Columbia Banking System Announces Third Quarter 2018 Results, Quarterly Cash Dividend and Special Cash Dividend

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Oct 25, 2018, 09:00 ET

TACOMA, Wash., Oct. 25, 2018 /PRNewswire/ --

Highlights

Record quarterly net income of $46.4 million; diluted earnings per share of $0.63, which included $0.02 per share negative impact from acquisition-related expenses
Net interest margin of 4.41%, up 12 basis points from linked quarter
Third quarter loan production of $408.9 million
Nonperforming assets to period end assets ratio decreased to 0.52%
Special cash dividend of $0.14 in addition to regular quarterly dividend

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 third quarter 2018 earnings, "We had a very successful quarter in generating a record level of loan production while continuing to work down nonperforming assets, as evidenced by the 9 basis point reduction compared to the prior quarter." Mr. Robbins continued, "I am also pleased with the 12 basis point increase in our net interest margin, which was favorably impacted by higher loan and securities rates and a more favorable deposit mix driven by an increase in noninterest-bearing deposits."

Balance Sheet

Total assets at September 30, 2018 were $12.96 billion, an increase of $328.0 million from June 30, 2018. Loans were $8.51 billion, up $60.2 million from June 30, 2018 as loan originations of $408.9 million were partially offset by payments and lower line utilization. Debt securities available for sale were $2.92 billion at September 30, 2018, an increase of $274.9 million, or 10% from $2.65 billion at June 30, 2018. Total deposits at September 30, 2018 were $10.60 billion, an increase of $220.0 million from June 30, 2018. Core deposits comprised 95% of total deposits and were $10.08 billion at September 30, 2018, an increase of $196.0 million from June 30, 2018. The average cost of total deposits for the quarter was 0.12%, an increase of 2 basis points from the second quarter of 2018.

Income Statement

Net Interest Income

Net interest income for the third quarter of 2018 was $122.8 million, an increase of $6.1 million from the linked quarter and an increase of $33.9 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 loans and 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 $21.0 million for the third quarter of 2018, a decrease of $2.7 million from the second quarter of 2018. The linked quarter decrease was principally due to lower card revenue as we became subject to the interchange fee cap imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act as of July 1, 2018. Compared to the third quarter of 2017, noninterest income decreased by $16.0 million. The decrease was due to the $14.0 million one-time gain on the sale of our merchant card services portfolio in the prior year period as well as a decrease in card revenue during the current quarter as previously described. 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, $1.3 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 third quarter of 2018 was $82.8 million, a decrease of $1.8 million from the second quarter of 2018. After removing the effect of acquisition-related expenses of $1.1 million, noninterest expense for the current quarter was essentially flat from the linked quarter on the same basis as higher legal and professional fees and compensation and employee benefits were offset by lower occupancy and OREO expense. Compared to the third quarter of 2017, noninterest expense increased by $15.3 million. This increase was primarily driven by higher compensation and employee benefits and higher amortization of intangible assets, both resulting from our November 1, 2017 acquisition of Pacific Continental.

Provision for Income Taxes

Our effective tax rate for the current quarter was 19.7%, compared to 19.3% and 31.0% for the linked and prior year periods, respectively. The decrease from the prior year period was principally attributable to 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 third quarter of 2018 was 4.41%, an increase of 12 basis points from the linked quarter and 21 basis points from the prior year period. Columbia's operating net interest margin (tax equivalent)⁽¹⁾was 4.38% for the third quarter of 2018, an increase of 11 basis points from the linked quarter and an increase of 23 basis points from the prior year period. All increases were due to higher rates on interest-earning assets, which more than offset the modest increase in rates on interest-bearing liabilities from the comparative periods.

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															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2018			2018			2018			2017			2017			2018			2017
	*(dollars in thousands)*
Incremental accretion income due to:
FDIC purchased credit impaired loans	$	585		$	326		$	329		$	265		$	972		$	1,240		$	3,842
Other acquired loans	2,643			2,690			3,370			2,482			1,903			8,703			6,207
Incremental accretion income	$	3,228		$	3,016		$	3,699		$	2,747		$	2,875		$	9,943		$	10,049

Net interest margin (tax equivalent)	4.41		%	4.29		%	4.22		%	4.20		%	4.20		%	4.31		%	4.17		%
Operating net interest margin (tax equivalent) (1)	4.38		%	4.27		%	4.18		%	4.25		%	4.15		%	4.27		%	4.11		%

__________

(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 September 30, 2018, nonperforming assets to total assets were 0.52% compared to 0.61% at June 30, 2018. Total nonperforming assets decreased $8.8 million from the linked quarter due to a $9.2 million decrease in nonaccrual loans, partially offset by an increase in other real estate owned.

Andy McDonald, Columbia's Executive Vice President and Chief Credit Officer, commented, "This past quarter was very strong from a credit perspective as we enjoyed net recoveries, declines in nonperforming assets and recorded a modest provision as well. While we are pleased with these results, we do not believe they are indicative of the long run credit profile of our loan portfolio. As such, we would expect to see them move towards the norm in future quarters."

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

	September 30, 2018		June 30, 2018		December 31, 2017
	*(in thousands)*
Nonaccrual loans:
Commercial business	$	45,753	$	52,036	$	45,460
Real estate:
One-to-four family residential	501		976		785
Commercial and multifamily residential	11,012		11,118		13,941
Total real estate	11,513		12,094		14,726
Real estate construction:
One-to-four family residential	318		389		1,854
Total real estate construction	318		389		1,854
Consumer	2,748		4,985		4,149
Total nonaccrual loans	60,332		69,504		66,189
Other real estate owned and other personal property owned	7,415		7,080		13,298
Total nonperforming assets	$	67,747	$	76,584	$	79,487

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

	Three Months Ended						Nine Months Ended
	September 30, 2018		June 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
	*(in thousands)*
Beginning balance, loans excluding PCI loans	$	75,368	$	74,162	$	64,923	$	68,739	$	59,528
Beginning balance, PCI loans	4,782		5,665		8,061		6,907		10,515
Beginning balance	80,150		79,827		72,984		75,646		70,043
Charge-offs:
Commercial business	(606)		(5,775)		(1,362)		(8,858)		(6,089)
One-to-four family residential real estate	—		—		—		—		(460)
Commercial and multifamily residential real estate	—		—		—		(223)		—
One-to-four family residential real estate construction	—		—		—		—		(14)
Consumer	(277)		(232)		(263)		(773)		(1,156)
Purchased credit impaired	(1,208)		(1,235)		(1,633)		(3,786)		(5,372)
Total charge-offs	(2,091)		(7,242)		(3,258)		(13,640)		(13,091)
Recoveries:
Commercial business	547		1,543		688		2,892		3,997
One-to-four family residential real estate	21		196		40		389		380
Commercial and multifamily residential real estate	213		640		58		1,012		263
One-to-four family residential real estate construction	583		14		20		616		107
Consumer	266		270		343		796		876
Purchased credit impaired	945		927		1,389		3,096		3,737
Total recoveries	2,575		3,590		2,538		8,801		9,360
Net recoveries (charge-offs)	484		(3,652)		(720)		(4,839)		(3,731)
Provision (recapture) for loan and lease losses, loans excluding PCI loans	3,655		4,550		(175)		15,180		6,840
Recapture for loan and lease losses, PCI loans	(502)		(575)		(473)		(2,200)		(1,536)
Provision (recapture) for loan and lease losses	3,153		3,975		(648)		12,980		5,304
Ending balance, loans excluding PCI loans	79,770		75,368		64,272		79,770		64,272
Ending balance, PCI loans	4,017		4,782		7,344		4,017		7,344
Ending balance	$	83,787	$	80,150	$	71,616	$	83,787	$	71,616

The allowance for loan losses to period end loans was 0.98% at September 30, 2018 compared to 0.95% at June 30, 2018. For the third quarter of 2018, Columbia recorded a net provision for loan and lease losses of $3.2 million compared to a net provision of $4.0 million for the linked quarter and a net recapture of $648 thousand for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter consisted of $3.7 million of provision expense for loans, excluding PCI loans and a recapture of $502 thousand for PCI loans.

Cash Dividend Announcement

Columbia will pay a regular cash dividend of $0.26 per common share and a special cash dividend of $0.14 per common share on November 21, 2018 to shareholders of record as of the close of business on November 7, 2018.

Conference Call Information

Columbia's management will discuss the third quarter 2018 financial results on a conference call scheduled for Thursday, October 25, 2018 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~102518

The conference call can also be accessed on Thursday, October 25, 2018 at 1:00 p.m. Pacific Time (4:00 p.m. ET) by calling 866-904-0737; Conference ID: 1467307.

A replay of the call can be accessed beginning Friday, October 26, 2018 using the site:

https://engage.vevent.com/rt/columbiabankingsysteminc~102518

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." Columbia ranked 11th on the 2018 Forbes list of best banks.

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, including 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; and (6) 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
	[email protected]
	253-305-1921

*CONSOLIDATED BALANCE SHEETS*
*Columbia Banking System, Inc.*
Unaudited				September 30,		June 30,		December 31,
				2018		2018		2017
				*(in thousands)*
ASSETS
Cash and due from banks				$	220,706	$	224,370	$	244,615
Interest-earning deposits with banks				21,456		39,169		97,918
Total cash and cash equivalents				242,162		263,539		342,533
Debt securities available for sale at fair value				2,921,114		2,646,208		2,737,751
Equity securities at fair value				4,901		4,963		5,080
Federal Home Loan Bank ("FHLB") stock at cost				16,640		13,960		10,440
Loans held for sale				5,275		6,773		5,766
Loans, net of unearned income				8,514,317		8,454,107		8,358,657
Less: allowance for loan and lease losses				83,787		80,150		75,646
Loans, net				8,430,530		8,373,957		8,283,011
Interest receivable				48,476		43,105		40,881
Premises and equipment, net				169,681		168,315		169,490
Other real estate owned				7,331		7,080		13,298
Goodwill				765,842		765,842		765,842
Other intangible assets, net				48,827		51,897		58,173
Other assets				295,817		282,947		284,621
Total assets				$	12,956,596	$	12,628,586	$	12,716,886
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing				$	5,250,222	$	4,953,993	$	5,081,901
Interest-bearing				5,353,735		5,430,011		5,450,184
Total deposits				10,603,957		10,384,004		10,532,085
FHLB advances				166,536		99,549		11,579
Securities sold under agreements to repurchase				62,197		46,229		79,059
Subordinated debentures				35,508		35,555		35,647
Junior subordinated debentures				—		—		8,248
Other liabilities				107,003		98,368		100,346
Total liabilities				10,975,201		10,663,705		10,766,964
Commitments and contingent liabilities
	September 30,	June 30,	December 31,
	2018	2018	2017
	*(in thousands)*
Common stock (no par value)
Authorized shares	115,000	115,000	115,000
Issued and outstanding	73,260	73,245	73,020	1,640,140		1,636,903		1,634,705
Retained earnings				411,264		383,899		337,442
Accumulated other comprehensive loss				(70,009)		(55,921)		(22,225)
Total shareholders' equity				1,981,395		1,964,881		1,949,922
Total liabilities and shareholders' equity				$	12,956,596	$	12,628,586	$	12,716,886

*CONSOLIDATED STATEMENTS OF INCOME*
*Columbia Banking System, Inc.*	Three Months Ended						Nine Months Ended
Unaudited	September 30,		June 30,		September 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
*Interest Income*	*(in thousands except per share)*
Loans	$	109,748	$	105,412	$	78,641	$	318,187	$	228,340
Taxable securities	14,654		11,923		8,718		39,285		29,172
Tax-exempt securities	3,069		3,063		2,718		9,196		8,125
Deposits in banks	104		151		226		600		268
Total interest income	127,575		120,549		90,303		367,268		265,905
*Interest Expense*
Deposits	3,193		2,572		1,083		8,274		2,778
FHLB advances	966		815		163		2,351		979
Subordinated debentures	468		468		—		1,404		—
Other borrowings	152		20		128		288		383
Total interest expense	4,779		3,875		1,374		12,317		4,140
*Net Interest Income*	122,796		116,674		88,929		354,951		261,765
Provision (recapture) for loan and lease losses	3,153		3,975		(648)		12,980		5,304
Net interest income after provision (recapture) for loan and lease losses	119,643		112,699		89,577		341,971		256,461
*Noninterest Income*
Deposit account and treasury management fees	9,266		8,683		7,685		26,689		22,368
Card revenue	3,714		6,616		6,735		16,143		18,660
Financial services and trust revenue	2,975		3,219		2,645		8,924		8,520
Loan revenue	3,282		3,054		3,154		9,522		9,736
Merchant processing revenue	—		—		—		—		4,283
Bank owned life insurance	1,402		1,712		1,290		4,540		4,003
Investment securities losses, net	(62)		(33)		—		(73)		—
Change in FDIC loss-sharing asset	—		—		—		—		(447)
Gain on sale of merchant card services portfolio	—		—		14,000		—		14,000
Other	442		441		1,558		2,109		4,938
Total noninterest income	21,019		23,692		37,067		67,854		86,061
*Noninterest Expense*
Compensation and employee benefits	49,419		48,949		39,983		148,938		119,201
Occupancy	8,321		9,276		8,085		27,718		22,853
Merchant processing expense	—		—		—		—		2,196
Advertising and promotion	1,472		1,622		969		4,523		2,923
Data processing	4,466		5,221		4,122		14,957		13,071
Legal and professional fees	4,695		4,171		2,880		12,103		9,196
Taxes, licenses and fees	1,562		1,560		1,505		4,547		3,494
Regulatory premiums	904		937		782		2,778		2,299
Net cost of operation of other real estate owned	485		758		271		1,244		422
Amortization of intangibles	3,070		3,088		1,188		9,346		3,786
Other	8,447		9,061		7,752		27,317		25,949
Total noninterest expense	82,841		84,643		67,537		253,471		205,390
Income before income taxes	57,821		51,748		59,107		156,354		137,132
Provision for income taxes	11,406		9,999		18,338		28,220		40,032
*Net Income*	$	46,415	$	41,749	$	40,769	$	128,134	$	97,100
Earnings per common share
Basic	$	0.63	$	0.57	$	0.70	$	1.75	$	1.67
Diluted	$	0.63	$	0.57	$	0.70	$	1.75	$	1.67
Dividends declared per common share	$	0.26	$	0.26	$	0.22	$	0.74	$	0.66
Weighted average number of common shares outstanding	72,427		72,385		57,566		72,370		57,459
Weighted average number of diluted common shares outstanding	72,432		72,390		57,571		72,374		57,465

*FINANCIAL STATISTICS*
*Columbia Banking System, Inc.*	Three Months Ended									Nine Months Ended
Unaudited	September 30,			June 30,			September 30,			September 30,			September 30,
	2018			2018			2017			2018			2017
Earnings	*(dollars in thousands except per share amounts)*
Net interest income	$	122,796		$	116,674		$	88,929		$	354,951		$	261,765
Provision (recapture) for loan and lease losses	$	3,153		$	3,975		$	(648)		$	12,980		$	5,304
Noninterest income	$	21,019		$	23,692		$	37,067		$	67,854		$	86,061
Noninterest expense	$	82,841		$	84,643		$	67,537		$	253,471		$	205,390
Acquisition-related expense (included in noninterest expense)	$	1,081		$	2,822		$	1,171		$	8,168		$	3,558
Net income	$	46,415		$	41,749		$	40,769		$	128,134		$	97,100
Per Common Share
Earnings (basic)	$	0.63		$	0.57		$	0.70		$	1.75		$	1.67
Earnings (diluted)	$	0.63		$	0.57		$	0.70		$	1.75		$	1.67
Book value	$	27.05		$	26.83		$	22.76		$	27.05		$	22.76
Tangible book value per common share (1)	$	15.93		$	15.66		$	15.96		$	15.93		$	15.96
Averages
Total assets	$	12,805,131		$	12,529,540		$	9,695,005		$	12,646,678		$	9,589,469
Interest-earning assets	$	11,326,629		$	11,052,807		$	8,750,561		$	11,168,143		$	8,641,706
Loans	$	8,456,632		$	8,389,230		$	6,441,537		$	8,398,596		$	6,322,629
Securities, including equity securities and FHLB stock	$	2,849,495		$	2,628,292		$	2,236,235		$	2,720,625		$	2,287,329
Deposits	$	10,478,800		$	10,264,822		$	8,187,337		$	10,359,896		$	8,036,805
Interest-bearing deposits	$	5,376,300		$	5,390,869		$	4,200,580		$	5,390,859		$	4,147,740
Interest-bearing liabilities	$	5,620,997		$	5,611,055		$	4,285,936		$	5,619,943		$	4,305,686
Noninterest-bearing deposits	$	5,102,500		$	4,873,953		$	3,986,757		$	4,969,037		$	3,889,065
Shareholders' equity	$	1,983,317		$	1,954,552		$	1,323,794		$	1,962,506		$	1,293,898
Financial Ratios
Return on average assets	1.45		%	1.33		%	1.68		%	1.35		%	1.35		%
Return on average common equity	9.36		%	8.54		%	12.32		%	8.71		%	10.01		%
Return on average tangible common equity (1)	16.74		%	15.57		%	17.93		%	15.80		%	14.83		%
Average equity to average assets	15.49		%	15.60		%	13.65		%	15.52		%	13.49		%
Shareholders equity to total assets	15.29		%	15.56		%	13.54		%	15.29		%	13.54		%
Tangible common shareholders' equity to tangible assets (1)	9.61		%	9.71		%	9.89		%	9.61		%	9.89		%
Net interest margin (tax equivalent)	4.41		%	4.29		%	4.20		%	4.31		%	4.17		%
Efficiency ratio (tax equivalent) (2)	56.67		%	59.29		%	52.09		%	58.97		%	57.26		%
Operating efficiency ratio (tax equivalent) (1)	54.83		%	56.02		%	56.47		%	56.13		%	57.58		%
Noninterest expense ratio	2.59		%	2.70		%	2.79		%	2.67		%	2.86		%
Core noninterest expense ratio (1)	2.55		%	2.61		%	2.73		%	2.59		%	2.77		%
	September 30,			June 30,			December 31,
Period end	2018			2018			2017
Total assets	$	12,956,596		$	12,628,586		$	12,716,886
Loans, net of unearned income	$	8,514,317		$	8,454,107		$	8,358,657
Allowance for loan and lease losses	$	83,787		$	80,150		$	75,646
Securities, including equity securities and FHLB stock	$	2,942,655		$	2,665,131		$	2,753,271
Deposits	$	10,603,957		$	10,384,004		$	10,532,085
Core deposits	$	10,084,687		$	9,888,696		$	10,039,557
Shareholders' equity	$	1,981,395		$	1,964,881		$	1,949,922
Nonperforming assets
Nonaccrual loans	$	60,332		$	69,504		$	66,189
Other real estate owned ("OREO") and other personal property owned ("OPPO")	7,415			7,080			13,298
Total nonperforming assets	$	67,747		$	76,584		$	79,487
Nonperforming loans to period-end loans	0.71		%	0.82		%	0.79		%
Nonperforming assets to period-end assets	0.52		%	0.61		%	0.63		%
Allowance for loan and lease losses to period-end loans	0.98		%	0.95		%	0.91		%
Net loan charge-offs (recoveries) (3)	$	(484)		$	3,652		$	(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	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Earnings	*(dollars in thousands except per share)*
Net interest income	$	122,796		$	116,674		$	115,481		$	106,224		$	88,929
Provision (recapture) for loan and lease losses	$	3,153		$	3,975		$	5,852		$	3,327		$	(648)
Noninterest income	$	21,019		$	23,692		$	23,143		$	23,581		$	37,067
Noninterest expense	$	82,841		$	84,643		$	85,987		$	85,627		$	67,537
Acquisition-related expense (included in noninterest expense)	$	1,081		$	2,822		$	4,265		$	13,638		$	1,171
Net income	$	46,415		$	41,749		$	39,970		$	15,728		$	40,769
Per Common Share
Earnings (basic)	$	0.63		$	0.57		$	0.55		$	0.23		$	0.70
Earnings (diluted)	$	0.63		$	0.57		$	0.55		$	0.23		$	0.70
Book value	$	27.05		$	26.83		$	26.60		$	26.70		$	22.76
Averages
Total assets	$	12,805,131		$	12,529,540		$	12,603,144		$	11,751,049		$	9,695,005
Interest-earning assets	$	11,326,629		$	11,052,807		$	11,122,753		$	10,453,097		$	8,750,561
Loans	$	8,456,632		$	8,389,230		$	8,348,740		$	7,749,420		$	6,441,537
Securities, including equity securities and FHLB stock	$	2,849,495		$	2,628,292		$	2,682,250		$	2,539,321		$	2,236,235
Deposits	$	10,478,800		$	10,264,822		$	10,334,480		$	9,804,456		$	8,187,337
Interest-bearing deposits	$	5,376,300		$	5,390,869		$	5,405,730		$	5,033,980		$	4,200,580
Interest-bearing liabilities	$	5,620,997		$	5,611,055		$	5,627,853		$	5,127,100		$	4,285,936
Noninterest-bearing deposits	$	5,102,500		$	4,873,953		$	4,928,750		$	4,770,476		$	3,986,757
Shareholders' equity	$	1,983,317		$	1,954,552		$	1,949,275		$	1,754,745		$	1,323,794
Financial Ratios
Return on average assets	1.45		%	1.33		%	1.27		%	0.54		%	1.68		%
Return on average common equity	9.36		%	8.54		%	8.20		%	3.59		%	12.32		%
Average equity to average assets	15.49		%	15.60		%	15.47		%	14.93		%	13.65		%
Shareholders' equity to total assets	15.29		%	15.56		%	15.55		%	15.33		%	13.54		%
Net interest margin (tax equivalent)	4.41		%	4.29		%	4.22		%	4.20		%	4.20		%
Period end
Total assets	$	12,956,596		$	12,628,586		$	12,530,636		$	12,716,886		$	9,814,578
Loans, net of unearned income	$	8,514,317		$	8,454,107		$	8,339,631		$	8,358,657		$	6,512,006
Allowance for loan and lease losses	$	83,787		$	80,150		$	79,827		$	75,646		$	71,616
Securities, including equity securities and FHLB stock	$	2,942,655		$	2,665,131		$	2,640,685		$	2,753,271		$	2,218,113
Deposits	$	10,603,957		$	10,384,004		$	10,395,523		$	10,532,085		$	8,341,717
Core deposits	$	10,084,687		$	9,888,696		$	9,897,185		$	10,039,557		$	7,999,499
Shareholders' equity	$	1,981,395		$	1,964,881		$	1,947,923		$	1,949,922		$	1,328,428
Goodwill	$	765,842		$	765,842		$	765,842		$	765,842		$	382,762
Other intangible assets, net	$	48,827		$	51,897		$	54,985		$	58,173		$	13,845
Nonperforming assets
Nonaccrual loans	$	60,332		$	69,504		$	78,464		$	66,189		$	40,317
OREO and OPPO	7,415			7,080			11,507			13,298			3,682
Total nonperforming assets	$	67,747		$	76,584		$	89,971		$	79,487		$	43,999
Nonperforming loans to period-end loans	0.71		%	0.82		%	0.94		%	0.79		%	0.62		%
Nonperforming assets to period-end assets	0.52		%	0.61		%	0.72		%	0.63		%	0.45		%
Allowance for loan and lease losses to period-end loans	0.98		%	0.95		%	0.96		%	0.91		%	1.10		%
Net loan charge-offs (recoveries)	$	(484)		$	3,652		$	1,671		$	(703)		$	720

*LOAN PORTFOLIO COMPOSITION*
*Columbia Banking System, Inc.*
Unaudited	September 30,		June 30,		March 31,		December 31,		September 30,
	2018		2018		2018		2017		2017
Loan Portfolio Composition - Dollars	*(dollars in thousands)*
Commercial business	$	3,554,147	$	3,538,492	$	3,402,162	$	3,377,324	$	2,735,206
Real estate:
One-to-four family residential	232,924		180,522		182,302		188,396		176,487
Commercial and multifamily residential	3,786,615		3,758,207		3,776,709		3,825,739		2,825,794
Total real estate	4,019,539		3,938,729		3,959,011		4,014,135		3,002,281
Real estate construction:
One-to-four family residential	211,629		206,181		208,441		200,518		145,419
Commercial and multifamily residential	349,328		387,951		385,339		371,931		213,939
Total real estate construction	560,957		594,132		593,780		572,449		359,358
Consumer	327,863		326,402		323,631		334,190		323,913
Purchased credit impaired	95,936		101,782		109,299		112,670		120,477
Subtotal loans	8,558,442		8,499,537		8,387,883		8,410,768		6,541,235
Less: Net unearned income	(44,125)		(45,430)		(48,252)		(52,111)		(29,229)
Loans, net of unearned income	8,514,317		8,454,107		8,339,631		8,358,657		6,512,006
Less: Allowance for loan and lease losses	(83,787)		(80,150)		(79,827)		(75,646)		(71,616)
Total loans, net	8,430,530		8,373,957		8,259,804		8,283,011		6,440,390
Loans held for sale	$	5,275	$	6,773	$	4,312	$	5,766	$	7,802

	September 30,		June 30,		March 31,		December 31,		September 30,
Loan Portfolio Composition - Percentages	2018		2018		2018		2017		2017
Commercial business	41.7	%	41.9	%	40.8	%	40.4	%	42.0	%
Real estate:
One-to-four family residential	2.7	%	2.1	%	2.2	%	2.3	%	2.7	%
Commercial and multifamily residential	44.5	%	44.4	%	45.3	%	45.8	%	43.3	%
Total real estate	47.2	%	46.5	%	47.5	%	48.1	%	46.0	%
Real estate construction:
One-to-four family residential	2.5	%	2.4	%	2.5	%	2.4	%	2.2	%
Commercial and multifamily residential	4.1	%	4.6	%	4.6	%	4.4	%	3.3	%
Total real estate construction	6.6	%	7.0	%	7.1	%	6.8	%	5.5	%
Consumer	3.9	%	3.9	%	3.9	%	4.0	%	5.0	%
Purchased credit impaired	1.1	%	1.2	%	1.3	%	1.3	%	1.9	%
Subtotal loans	100.5	%	100.5	%	100.6	%	100.6	%	100.4	%
Less: Net unearned income	(0.5)	%	(0.5)	%	(0.6)	%	(0.6)	%	(0.4)	%
Loans, net of unearned income	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

*DEPOSIT COMPOSITION*
*Columbia Banking System, Inc.*
Unaudited
	September 30,		June 30,		March 31,		December 31,		September 30,
	2018		2018		2018		2017		2017
Deposit Composition - Dollars	*(dollars in thousands)*
Core deposits:
Demand and other non-interest bearing	$	5,250,222	$	4,953,993	$	4,927,226	$	5,081,901	$	4,119,950
Interest bearing demand	1,260,543		1,278,686		1,328,756		1,265,212		1,009,378
Money market	2,413,185		2,513,648		2,477,487		2,543,712		1,821,262
Savings	908,945		875,707		886,171		861,941		772,858
Certificates of deposit, less than $250,000	251,792		266,662		277,545		286,791		276,051
Total core deposits	10,084,687		9,888,696		9,897,185		10,039,557		7,999,499

Certificates of deposit, $250,000 or more	90,387		91,578		96,333		100,399		84,105
Certificates of deposit insured by CDARS® (1)	23,841		23,492		23,191		25,374		20,690
Brokered certificates of deposit	65,476		68,870		76,931		78,481		—
Reciprocal money market accounts (1)	340,044		311,935		302,544		289,031		237,421
Subtotal	10,604,435		10,384,571		10,396,184		10,532,842		8,341,715
Premium (discount) resulting from acquisition date fair value adjustment	(478)		(567)		(661)		(757)		2
Total deposits	$	10,603,957	$	10,384,004	$	10,395,523	$	10,532,085	$	8,341,717

	September 30,		June 30,		March 31,		December 31,		September 30,
Deposit Composition - Percentages	2018		2018		2018		2017		2017
Core deposits:
Demand and other non-interest bearing	49.5	%	47.7	%	47.4	%	48.2	%	49.4	%
Interest bearing demand	11.9	%	12.3	%	12.8	%	12.0	%	12.1	%
Money market	22.8	%	24.2	%	23.8	%	24.2	%	21.8	%
Savings	8.6	%	8.4	%	8.5	%	8.2	%	9.3	%
Certificates of deposit, less than $250,000	2.4	%	2.6	%	2.7	%	2.7	%	3.3	%
Total core deposits	95.2	%	95.2	%	95.2	%	95.3	%	95.9	%

Certificates of deposit, $250,000 or more	0.9	%	0.9	%	0.9	%	1.0	%	1.0	%
Certificates of deposit insured by CDARS® (1)	0.2	%	0.2	%	0.2	%	0.2	%	0.2	%
Brokered certificates of deposit	0.6	%	0.7	%	0.7	%	0.7	%	—	%
Reciprocal money market accounts (1)	3.1	%	3.0	%	3.0	%	2.8	%	2.9	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

__________

(1) For periods prior to June 30, 2018, CDARS® and reciprocal money market accounts were considered to be brokered deposits by regulatory authorities and were reported as such on quarterly Call Reports. With the passage of The Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018, these items are no longer considered brokered deposits.

*AVERAGE BALANCES AND RATES*
*Columbia Banking System, Inc.*
Unaudited
	Three Months Ended						Three Months Ended
	September 30, 2018						September 30, 2017
	Average Balances		Interest Earned / Paid		Average Rate		Average Balances		Interest Earned / Paid		Average Rate
	*(dollars in thousands)*
ASSETS
Loans, net (1)(2)	$	8,456,632	$	110,925	5.25	%	$	6,441,537	$	80,136	4.98	%
Taxable securities	2,336,405		14,654		2.51	%	1,784,407		8,718		1.95	%
Tax exempt securities (2)	513,090		3,885		3.03	%	451,828		4,181		3.70	%
Interest-earning deposits with banks	20,502		104		2.03	%	72,789		226		1.24	%
Total interest-earning assets	11,326,629		$	129,568	4.58	%	8,750,561		$	93,261	4.26	%
Other earning assets	228,332						173,611
Noninterest-earning assets	1,250,170						770,833
Total assets	$	12,805,131					$	9,695,005
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit	$	440,196	$	544	0.49	%	$	382,299	$	92	0.10	%
Savings accounts	889,793		31		0.01	%	766,540		19		0.01	%
Interest-bearing demand	1,246,592		689		0.22	%	1,000,079		223		0.09	%
Money market accounts	2,799,719		1,929		0.28	%	2,051,662		749		0.15	%
Total interest-bearing deposits	5,376,300		3,193		0.24	%	4,200,580		1,083		0.10	%
FHLB advances	167,531		966		2.31	%	33,687		163		1.94	%
Subordinated debentures	35,530		468		5.27	%	—		—		—	%
Other borrowings	41,636		152		1.46	%	51,669		128		0.99	%
Total interest-bearing liabilities	5,620,997		$	4,779	0.34	%	4,285,936		$	1,374	0.13	%
Noninterest-bearing deposits	5,102,500						3,986,757
Other noninterest-bearing liabilities	98,317						98,518
Shareholders' equity	1,983,317						1,323,794
Total liabilities & shareholders' equity	$	12,805,131					$	9,695,005
Net interest income (tax equivalent)			$	124,789					$	91,887
Net interest margin (tax equivalent)					4.41	%					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 $1.8 million for the three month periods ended September 30, 2018 and September 30, 2017, respectively. The incremental accretion on acquired loans was $3.2 million and $2.9 million for the three months ended September 30, 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 $1.5 million for the three months ended September 30, 2018 and 2017, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $816 thousand and $1.5 million for the three month periods ended September 30, 2018 and 2017, respectively.

*AVERAGE BALANCES AND RATES*
*Columbia Banking System, Inc.*
Unaudited
	Three Months Ended						Three Months Ended
	September 30, 2018						June 30, 2018
	Average Balances		Interest Earned / Paid		Average Rate		Average Balances		Interest Earned / Paid		Average Rate
	*(dollars in thousands)*
ASSETS
Loans, net (1)(2)	$	8,456,632	$	110,925	5.25	%	$	8,389,230	$	106,526	5.08	%
Taxable securities	2,336,405		14,654		2.51	%	2,111,086		11,923		2.26	%
Tax exempt securities (2)	513,090		3,885		3.03	%	517,206		3,877		3.00	%
Interest-earning deposits with banks	20,502		104		2.03	%	35,285		151		1.71	%
Total interest-earning assets	11,326,629		$	129,568	4.58	%	11,052,807		$	122,477	4.43	%
Other earning assets	228,332						221,141
Noninterest-earning assets	1,250,170						1,255,592
Total assets	$	12,805,131					$	12,529,540
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit	$	440,196	$	544	0.49	%	$	464,217	$	549	0.47	%
Savings accounts	889,793		31		0.01	%	875,529		30		0.01	%
Interest-bearing demand	1,246,592		689		0.22	%	1,295,409		608		0.19	%
Money market accounts	2,799,719		1,929		0.28	%	2,755,714		1,385		0.20	%
Total interest-bearing deposits	5,376,300		3,193		0.24	%	5,390,869		2,572		0.19	%
FHLB advances	167,531		966		2.31	%	156,512		815		2.08	%
Subordinated debentures	35,530		468		5.27	%	35,577		468		5.26	%
Other borrowings	41,636		152		1.46	%	28,097		20		0.28	%
Total interest-bearing liabilities	5,620,997		$	4,779	0.34	%	5,611,055		$	3,875	0.28	%
Noninterest-bearing deposits	5,102,500						4,873,953
Other noninterest-bearing liabilities	98,317						89,980
Shareholders' equity	1,983,317						1,954,552
Total liabilities & shareholders' equity	$	12,805,131					$	12,529,540
Net interest income (tax equivalent)			$	124,789					$	118,602
Net interest margin (tax equivalent)					4.41	%					4.29	%


(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 $2.1 million for the three month periods ended September 30, 2018 and June 30, 2018, respectively. The incremental accretion on acquired loans was $3.2 million and $3.0 million for the three months ended September 30, 2018 and June 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 $1.1 million for the three months ended September 30, 2018 and June 30, 2018, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $816 thousand and $814 thousand for the three month periods ended September 30, 2018 and June 30, 2018, respectively.

*AVERAGE BALANCES AND RATES*
*Columbia Banking System, Inc.*
Unaudited
	Nine Months Ended						Nine Months Ended
	September 30, 2018						September 30, 2017
	Average Balances		Interest Earned / Paid		Average Rate		Average Balances		Interest Earned / Paid		Average Rate
	*(dollars in thousands)*
ASSETS
Loans, net (1)(2)	$	8,398,596	$	321,542	5.10	%	$	6,322,629	$	232,680	4.91	%
Taxable securities	2,202,497		39,285		2.38	%	1,835,693		29,172		2.12	%
Tax exempt securities (2)	518,128		11,640		3.00	%	451,636		12,500		3.69	%
Interest-earning deposits with banks	48,922		600		1.64	%	31,748		268		1.13	%
Total interest-earning assets	11,168,143		$	373,067	4.45	%	8,641,706		$	274,620	4.24	%
Other earning assets	222,570						174,898
Noninterest-earning assets	1,255,965						772,865
Total assets	$	12,646,678					$	9,589,469
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit	$	461,236	$	1,619	0.47	%	$	389,260	$	282	0.10	%
Savings accounts	881,207		102		0.02	%	753,577		57		0.01	%
Interest-bearing demand	1,264,918		1,832		0.19	%	985,625		574		0.08	%
Money market accounts	2,783,498		4,721		0.23	%	2,019,278		1,865		0.12	%
Total interest-bearing deposits	5,390,859		8,274		0.20	%	4,147,740		2,778		0.09	%
FHLB advances	150,054		2,351		2.09	%	103,369		979		1.26	%
Subordinated debentures	35,577		1,404		5.26	%	—		—		—	%
Other borrowings	43,453		288		0.88	%	54,577		383		0.94	%
Total interest-bearing liabilities	5,619,943		$	12,317	0.29	%	4,305,686		$	4,140	0.13	%
Noninterest-bearing deposits	4,969,037						3,889,065
Other noninterest-bearing liabilities	95,192						100,820
Shareholders' equity	1,962,506						1,293,898
Total liabilities & shareholders' equity	$	12,646,678					$	9,589,469
Net interest income (tax equivalent)			$	360,750					$	270,480
Net interest margin (tax equivalent)					4.31	%					4.17	%


(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 $6.8 million and $5.2 million for the nine months ended September 30, 2018 and 2017, respectively. The incremental accretion on acquired loans was $9.9 million and $10.0 million for the nine months ended September 30, 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 $3.4 million and $4.3 million for the nine months ended September 30, 2018 and 2017, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.4 million and $4.4 million for the nine months ended September 30, 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									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2018			2018			2017			2018			2017
Operating net interest margin non-GAAP reconciliation:	*(dollars in thousands)*
Net interest income (tax equivalent) (1)	$	124,789		$	118,602		$	91,887		$	360,750		$	270,480
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on FDIC purchased credit impaired loans	(585)			(326)			(972)			(1,240)			(3,842)
Incremental accretion income on other acquired loans	(2,643)			(2,690)			(1,903)			(8,703)			(6,207)
Premium amortization on acquired securities	1,859			2,131			1,527			6,065			4,658
Interest reversals on nonaccrual loans	477			253			311			1,147			1,323
Operating net interest income (tax equivalent) (1)	$	123,897		$	117,970		$	90,850		$	358,019		$	266,412
Average interest earning assets	$	11,326,629		$	11,052,807		$	8,750,561		$	11,168,143		$	8,641,706
Net interest margin (tax equivalent) (1)	4.41		%	4.29		%	4.20		%	4.31		%	4.17		%
Operating net interest margin (tax equivalent) (1)	4.38		%	4.27		%	4.15		%	4.27		%	4.11		%
	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2018			2018			2017			2018			2017
Operating efficiency ratio non-GAAP reconciliation:	*(dollars in thousands)*
Noninterest expense (numerator A)	$	82,841		$	84,643		$	67,537		$	253,471		$	205,390
Adjustments to arrive at operating noninterest expense:
Acquisition-related expenses	(1,081)			(2,822)			(1,171)			(8,168)			(3,558)
Net benefit (cost) of operation of OREO and OPPO	(485)			(758)			(271)			(1,239)			(420)
FDIC clawback liability recovery	—			—			—			—			54
Loss on asset disposals	(110)			(1)			—			(111)			(14)
Termination of FDIC loss share agreements charge	—			—			—			—			(2,409)
State of Washington Business and Occupation ("B&O") taxes	(1,478)			(1,459)			(1,394)			(4,254)			(3,159)
Operating noninterest expense (numerator B)	$	79,687		$	79,603		$	64,701		$	239,699		$	195,884

Net interest income (tax equivalent) (1)	$	124,789		$	118,602		$	91,887		$	360,750		$	270,480
Noninterest income	21,019			23,692			37,067			67,854			86,061
Bank owned life insurance tax equivalent adjustment	373			455			695			1,207			2,156
Total revenue (tax equivalent) (denominator A)	$	146,181		$	142,749		$	129,649		$	429,811		$	358,697

Operating net interest income (tax equivalent) (1)	$	123,897		$	117,970		$	90,850		$	358,019		$	266,412
Adjustments to arrive at operating noninterest income (tax equivalent):
Investment securities losses, net	62			33			—			73			—
Gain on asset disposals	(29)			(47)			(38)			(111)			(323)
Mortgage loan repurchase liability adjustment	—			—			—			—			(573)
Change in FDIC loss-sharing asset	—			—			—			—			447
Gain on sale of merchant card services portfolio	—			—			(14,000)			—			(14,000)
Operating noninterest income (tax equivalent)	21,425			24,133			23,724			69,023			73,768
Total operating revenue (tax equivalent) (denominator B)	$	145,322		$	142,103		$	114,574		$	427,042		$	340,180
Efficiency ratio (tax equivalent) (numerator A/denominator A)	56.67		%	59.29		%	52.09		%	58.97		%	57.26		%
Operating efficiency ratio (tax equivalent) (numerator B/denominator B)	54.83		%	56.02		%	56.47		%	56.13		%	57.58		%

__________

(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, $1.9 million, and $3.0 million for the three month periods ended September 30, 2018, June 30, 2018, and September 30, 2017; and $5.8 million and $8.7 million for the nine month periods ended September 30, 2018 and September 30, 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									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2018			2018			2017			2018			2017
Core noninterest expense ratio non-GAAP reconciliation:	*(dollars in thousands)*
Noninterest expense (numerator A)	$	82,841		$	84,643		$	67,537		$	253,471		$	205,390
Adjustments to arrive at core noninterest expense:
FDIC clawback liability recovery	—			—			—			—			54
Acquisition-related expenses	(1,081)			(2,822)			(1,171)			(8,168)			(3,558)
Net benefit (cost) of operation of OREO and OPPO (1)	—			—			(271)			—			(420)
Termination of FDIC loss share agreements charge	—			—			—			—			(2,409)
Core noninterest expense (numerator B)	$	81,760		$	81,821		$	66,095		$	245,303		$	199,057
Average assets (denominator)	$	12,805,131		$	12,529,540		$	9,695,005		$	12,646,678		$	9,589,469
Noninterest expense ratio (numerator A/denominator) (2)	2.59		%	2.70		%	2.79		%	2.67		%	2.86		%
Core noninterest expense ratio (numerator B/denominator) (3)	2.55		%	2.61		%	2.73		%	2.59		%	2.77		%

__________
(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:

	September 30,			June 30,			September 30,
	2018			2018			2017
Tangible common equity ratio and tangible book value per common share non-GAAP reconciliation:	*(dollars in thousands)*
Shareholders' equity (numerator A)	$	1,981,395		$	1,964,881		$	1,328,428
Adjustments to arrive at tangible common equity:
Goodwill	(765,842)			(765,842)			(382,762)
Other intangible assets, net	(48,827)			(51,897)			(13,845)
Tangible common equity (numerator B)	$	1,166,726		$	1,147,142		$	931,821
Total assets (denominator A)	$	12,956,596		$	12,628,586		$	9,814,578
Adjustments to arrive at tangible assets:
Goodwill	(765,842)			(765,842)			(382,762)
Other intangible assets, net	(48,827)			(51,897)			(13,845)
Tangible assets (denominator B)	$	12,141,927		$	11,810,847		$	9,417,971
Shareholders' equity to total assets (numerator A/denominator A)	15.29		%	15.56		%	13.54		%
Tangible common shareholders' equity to tangible assets (numerator B/denominator B)	9.61		%	9.71		%	9.89		%
Common shares outstanding (denominator C)	73,260			73,245			58,376
Book value per common share (numerator A/denominator C)	$	27.05		$	26.83		$	22.76
Tangible book value per common share (numerator B/denominator C)	$	15.93		$	15.66		$	15.96

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									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2018			2018			2017			2018			2017
Return on average tangible common equity non-GAAP reconciliation:	*(dollars in thousands)*
Net income (numerator A)	$	46,415		$	41,749		$	40,769		$	128,134		$	97,100
Adjustments to arrive at tangible income applicable to common shareholders:
Amortization of intangibles	3,070			3,088			1,188			9,346			3,786
Tax effect on intangible amortization	(645)			(649)			(416)			(1,963)			(1,325)
Tangible income applicable to common shareholders (numerator B)	$	48,840		$	44,188		$	41,541		135,517			$	99,561
Average shareholders' equity (denominator A)	$	1,983,317		$	1,954,552		$	1,323,794		1,962,506			$	1,293,898
Adjustments to arrive at average tangible common equity:
Average preferred equity	—			—			—			—			(89)
Average intangibles	(816,128)			(819,211)			(397,160)			(819,215)			(398,397)
Average tangible common equity (denominator B)	$	1,167,189		$	1,135,341		$	926,634		$	1,143,291		$	895,412
Return on average common equity (numerator A/denominator A) (1)	9.36		%	8.54		%	12.32		%	8.71		%	10.01		%
Return on average tangible common equity (numerator B/denominator B) (2)	16.74		%	15.57		%	17.93		%	15.80		%	14.83		%

__________
(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.