COLUMBIA BANKING SYSTEM, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE - EARNINGS AND DIVIDEND

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Exhibit 99.1

FOR IMMEDIATE RELEASE

January 24, 2019

Columbia Banking System Announces Fourth Quarter and Full Year 2018 Results,

Quarterly and Special Cash Dividends

Highlights


•	Record full year 2018 net income of $172.9 million; diluted earnings per share of $2.36


•	Fourth quarter net income of $44.7 million; diluted earnings per share of $0.61, which included $0.01 per share negative impact from acquisition-related expenses


•	Record full year production of $1.43 billion and fourth quarter loan production of $388.4 million


•	Deposit costs increased modestly but remained low at 15 basis points


•	Nonperforming assets to period end assets ratio decreased to 0.46%


•	Regular cash dividend increased to $0.28 while special cash dividend maintained at $0.14

TACOMA, Washington, January 24, 2019 -- Hadley Robbins, President and Chief Executive Officer of Columbia Banking System and Columbia Bank (NASDAQ: COLB) (“Columbia”), said today upon the release of Columbia’s fourth quarter 2018 earnings, “We had a record year in terms of net income and loan production. Our bankers did an exceptional job in a very competitive environment. We maintained a strong core deposit mix and low funding costs and actively managed our credit exposures, resulting in low levels of nonperforming assets.”

Balance Sheet

Total assets at December 31, 2018 were $13.10 billion, an increase of $138.5 million from September 30, 2018. Loans were $8.39 billion, down $122.8 million from September 30, 2018 as loan originations of $388.4 million were offset by pay-downs and prepayments. Debt securities available for sale were $3.17 billion at December 31, 2018, an increase of $246.3 million, or 8% from $2.92 billion at September 30, 2018. Total deposits at December 31, 2018 were $10.46 billion, a decrease of $145.8 million from September 30, 2018 due to seasonal decline. Core deposits comprised 95% of total deposits and were $9.97 billion at December 31, 2018, a decrease of $110.8 million from September 30, 2018. Deposit mix remained consistent from September 30, 2018 with 50% noninterest bearing and 50% interest bearing. The average cost of total deposits for the quarter was 0.15%, an increase of 3 basis points from the third quarter of 2018.

Clint Stein, Columbia’s Executive Vice President and Chief Operating Officer, stated, “We experienced our usual balance sheet seasonality during the fourth quarter. The deposit portfolio is holding up well with no meaningful rate related attrition. The decrease in the loan portfolio was mostly related to reduced line utilization.” Mr. Stein continued, “While elevated prepayments were still a factor during the quarter, they continued to moderate from levels experienced during the first half of 2018.”

Income Statement

Net Interest Income

Net interest income for the fourth quarter of 2018 was $123.9 million, an increase of $1.1 million from the linked quarter and an increase of $17.7 million from the prior year period. The increase from the linked quarter was due to a combination of higher rates on earning assets and higher volumes of taxable securities. The increase from the prior year period was primarily due to income from earning assets acquired in the Pacific Continental acquisition, which closed on November 1, 2017, as well as higher rates on earning assets. For additional information regarding net interest income, see the “Net Interest Margin” section and the “Average Balances and Rates” table.

Noninterest Income

Noninterest income was $20.4 million for the fourth quarter of 2018, a decrease of $617 thousand from the third quarter of 2018. The linked quarter decrease was principally due to lower loan revenue. Compared to the fourth quarter of 2017, noninterest income decreased by $3.2 million. The decrease from the prior year period was due to lower card revenue during the current quarter as we became subject to the interchange fee cap imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s

Durbin Amendment as of July 1, 2018. Also contributing to the decrease in noninterest income compared to the prior year period was our change to net presentation of interchange revenue pursuant to the adoption of new revenue recognition accounting guidance on January 1, 2018. Specifically, $1.2 million of payment card network expenses that would have historically been presented in other noninterest expense are now presented in card revenue.

Noninterest Expense

Total noninterest expense for the fourth quarter of 2018 was $87.0 million, an increase of $4.2 million from the third quarter of 2018. After removing the effect of acquisition-related expenses for the current quarter and the linked quarter, noninterest expense increased $4.8 million due to higher compensation and employee benefits and legal and professional fees. The increase in compensation and employee benefits expense was driven in part by higher health insurance expense and higher payroll costs associated with an additional day within the current quarter. The increase in legal and professional expense was due to implementation and consulting costs related to our digital strategy and other projects. Compared to the fourth quarter of 2017, noninterest expense increased by $1.4 million. After removing the acquisition-related expenses of $13.6 million from the fourth quarter of 2017, noninterest expense increased $14.5 million. This increase was primarily driven by higher compensation and employee benefits and legal expense resulting from the Pacific Continental acquisition.

Provision for Income Taxes

Our effective tax rate for the current quarter was 19.3%, compared to 19.7% and 61.5% for the linked and prior year periods, respectively. The decrease from the prior year period was principally attributable to the re-measurement charge of $12.2 million to reduce our deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which lowered the corporate tax rate to 21% from 35%. The prior year period’s effective tax rate reflected the then-enacted 35% corporate tax rate reduced by favorable tax attributes of certain earning assets and discrete tax benefits from share-based compensation.

Our effective tax rate remains below the statutory tax rate due to tax-exempt income from municipal securities, bank owned life insurance and certain loan receivables.

Net Interest Margin

Columbia’s net interest margin (tax equivalent) for the fourth quarter of 2018 was 4.40%, a decrease of 1 basis point from the linked quarter and an increase of 20 basis points from the prior year period. Columbia’s operating net interest margin (tax equivalent)⁽¹⁾was 4.38% for both the fourth quarter of 2018 and the linked quarter and increased 13 basis points from the prior year period. Although the net interest margin for the current quarter as compared to the linked quarter was flat, the increase from the prior year period was due to income from earning assets acquired in the Pacific Continental acquisition as well as higher rates on interest-earning assets, which more than offset the modest increase in rates on interest-bearing liabilities.

Greg Sigrist, Columbia’s Executive Vice President and Chief Financial Officer, commented, “Our net interest margin continued to hold up well given the strength of our deposit franchise. We also added to our leverage strategy in the quarter. Although this muted the benefit of loans repricing in the quarter, the leverage strategy is an important tool to help position the Bank for a falling rate environment.”

The following table shows the impact to interest income resulting from income accretion on acquired loan portfolios as well as the net interest margin and operating net interest margin:



	Three Months Ended															Twelve Months Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2018			2018			2018			2018			2017			2018			2017
	(dollars in thousands)
Incremental accretion income due to:
FDIC purchased credit impaired loans	$	395		$	585		$	326		$	329		$	265		$	1,635		$	4,107
Other acquired loans	2,218			2,643			2,690			3,370			2,482			10,921			8,689
Incremental accretion income	$	2,613		$	3,228		$	3,016		$	3,699		$	2,747		$	12,556		$	12,796

Net interest margin (tax equivalent)	4.40		%	4.41		%	4.29		%	4.22		%	4.20		%	4.33		%	4.18		%
Operating net interest margin (tax equivalent) (1)	4.38		%	4.38		%	4.27		%	4.18		%	4.25		%	4.30		%	4.15		%

__________

(1) Operating net interest margin (tax equivalent) is a non-GAAP financial measure. See the section titled “Non-GAAP Financial Measures” in this earnings release for the reconciliation of operating net interest margin (tax equivalent) to net interest margin.

Asset Quality

At December 31, 2018, nonperforming assets to total assets were 0.46% compared to 0.52% at September 30, 2018. Total nonperforming assets decreased $6.9 million from the linked quarter due to a $5.5 million decrease in nonaccrual loans and a $1.4 million decrease in other real estate owned.

Andy McDonald, Columbia’s Executive Vice President and Chief Credit Officer, commented, “We are pleased with the progress that we have made in reducing the level of our nonperforming assets. Our nonperforming assets to total assets ratio was 0.46% which is below our general target of 0.50%.

The following table sets forth information regarding nonaccrual loans and total nonperforming assets:



	December 31, 2018		September 30, 2018		December 31, 2017
	(in thousands)
Nonaccrual loans:
Commercial business	$	35,513	$	45,753	$	45,460
Real estate:
One-to-four family residential	1,158		501		785
Commercial and multifamily residential	14,904		11,012		13,941
Total real estate	16,062		11,513		14,726
Real estate construction:
One-to-four family residential	318		318		1,854
Total real estate construction	318		318		1,854
Consumer	2,949		2,748		4,149
Total nonaccrual loans	54,842		60,332		66,189
Other real estate owned and other personal property owned	6,049		7,415		13,298
Total nonperforming assets	$	60,891	$	67,747	$	79,487

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



	Three Months Ended									Twelve Months Ended
	December 31, 2018			September 30, 2018			December 31, 2017			December 31, 2018			December 31, 2017
	(in thousands)
Beginning balance, loans excluding PCI loans	$	79,770		$	75,368		$	64,272		$	68,739		$	59,528
Beginning balance, PCI loans	4,017			4,782			7,344			6,907			10,515
Beginning balance	83,787			80,150			71,616			75,646			70,043
Charge-offs:
Commercial business	(2,861		)	(606		)	(1,524		)	(11,719		)	(7,613		)
One-to-four family residential real estate	—			—			—			—			(460		)
Commercial and multifamily residential real estate	(557		)	—			(287		)	(780		)	(287		)
One-to-four family residential real estate construction	—			—			—			—			(14		)
Consumer	(421		)	(277		)	(318		)	(1,194		)	(1,474		)
Purchased credit impaired	(1,076		)	(1,208		)	(1,440		)	(4,862		)	(6,812		)
Total charge-offs	(4,915		)	(2,091		)	(3,569		)	(18,555		)	(16,660		)
Recoveries:
Commercial business	535			547			839			3,427			4,836
One-to-four family residential real estate	19			21			188			408			568
Commercial and multifamily residential real estate	19			213			412			1,031			675
One-to-four family residential real estate construction	1,000			583			71			1,616			178
Commercial and multifamily residential real estate construction	—			—			1			—			1
Consumer	384			266			311			1,180			1,187
Purchased credit impaired	751			945			2,450			3,847			6,187
Total recoveries	2,708			2,575			4,272			11,509			13,632
Net recoveries (charge-offs)	(2,207		)	484			703			(7,046		)	(3,028		)
Provision for loan and lease losses, excluding PCI loans	1,870			3,655			4,774			17,050			11,614
Recapture for loan and lease losses, PCI loans	(81		)	(502		)	(1,447		)	(2,281		)	(2,983		)
Provision for loan and lease losses	1,789			3,153			3,327			14,769			8,631
Ending balance, loans excluding PCI loans	79,758			79,770			68,739			79,758			68,739
Ending balance, PCI loans	3,611			4,017			6,907			3,611			6,907
Ending balance	$	83,369		$	83,787		$	75,646		$	83,369		$	75,646

The allowance for loan losses to period end loans was 0.99% at December 31, 2018 compared to 0.98% at September 30, 2018. For the fourth quarter of 2018, Columbia recorded a net provision for loan and lease losses of $1.8 million compared to a net provision of $3.2 million for the linked quarter and a net provision of $3.3 million for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter consisted of $1.9 million of provision expense for loans, excluding PCI loans and a recapture of $81 thousand for PCI loans.

Organizational Update

For the 8th consecutive year, Columbia was listed on the Forbes annual list of America’s Best Banks, which measures asset quality, capital adequacy, net interest margin and profitability among the nation’s largest publicly traded banks and thrifts. We were also recognized as an employer of choice in Oregon, joining the Oregonian’s list of Top Workplaces 2018 and were named one of Washington’s Best Workplaces for the 12th consecutive year by the Puget Sound Business Journal.

In addition to the recognition we received for dedication to providing a great place to work, we received recognition for our work in the community. We were pleased to receive the 2018 National Association of Secretaries of State Medallion by the Washington Secretary of State for outstanding work to improve lives in Washington communities. We were also delighted to receive the 2018 Corporate Citizenship Award for midsize companies in Washington State by the Puget Sound Business Journal and to be selected as one of Oregon’s Most Admired companies by the Portland Business Journal. For the first time, Columbia was named the Top SBA Lender in Oregon by the Small Business Administration.

Mr. Robbins commented, “We were honored to be recognized for our commitment to our employees, our clients and our communities in the Northwest throughout the year. We were particularly pleased to receive recognition for our partnership and community support from the Springfield, Oregon and Beaverton Oregon Chambers of Commerce, two markets in the footprint of former Pacific Continental Bank.”

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.28 per common share and a special cash dividend of $0.14 per common share on February 20, 2019 to shareholders of record as of the close of business on February 6, 2019.

Conference Call Information

Columbia’s management will discuss the fourth quarter and full-year 2018 financial results on a conference call scheduled for Thursday, January 24, 2019 at 1:00 p.m. Pacific Time (4:00 p.m. ET). Interested parties may join the live-streamed event by using the site:

https://engage.vevent.com/rt/columbiabankingsysteminc~012419

The conference call can also be accessed on Thursday, January 24, 2019 at 1:00 p.m. Pacific Time (4:00 p.m. ET) by calling 888-286-8956; Conference ID: 3096265.

A replay of the call can be accessed beginning Friday, January 25, 2019 using the site:

https://engage.vevent.com/rt/columbiabankingsysteminc~012419

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank with locations throughout Washington, Oregon and Idaho. For the 12th consecutive year, the bank was named in 2018 as one of Puget Sound Business Journal's “Washington’s Best Workplaces.” For the 8th consecutive year, Columbia was included in the 2019 Forbes America’s Best Bank list.

More information about Columbia can be found on its website at www.columbiabank.com.

Note Regarding Forward-Looking Statements

This news release includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include, but are not limited to, descriptions of Columbia’s management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “intend,” “should,” and “anticipate” or the negative of these words or words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risks and uncertainties, many of which are outside our control, that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in Columbia’s filings with the Securities and Exchange Commission, available at the SEC’s website at www.sec.gov and the Company’s website at www.columbiabank.com, include the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q, (as applicable), factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (1) local, national and international economic conditions may be less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates could significantly reduce net interest income and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (4) costs or difficulties related to the integration of acquisitions may be greater than expected; (5) competitive pressure among financial institutions may increase significantly; (6) reliance on and cost of technology may increase; and (7) legislation or regulatory requirements or changes may adversely affect the businesses in which Columbia is engaged. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. The factors noted above and the risks and uncertainties described in our SEC filings should be considered when reading any forward-looking statements in this release.



Contacts:	Hadley S. Robbins,
	President and
	Chief Executive Officer

	Gregory A. Sigrist,
	Executive Vice President and
	Chief Financial Officer

	Investor Relations
	InvestorRelations@columbiabank.com
	253-305-1921



CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
Unaudited				December 31,			September 30,			December 31,
				2018			2018			2017
				(in thousands)
ASSETS
Cash and due from banks				$	260,180		$	220,706		$	244,615
Interest-earning deposits with banks				17,407			21,456			97,918
Total cash and cash equivalents				277,587			242,162			342,533
Debt securities available for sale at fair value				3,167,448			2,921,114			2,737,751
Equity securities at fair value				—			4,901			5,080
Federal Home Loan Bank (“FHLB”) stock at cost				25,960			16,640			10,440
Loans held for sale				3,849			5,275			5,766
Loans, net of unearned income				8,391,511			8,514,317			8,358,657
Less: allowance for loan and lease losses				83,369			83,787			75,646
Loans, net				8,308,142			8,430,530			8,283,011
Interest receivable				45,323			48,476			40,881
Premises and equipment, net				168,788			169,681			169,490
Other real estate owned				6,019			7,331			13,298
Goodwill				765,842			765,842			765,842
Other intangible assets, net				45,937			48,827			58,173
Other assets				280,250			295,817			284,621
Total assets				$	13,095,145		$	12,956,596		$	12,716,886
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing				$	5,227,216		$	5,250,222		$	5,081,901
Interest-bearing				5,230,910			5,353,735			5,450,184
Total deposits				10,458,126			10,603,957			10,532,085
FHLB advances				399,523			166,536			11,579
Securities sold under agreements to repurchase				61,094			62,197			79,059
Subordinated debentures				35,462			35,508			35,647
Junior subordinated debentures				—			—			8,248
Other liabilities				107,291			107,003			100,346
Total liabilities				11,061,496			10,975,201			10,766,964
Commitments and contingent liabilities
	December 31,	September 30,	December 31,
	2018	2018	2017
	(in thousands)
Preferred stock (no par value)
Authorized shares	2,000	2,000	2,000
Common stock (no par value)
Authorized shares	115,000	115,000	115,000
Issued and outstanding	73,249	73,260	73,020	1,642,246			1,640,140			1,634,705
Retained earnings				426,708			411,264			337,442
Accumulated other comprehensive loss				(35,305		)	(70,009		)	(22,225		)
Total shareholders’ equity				2,033,649			1,981,395			1,949,922
Total liabilities and shareholders’ equity				$	13,095,145		$	12,956,596		$	12,716,886



CONSOLIDATED STATEMENTS OF INCOME
Columbia Banking System, Inc.	Three Months Ended									Twelve Months Ended
Unaudited	December 31,			September 30,			December 31,			December 31,			December 31,
	2018			2018			2017			2018			2017
Interest Income	(in thousands except per share)
Loans	$	110,010		$	109,748		$	95,889		$	428,197		$	324,229
Taxable securities	16,684			14,654			9,487			55,969			38,659
Tax-exempt securities	3,005			3,069			2,920			12,201			11,045
Deposits in banks	102			104			545			702			813
Total interest income	129,801			127,575			108,841			497,069			374,746
Interest Expense
Deposits	3,831			3,193			2,022			12,105			4,800
FHLB advances	1,399			966			99			3,750			1,078
Subordinated debentures	467			468			304			1,871			304
Other borrowings	216			152			192			504			575
Total interest expense	5,913			4,779			2,617			18,230			6,757
Net Interest Income	123,888			122,796			106,224			478,839			367,989
Provision for loan and lease losses	1,789			3,153			3,327			14,769			8,631
Net interest income after provision for loan and lease losses	122,099			119,643			102,897			464,070			359,358
Noninterest Income
Deposit account and treasury management fees	9,383			9,266			8,013			36,072			30,381
Card revenue	3,576			3,714			6,967			19,719			25,627
Financial services and trust revenue	3,211			2,975			2,958			12,135			11,478
Loan revenue	2,344			3,282			2,663			11,866			12,399
Merchant processing revenue	—			—			—			—			4,283
Bank owned life insurance	1,467			1,402			1,377			6,007			5,380
Investment securities losses, net	(16		)	(62		)	(11		)	(89		)	(11		)
Change in FDIC loss-sharing asset	—			—			—			—			(447		)
Gain on sale of merchant card services portfolio	—			—			—			—			14,000
Other	437			442			1,614			2,546			6,552
Total noninterest income	20,402			21,019			23,581			88,256			109,642
Noninterest Expense
Compensation and employee benefits	51,261			49,419			50,473			200,199			169,674
Occupancy	8,858			8,321			9,554			36,576			32,407
Merchant processing expense	—			—			—			—			2,196
Advertising and promotion	1,061			1,472			1,543			5,584			4,466
Data processing	5,278			4,466			5,134			20,235			18,205
Legal and professional fees	5,941			4,695			5,955			18,044			15,151
Taxes, licenses and fees	1,514			1,562			1,279			6,061			4,773
Regulatory premiums	932			904			884			3,710			3,183
Net cost (benefit) of operation of other real estate owned	(26		)	485			46			1,218			468
Amortization of intangibles	2,890			3,070			2,547			12,236			6,333
Other	9,310			8,447			8,212			36,627			34,161
Total noninterest expense	87,019			82,841			85,627			340,490			291,017
Income before income taxes	55,482			57,821			40,851			211,836			177,983
Provision for income taxes	10,734			11,406			25,123			38,954			65,155
Net Income	$	44,748		$	46,415		$	15,728		$	172,882		$	112,828
Earnings per common share
Basic	$	0.61		$	0.63		$	0.23		$	2.36		$	1.86
Diluted	$	0.61		$	0.63		$	0.23		$	2.36		$	1.86
Dividends declared per common share - regular	$	0.26		$	0.26		$	0.22		$	1.00		$	0.88
Dividends declared per common share - special	$	0.14		$	—		$	—		$	0.14		$	—
Dividends declared per common share - total	$	0.40		$	0.26		$	0.22		$	1.14		$	0.88
Weighted average number of common shares outstanding	72,434			72,427			67,120			72,385			59,882
Weighted average number of diluted common shares outstanding	72,438			72,432			67,125			72,390			59,888



FINANCIAL STATISTICS
Columbia Banking System, Inc.	Three Months Ended									Twelve Months Ended
Unaudited	December 31,			September 30,			December 31,			December 31,			December 31,
	2018			2018			2017			2018			2017
Earnings	(dollars in thousands except per share amounts)
Net interest income	$	123,888		$	122,796		$	106,224		$	478,839		$	367,989
Provision for loan and lease losses	$	1,789		$	3,153		$	3,327		$	14,769		$	8,631
Noninterest income	$	20,402		$	21,019		$	23,581		$	88,256		$	109,642
Noninterest expense	$	87,019		$	82,841		$	85,627		$	340,490		$	291,017
Acquisition-related expense (included in noninterest expense)	$	493		$	1,081		$	13,638		$	8,661		$	17,196
Net income	$	44,748		$	46,415		$	15,728		$	172,882		$	112,828
Per Common Share
Earnings (basic)	$	0.61		$	0.63		$	0.23		$	2.36		$	1.86
Earnings (diluted)	$	0.61		$	0.63		$	0.23		$	2.36		$	1.86
Book value	$	27.76		$	27.05		$	26.70		$	27.76		$	26.70
Tangible book value per common share (1)	$	16.68		$	15.93		$	15.42		$	16.68		$	15.42
Averages
Total assets	$	12,957,754		$	12,805,131		$	11,751,049		$	12,725,086		$	10,134,306
Interest-earning assets	$	11,458,470		$	11,326,629		$	10,453,097		$	11,241,321		$	9,098,276
Loans	$	8,441,354		$	8,456,632		$	7,749,420		$	8,409,373		$	6,682,259
Securities, including equity securities and FHLB stock	$	2,998,638		$	2,849,495		$	2,539,321		$	2,790,700		$	2,350,844
Deposits	$	10,560,280		$	10,478,800		$	9,804,456		$	10,410,404		$	8,482,350
Interest-bearing deposits	$	5,298,590		$	5,376,300		$	5,033,980		$	5,367,602		$	4,371,121
Interest-bearing liabilities	$	5,599,646		$	5,620,997		$	5,127,100		$	5,614,827		$	4,512,727
Noninterest-bearing deposits	$	5,261,690		$	5,102,500		$	4,770,476		$	5,042,802		$	4,111,229
Shareholders’ equity	$	1,988,981		$	1,983,317		$	1,754,745		$	1,969,179		$	1,410,056
Financial Ratios
Return on average assets	1.38		%	1.45		%	0.54		%	1.36		%	1.11		%
Return on average common equity	9.00		%	9.36		%	3.59		%	8.78		%	8.00		%
Return on average tangible common equity (1)	16.00		%	16.74		%	6.37		%	15.85		%	12.38		%
Average equity to average assets	15.35		%	15.49		%	14.93		%	15.47		%	13.91		%
Shareholders equity to total assets	15.53		%	15.29		%	15.33		%	15.53		%	15.33		%
Tangible common shareholders’ equity to tangible assets (1)	9.95		%	9.61		%	9.47		%	9.95		%	9.47		%
Net interest margin (tax equivalent)	4.40		%	4.41		%	4.20		%	4.33		%	4.18		%
Efficiency ratio (tax equivalent) (2)	59.31		%	56.67		%	63.93		%	59.06		%	59.07		%
Operating efficiency ratio (tax equivalent) (1)	58.10		%	54.83		%	52.24		%	56.63		%	56.06		%
Noninterest expense ratio	2.69		%	2.59		%	2.91		%	2.68		%	2.87		%
Core noninterest expense ratio (1)	2.67		%	2.55		%	2.45		%	2.61		%	2.67		%
	December 31,			September 30,			December 31,
Period end	2018			2018			2017
Total assets	$	13,095,145		$	12,956,596		$	12,716,886
Loans, net of unearned income	$	8,391,511		$	8,514,317		$	8,358,657
Allowance for loan and lease losses	$	83,369		$	83,787		$	75,646
Securities, including equity securities and FHLB stock	$	3,193,408		$	2,942,655		$	2,753,271
Deposits	$	10,458,126		$	10,603,957		$	10,532,085
Core deposits	$	9,973,840		$	10,084,687		$	10,039,557
Shareholders’ equity	$	2,033,649		$	1,981,395		$	1,949,922
Nonperforming assets
Nonaccrual loans	$	54,842		$	60,332		$	66,189
Other real estate owned (“OREO”) and other personal property owned (“OPPO”)	6,049			7,415			13,298
Total nonperforming assets	$	60,891		$	67,747		$	79,487
Nonperforming loans to period-end loans	0.65		%	0.71		%	0.79		%
Nonperforming assets to period-end assets	0.46		%	0.52		%	0.63		%
Allowance for loan and lease losses to period-end loans	0.99		%	0.98		%	0.91		%
Net loan charge-offs (recoveries) (3)	$	2,207		$	(484	)	$	(703	)

(1) This is a non-GAAP measure. See section titled "Non-GAAP Financial Measures" on the last three pages of this earnings release for a reconciliation to the most comparable GAAP measure.
(2) Noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income on a tax equivalent basis.
(3) For the three months ended.



QUARTERLY FINANCIAL STATISTICS
Columbia Banking System, Inc.	Three Months Ended
Unaudited	December 31,			September 30,			June 30,			March 31,			December 31,
	2018			2018			2018			2018			2017
Earnings	(dollars in thousands except per share)
Net interest income	$	123,888		$	122,796		$	116,674		$	115,481		$	106,224
Provision for loan and lease losses	$	1,789		$	3,153		$	3,975		$	5,852		$	3,327
Noninterest income	$	20,402		$	21,019		$	23,692		$	23,143		$	23,581
Noninterest expense	$	87,019		$	82,841		$	84,643		$	85,987		$	85,627
Acquisition-related expense (included in noninterest expense)	$	493		$	1,081		$	2,822		$	4,265		$	13,638
Net income	$	44,748		$	46,415		$	41,749		$	39,970		$	15,728
Per Common Share
Earnings (basic)	$	0.61		$	0.63		$	0.57		$	0.55		$	0.23
Earnings (diluted)	$	0.61		$	0.63		$	0.57		$	0.55		$	0.23
Book value	$	27.76		$	27.05		$	26.83		$	26.60		$	26.70
Averages
Total assets	$	12,957,754		$	12,805,131		$	12,529,540		$	12,603,144		$	11,751,049
Interest-earning assets	$	11,458,470		$	11,326,629		$	11,052,807		$	11,122,753		$	10,453,097
Loans	$	8,441,354		$	8,456,632		$	8,389,230		$	8,348,740		$	7,749,420
Securities, including equity securities and FHLB stock	$	2,998,638		$	2,849,495		$	2,628,292		$	2,682,250		$	2,539,321
Deposits	$	10,560,280		$	10,478,800		$	10,264,822		$	10,334,480		$	9,804,456
Interest-bearing deposits	$	5,298,590		$	5,376,300		$	5,390,869		$	5,405,730		$	5,033,980
Interest-bearing liabilities	$	5,599,646		$	5,620,997		$	5,611,055		$	5,627,853		$	5,127,100
Noninterest-bearing deposits	$	5,261,690		$	5,102,500		$	4,873,953		$	4,928,750		$	4,770,476
Shareholders’ equity	$	1,988,981		$	1,983,317		$	1,954,552		$	1,949,275		$	1,754,745
Financial Ratios
Return on average assets	1.38		%	1.45		%	1.33		%	1.27		%	0.54		%
Return on average common equity	9.00		%	9.36		%	8.54		%	8.20		%	3.59		%
Average equity to average assets	15.35		%	15.49		%	15.60		%	15.47		%	14.93		%
Shareholders’ equity to total assets	15.53		%	15.29		%	15.56		%	15.55		%	15.33		%
Net interest margin (tax equivalent)	4.40		%	4.41		%	4.29		%	4.22		%	4.20		%
Period end
Total assets	$	13,095,145		$	12,956,596		$	12,628,586		$	12,530,636		$	12,716,886
Loans, net of unearned income	$	8,391,511		$	8,514,317		$	8,454,107		$	8,339,631		$	8,358,657
Allowance for loan and lease losses	$	83,369		$	83,787		$	80,150		$	79,827		$	75,646
Securities, including equity securities and FHLB stock	$	3,193,408		$	2,942,655		$	2,665,131		$	2,640,685		$	2,753,271
Deposits	$	10,458,126		$	10,603,957		$	10,384,004		$	10,395,523		$	10,532,085
Core deposits	$	9,973,840		$	10,084,687		$	9,888,696		$	9,897,185		$	10,039,557
Shareholders’ equity	$	2,033,649		$	1,981,395		$	1,964,881		$	1,947,923		$	1,949,922
Goodwill	$	765,842		$	765,842		$	765,842		$	765,842		$	765,842
Other intangible assets, net	$	45,937		$	48,827		$	51,897		$	54,985		$	58,173
Nonperforming assets
Nonaccrual loans	$	54,842		$	60,332		$	69,504		$	78,464		$	66,189
OREO and OPPO	6,049			7,415			7,080			11,507			13,298
Total nonperforming assets	$	60,891		$	67,747		$	76,584		$	89,971		$	79,487
Nonperforming loans to period-end loans	0.65		%	0.71		%	0.82		%	0.94		%	0.79		%
Nonperforming assets to period-end assets	0.46		%	0.52		%	0.61		%	0.72		%	0.63		%
Allowance for loan and lease losses to period-end loans	0.99		%	0.98		%	0.95		%	0.96		%	0.91		%
Net loan charge-offs (recoveries)	$	2,207		$	(484	)	$	3,652		$	1,671		$	(703	)



LOAN PORTFOLIO COMPOSITION
Columbia Banking System, Inc.
Unaudited	December 31,			September 30,			June 30,			March 31,			December 31,
	2018			2018			2018			2018			2017
Loan Portfolio Composition - Dollars	(dollars in thousands)
Commercial business	$	3,438,422		$	3,554,147		$	3,538,492		$	3,402,162		$	3,377,324
Real estate:
One-to-four family residential	238,367			232,924			180,522			182,302			188,396
Commercial and multifamily residential	3,846,027			3,786,615			3,758,207			3,776,709			3,825,739
Total real estate	4,084,394			4,019,539			3,938,729			3,959,011			4,014,135
Real estate construction:
One-to-four family residential	217,790			211,629			206,181			208,441			200,518
Commercial and multifamily residential	284,394			349,328			387,951			385,339			371,931
Total real estate construction	502,184			560,957			594,132			593,780			572,449
Consumer	318,945			327,863			326,402			323,631			334,190
Purchased credit impaired	89,760			95,936			101,782			109,299			112,670
Subtotal loans	8,433,705			8,558,442			8,499,537			8,387,883			8,410,768
Less: Net unearned income	(42,194		)	(44,125		)	(45,430		)	(48,252		)	(52,111		)
Loans, net of unearned income	8,391,511			8,514,317			8,454,107			8,339,631			8,358,657
Less: Allowance for loan and lease losses	(83,369		)	(83,787		)	(80,150		)	(79,827		)	(75,646		)
Total loans, net	8,308,142			8,430,530			8,373,957			8,259,804			8,283,011
Loans held for sale	$	3,849		$	5,275		$	6,773		$	4,312		$	5,766



	December 31,		September 30,		June 30,		March 31,		December 31,
Loan Portfolio Composition - Percentages	2018		2018		2018		2018		2017
Commercial business	41.0	%	41.7	%	41.9	%	40.8	%	40.4	%
Real estate:
One-to-four family residential	2.8	%	2.7	%	2.1	%	2.2	%	2.3	%
Commercial and multifamily residential	45.8	%	44.5	%	44.4	%	45.3	%	45.8	%
Total real estate	48.6	%	47.2	%	46.5	%	47.5	%	48.1	%
Real estate construction:
One-to-four family residential	2.6	%	2.5	%	2.4	%	2.5	%	2.4	%
Commercial and multifamily residential	3.4	%	4.1	%	4.6	%	4.6	%	4.4	%
Total real estate construction	6.0	%	6.6	%	7.0	%	7.1	%	6.8	%
Consumer	3.8	%	3.9	%	3.9	%	3.9	%	4.0	%
Purchased credit impaired	1.1	%	1.1	%	1.2	%	1.3	%	1.3	%
Subtotal loans	100.5	%	100.5	%	100.5	%	100.6	%	100.6	%
Less: Net unearned income	(0.5	)%	(0.5	)%	(0.5	)%	(0.6	)%	(0.6	)%
Loans, net of unearned income	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



DEPOSIT COMPOSITION
Columbia Banking System, Inc.
Unaudited
	December 31,			September 30,			June 30,			March 31,			December 31,
	2018			2018			2018			2018			2017
Deposit Composition - Dollars	(dollars in thousands)
Core deposits:
Demand and other non-interest bearing	$	5,227,216		$	5,250,222		$	4,953,993		$	4,927,226		$	5,081,901
Interest bearing demand	1,244,254			1,260,543			1,278,686			1,328,756			1,265,212
Money market	2,367,964			2,413,185			2,513,648			2,477,487			2,543,712
Savings	890,557			908,945			875,707			886,171			861,941
Certificates of deposit, less than $250,000	243,849			251,792			266,662			277,545			286,791
Total core deposits	9,973,840			10,084,687			9,888,696			9,897,185			10,039,557

Certificates of deposit, $250,000 or more	89,473			90,387			91,578			96,333			100,399
Certificates of deposit insured by CDARS®	23,580			23,841			23,492			23,191			25,374
Brokered certificates of deposit	57,930			65,476			68,870			76,931			78,481
Reciprocal money market accounts	313,692			340,044			311,935			302,544			289,031
Subtotal	10,458,515			10,604,435			10,384,571			10,396,184			10,532,842
Premium (discount) resulting from acquisition date fair value adjustment	(389		)	(478		)	(567		)	(661		)	(757		)
Total deposits	$	10,458,126		$	10,603,957		$	10,384,004		$	10,395,523		$	10,532,085



	December 31,		September 30,		June 30,		March 31,		December 31,
Deposit Composition - Percentages	2018		2018		2018		2018		2017
Core deposits:
Demand and other non-interest bearing	50.0	%	49.5	%	47.7	%	47.4	%	48.2	%
Interest bearing demand	11.9	%	11.9	%	12.3	%	12.8	%	12.0	%
Money market	22.6	%	22.8	%	24.2	%	23.8	%	24.2	%
Savings	8.5	%	8.6	%	8.4	%	8.5	%	8.2	%
Certificates of deposit, less than $250,000	2.3	%	2.4	%	2.6	%	2.7	%	2.7	%
Total core deposits	95.3	%	95.2	%	95.2	%	95.2	%	95.3	%

Certificates of deposit, $250,000 or more	0.9	%	0.9	%	0.9	%	0.9	%	1.0	%
Certificates of deposit insured by CDARS®	0.2	%	0.2	%	0.2	%	0.2	%	0.2	%
Brokered certificates of deposit	0.6	%	0.6	%	0.7	%	0.7	%	0.7	%
Reciprocal money market accounts	3.0	%	3.1	%	3.0	%	3.0	%	2.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



AVERAGE BALANCES AND RATES
Columbia Banking System, Inc.
Unaudited
	Three Months Ended						Three Months Ended
	December 31, 2018						December 31, 2017
	Average Balances		Interest Earned / Paid		Average Rate		Average Balances		Interest Earned / Paid		Average Rate
	(dollars in thousands)
ASSETS
Loans, net(1)(2)	$	8,441,354	$	111,239	5.27	%	$	7,749,420	$	97,720	5.04	%
Taxable securities	2,493,683		16,684		2.68	%	2,035,788		9,487		1.86	%
Tax exempt securities (2)	504,955		3,805		3.01	%	503,533		4,492		3.57	%
Interest-earning deposits with banks	18,478		102		2.21	%	164,356		545		1.33	%
Total interest-earning assets	11,458,470		$	131,830	4.60	%	10,453,097		$	112,244	4.30	%
Other earning assets	230,601						202,246
Noninterest-earning assets	1,268,683						1,095,706
Total assets	$	12,957,754					$	11,751,049
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit	$	427,592	$	587	0.55	%	$	457,285	$	374	0.33	%
Savings accounts	897,976		36		0.02	%	835,952		39		0.02	%
Interest-bearing demand	1,230,351		730		0.24	%	1,168,496		376		0.13	%
Money market accounts	2,742,671		2,478		0.36	%	2,572,247		1,233		0.19	%
Total interest-bearing deposits	5,298,590		3,831		0.29	%	5,033,980		2,022		0.16	%
FHLB advances	215,606		1,399		2.60	%	9,817		99		4.03	%
Subordinated debentures	35,484		467		5.26	%	23,427		304		5.19	%
Other borrowings	49,966		216		1.73	%	59,876		192		1.28	%
Total interest-bearing liabilities	5,599,646		$	5,913	0.42	%	5,127,100		$	2,617	0.20	%
Noninterest-bearing deposits	5,261,690						4,770,476
Other noninterest-bearing liabilities	107,437						98,728
Shareholders’ equity	1,988,981						1,754,745
Total liabilities & shareholders’ equity	$	12,957,754					$	11,751,049
Net interest income (tax equivalent)			$	125,917					$	109,627
Net interest margin (tax equivalent)					4.40	%					4.20	%

(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 $2.5 million and $1.9 million for the three month periods ended December 31, 2018 and December 31, 2017, respectively. The incremental accretion on acquired loans was $2.6 million and $2.7 million for the three months ended December 31, 2018 and 2017, respectively.

(2)

Tax-exempt income is calculated on a tax equivalent basis at a rate of 21% for 2018 and 35% for 2017. The tax equivalent yield adjustment to interest earned on loans was $1.2 million and $1.8 million for the three months ended December 31, 2018 and 2017, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $800 thousand and $1.6 million for the three month periods ended December 31, 2018 and 2017, respectively.



AVERAGE BALANCES AND RATES
Columbia Banking System, Inc.
Unaudited
	Three Months Ended						Three Months Ended
	December 31, 2018						September 30, 2018
	Average Balances		Interest Earned / Paid		Average Rate		Average Balances		Interest Earned / Paid		Average Rate
	(dollars in thousands)
ASSETS
Loans, net(1)(2)	$	8,441,354	$	111,239	5.27	%	$	8,456,632	$	110,925	5.25	%
Taxable securities	2,493,683		16,684		2.68	%	2,336,405		14,654		2.51	%
Tax exempt securities (2)	504,955		3,805		3.01	%	513,090		3,885		3.03	%
Interest-earning deposits with banks	18,478		102		2.21	%	20,502		104		2.03	%
Total interest-earning assets	11,458,470		$	131,830	4.60	%	11,326,629		$	129,568	4.58	%
Other earning assets	230,601						228,332
Noninterest-earning assets	1,268,683						1,250,170
Total assets	$	12,957,754					$	12,805,131
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit	$	427,592	$	587	0.55	%	$	440,196	$	544	0.49	%
Savings accounts	897,976		36		0.02	%	889,793		31		0.01	%
Interest-bearing demand	1,230,351		730		0.24	%	1,246,592		689		0.22	%
Money market accounts	2,742,671		2,478		0.36	%	2,799,719		1,929		0.28	%
Total interest-bearing deposits	5,298,590		3,831		0.29	%	5,376,300		3,193		0.24	%
FHLB advances	215,606		1,399		2.60	%	167,531		966		2.31	%
Subordinated debentures	35,484		467		5.26	%	35,530		468		5.27	%
Other borrowings	49,966		216		1.73	%	41,636		152		1.46	%
Total interest-bearing liabilities	5,599,646		$	5,913	0.42	%	5,620,997		$	4,779	0.34	%
Noninterest-bearing deposits	5,261,690						5,102,500
Other noninterest-bearing liabilities	107,437						98,317
Shareholders’ equity	1,988,981						1,983,317
Total liabilities & shareholders’ equity	$	12,957,754					$	12,805,131
Net interest income (tax equivalent)			$	125,917					$	124,789
Net interest margin (tax equivalent)					4.40	%					4.41	%

(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 $2.5 million for both the three month periods ended December 31, 2018 and September 30, 2018. The incremental accretion on acquired loans was $2.6 million and $3.2 million for the three months ended December 31, 2018 and September 30, 2018, respectively.

(2)

Tax-exempt income is calculated on a tax equivalent basis at a rate of 21% for 2018. The tax equivalent yield adjustment to interest earned on loans was $1.2 million and $1.2 million for the three months ended December 31, 2018 and September 30, 2018, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $800 thousand and $816 thousand for the three month periods ended December 31, 2018 and September 30, 2018, respectively.



AVERAGE BALANCES AND RATES
Columbia Banking System, Inc.
Unaudited
	Twelve Months Ended						Twelve Months Ended
	December 31, 2018						December 31, 2017
	Average Balances		Interest Earned / Paid		Average Rate		Average Balances		Interest Earned / Paid		Average Rate
	(dollars in thousands)
ASSETS
Loans, net (1)(2)	$	8,409,373	$	432,781	5.15	%	$	6,682,259	$	330,400	4.94	%
Taxable securities	2,275,892		55,969		2.46	%	1,886,128		38,659		2.05	%
Tax exempt securities (2)	514,808		15,445		3.00	%	464,716		16,992		3.66	%
Interest-earning deposits with banks	41,248		702		1.70	%	65,173		813		1.25	%
Total interest-earning assets	11,241,321		$	504,897	4.49	%	9,098,276		$	386,864	4.25	%
Other earning assets	224,595						181,792
Noninterest-earning assets	1,259,170						854,238
Total assets	$	12,725,086					$	10,134,306
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit	$	452,756	$	2,206	0.49	%	$	406,406	$	656	0.16	%
Savings accounts	885,433		138		0.02	%	774,340		96		0.01	%
Interest-bearing demand	1,256,205		2,562		0.20	%	1,031,719		950		0.09	%
Money market accounts	2,773,208		7,199		0.26	%	2,158,656		3,098		0.14	%
Total interest-bearing deposits	5,367,602		12,105		0.23	%	4,371,121		4,800		0.11	%
FHLB advances	166,577		3,750		2.25	%	79,788		1,078		1.35	%
Subordinated debentures	35,553		1,871		5.26	%	5,905		304		5.15	%
Other borrowings	45,095		504		1.12	%	55,913		575		1.03	%
Total interest-bearing liabilities	5,614,827		$	18,230	0.32	%	4,512,727		$	6,757	0.15	%
Noninterest-bearing deposits	5,042,802						4,111,229
Other noninterest-bearing liabilities	98,278						100,294
Shareholders’ equity	1,969,179						1,410,056
Total liabilities & shareholders’ equity	$	12,725,086					$	10,134,306
Net interest income (tax equivalent)			$	486,667					$	380,107
Net interest margin (tax equivalent)					4.33	%					4.18	%

(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 $9.3 million and $7.1 million for the twelve months ended December 31, 2018 and 2017, respectively. The incremental accretion on acquired loans was $12.6 million and $12.8 million for the twelve months ended December 31, 2018 and 2017, respectively.

(2)

Tax-exempt income is calculated on a tax equivalent basis at a rate of 21% for 2018 and 35% for 2017. The tax equivalent yield adjustment to interest earned on loans was $4.6 million and $6.2 million for the twelve months ended December 31, 2018 and 2017, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.2 million and $5.9 million for the twelve months ended December 31, 2018 and 2017, respectively.

Non-GAAP Financial Measures

The Company considers its operating net interest margin and operating efficiency ratios to be useful measurements as they more closely reflect the ongoing operating performance of the Company. Despite the usefulness of the operating net interest margin and operating efficiency ratio to the Company, there are no standardized definitions for them and, as a result, the Company’s calculations may not be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following tables reconcile the Company’s calculation of the operating net interest margin and operating efficiency ratio:



	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2018			2018			2017			2018			2017
Operating net interest margin non-GAAP reconciliation:	(dollars in thousands)
Net interest income (tax equivalent) (1)	$	125,917		$	124,789		$	109,627		$	486,667		$	380,107
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on FDIC purchased credit impaired loans	(395		)	(585		)	(265		)	(1,635		)	(4,107		)
Incremental accretion income on other acquired loans	(2,218		)	(2,643		)	(2,482		)	(10,921		)	(8,689		)
Premium amortization on acquired securities	1,671			1,859			1,978			7,736			6,636
Correction of immaterial error - securities premium amortization	—			—			1,771			—			1,771
Interest reversals on nonaccrual loans	417			477			443			1,564			1,766
Operating net interest income (tax equivalent) (1)	$	125,392		$	123,897		$	111,072		$	483,411		$	377,484
Average interest earning assets	$	11,458,470		$	11,326,629		$	10,453,097		$	11,241,321		$	9,098,276
Net interest margin (tax equivalent) (1)	4.40		%	4.41		%	4.20		%	4.33		%	4.18		%
Operating net interest margin (tax equivalent) (1)	4.38		%	4.38		%	4.25		%	4.30		%	4.15		%



	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2018			2018			2017			2018			2017
Operating efficiency ratio non-GAAP reconciliation:	(dollars in thousands)
Noninterest expense (numerator A)	$	87,019		$	82,841		$	85,627		$	340,490		$	291,017
Adjustments to arrive at operating noninterest expense:
Acquisition-related expenses	(493		)	(1,081		)	(13,638		)	(8,661		)	(17,196		)
Net benefit (cost) of operation of OREO and OPPO	(23		)	(485		)	(46		)	(1,262		)	(466		)
FDIC clawback liability recovery	—			—			—			—			54
Loss on asset disposals	(166		)	(110		)	(56		)	(277		)	(70		)
Termination of FDIC loss share agreements charge	—			—			—			—			(2,409		)
State of Washington Business and Occupation (“B&O”) taxes	(1,410		)	(1,478		)	(1,167		)	(5,664		)	(4,326		)
Operating noninterest expense (numerator B)	$	84,927		$	79,687		$	70,720		$	324,626		$	266,604

Net interest income (tax equivalent) (1)	$	125,917		$	124,789		$	109,627		$	486,667		$	380,107
Noninterest income	20,402			21,019			23,581			88,256			109,642
Bank owned life insurance tax equivalent adjustment	390			373			741			1,597			2,897
Total revenue (tax equivalent) (denominator A)	$	146,709		$	146,181		$	133,949		$	576,520		$	492,646

Operating net interest income (tax equivalent) (1)	$	125,392		$	123,897		$	111,072		$	483,411		$	377,484
Adjustments to arrive at operating noninterest income (tax equivalent):
Investment securities losses, net	16			62			11			89			11
Gain on asset disposals	(30		)	(29		)	(34		)	(141		)	(357		)
Mortgage loan repurchase liability adjustment	—			—			—			—			(573		)
Change in FDIC loss-sharing asset	—			—			—			—			447
Gain on sale of merchant card services portfolio	—			—			—			—			(14,000		)
Operating noninterest income (tax equivalent)	20,778			21,425			24,299			89,801			98,067
Total operating revenue (tax equivalent) (denominator B)	$	146,170		$	145,322		$	135,371		$	573,212		$	475,551
Efficiency ratio (tax equivalent) (numerator A/denominator A)	59.31		%	56.67		%	63.93		%	59.06		%	59.07		%
Operating efficiency ratio (tax equivalent) (numerator B/denominator B)	58.10		%	54.83		%	52.24		%	56.63		%	56.06		%

__________

(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 $2.0 million, $2.0 million, and $3.4 million for the three month periods ended December 31, 2018, September 30, 2018, and December 31, 2017; and $7.8 million and $12.1 million for the twelve month periods ended December 31, 2018 and December 31, 2017, respectively.

Non-GAAP Financial Measures - Continued

The Company also considers its core noninterest expense ratio to be a useful measurement as it more closely reflects the ongoing operating performance of the Company. Despite the usefulness of the core noninterest expense ratio to the Company, there is not a standardized definition for it, as a result, the Company’s calculations may not be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following table reconciles the Company’s calculation of the core noninterest expense ratio:



	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2018			2018			2017			2018			2017
Core noninterest expense ratio non-GAAP reconciliation:	(dollars in thousands)
Noninterest expense (numerator A)	$	87,019		$	82,841		$	85,627		$	340,490		$	291,017
Adjustments to arrive at core noninterest expense:
FDIC clawback liability recovery	—			—			—			—			54
Acquisition-related expenses	(493		)	(1,081		)	(13,638		)	(8,661		)	(17,196		)
Net benefit (cost) of operation of OREO and OPPO (1)	—			—			(46		)	—			(466		)
Termination of FDIC loss share agreements charge	—			—			—			—			(2,409		)
Core noninterest expense (numerator B)	$	86,526		$	81,760		$	71,943		$	331,829		$	271,000
Average assets (denominator)	$	12,957,754		$	12,805,131		$	11,751,049		$	12,725,086		$	10,134,306
Noninterest expense ratio (numerator A/denominator) (2)	2.69		%	2.59		%	2.91		%	2.68		%	2.87		%
Core noninterest expense ratio (numerator B/denominator) (3)	2.67		%	2.55		%	2.45		%	2.61		%	2.67		%

__________

(1) Effective January 1, 2018, core noninterest expense no longer excludes net benefit (cost) of operation of OREO and OPPO.

(2) For the purpose of this ratio, interim noninterest expense has been annualized.

(3) For the purpose of this ratio, interim core noninterest expense has been annualized.

The Company considers its tangible common equity ratio and tangible book value per share ratio to be useful measurements in evaluating the capital adequacy of the Company as they provide a method to assess management’s success in utilizing our tangible capital. Despite the usefulness of these ratios to the Company, there is not a standardized definition for them, as a result, the Company’s calculation may not always be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following tables reconcile the Company’s calculation of the tangible common equity ratio:



	December 31,			September 30,			December 31,
	2018			2018			2017
Tangible common equity ratio and tangible book value per common share non-GAAP reconciliation:	(dollars in thousands)
Shareholders’ equity (numerator A)	$	2,033,649		$	1,981,395		$	1,949,922
Adjustments to arrive at tangible common equity:
Goodwill	(765,842		)	(765,842		)	(765,842		)
Other intangible assets, net	(45,937		)	(48,827		)	(58,173		)
Tangible common equity (numerator B)	$	1,221,870		$	1,166,726		$	1,125,907
Total assets (denominator A)	$	13,095,145		$	12,956,596		$	12,716,886
Adjustments to arrive at tangible assets:
Goodwill	(765,842		)	(765,842		)	(765,842		)
Other intangible assets, net	(45,937		)	(48,827		)	(58,173		)
Tangible assets (denominator B)	$	12,283,366		$	12,141,927		$	11,892,871
Shareholders’ equity to total assets (numerator A/denominator A)	15.53		%	15.29		%	15.33		%
Tangible common shareholders’ equity to tangible assets (numerator B/denominator B)	9.95		%	9.61		%	9.47		%
Common shares outstanding (denominator C)	73,249			73,260			73,020
Book value per common share (numerator A/denominator C)	$	27.76		$	27.05		$	26.70
Tangible book value per common share (numerator B/denominator C)	$	16.68		$	15.93		$	15.42

Non-GAAP Financial Measures - Continued

The Company also considers its return on average tangible common equity ratio to be a useful measurement as it evaluates the Company’s ongoing ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the business can be evaluated, whether acquired or developed internally. Despite the usefulness of this ratio to the Company, there is not a standardized definition for it, and, as a result, the Company’s calculation may not always be comparable with other organizations. The Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.

The following tables reconcile the Company’s calculation of the return on average tangible common shareholders' equity ratio:



	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2018			2018			2017			2018			2017
Return on average tangible common equity non-GAAP reconciliation:	(dollars in thousands)
Net income (numerator A)	$	44,748		$	46,415		$	15,728		$	172,882		$	112,828
Adjustments to arrive at tangible income applicable to common shareholders:
Amortization of intangibles	2,890			3,070			2,547			12,236			6,333
Tax effect on intangible amortization	(607		)	(645		)	(891		)	(2,570		)	(2,217		)
Tangible income applicable to common shareholders (numerator B)	$	47,031		$	48,840		$	17,384		182,548			$	116,944
Average shareholders’ equity (denominator A)	$	1,988,981		$	1,983,317		$	1,754,745		1,969,179			$	1,410,056
Adjustments to arrive at average tangible common equity:
Average preferred equity	—			—			—			—			(67		)
Average intangibles	(813,145		)	(816,128		)	(662,815		)	(817,685		)	(465,044		)
Average tangible common equity (denominator B)	$	1,175,836		$	1,167,189		$	1,091,930		$	1,151,494		$	944,945
Return on average common equity (numerator A/denominator A) (1)	9.00		%	9.36		%	3.59		%	8.78		%	8.00		%
Return on average tangible common equity (numerator B/denominator B) (2)	16.00		%	16.74		%	6.37		%	15.85		%	12.38		%

__________

(1) For the purpose of this ratio, interim net income has been annualized.

(2) For the purpose of this ratio, interim tangible income applicable to common shareholders has been annualized.

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COLUMBIA BANKING SYSTEM, INC. Reports