 7.17 %35,034 1,371 5.23 %
Other borrowings and interest-bearing liabilities
70,969 708 1.33 %51,787 66 0.17 %
Total interest-bearing liabilities9,400,108 $10,203 0.15 %7,587,989 $6,033 0.11 %
Noninterest-bearing deposits8,799,631 7,482,888 
Other noninterest-bearing liabilities239,993 223,911 
Shareholders’ equity2,367,365 2,341,238 
Total liabilities & shareholders’ equity$20,807,097 $17,636,026 
Net interest income (tax equivalent)$462,669 $387,737 
Net interest margin (tax equivalent)3.25 %3.21 %
__________
(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 $9.1 million and $26.0 million for the nine months ended September 30, 2022 and 2021, respectively. The incremental amortization on acquired loans was $3.3 million for the nine months ended September 30, 2022 compared to net incremental accretion of $2.8 million for the nine months ended September 30, 2021.
(2)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.6 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.0 million and $2.2 million for the nine months ended September 30, 2022 and 2021, 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, 2022 Compared to June 30, 2022
Increase (Decrease) Due to
VolumeRateTotal (1)
(in thousands)
Interest Income
Loans, net$5,534 $14,626 $20,160 
Taxable securities(1,718)(917)(2,635)
Tax exempt securities(129)11 (118)
Interest-earning deposits with banks(705)1,009 304 
Interest income$2,982 $14,729 $17,711 
Interest Expense
Deposits:
Money market accounts$(15)$393 $378 
Interest-bearing demand(7)15 8 
Savings accounts1 3 4 
Interest-bearing public funds, other than certificates of deposit(40)1,527 1,487 
Certificates of deposit(4)109 105 
Total interest on deposits(65)2,047 1,982 
FHLB advances and FRB borrowings40 (4)36 
Subordinated debentures— 48 48 
Other borrowings and interest-bearing liabilities38 290 328 
Interest expense$13 $2,381 $2,394 
__________
(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, 2022 Compared to 2021 Increase (Decrease) Due to
 VolumeRateTotal (1)
(in thousands)
Interest Income
Loans, net$46,802 $(2,907)$43,895 
Taxable securities22,591 7,240 29,831 
Tax exempt securities2,358 1,240 3,598 
Interest earning deposits with banks(260)2,038 1,778 
Interest income$71,491 $7,611 $79,102 
Interest Expense
Deposits:
Money market accounts528 678 1,206 
Interest-bearing demand319 36 355 
Savings accounts40 58 98 
Interest-bearing public funds, other than certificates of deposit62 2,806 2,868 
Certificates of deposit102 (302)(200)
Total interest on deposits1,051 3,276 4,327 
FHLB advances and FRB borrowings40 (4)36 
Subordinated debentures(1,737)902 (835)
Other borrowings33 609 642 
Interest expense$(613)$4,783 $4,170 
__________
(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 quarter
Net interest income for the third quarter of 2022 was $162.5 million, up from $147.5 million for the second quarter in 2022. The increase was primarily due to higher loan interest income as a result of increased average rates and higher average balances. This was partially offset by lower interest income from securities due to decreased average balances and increased deposit interest expense driven by average rates on public fund deposits.
The Company’s net interest margin (tax equivalent) increased to 3.47% in the third quarter of 2022, from 3.16% for the prior quarter. This increase was predominantly driven by higher average loan rates and a stronger earning assets mix. The Company’s operating net interest margin (tax equivalent)1 increased to 3.50% from 3.23% compared to the second quarter of 2022. The increase was also due to higher average loan rates and a stronger earning assets mix as noted above.
Comparison of current year-to-date to prior year period
Net interest income for the nine months ended September 30, 2022 was $456.1 million, compared to $382.0 million for the prior year period. The increase was mainly due to an increase in interest income from loans and securities due to higher average balances partially related to the Bank of Commerce acquisition.
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) increased to 3.25% for the first nine months of 2022, from 3.21% for the prior year period. The increase in the Company’s net interest margin (tax equivalent) was driven by higher average balances on loans and securities, a stronger earning assets mix and a higher interest rate environment. The Company’s operating net interest margin (tax equivalent) for the nine months ended September 30, 2022 was 3.29% compared to 3.20% for the nine months ended September 30, 2021. This increase was due to the same factors noted for the increase in net interest margin.
Provision for Credit Losses
Comparison of current quarter to prior quarter
During the third quarter of 2022, the Company recorded a $5.3 million provision for credit losses compared to a provision of $2.1 million for the second quarter of 2022. The increase in provision expense for the third quarter of 2022 as compared to the second quarter of 2022 was primarily related to loan growth, but also was impacted by a less favorable economic forecast.
The provision 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 2022. The amount of provision was calculated in accordance with the Company’s methodology for determining the ACL, discussed in Note 6 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 recapture for credit losses for the nine months ended September 30, 2022 was $450 thousand compared to a recapture of $6.3 million during the same period in 2021. The lower recapture for the first nine months of 2022 was due to the same factors discussed above for the quarterly provision for credit losses. The amount of provision was calculated in accordance with the Company’s methodology for determining the ACL, discussed in Note 6 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:
Three Months EndedNine Months Ended
September 30, 2022June 30, 2022$ Change% ChangeSeptember 30, 2022September 30, 2021$ Change% Change
(dollars in thousands)
Deposit account and treasury management fees$8,181 $8,212 $(31)— %$23,506 $19,952 $3,554 18 %
Card revenue4,988 5,031 (43)(1)%14,986 13,395 1,591 12 %
Financial services and trust revenue4,292 4,192 100 2 %13,116 11,876 1,240 10 %
Loan revenue2,853 3,881 (1,028)(26)%9,927 17,067 (7,140)(42)%
Bank owned life insurance1,939 2,024 (85)(4)%5,751 4,780 971 20 %
Investment securities gains, net— — — — %— 314 (314)(100)%
Other4,374 1,666 2,708 163 %8,527 2,470 6,057 245 %
Total noninterest income$26,627 $25,006 $1,621 6 %$75,813 $69,854 $5,959 9 %
Comparison of current quarter to prior quarter
Noninterest income was $26.6 million for the third quarter of 2022, an increase of $1.6 million from the prior quarter. This increase was primarily due to a $3.7 million gain from the sale-leaseback of owned real estate. The gain was partially offset by decreased loan revenue, principally a result of lower mortgage banking revenue and loan-related fees. Overall mortgage production declined as a result of the higher rate environment.
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Comparison of current year-to-date to prior year period
For the nine months ended September 30, 2022, noninterest income was $75.8 million compared to $69.9 million for the same period in 2021, an increase of $6.0 million. The increase was primarily due to the previous noted $3.7 million gain from a sale-leaseback transaction and higher deposit account and treasury management fees. This was partially offset by lower mortgage banking revenue due to lower overall mortgage production and decreased premium on loan sales as a result of the higher rate environment.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:
Three Months EndedNine Months Ended
September 30, 2022June 30, 2022$ Change% ChangeSeptember 30, 2022September 30, 2021$ Change% Change
(dollars in thousands)
Compensation and employee benefits$60,744 $57,386 $3,358 6 %$181,209 $159,865 $21,344 13 %
Occupancy10,469 9,632 837 9 %31,110 27,739 3,371 12 %
Data processing and software10,548 9,185 1,363 15 %30,057 24,368 5,689 23 %
Legal and professional fees4,022 5,182 (1,160)(22)%15,739 10,973 4,766 43 %
Amortization of intangibles2,219 2,219 — — %6,726 5,611 1,115 20 %
B&O taxes1,771 1,584 187 12 %4,944 4,332 612 14 %
Advertising and promotion830 1,208 (378)(31)%2,764 2,026 738 36 %
Regulatory premiums1,782 1,461 321 22 %4,779 3,431 1,348 39 %
Net cost (benefit) of operation of OREO
(4)116 (120)(103)%122 52 70 135 %
Other9,065 7,406 1,659 22 %24,428 19,285 5,143 27 %
Total noninterest expense$101,446 $95,379 $6,067 6 %$301,878 $257,682 $44,196 17 %
The following table shows the impact of the merger-related expenses for the periods indicated to the various components of noninterest expense:
Three Months EndedNine Months Ended
September 30, 2022June 30, 2022September 30, 2022September 30, 2021
(in thousands)
Merger-related expenses:
Compensation and employee benefits$250 $612 $1,448 $— 
Occupancy435 112 1,366 — 
Data processing and software510 501 $2,050 1 
Legal and professional fees1,418 1,906 7,533 2,663 
Advertising and promotion24 10 168 — 
Other609 760 1,639 38 
Total impact of merger-related expense to noninterest expense$3,246 $3,901 $14,204 $2,702 
Merger-related expenses by transaction:
Bank of Commerce (1)568 1,749 4,904 2,702 
Umpqua (2) 2,678 2,152 9,300 — 
Total impact of merger-related expense to noninterest expense$3,246 $3,901 $14,204 $2,702 
__________
(1) The Company completed the acquisition of Bank of Commerce on October 1, 2021. See Note 3 of the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report for further information regarding this transaction.
(2) As of the date of this filing, completion of this transaction is still pending full regulatory approval. See Note 17, “Subsequent Events,” for additional information.
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Comparison of current quarter to prior quarter
Noninterest expense was $101.4 million for the third quarter of 2022, an increase of $6.1 million from $95.4 million for the prior quarter. Merger-related expenses during the quarter were $3.2 million compared to $3.9 million for the prior quarter. The largest contributor to the increase in noninterest expense was related to compensation and employee benefits driven by increased incentive expense. In addition, there was increased net loan expense and data processing and software expense during the quarter.
Comparison of current year-to-date to prior year period
For the nine months ended September 30, 2022, noninterest expense was $301.9 million, compared to $257.7 million for the same period in 2021, an increase of $44.2 million. The increase from the prior year period was mostly attributable to increases in compensation and employee benefits expense due to our acquisition of Bank of Commerce and the prior year period having substantial capitalized labor costs for PPP loan originations. Increased merger-related expenses also contributed to the increase.
The provision for unfunded loan commitments for the periods indicated are as follows:
Three Months EndedNine Months Ended
September 30, 2022June 30, 2022September 30, 2022September 30, 2021
(in thousands)
Provision (recapture) for unfunded loan commitments$(500)$— $— $2,200 
Income Taxes
We recorded an income tax provision of $17.5 million for the third quarter of 2022, compared to a provision of $16.2 million for the three months ended June 30, 2022, with effective tax rates of 21% and 22%, respectively. For the nine months ended September 30, 2022 and 2021, we recorded income tax provisions of $49.3 million and $40.6 million, respectively, with effective tax rates of 21% for the current year and 20% for the prior year period. For additional information, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
FINANCIAL CONDITION
Total assets were $20.41 billion at September 30, 2022, a decrease of $540.0 million from December 31, 2021. Cash and cash equivalents decreased $507.0 million. Loans increased $1.05 billion during the first nine months of 2022, which was primarily the result of new loan production partially offset by loan payments. Debt securities available for sale were $4.70 billion at September 30, 2022, a decrease of $1.21 billion from December 31, 2021 which was due to a combination of maturities, repayments and fair value movement. Total liabilities were $18.29 billion as of September 30, 2022, a decrease of $66.7 million from December 31, 2021 primarily due to a decrease in noninterest-bearing deposits.
Investment Securities
At September 30, 2022, the Company’s investment portfolio primarily consisted of debt securities available for sale totaling $4.70 billion compared to $5.91 billion at December 31, 2021 and debt securities held to maturity of $2.08 billion and $2.15 billion at September 30, 2022 and December 31, 2021, respectively. The decrease in the debt securities available for sale from year-end is due to a $759.7 million decline in unrealized gains, $613.0 million in maturities and repayments, and $23.2 million in premium amortization, partially offset by $185.8 million in purchases. The decrease in debt securities held to maturity from year-end is due to $149.6 million in maturities and repayments and $17.1 million in premium amortization, partially offset by purchases of $97.7 million. The average duration of our debt securities available for sale was approximately 5 years and 3 months at September 30, 2022. The average duration of our debt securities held to maturity was approximately 5 years and 8 months at September 30, 2022. 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, 2022, the market value of debt securities available for sale had a net unrealized loss of $746.7 million compared to a net unrealized gain of $13.0 million at December 31, 2021. The change in valuation was the result of fluctuations in market interest rates during the nine months ended September 30, 2022. At September 30, 2022, the Company had $4.66 billion of debt securities available for sale with gross unrealized losses of $747.3 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 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, 2022.
The following table sets forth our securities portfolio by type for the dates indicated:
September 30, 2022December 31, 2021
(in thousands)
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$2,852,867 $3,745,601 
Other asset-backed securities334,009 463,063 
State and municipal securities826,833 997,291 
U.S. government agency and government-sponsored enterprise securities222,951 252,576 
U.S. government securities166,306 157,536 
Non-agency collateralized mortgage securities297,855 294,932 
Total debt securities available for sale, at fair value$4,700,821 $5,910,999 
Debt securities held to maturity:
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations$2,079,285 $2,148,327 
Total debt securities held to maturity, at amortized cost$2,079,285 $2,148,327 
Equity securities13,425 13,425 
Total investment securities$6,793,531 $8,072,751 
For further information on our investment portfolio and equity securities transactions, see Note 4 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 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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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.
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 2021 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 provides additional detail related to the net premium (discount) of acquired and purchased loans by acquisition:
September 30, 2022December 31, 2021
(in thousands)
Acquisition:
Bank of Commerce$7,511 $12,923 
Pacific Continental(4,008)(5,306)
All other purchased and acquired net premium3,784 5,031 
Total net premium at period end$7,287 $12,648 
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.
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Agriculture Loans: Agricultural lending includes agricultural real estate and production loans and lines of credit within our primary market areas. We are committed to 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, Idaho and California.
For additional information on our loan portfolio, including amounts pledged as collateral on borrowings, see Note 5 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.
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, 2022, our ACL was $154.9 million, or 1.32% of total loans (excluding loans held for sale). This compares with an ACL of $155.6 million, or 1.46% of total loans (excluding loans held for sale) at December 31, 2021. The decrease from year end was primarily due to significant improvement in portfolio risk ratings as well as the percentage of problem loans to total loans reaching pre-pandemic levels. The ACL at September 30, 2022 does not include a reserve for the PPP loans as they are fully guaranteed by the SBA.
For additional information on our allowances for credit losses and allowance for unfunded commitments and letters of credit, as well as the credit quality of the loan portfolio, see Note 6 to the Consolidated Financial Statements in “Item 1. Consolidated Financial Statements (unaudited)” of this report.
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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 and junior 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.
In addition, we have a shelf registration statement on file with the SEC registering an unspecified amount of any combination of debt or equity securities, depository shares, purchase contracts, units and warrants in one or more offerings. Specific information regarding the terms of and the securities being offered will be provided at the time of any offering. Proceeds from any future offerings are expected to be used for general corporate purposes, including, but not limited to, the repayment of debt, repurchasing or redeeming outstanding securities, working capital, funding future acquisitions or other purposes identified at the time of any offering.
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 decreased $68.8 million from December 31, 2021. 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, 2022, brokered deposits, reciprocal money market accounts and other wholesale deposits (excluding public funds) totaled $919.1 million, or 5.1% of total deposits, compared to $821.7 million or 4.6% at year-end 2021. 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, 2022December 31, 2021
Balance% of
Total		Balance% of
Total
(dollars in thousands)
Demand and other noninterest-bearing$8,911,267 49.8 %$8,856,714 49.1 %
Money market3,355,705 18.7 %3,525,299 19.6 %
Interest-bearing demand2,047,169 11.4 %1,999,407 11.1 %
Savings1,657,799 9.2 %1,617,546 9.0 %
Interest-bearing public funds, other than certificates of deposit701,741 3.9 %779,146 4.3 %
Certificates of deposit, less than $250,000221,087 1.2 %249,120 1.4 %
Certificates of deposit, $250,000 or more127,229 0.7 %160,490 0.9 %
Certificates of deposit insured by the CD Option of IntraFi Network Deposits22,730 0.1 %35,611 0.2 %
Reciprocal money market accounts896,414 5.0 %786,046 4.4 %
Subtotal$17,941,141 100.0 %$18,009,379 100.0 %
Valuation adjustment resulting from acquisition accounting$184 $736 
Total deposits$17,941,325 $18,010,115 
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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 September 30, 2022 and December 31, 2021, we had FHLB advances of $14.3 million and $7.4 million, respectively.
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, 2022 and December 31, 2021, we had deposit customer sweep-related repurchase agreements of $48.7 million and $86.0 million, respectively, which mature on a daily basis.
Subordinated debentures and junior subordinated debentures are another source of funding. On October 1, 2021, with its acquisition of Bank of Commerce, the Company assumed $10.0 million in aggregate principal amount of subordinated debentures, which are unsecured, and mature on December 10, 2025. Also assumed through the Bank of Commerce acquisition were $10.3 million of trust preferred obligations which mature on September 15, 2035 and are redeemable at the Company’s option on any March 15, June 15, September 15 or December 15.
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. At both September 30, 2022 and December 31, 2021, 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, 2022.
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, 2022, we had commitments to extend credit of $3.87 billion compared to $3.54 billion at December 31, 2021.
Capital Resources
Shareholders’ equity at September 30, 2022 was $2.12 billion, compared to $2.59 billion at December 31, 2021. Shareholders’ equity was 10% and 12% of total period-end assets at September 30, 2022 and December 31, 2021, respectively.
Regulatory Capital
In July 2013, the federal bank regulators approved the Capital Rules (as discussed in our 2021 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, 2022, 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, 2022 and December 31, 2021.

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, 2022 and December 31, 2021 have a reduced 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, 2022December 31, 2021September 30, 2022December 31, 2021
CET1 risk-based capital ratio12.50 %13.01 %12.55 %13.06 %
Tier 1 risk-based capital ratio12.50 %13.01 %12.55 %13.06 %
Total risk-based capital ratio13.59 %14.21 %13.57 %14.18 %
Leverage ratio9.00 %8.55 %9.10 %8.60 %
Capital conservation buffer5.59 %6.21 %5.57 %6.18 %
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 EndedNine Months Ended
September 30, 2022June 30, 2022September 30, 2022September 30, 2021
(dollars in thousands)
Operating net interest margin non-GAAP reconciliation:
Net interest income (tax equivalent) (1)$164,859 $149,542 $462,669 $387,737 
Adjustments to arrive at operating net interest income (tax equivalent):
Premium amortization (discount accretion) on acquired loans871 2,053 3,274 (2,795)
Premium amortization on acquired securities877 1,132 3,040 1,474 
Operating net interest income (tax equivalent) (1)$166,607 $152,727 $468,983 $386,416 
Average interest earning assets$18,864,445 $18,975,517 $19,034,062 $16,143,956 
Net interest margin (tax equivalent) (1)3.47 %3.16 %3.25 %3.21 %
Operating net interest margin (tax equivalent) (1)3.50 %3.23 %3.29 %3.20 %
__________
(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of $2.4 million and $2.1 million for the three months ended September 30, 2022 and June 30, 2022, respectively, and $6.5 million and $5.7 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.
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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 or callable bonds could be called.
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 on net interest income over a one or two year period if interest rates gradually increased or decreased during the first year, based on the results of the simulation model as of September 30, 2022:
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$18,267 2.65 %$72,679 10.01 %
-100$(16,684)(2.42)%$(56,313)(7.76)%
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The following table summarizes the expected impact on net interest income over a one or two year period if interest rates instantaneously increased or decreased, based on the results of the simulation model as of September 30, 2022:
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$46,963 6.81 %$93,350 12.86 %
-100$(43,095)(6.25)%$(67,691)(9.32)%
The projections are based on the current interest rate environment and we assume our balance sheet remains constant during the next two years. Market interest rates increased substantially during the quarter and since year end. Loan interest rate indexes such as Prime, LIBOR and SOFR also increased significantly. Our ability to reprice deposits downward is limited given our low cost of funds.
Net interest income sensitivity was relatively unchanged since the prior quarter. We remain asset sensitive and well-positioned to benefit from a rising interest rate environment. Our ability to reprice our deposit costs downward in falling interest rate scenarios is constrained given our low cost of funds. Prudent management of deposit rates and balances will be the key driver in realizing the benefit of our asset sensitive status.
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.
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.
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, 2021 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 Annual Report on Form 10-K for the year ended December 31, 2021.
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, 2022:
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)
7/1/2022 - 7/31/2022701 $29.30 — — 
8/1/2022 - 8/31/2022436 31.19 — — 
9/1/2022 - 9/30/2022132 30.11 — — 
1,269 30.04 — 
__________
(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) The Company does not have a current share repurchase plan.
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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:October 28, 2022By/s/ CLINT E. STEIN
Clint E. Stein
President and
Chief Executive Officer
(Principal Executive Officer)
Date:October 28, 2022By/s/ AARON JAMES DEER
Aaron James Deer
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date:October 28, 2022By/s/ BROCK M. LAKELY
Brock M. Lakely
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)

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