10q10k10q10k.net

What changed in COLUMBIA BANKING SYSTEM, INC.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of COLUMBIA BANKING SYSTEM, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+558 added−467 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-24)

Top changes in COLUMBIA BANKING SYSTEM, INC.'s 2023 10-K

558 paragraphs added · 467 removed · 143 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

66 edited+85 added−69 removed69 unchanged
Biggest changeOur values are the qualities we expect all of our associates to embody, every day, in all interactions with other associates, customers, shareholders and in our communities.
Biggest changeOur associates are encouraged to use their skills and passions to make a difference in their communities while growing their careers and being recognized and appreciated for their diverse talents, backgrounds, and perspectives. • We emphasize a culture of kindness and positivity, encouraging behaviors consistent with our Do Right TOGETHER 1 values, which describe the qualities we expect all of our associates to embody every day in all interactions with other associates, customers, shareholders, and in our communities. • Diversity, equity, and inclusion are strong anchors in our foundation.
These regulations and restrictions may limit the Company’s ability to obtain funds from Columbia Bank for its cash needs, including funds for payment of dividends, interest and operational expenses. Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons.
These regulations and restrictions may limit the Company’s ability to obtain funds from Umpqua Bank for its cash needs, including funds for payment of dividends, interest, and operational expenses. Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders, or any related interests of such persons.
The Sanctions Laws are intended to restrict transactions with persons, companies, or foreign governments sanctions by U.S. authorities. An institution that fails to meet these standards may be subject to regulatory sanctions, including limitations on growth. Columbia Bank has established compliance programs designed to comply with the BSA, the Patriot Act and applicable Sanctions Laws.
The Sanctions Laws are intended to restrict transactions with persons, companies, or foreign governments sanctions by U.S. authorities. An institution that fails to meet these standards may be subject to regulatory sanctions, including limitations on growth. Umpqua Bank has established compliance programs designed to comply with the BSA, the Patriot Act and applicable Sanctions Laws.
Banks are also subject to certain lending limits and restrictions on overdrafts to insiders. A violation of these restrictions may result in the assessment of substantial civil monetary penalties, regulatory enforcement actions, and other regulatory sanctions. The Columbia Bank board has established controls to ensure compliance with regulatory expectations around affiliated transactions. Regulation of Management .
Banks are also subject to certain lending limits and restrictions on overdrafts to insiders. A violation of these restrictions may result in the assessment of substantial civil monetary penalties, regulatory enforcement actions, and other regulatory sanctions. The Umpqua Bank board has established controls to ensure compliance with regulatory expectations around affiliated transactions. Regulation of Management .
The Patriot Act also includes provisions providing the government with power to investigate terrorism, including expanded government access to bank account records. Columbia Bank is also subject to regulation under the International Emergency Economic Powers Act and the Trading with the Enemy Act, as administered by the United States Treasury Department’s Office of Foreign Assets Control (“Sanctions Laws”).
The Patriot Act also includes provisions providing the government with power to investigate terrorism, including expanded government access to bank account records. Umpqua Bank is also subject to regulation under the International Emergency Economic Powers Act and the Trading with the Enemy Act, as administered by the United States Treasury Department’s Office of Foreign Assets Control (“Sanctions Laws”).
As an insured depository institution with assets of $10 billion or more, the CFPB has primary enforcement and exclusive supervision authority for federal consumer financial laws over the Bank. This includes the right to obtain information about the Bank’s activities and compliance systems and procedures and to detect and assess risks to consumers and markets.
As an insured depository institution with assets of $10 billion or more, the CFPB has primary enforcement and enforcement authority for federal consumer financial laws over the Bank. This includes the right to obtain information about the Bank’s activities and compliance systems and procedures and to detect and assess risks to consumers and markets.
Under Federal Reserve policy and federal law, the Company is required to act as a source of financial and managerial strength to Columbia Bank, including at times when we may not be in a financial position to provide such resources, and it may not be in our, or our shareholders’, best interests to do so.
Under Federal Reserve policy and federal law, the Company is required to act as a source of financial and managerial strength to Umpqua Bank, including at times when we may not be in a financial position to provide such resources, and it may not be in our, or our shareholders’ best interests to do so.
This means that the Company is required to commit resources, as necessary, to support Columbia Bank. Any capital loans the Company makes to Columbia Bank are subordinate to deposits and to certain other indebtedness of Columbia Bank. State Law Restrictions . As a Washington corporation, the Company is subject to certain limitations and restrictions under applicable Washington corporate law.
This means that the Company is required to commit resources, as necessary, to support Umpqua Bank. Any capital loans the Company makes to Umpqua Bank are subordinate to deposits and to certain other indebtedness of Umpqua Bank. State Law Restrictions . As a Washington corporation, the Company is subject to certain limitations and restrictions under applicable Washington corporate law.
For example, state law restrictions in Washington include limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records and minutes, and observance of certain corporate formalities. Federal and State Regulation of Columbia Bank General .
For example, state law restrictions in Washington include limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records and minutes, and observance of certain corporate formalities. Federal and State Regulation of Umpqua Bank General .
An institution that fails to meet these standards may be subject to regulatory sanctions, including limitations on growth. Columbia Bank has established policies and risk management activities designed to ensure the safety and soundness of the Bank.
An institution that fails to meet these standards may be subject to regulatory sanctions, including limitations on growth. Umpqua Bank has established policies and risk management activities designed to ensure the safety and soundness of the Bank.
The supervisory objectives of the inspection program are to ascertain whether the financial strength of the bank holding company is being maintained on an ongoing basis and to determine the effects or consequences of transactions between a holding company or its non-banking subsidiaries and its subsidiary banks. Banks are subject to periodic examinations by their primary regulators.
The supervisory objectives of the inspection program are to ascertain whether the financial strength of the bank holding company is being maintained on an ongoing basis and to determine the effects or consequences of transactions between a holding company or its non-banking subsidiaries and its subsidiary banks. 19 Table of Contents Banks are subject to periodic examinations by their primary regulators.
For example, with certain exceptions, neither the Company nor its subsidiaries may condition an extension of credit to a customer on either (i) a requirement that the customer obtain additional services provided by us; or (ii) an agreement by the customer to refrain from obtaining other services from a competitor. Support of Subsidiary Banks .
For example, with certain exceptions, neither the Company nor its subsidiaries may condition an extension of credit to a customer on either (i) a requirement that the customer obtain additional services provided by us; or (ii) an agreement by the customer to refrain from obtaining other services from a competitor. 14 Table of Contents Support of Subsidiary Banks .
Management will continue to evaluate any changes to CRA regulations. 9 Table of Contents Anti-Money Laundering, Anti-Terrorism and Sanctions. The BSA requires all financial institutions, including banks, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism.
Management will continue to evaluate any changes to CRA regulations. Anti-Money Laundering, Anti-Terrorism and Sanctions. The BSA requires all financial institutions, including banks, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism.
The CFPB engages in several activities, including (i) investigating consumer complaints about credit cards and mortgages, (ii) launching supervisory programs, (iii) conducting research for and developing mandatory financial product disclosures, and (iv) engaging in consumer financial protection rulemaking. Columbia Bank has established a compliance management system designed to ensure consumer protection. Community Reinvestment .
The CFPB engages in several activities, including (i) investigating consumer complaints about credit cards and mortgages, (ii) launching supervisory programs, (iii) conducting research for and developing mandatory financial product disclosures, and (iv) engaging in consumer financial protection rulemaking. Umpqua Bank has established a compliance management system designed to ensure consumer protection.
Federal law (i) sets forth circumstances under which officers or directors of a bank may be removed by the institution’s federal supervisory agency; (ii) places constraints on lending by a bank to its executive officers, directors, principal shareholders, and their related interests; and (iii) generally prohibits management personnel of a bank from serving as directors or in other management positions of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area.
Federal law (i) sets forth circumstances under which officers or directors of a bank may be removed by the institution’s federal supervisory agency; (ii) places constraints on lending by a bank to its executive officers, directors, principal shareholders, and their related interests; and (iii) generally prohibits management personnel of a bank from serving as directors or in other management positions of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area. 16 Table of Contents Safety and Soundness Standards .
See “Prompt Corrective Action Framework.” Prompt Corrective Action Framework The FDIA requires the federal bank regulators to take prompt corrective action in respect of depository institutions that fail to meet specified capital requirements.
Prompt Corrective Action Framework The FDIA requires the federal bank regulators to take prompt corrective action in respect of depository institutions that fail to meet specified capital requirements.
Washington law limits a bank’s ability to pay dividends that are greater than the bank’s retained earnings without approval of the applicable banking agency (under Oregon law, a bank may not pay dividends greater than the bank’s unreserved retained earnings, deducting therefrom, to the extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is past due and unpaid for at least six months, unless the debt is fully secured and in the process of collection; all other assets charged-off as required by Oregon bank regulators or a state or federal examiner; and all accrued expenses, interest and taxes of the institution).
Oregon law provides that a bank may not pay dividends greater than the bank’s unreserved retained earnings, deducting therefrom, to the extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is past due and unpaid for at least six months, unless the debt is fully secured and in the process of collection; all other assets charged-off as required by Oregon bank regulators or a state or federal examiner; and all accrued expenses, interest and taxes of the institution.
The principal exceptions to these prohibitions involve certain non-bank activities that, by statute or by Federal Reserve regulation or order, have been identified as activities so closely related to the business of banking as to be a proper incident thereto, such as Columbia Trust. 8 Table of Contents Tying Arrangements .
The principal exceptions to these prohibitions involve certain non-bank activities that, by statute or by Federal Reserve regulation or order, have been identified as activities so closely related to the business of banking as to be a proper incident thereto. Tying Arrangements .
The nature and impact of future changes in monetary policies and their impact on us cannot be predicted with certainty. 16 Table of Contents
The nature and impact of future changes in monetary policies and their impact on us cannot be predicted with certainty.
These provisions “encourage” the Department of Justice and the federal banking regulators to update guidelines on banking mergers and to provide more scrutiny of bank mergers. We are unable to predict what impact the executive order will have on the timing of or ability to obtain regulatory approvals of future mergers. Holding Company Control of Nonbanks.
These provisions “encourage” the Department of Justice and the federal banking regulators to update guidelines on banking mergers and to provide more scrutiny of bank mergers. We are unable to predict what impact the executive order, or any responsive change to such guidelines, will have on the timing of or ability to obtain regulatory approvals of future mergers.
A bank’s community reinvestment record is also considered by the applicable banking agencies in evaluating mergers, acquisitions and applications to open a branch or facility. The Bank’s failure to comply with the CRA could, among other things, result in the denial or delay of such transactions.
A bank’s community reinvestment record is also considered by the applicable banking agencies in evaluating mergers, acquisitions, and applications to open a branch or facility. The Bank’s failure to comply with the CRA could, among other things, result in the denial or delay of such transactions. The Bank received a rating of "Satisfactory" in its most recently completed CRA examination.
These standards cover internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation.
Certain non-capital safety and soundness standards are also imposed upon banks. These standards cover internal controls, information systems and internal audit, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings, and stock valuation.
These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In addition, in March 2022, the SEC proposed new rules that would require reporting on Form 8-K of material cybersecurity incidents.
These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In addition, on July 26, 2023, the SEC adopted new rules that require reporting in Current Reports on Form 8-K of material cybersecurity incidents.
These rules became effective for the Company on April 1, 2020 and provide for simplified capital requirements relating to the threshold deductions for mortgage servicing assets, deferred tax assets arising from temporary differences that a banking organization could not realize through net operating loss carry backs, and investments in the capital of unconsolidated financial institutions, as well as the inclusion of minority interests in regulatory capital. 11 Table of Contents In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms.
These rules became effective for the Company on April 1, 2020 and provide for simplified capital requirements relating to the threshold deductions for mortgage servicing assets, deferred tax assets arising from temporary differences that a banking organization could not realize through net operating loss carry backs, and investments in the capital of unconsolidated financial institutions, as well as the inclusion of minority interests in regulatory capital.
Generally, SOX (i) requires CEOs and CFOs to certify the accuracy of periodic reports filed with the SEC; (ii) imposes specific and enhanced corporate disclosure requirements; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; (iv) requires companies to adopt and disclose information about corporate governance practices, including whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert;” and (v) requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings. 14 Table of Contents Deposit Insurance The Bank’s deposits are insured under the FDIA up to the maximum applicable limits and are subject to deposit insurance assessments designed to tie what banks pay for deposit insurance to the risks they pose.
Generally, SOX (i) requires CEOs and CFOs to certify the accuracy of periodic reports filed with the SEC; (ii) imposes specific and enhanced corporate disclosure requirements; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; (iv) requires companies to adopt and disclose information about corporate governance practices, including whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert;” and (v) requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings.
We expect this trend of state-level cybersecurity regulation to continue, and are continually monitoring developments in the states in which the Company operates. In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
Many states have also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of state-level cybersecurity regulation to continue and are continually monitoring developments in the states in which the Company operates. In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
As a bank holding company, Columbia is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
Dividends Columbia is a legal entity separate and distinct from the Bank and its other subsidiaries. As a bank holding company, Columbia is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
Under the rules currently in effect, the following table presents the requirements for an insured depository institution to be classified as well-capitalized or adequately capitalized: “Well-capitalized” “Adequately capitalized” Total capital ratio of at least 10%, Total capital ratio of at least 8%, Tier 1 capital ratio of at least 8%, Tier 1 capital ratio of at least 6% CET1 ratio of at least 6.5% CET1 ratio of at least 4.5%, and Tier 1 leverage ratio of at least 5%, and Tier 1 leverage ratio of at least 4%.
Generally, subject to a narrow exception, the FDIA requires the regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. 18 Table of Contents Under the rules currently in effect, the following table presents the requirements for an insured depository institution to be classified as well-capitalized or adequately capitalized: “Well-capitalized” “Adequately capitalized” Total capital ratio of at least 10%, Total capital ratio of at least 8%, Tier 1 capital ratio of at least 8%, Tier 1 capital ratio of at least 6% CET1 ratio of at least 6.5%, CET1 ratio of at least 4.5%, and Tier 1 leverage ratio of at least 5%, and Tier 1 leverage ratio of at least 4%.
These statutes and regulations, as well as related policies, are subject to change by Congress, state legislatures and federal and state regulators. Changes in statutes, regulations or regulatory policies applicable to us, including the interpretation or implementation thereof, cannot be predicted, but may have a material effect on our business, financial condition, or results of operations.
Changes in statutes, regulations, or regulatory policies applicable to us, including the interpretation or implementation thereof, cannot be predicted, but may have a material effect on our business, financial condition, or results of operations.
The Capital Rules, among other things (i) include a capital measure called CET1, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements and (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital.
The Capital Rules, among other things (i) include a capital measure called CET1, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements and (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital. 17 Table of Contents Under the Capital Rules, the minimum capital ratios are (i) 4.5% CET1 to risk-weighted assets, (ii) 6% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets and (iii) 8% total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets.
If a bank holding company fails to meet these regulatory standards, the Federal Reserve could place limitations on its ability to conduct the broader financial activities permissible for financial holding companies or impose limitations or conditions on the conduct or activities of the bank holding company or its affiliates.
To maintain its status as a financial holding company, a bank holding company (and all of its depository institution subsidiaries) must each remain “well capitalized” and “well managed.” If a bank holding company fails to meet these regulatory standards, the Federal Reserve could place limitations on its ability to conduct the broader financial activities permissible for financial holding companies or impose limitations or conditions on the conduct or activities of the bank holding company or its affiliates.
This regulatory framework is primarily designed for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, rather than specifically for the protection of shareholders or non-depository creditors.
This regulatory framework is primarily designed for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, rather than specifically for the protection of shareholders or non-depository creditors. Due to the breadth and growth of this regulatory framework, our costs of compliance continue to increase in order to monitor and satisfy these requirements.
Under the Financial Services Modernization Act of 1999, a bank holding company may apply to the Federal Reserve to become a financial holding company, and thereby engage (directly or through a subsidiary) in certain expanded activities deemed financial in nature, such as securities and insurance underwriting.
Under the Financial Services Modernization Act of 1999, a bank holding company may apply to the Federal Reserve to become a financial holding company, and thereby engage (directly or through a subsidiary) in certain expanded activities deemed financial in nature, such as securities underwriting and dealing, insurance underwriting and brokerage, merchant banking and other activities that are determined by the FRB, in coordination with the Treasury Department, to be “financial in nature or incidental thereto” or that the FRB determines unilaterally to be “complementary” to financial activities.
Recent history has demonstrated that new legislation or changes to existing laws or regulations usually results in a greater compliance burden and therefore generally increases the cost of doing business.
We cannot predict if any such legislation will be adopted or if it is adopted how it would affect the business of Umpqua Bank or the Company. Recent history has demonstrated that new legislation or changes to existing laws or regulations usually results in a greater compliance burden and therefore generally increases the cost of doing business.
Our continued efforts to monitor and comply with new regulatory requirements and developments add to the complexity and cost of our business. Federal and State Bank Holding Company Regulation General . The Company is a bank holding company as defined in the BHCA, and is therefore subject to regulation, supervision and examination by the Federal Reserve.
Our continued efforts to monitor and comply with new regulatory requirements and developments add to the complexity and cost of our business. 13 Table of Contents Federal and State Bank Holding Company Regulation General .
The deposits of Columbia Bank, a Washington state-chartered commercial bank with branches in Washington, Oregon, Idaho and California, are insured by the FDIC. As a result, Columbia Bank is subject to supervision and regulation by the Washington Department of Financial Institutions’ Division of Banks and the FDIC.
The deposits of Umpqua Bank, an Oregon state-chartered commercial bank in Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, and Washington, are insured by the FDIC. As a result, Umpqua Bank is subject to supervision and regulation by the DCBS and the FDIC.
As a result of our strong commitment to highly personalized, relationship-oriented customer service, our diverse products, our strategic branch locations and the long-standing community presence of our managers and staff, we believe we are well positioned to attract and retain new customers and to increase our market share of loans, deposits, investments and other financial services.
As a result of our strong commitment to highly personalized, relationship-oriented customer service, our diverse products, our strategic branch locations, and the long-standing community presence of our associates, we believe we are well positioned to attract new customers while not only retaining existing customers, but also deepening our relationship with them.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs with detailed requirements, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
The federal banking agencies have not yet taken further action on these proposed standards. 20 Table of Contents State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs with detailed requirements, including data encryption requirements.
The public may obtain copies of these reports and any amendments at the SEC’s website: www.sec.gov . Additionally, reports filed with the SEC can be obtained free of charge through our website at www.columbiabank.com . These reports are made available through our website as soon as reasonably practicable after they are filed electronically with the SEC.
You may obtain copies of these reports, and any amendments, through the investor relations section of our website at www.columbiabankingsystem.com . These reports are available through our website as soon as reasonably practicable after they are filed electronically with the SEC. Introduction Columbia Banking System, Inc.
Interchange Fees The Company is subject to rules governing interchange fees, which establish standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.
The statutory provision is commonly called the “Volcker Rule.” The Volcker Rule does not significantly impact the operations of the Company and the Bank, as we do not have any significant engagement in the businesses prohibited by the Volcker Rule. 21 Table of Contents Interchange Fees The Company is subject to rules governing interchange fees, which establish standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.
The Capital Rules are based on the December 2010 final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee. As of December 31, 2022, we and the Bank met all capital adequacy requirements under the Capital Rules, as described below.
Regulatory Capital Requirements The Federal Reserve monitors the capital adequacy of the Company on a consolidated basis, and the FDIC and the DCBS will monitor the capital adequacy of the Bank. The Capital Rules are based on the December 2010 final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee.
We believe this approach enables us to expand lending activities while attracting a stable deposit base and enhancing utilization of our full range of products and services.
We believe this approach enables us to expand lending activities while attracting a stable core deposit base and enhancing utilization of our full range of products and services. Our branch system and other delivery channels are continually evaluated as an important component of ongoing efforts to improve efficiencies without compromising customer service.
Information contained on our website is not incorporated by reference into this report. Supervision and Regulation The following discussion provides an overview of certain elements of the extensive regulatory framework applicable to the Company and Columbia State Bank, which operates under the name Columbia Bank in Washington, Oregon, Idaho and California.
Supervision and Regulation The following discussion provides an overview of certain elements of the extensive regulatory framework applicable to the Company and Umpqua Bank, which operates in Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, and Washington.
Our goal is to recruit the best qualified employees regardless of gender, ethnicity or other protected traits and it is our policy to comply with all laws applicable to discrimination in the workplace.
Our goal is to recruit the best qualified associates, building teams that reflect our communities’ experiences, cultures, and perspectives, and it is our policy to comply with all laws applicable to discrimination in the workplace.
With respect to branches of Columbia Bank in Oregon, Idaho and California, the Bank is also subject to certain laws and regulations governing its activities in those states. Consumer Protection .
With respect to branches of Umpqua Bank, the Bank is also subject to certain laws and regulations governing its activities in the states in which we operate. State Bank Regulation . Umpqua Bank, as an Oregon state-chartered bank, is primarily subject to the state-level supervision and regulation of the DCBS.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. 15 Table of Contents In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including Nasdaq, to require policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding a required accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
In October 2023, Nasdaq adopted a rule as required by the SEC’s 2022 rule-making that requires listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding a required accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
The severity of these mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the FDIA requires the regulator to appoint a receiver or conservator for an institution that is critically undercapitalized.
The severity of these mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed.
The Federal Reserve, the FDIC, and other financial regulatory agencies issued regulations implementing notice requirements and restrictions on a financial institution's ability to disclose non-public personal information about consumers to unaffiliated third-parties. 13 Table of Contents In addition, privacy and data protection are areas of increasing state legislative focus, and several states have recently enacted consumer privacy laws that impose significant compliance obligations with respect to personal information.
The financial institution must provide its customers with a notice of its privacy policies and practices. The Federal Reserve, the FDIC, and other financial regulatory agencies issued regulations implementing notice requirements and restrictions on a financial institution's ability to disclose non-public personal information about consumers to unaffiliated third parties.
Federal banking agency regulations prohibit banks from using their interstate branches primarily for deposit production and the federal banking agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition. 10 Table of Contents Dividends Columbia is a legal entity separate and distinct from the Bank and its other subsidiaries.
The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area. Federal banking agency regulations prohibit banks from using their interstate branches primarily for deposit production and the federal banking agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.
The assessment base of a large IDI is its total assets less tangible equity. The Volcker Rule The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds.
For additional discussion of this special assessment, see the section entitled "Non-Interest Expense" under Item 7 below. The Volcker Rule The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds.
Our suite of digital products allows clients to easily manage their finances across all devices, enabling them to bank when, how and where they choose. Business Strategy Our business strategy is to provide our customers with the financial sophistication and product depth of a regional banking company while retaining the appeal and service level of a community bank.
We seek to provide our customers with the financial sophistication and product depth of a regional banking company while retaining the appeal and service level of a community bank.
We continually evaluate our existing business processes while focusing on maintaining asset quality and a diversified loan and deposit portfolio. We continue to build our strong deposit base, expanding total revenue and controlling expenses in an effort to gain operational efficiencies and increase our return on average tangible equity.
We seek to expand total revenue while controlling expenses in an effort to gain operational efficiencies and increase our return on average tangible common equity.
A significant portion of our income comes from dividends from the Bank, which is also the primary source of our liquidity.
A significant portion of our income comes from dividends from the Bank, which is also the primary source of our liquidity. In addition to the restrictions discussed above, the Bank is subject to limitations under Oregon law regarding the level of dividends that it may pay to the Company.
The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financials. The final rule requires the exchanges to propose conforming listing standards by February 26, 2023 and requires the standards to become effective no later than November 28, 2023.
The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financials.
We expect the transaction to close in the first quarter of 2023. 3 Table of Contents Products & Services We place the highest priority on customer service and assist our clients in making informed decisions when selecting from the products and services we offer.
Products and Services We place the highest priority on customer service and assist our customers in making informed decisions when selecting from the products and services we offer. Our array of financial products are delivered through traditional and digital channels to meet the banking needs of our market area and commercial and consumer customers.
Proposed Legislation Proposed legislation relating to the banking industry is introduced in almost every legislative session. Certain of such legislation could dramatically affect the regulation of the banking industry. We cannot predict if any such legislation will be adopted or if it is adopted how it would affect the business of Columbia Bank or the Company.
Effective as of December 1, 2023, Columbia adopted a clawback policy in accordance with Nasdaq’s listing standards. 22 Table of Contents Proposed Legislation Proposed legislation relating to the banking industry is introduced in almost every legislative session. Certain of such legislation could dramatically affect the regulation of the banking industry.
In general, the BHCA limits the business of bank holding companies to owning or controlling banks and engaging in other activities closely related to banking. The Company must file reports with and provide the Federal Reserve such additional information as it may require.
The Company is a bank holding company as defined in the BHCA that has elected to become a financial holding company, and is therefore subject to regulation, supervision, and examination by the Federal Reserve. The Company must file reports with and provide the Federal Reserve such additional information as it may require.
As of December 31, 2022, we and the Bank met the capital requirements to be well-capitalized with CET1 capital ratios of 12.87% and 12.93%, respectively, Tier 1 capital ratios of 12.87% and 12.93%, respectively, total capital ratios of 13.98% and 13.97%, respectively, and Tier 1 leverage ratios of 9.34% and 9.47%, respectively. 12 Table of Contents An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal bank regulator.
An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal bank regulator.
The vast majority of Columbia Bank’s loans and deposits are within its service areas in Washington, Oregon, Idaho and California. Columbia Bank is a Washington state-chartered commercial bank, the deposits of which are insured in whole or in part by the FDIC.
Along with its subsidiaries, the Company is subject to the regulations of state and federal agencies and undergoes regular examinations by these regulatory agencies. The majority of the Bank’s loans and deposits are within its service areas in Oregon, Washington, California, Idaho, Nevada, Arizona, Colorado, and Utah.
The Basel framework contemplates that these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. The federal bank regulators have not yet proposed rules implementing these standards.
The Basel framework standards have been generally effective since January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. The Bank is also subject to the prompt corrective action regulations pursuant to Section 38 of the FDIA. See “Prompt Corrective Action Framework” below.
We continue to enhance our diversity, equity and inclusion practices, which are guided by our executive leadership team and overseen by the Board of Director’s Governance and Nominating Committee. We have partnerships with Circa, Bankwork$ and Hiring our Heroes to engage and attract underrepresented talent populations. 1 The Do Right TOGETHER values consist of: T: Build TRUST through credibility.
Our commitment to inclusivity is embedded in our strategy and we continue to enhance our DEI practices, which are guided by our executive team and overseen by the Board of Director’s Nominating and Governance Committee.
We continually review our product and service offerings to ensure that we provide our customers with the tools to meet their financial needs. A more complete listing of all the services and products available to our customers can be found on our website: www.columbiabank.com (information contained on our website is not incorporated by reference into this report).
To ensure the ongoing viability of our product offerings, we regularly examine the desirability and profitability of existing and potential new products. Our customers can access our products through online banking, mobile banking applications, and our website: www.umpquabank.com (information contained on our website is not incorporated by reference into this Annual Report on Form 10-K). Commercial Lending Products.
Columbia Bank is subject to regulation by the FDIC, the Washington State Department of Financial Institutions Division of Banks, the Oregon Department of Consumer and Business Services Division of Financial Regulation, the Idaho Department of Finance and the California Department of Financial Protection and Innovation.
In addition, Umpqua Bank is subject to regulation by the financial institution oversight authorities in the states of Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, and Washington.
While not a financial holding company as of the date of this report, we have elected to be treated as a financial holding company upon consummation of our proposed merger with Umpqua. To maintain its status as a financial holding company, a bank holding company (and all of its depository institution subsidiaries) must each remain “well capitalized” and “well managed”.
Upon the consummation of our merger with UHC in early 2023, the Company elected to be treated as a financial holding company.
Due to the breadth and growth of this regulatory framework, our costs of compliance continue to increase in order to monitor and satisfy these requirements. 7 Table of Contents To the extent that this section describes statutory and regulatory provisions, it is qualified by reference to those provisions.
To the extent that this section describes statutory and regulatory provisions, it is qualified by reference to those provisions. These statutes and regulations, as well as related policies, are subject to change by Congress, state legislatures and federal and state regulators.
We continued to follow that plan throughout 2021 and 2022 as new variants emerged, escalating our response at predetermined trigger points. Available Information We file annual reports on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K, proxy statements and other information with the United States SEC.
SEC Filings We electronically file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy and information statements and other information with the SEC. You may obtain these reports and statements, and any amendments, from the SEC's website at www.sec.gov .
Removed
ITEM 1. BUSINESS General Columbia Banking System, Inc. (referred to in this report as “we,” “our,” “the Company” and “Columbia”) is a registered bank holding company whose wholly-owned banking subsidiary is Columbia State Bank (“Columbia Bank” or “the Bank”).
Added
ITEM 1. BUSINESS. In this Annual Report on Form 10-K, we refer to Columbia Banking System, Inc. as the "Company," "Columbia," "we," "us," "our," or similar references.
Removed
Established in 1993 in Tacoma, Washington, we provide a full range of banking services to small and medium-sized businesses, professionals and individuals throughout Washington, Oregon, Idaho and California. The Company’s subsidiary Columbia Trust Company (“Columbia Trust”) is an Oregon trust company that provides agency, fiduciary and other related trust services with offices in Washington, Oregon and Idaho.
Added
Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995.
Removed
Although Columbia Bank is not a member of the Federal Reserve System, the Federal Reserve has certain supervisory authority over the Company, which can also affect Columbia Bank. Business Overview Having celebrated our 29th anniversary in 2022, our goal is to be a leading West Coast regional community banking company while consistently increasing shareholder value.
Added
These statements may include statements that expressly or implicitly predict future results, performance, or events. Statements other than statements of historical fact are forward-looking statements. You can find many of these statements by looking for words such as "anticipates," "expects," "believes," "estimates," "intends," "forecast", and words or phrases of similar meaning.
Removed
We continue to build on our reputation for exceptional customer satisfaction in order to be recognized as the bank of choice for individual and business customers in all markets we serve. We have established a network of 152 branches in Washington, Oregon, Idaho and California as of December 31, 2022, from which we intend to grow market share.
Added
We make forward-looking statements including, but not limited to, statements made about the combined company’s prospects and results following the merger with Umpqua Holdings Corporation and the merger of Columbia State Bank into Umpqua Bank (collectively, the “Mergers”), completed in the first quarter 2023; derivatives and hedging; the results and performance of models and economic forecasts used in our calculation of the ACL; projected sources of funds and the Company's liquidity position and deposit level and types; our securities portfolio; loan sales; adequacy of our ACL, including the RUC; provision for credit losses; non-performing loans and future losses; our commercial real estate portfolio, its collectability and subsequent charge-offs; resolution of non-accrual loans; mortgage volumes and the impact of rate changes; the economic environment; inflation and interest rates generally; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including MSR values and sensitivity analyses; tax rates; deposit pricing; and the effect of accounting pronouncements and changes in accounting methodology.
Removed
We operate 67 branches in 21 counties in the state of Washington, 59 branches in 16 counties in Oregon, 15 branches in 10 counties in Idaho and 11 branches in seven counties in California. Our branch system funds our lending activities and allows us to better serve both retail and business depositors.
Added
Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements.
Removed
To support our strategy of market penetration and increased profitability, while continuing our personalized banking approach, we have invested in experienced banking and administrative personnel and have incurred related costs in the creation of our branch network.
Added
In addition to the factors set forth in the sections titled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K, the following factors, among others, could cause actual results to differ materially from the anticipated results expressed or implied by forward-looking statements: • changes in general economic, political, or industry conditions, and in conditions impacting the banking industry specifically; • deterioration in economic conditions that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans; • uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve or the effects of any declines in housing and commercial real estate prices, high or increasing unemployment rates, continued inflation, or any recession or slowdown in economic growth particularly in the western United States; • volatility and disruptions in global capital and credit markets; • the impact of bank failures or adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks; • changes in interest rates that could significantly reduce net interest income and negatively affect asset yields and valuations and funding sources, including impacts on prepayment speeds; • the impact of transition of LIBOR to other indexes including SOFR; • competitive pressures among financial institutions and nontraditional providers of financial services, including on product pricing and services; • continued consolidation in the financial services industry resulting in the creation of larger financial institutions that have greater resources; • our ability to successfully, including on time and on budget, implement and sustain information technology product and system enhancements and operational initiatives; 5 Table of Contents • our ability to attract new deposits and loans and leases; • our ability to retain deposits; • our ability to achieve the efficiencies and enhanced financial and operating performance we expect to realize from investments in personnel, acquisitions, and infrastructure; • the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; • demand for financial services in our market areas; • stability, cost, and continued availability of borrowings and other funding sources, such as brokered and public deposits; • changes in legal or regulatory requirements or the results of regulatory examinations that could increase expenses or restrict growth; • changes in the scope and cost of FDIC insurance and other coverage; • our ability to manage climate change concerns, related regulations, and potential impacts on the creditworthiness of our customers; • our ability to recruit and retain key management and staff; • our ability to raise capital or incur debt on reasonable terms; • regulatory limits on the Bank's ability to pay dividends to the Company that could impact the timing and amount of dividends to shareholders; • financial services reform and the impact of legislation and implementing regulations on our business operations, including our compliance costs, interest expense, and revenue; • a breach or failure of our operational or security systems, or those of our third-party vendors, including as a result of cyber-attacks; • success, impact, and timing of our business strategies, including market acceptance of any new products or services; • the outcome of legal proceedings; • our ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk and regulatory and compliance risk; • the possibility that the anticipated benefits of the Mergers are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where we do business; • potential adverse reactions or changes to business or employee relationships, including those resulting from the integration of the two companies and banks; • economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates; • the effect of geopolitical instability, including wars, conflicts, and terrorist attacks; • natural disasters, including earthquakes, tsunamis, flooding, fires, pandemics, and other similarly unexpected events outside of our control; • our ability to effectively manage problem credits; • our ability to successfully negotiate with landlords or reconfigure facilities; and • the effects of any damage to our reputation resulting from developments related to any of the items identified above. 6 Table of Contents There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements.
Removed
Our branch system and other delivery channels are continually evaluated as an important component of ongoing efforts to improve efficiencies without compromising customer service. We have continued to enhance our digital services by offering a seamless digital experience.
Added
Forward-looking statements are made as of the date of this Annual Report on Form 10-K. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under federal securities laws.

… 140 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

61 edited+44 added−71 removed81 unchanged
Biggest changeAn inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.
Biggest changeWhile Columbia has realized $143 million in annualized cost-savings due to the merger as of December 31, 2023, exceeding its original $135 million target, an inability to maintain the full extent of these cost savings following the Merger, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company, which may adversely affect the value of our common stock.
In addition, unexpected contingent liabilities can arise from the businesses we acquire. Integration of an acquired business can be complex and costly, sometimes including combining relevant accounting and data processing systems, financial reporting and management and internal controls, as well as managing relevant relationships with employees, clients, suppliers and other business partners.
In addition, unexpected contingent liabilities can arise from the businesses we acquire. Integration of an acquired business can be complex and costly, sometimes including combining relevant accounting and data processing systems, management, financial reporting, and internal controls, as well as managing relevant relationships with employees, clients, suppliers, and other business partners.
The loss of key employees in connection with an acquisition could adversely affect our ability to successfully conduct our business. We may engage in additional future acquisitions involving the issuance of additional common stock and/or cash.
The loss of key employees in connection with an acquisition could adversely affect our ability to successfully conduct our business. We may engage in future acquisitions involving the issuance of additional common stock and/or cash.
For example, higher inflation, or volatility and uncertainty related to inflation, could reduce demand for our products, adversely affect the creditworthiness of our borrowers or, result in lower values for our investment securities and other interest-earning assets, and increase expense related to talent acquisition and retention.
For example, higher inflation, or volatility and uncertainty related to inflation, could reduce demand for our products, adversely affect the creditworthiness of our borrowers, result in lower values for our investment securities and other interest-earning assets, and increase expense related to talent acquisition and retention.
These provisions include certain non-monetary factors that our board of directors may consider when evaluating a takeover offer, and a requirement that any “Business Combination” be approved by the affirmative vote of no less than 66 2/3% of the total shares attributable to persons other than a “Control Person.” These provisions may have the effect of lengthening the time required for a person to acquire control of us through a tender offer, proxy contest or otherwise, and may deter any potentially hostile offers or other efforts to obtain control of us.
These provisions include certain non-monetary factors that our Board may consider when evaluating a takeover offer, and a requirement that any “Business Combination” be approved by the affirmative vote of no less than 66 2/3% of the total shares attributable to persons other than a “Control Person.” These provisions may have the effect of lengthening the time required for a person to acquire control of us through a tender offer, proxy contest or otherwise, and may deter any potentially hostile offers or other efforts to obtain control of us.
These unpredictable events could create, increase or prolong economic and financial disruptions and volatility that adversely affects our business, financial condition, capital and results of operations. Substantial competition in our market areas could adversely affect us. Commercial banking is a highly competitive business.
These unpredictable events could create, increase, or prolong economic and financial disruptions and volatility that adversely affect our business, financial condition, capital, and results of operations. Substantial competition in our market areas could adversely affect us. Commercial banking is a highly competitive business.
Substantially all of our loan and deposit customers are businesses and individuals in Washington, Oregon, Idaho and California, and soft economies in these market areas could have a material adverse effect on our business, financial condition, results of operations and prospects.
Substantially all of our loan and deposit customers are businesses and individuals in Washington, Oregon, Idaho, California and Nevada, and soft economies in these market areas could have a material adverse effect on our business, financial condition, results of operations and prospects.
We also face the risk of becoming subject to new or more stringent requirements in connection with the introduction of new regulations or modifications of existing regulations, which could require us to hold more capital or liquidity or have other adverse effects on our business or profitability. 26 Table of Contents Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties.
We also face the risk of becoming subject to new or more stringent requirements in connection with the introduction of new regulations or modifications of existing regulations, which could require us to hold more capital or liquidity or have other adverse effects on our business or profitability. 31 Table of Contents Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties.
In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers.
In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, model and scorecard risks, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers.
To realize the anticipated benefits and cost savings from the merger, Columbia and Umpqua must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized without adversely affecting current revenues and future growth.
To realize the anticipated benefits and cost savings from the Merger, Columbia and UHC must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized without adversely affecting current revenues and future growth.
For example, increases in interest rates may result in increases in the number of delinquencies, bankruptcies or defaults by clients and more nonperforming assets and net charge-offs, decreases in deposit levels, decreases to the demand for interest rate-based products and services, including loans, and changes to the level of off-balance sheet market-based investments preferred by our clients, each of which may reduce our interest rate spread.
For example, increases in interest rates may result in increases in the number of delinquencies, bankruptcies or defaults by clients and more non-performing assets and net charge-offs, decreases in deposit levels, decreases to the demand for interest rate-based products and services, including loans, and changes to the level of off-balance sheet market-based investments preferred by our clients, each of which may reduce our interest rate spread.
There can be no assurance that we will be able to negotiate future acquisitions on terms acceptable to us. 25 Table of Contents Conversely, there may be circumstances under which it would be prudent to consider alternatives for raising capital to take advantage of significant acquisition opportunities or in response to changing economic conditions.
There can be no assurance that we will be able to negotiate future acquisitions on terms acceptable to us. Conversely, there may be circumstances under which it would be prudent to consider alternatives for raising capital to take advantage of significant acquisition opportunities or in response to changing economic conditions.
The valuation of these foreclosed assets is periodically updated and resulting losses, if any, are charged to earnings in the period in which they are identified. An increase in the level of nonperforming assets also increases our risk profile and may impact the capital levels our regulators believe is appropriate in light of such risks.
The valuation of these foreclosed assets is periodically updated and resulting losses, if any, are charged to earnings in the period in which they are identified. An increase in the level of non-performing assets also increases our risk profile and may impact the capital levels our regulators believe is appropriate in light of such risks.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations. Funding and Liquidity Risks Our management of capital could adversely affect profitability measures and the market price of our common stock and could dilute the holders of our outstanding common stock.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations. 29 Table of Contents Funding and Liquidity Risks Our management of capital could adversely affect profitability measures and the market price of our common stock and could dilute the holders of our outstanding common stock.
If Columbia and Umpqua are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the merger could be less than anticipated, and integration may result in additional and unforeseen expenses.
If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the Merger could be less than anticipated, and integration may result in additional and unforeseen expenses.
An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, any of which would have an adverse impact, which could be material, on our business, financial condition, results of operations and prospects.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, any of which would have an adverse impact, which could be material, on our business, financial condition, results of operations and prospects.
In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to performance of their other responsibilities. We may experience increases in nonperforming loans in the future. Fluctuating interest rates could adversely affect our business.
In addition, the resolution of non-performing assets requires significant commitments of time from management and staff, which can be detrimental to performance of their other responsibilities. We may experience increases in non-performing loans in the future. Fluctuating interest rates could adversely affect our business.
While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any time there are loans in the portfolio that could result in losses but that have not been identified as nonperforming or potential problem loans.
While we strive to carefully monitor credit quality and to identify loans that may become non-performing, at any time there are loans in the portfolio that could result in losses but that have not been identified as non-performing or potential problem loans.
Integration efforts could divert management attention and resources, which could adversely affect these systems, processes or controls and our operations or results. 17 Table of Contents Acquisitions may also result in business disruptions that cause us to lose customers or cause customers to remove their accounts from us and move their business to competing financial institutions.
Integration efforts could divert management attention and resources, which could adversely affect these systems, processes or controls and our operations or results. Acquisitions may also result in business disruptions that cause us to lose customers or cause customers to remove their accounts from us and move their business to competing financial institutions.
Emerging and evolving factors such as the shift to work-from-home or hybrid-work arrangements, changing consumer preferences (including online shopping), COVID-19-related restrictions and resulting changes in occupancy rates as a result of these and other trends can also impact such valuations over relatively short periods.
Emerging and evolving factors such as the shift to work-from-home or hybrid-work arrangements, changing consumer preferences (including online shopping), and resulting changes in occupancy rates as a result of these and other trends can also impact such valuations over relatively short periods.
Because our loan portfolio contains commercial real estate and commercial business loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in our nonperforming loans.
Because our loan portfolio contains commercial real estate and commercial business loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in our non-performing loans.
Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient. Our business is subject to the risks of earthquakes, tsunamis, floods, fires and other natural catastrophic events and other events beyond our control.
Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient. 33 Table of Contents Our business is subject to the risks of pandemics, earthquakes, tsunamis, floods, fires and other natural catastrophic events and other events beyond our control.
New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will 27 Table of Contents engage in certain activities or offer certain products or services.
New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will engage in certain activities or offer certain products or services.
A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate. Deterioration in the real estate market or other segments of our loan portfolio would lead to additional losses. As of December 31, 2022, 64% of our total gross loans were secured by real estate.
A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate. Deterioration in the real estate market or other segments of our loan portfolio would lead to additional losses. As of December 31, 2023, 75% of our total gross loans were secured by real estate.
We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets or that we will be able to limit losses on those loans that have been identified.
We cannot be sure that we will be able to identify deteriorating loans before they become non-performing assets or that we will be able to limit losses on those loans that have been identified.
A deterioration in the market areas we serve could result in consequences, including the following, any of which would have an adverse impact, which could be material, on our business, financial condition, results of operations and prospects: • loan delinquencies may increase; • problem assets and foreclosures may increase; • collateral for loans made may decline in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans; • certain securities within our investment portfolio could require an allowance for credit losses, requiring a write-down through earnings to fair value, thereby reducing equity; • low-cost or noninterest-bearing deposits may decrease; and • demand for our loan and other products and services may decrease.
A deterioration in the market areas we serve could result in consequences, including the following, any of which would have an adverse impact, which could be material, on our business, financial condition, results of operations and prospects: • loan delinquencies may increase; • problem assets and foreclosures may increase; • collateral for loans made may decline in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans; • certain securities within our investment portfolio could require an ACL, requiring a write-down through earnings to fair value, thereby reducing equity; • low-cost or noninterest-bearing deposits may decrease; and • demand for our loan and other products and services may decrease. 26 Table of Contents Concentrations within our loan portfolio could result in increased credit risk in a challenging economy.
As of December 31, 2022, gross unrealized losses in our securities portfolio were $694.3 million. We may continue to observe declines in the fair market value of these securities. Securities issued by certain states and municipalities may come under scrutiny due to concerns about credit quality.
As of December 31, 2023, gross unrealized losses in our securities portfolio were $488.1 million. We may continue to observe declines in the fair market value of these securities. Securities issued by certain states and municipalities may come under scrutiny due to concerns about credit quality.
The Federal Reserve raised benchmark interest rates throughout 2022 and may continue to raise interest rates in response to economic conditions, particularly inflationary pressures. Increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts, and may have otherwise have unpredictable effects.
The Federal Reserve raised benchmark interest rates throughout 2023 and interest rates may remain elevated in response to economic conditions, particularly inflationary pressures. Increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts, and may have otherwise unpredictable effects.
Additionally, economic conditions, financial markets and inflationary pressures may be adversely affected by the impact of current or anticipated geopolitical uncertainties, military conflicts, including Russia’s invasion of Ukraine, pandemics, including the COVID-19 pandemic, and global, national and local responses thereto by governmental authorities and other third parties.
Additionally, economic conditions, financial markets and inflationary pressures may be adversely affected by the impact of current or anticipated geopolitical uncertainties, military conflicts, including those in the Middle East and Russia’s invasion of Ukraine, pandemics, and global, national, and local responses thereto by governmental authorities and other third parties.
The operation of our business requires us to manage credit risk. As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment.
As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment.
Our capital ratios are higher than regulatory minimums. We may lower our capital ratios through selective acquisitions that meet our disciplined criteria, share repurchase plans, organic loan growth, investment in securities, or a combination of all four. We continually evaluate opportunities to expand our business through strategic acquisitions.
Our capital ratios are higher than regulatory minimums. We may lower our capital ratios through selective acquisitions that meet our disciplined criteria, share repurchase plans, organic loan growth, investment in securities, or other factors. We continually evaluate opportunities to expand our business through strategic acquisitions.
Because we primarily serve individuals and businesses located in the Northwest, any negative impact resulting from reputational harm, including any impact on our ability to attract and retain customers and employees, likely would be greater than if our business were more geographically diverse.
Because we primarily serve individuals and businesses located in the western United States, any negative impact resulting from reputational harm, including any impact on our ability to attract and retain customers and employees, likely would be greater than if our business were more geographically diverse. Financial holding company status.
If Columbia and Umpqua are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Columbia and Umpqua could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs.
If the Company is unable to retain key employees, including management, who are critical to the successful future operations of the combined company, the Company could face disruptions in its operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs.
Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans, thereby adversely affecting our income. Moreover, nonaccrual loans increase our loan administration costs. Assets acquired by foreclosure or similar proceedings are recorded at fair value less estimated costs to sell.
We do not record interest income on non-accrual loans, thereby adversely affecting our income. Moreover, non-accrual loans increase our loan administration costs. Assets acquired by foreclosure or similar proceedings are recorded at fair value less estimated costs to sell.
Because we primarily serve individuals and businesses in the Northwest and Northern California, a natural disaster likely would have a greater impact on our business, operations and financial condition than if our business were more geographically diverse.
Because we primarily serve individuals and businesses in our eight-state footprint, a natural disaster likely would have a greater impact on our business, operations, and financial condition than if our business were more geographically diverse throughout the United States.
We are from time to time subject to claims and proceedings related to our operations. Claims and legal actions, including supervisory or enforcement actions by our regulators, or criminal proceedings by prosecutorial authorities, could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs.
Claims and legal actions, including supervisory or enforcement actions by our regulators, or criminal proceedings by prosecutorial authorities, could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs. Following the consummation of the merger with UHC, we are also subject to the claims and proceedings related to UHC’s operations.
An increase in market interest rates could also adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge-offs, which could adversely affect our business.
An increase in market interest rates or prolonged period in which market interest rates exceed the market interest rates at loan origination could also adversely affect the ability of our floating-rate and adjustable-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in non-performing assets and charge-offs, which could adversely affect our business.
Future increases to the allowance may be required based on changes in the composition of the loans comprising the portfolio, deteriorating values in underlying collateral (most of which consists of real estate) and changes in the financial condition of borrowers, such as may result from changes in economic conditions, or as a result of actual future events differing from assumptions used by management in determining the allowance. 23 Table of Contents Additionally, banking regulators, as an integral part of their supervisory function, periodically review our allowance.
Future increases to the allowance may be required based on changes in the composition of the loans comprising the portfolio, deteriorating values in underlying collateral (most of which consists of real estate) and changes in the financial condition of borrowers, such as may result from changes in economic conditions, or as a result of actual future events differing from assumptions used by management in determining the allowance.
For example, our headquarters are located in Tacoma, Washington and we have operations throughout the Northwest, a geographical region that has been or may be affected by earthquakes, wildfires, tsunamis and flooding activity, and in Northern California, a geographical region that has been and continues to be affected by earthquakes and wildfires.
For example, our headquarters is located in Tacoma, Washington and we have operations throughout the western United States, a geographical region that has been or may be affected by earthquakes, wildfires, tsunamis, and flooding activity.
Risks specifically associated with this pending merger can be found below under the heading “ Risks Relating to our Pending Merger with Umpqua. ” Our acquisitions, including our recently completed acquisition of Bank of Commerce, may not have the anticipated positive results, including results relating to: correctly assessing the asset quality of the assets being acquired; the total cost of integration including management attention and resources; the time required to complete the integration successfully; the amount of longer-term cost savings; being able to profitably deploy funds acquired in an acquisition; or the overall performance of the combined entity.
Our acquisitions, including our merger with UHC, may not have the anticipated positive results, including results relating to: correctly assessing the asset quality of the assets being acquired; the total cost of integration including management attention and resources; the time required to complete the integration successfully; the amount of longer-term cost savings; being able to profitably deploy funds acquired in an acquisition; or the overall performance of the combined entity.
Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on Columbia during this transition period and for an undetermined period after completion of the merger on the combined company.
Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on the combined company for an undetermined period after completion of the Merger. The Company may be unable to retain legacy personnel successfully.
In addition, the scope and content of U.S. banking regulators' regulations and policies on incentive compensation, as well as changes to these regulations and policies, could adversely affect our ability to hire, retain and motivate our key employees.
In addition, the scope and content of U.S. banking regulators' regulations and policies on incentive compensation, as well as changes to these regulations and policies, could adversely affect our ability to hire, retain and motivate our key employees. The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business.
The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Many of our competitors have substantially greater resources to invest in technological improvements than we do.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Many of our competitors have substantially greater resources to invest in technological improvements than we do.
Our allowance may not be adequate to cover future loan losses, which could adversely affect earnings. We maintain an allowance for credit losses (for periods prior to January 1, 2020, referred to as the allowance for loan and lease losses) in an amount that we believe is adequate to provide for losses inherent in our loan portfolio.
Our allowance may not be adequate to cover future loan losses, which could adversely affect earnings. We maintain an ACL in an amount that we believe is adequate to provide for losses inherent in our loan portfolio.
Commercial real estate valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, interest rates, and, in many cases, the results of operations of businesses and other occupants of the real property.
In fact, the FDIC has issued pronouncements alerting banks of its concern about significant loan concentrations. Commercial real estate valuations can be materially affected over relatively short periods of time by changes in business climate, economic conditions, interest rates, and, in many cases, the results of operations of businesses and other occupants of the real property.
These regulatory agencies may require us to increase the allowance. Any increase in the allowance would have an adverse effect, which could be material, on our financial condition and results of operations. Nonperforming assets take significant time to resolve and could adversely affect our results of operations and financial condition.
Any increase in the allowance would have an adverse effect, which could be material, on our financial condition and results of operations. 27 Table of Contents Non-performing assets take significant time to resolve and could adversely affect our results of operations and financial condition. Our non-performing assets adversely affect our net income in various ways.
If the proposed merger with Umpqua is completed, the combined company will also be subject to the claims and proceedings related to Umpqua’s operations. To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations.
To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations.
We have in the past sought, and expect in the future to continue to seek, to grow our business by acquiring other businesses. As of the date of this report, our proposed combination with Umpqua is pending consummation.
We have in the past sought, and expect in the future to continue to seek, to grow our business by acquiring other businesses.
During such time, damage related to a cyberattack may continue and communications to the public, customers, regulators, and other stakeholders may not be timely or accurate. Potential new regulations may require us to publicly disclose information about a cyberattack before the incident has been resolved or fully investigated.
During such time, damage related to a cyberattack may continue and communications to the public, customers, regulators, and other stakeholders may not be timely or accurate.
Leadership changes will occur from time to time, and we cannot predict whether significant resignations or other departures will occur or whether we will be able to recruit additional qualified personnel.
We expect our future success to be driven in large part by the relationships maintained with our clients by our executives and other key employees. Leadership changes will occur from time to time, and we cannot predict whether significant resignations or other departures will occur or whether we will be able to recruit additional qualified personnel.
The confidential information of our customers (including user names and passwords) can also be jeopardized from the compromise of customers’ personal electronic devices or as a result of a data security breach at an unrelated company.
Potential new regulations may require us to publicly disclose information about a cyberattack before the incident has been resolved or fully investigated. 23 Table of Contents The confidential information of our customers (including usernames and passwords) can also be jeopardized from the compromise of customers’ personal electronic devices or as a result of a data security breach at an unrelated company.
Any failure or circumvention of our controls and procedures, or failure to comply with regulations related to controls and procedures, could have an adverse effect on our business, financial condition, results of operations and prospects. 22 Table of Contents Interest Rate and Credit Risks Economic conditions in the market areas we serve may adversely impact our earnings and could increase our credit risk associated with our loan portfolio, the value of our investment portfolio and the availability of deposits.
Interest Rate and Credit Risks Economic conditions in the market areas we serve may adversely impact our earnings and could increase our credit risk associated with our loan portfolio, the value of our investment portfolio and the availability of deposits.
There can be no assurance that we will be able to successfully manage the risks associated with our increased dependency on technology. Significant legal or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and have a material adverse effect on our business and results of operations.
Significant legal or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and have a material adverse effect on our business and results of operations. We are from time to time subject to claims and proceedings related to our operations.
Among other things, acquisitions by financial institutions are subject to approval by a variety of federal and state regulatory agencies. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies.
Among other things, acquisitions by financial institutions are subject to approval by a variety of federal and state regulatory agencies.
Our ability to sustain or improve upon existing performance is dependent upon our ability to respond to technological change, and we may have fewer resources than some of our competitors to continue to invest in technological improvements. The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.
Regulatory approvals could be delayed, impeded, restrictively conditioned, or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies. 24 Table of Contents Our ability to sustain or improve upon existing performance is dependent upon our ability to respond to technological change, and we may have fewer resources than some of our competitors to continue to invest in technological improvements.
Risks Relating to Markets and External Events National and global economic and other conditions could adversely affect our future results of operations or market price of our stock.
To the extent we do not meet the requirements to be a financial holding company in the future, there could be a material adverse effect on our business, financial condition, and results of operations. 32 Table of Contents Risks Relating to Markets and External Events National and global economic and other conditions could adversely affect our future results of operations or market price of our stock.
These types of loans generally are viewed as having more risk of default than residential real estate loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements alerting banks of its concern about heavy loan concentrations.
While our loan portfolio is diversified across business sectors, it is concentrated in commercial real estate and commercial business loans. These types of loans generally are viewed as having more risk of default than residential real estate loans or certain other types of loans or investments.
Combining Columbia and Umpqua may be more difficult, costly or time-consuming than expected, and Columbia may fail to realize the anticipated benefits of the merger. The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Columbia and Umpqua.
The success of the Merger, which closed in early 2023, depends, in part, on the ability to realize the anticipated cost savings from combining the businesses of Columbia and UHC.
Our success depends in significant part on the skills of our management team and our ability to retain, recruit and motivate key officers and employees. We expect our future success to be driven in large part by the relationships maintained with our clients by our executives and other key employees.
There can be no assurance that we will be able to successfully manage the risks associated with our increased dependency on technology. We may not be able to attract or retain key employees. Our success depends in significant part on the skills of our management team and our ability to retain, recruit and motivate key officers and employees.
The combined company may be unable to retain Columbia and/or Umpqua personnel successfully after the merger is completed. The success of the merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by Columbia and Umpqua.
The success of the Merger will depend in part on the Company’s ability to retain the talents and dedication of key employees. It is possible that these employees, including key employees, may decide not to remain with the Company.
In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer.
If key employees terminate their employment, the Company’s business activities may be adversely affected and the Company may not be able to locate or retain suitable replacements.
Removed
In addition, the Northwest is experiencing intensified consolidation in the banking industry, and we face significant competition from numerous other financial services institutions for attractive acquisition candidates, and many of these competitors have greater financial resources than we do.
Added
As previously disclosed in the Company’s Current Report on Form 8-K filed on June 27, 2023 and discussed in greater detail in Note 18 - Commitments and Contingencies , on June 21, 2023, Umpqua Bank was informed by one of its technology service providers (the “Vendor”) that a widely reported security incident involving MOVEit, a widely-used filesharing software, resulted in the unauthorized acquisition by a third party of the names and social security numbers or tax identification numbers of certain of Umpqua Bank’s consumer and small business customers.
Removed
Our business, financial condition, liquidity and results of operations have been, and may in the future be, adversely affected by the COVID-19 pandemic. The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and may in the future adversely affect, our business, financial condition, liquidity and results of operations.
Added
Umpqua Bank notified potentially affected customers of this incident and has worked with the Vendor to provide formal notification to affected customers with additional information and resources.
Removed
The extent to which the COVID-19 pandemic will negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, including the emergence of new variants of COVID-19 and the widespread availability, use and effectiveness of vaccines over the long term and against new variants, which are highly uncertain and cannot be predicted.
Added
We or our third-party (or fourth-party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI present a number of risks and challenges to our business.
Removed
While financial markets rebounded from the significant declines that occurred earlier in the pandemic and global economic conditions showed signs of improvement during the second half of 2020 and in 2021, many of the circumstances that arose or became more pronounced after the onset of the COVID-19 pandemic persisted through the beginning of 2022, including (i) muted levels of business activity across many sectors of the economy, weakened consumer confidence and disruptions to the global supply chain; (ii) elevated levels of market volatility; (iii) the federal funds rate and yields on U.S.
Added
The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.
Removed
Treasury securities near zero; (iv) the exacerbation of recent inflationary trends; (v) heightened credit risk with regard to industries that have been most severely impacted by the pandemic; and (vi) higher cybersecurity, information security and operational risks as a result of work-from-home arrangements.
Added
These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance.
Removed
Depending on the duration and severity of the COVID-19 pandemic going forward, as well as the effects of the pandemic on consumer and corporate confidence, the conditions noted above could continue for an extended period and other adverse developments may occur or reoccur. Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth.
Added
AI models, particularly generative AI models, may produce output or take action that is incorrect, that result in the release of private, confidential, or proprietary information, that reflect biases included in the data on which they are trained, infringe on the intellectual property rights of others, or that is otherwise harmful.
Removed
The continued success of these measures is unknown and they may not be sufficient to address future market dislocations or avert severe and prolonged reductions in economic activity, and certain authorities have indicated an intention, or are under pressure to, wind down certain of these measures to counter inflationary trends.
Added
In addition, the complexity of many AI models makes it challenging to understand why they are generating particular outputs.
Removed
We also face an increased risk of client disputes, litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on economic and market conditions. The length of the pandemic and the efficacy of the extraordinary measures that have been put in place to address it are unknown.
Added
This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.
Removed
For example, the Omicron variant of COVID-19 has led to a spike in COVID-19 cases across the United States, has led to travel and other disruptions, and certain governmental authorities and other third parties have re-imposed restrictions in order to respond to the rise in cases attributable to the Omicron variant of COVID-19.
Added
Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models, and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility.
Removed
The U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the U.S. and other major markets.

… 96 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+1 added−3 removed0 unchanged
Biggest changeITEM 2. PROPERTIES The Company’s principal properties include our corporate headquarters which is located at 13th & A Street, Tacoma, Washington, two operations facilities in Pierce County, Washington, one operations facility in Vancouver, Washington, one operations facility in Wilsonville, Oregon, and one operations center in Redding, California.
Biggest changeITEM 2. PROPERTIES. The Company’s principal properties include our corporate headquarters which is located at 13th & A Street, Tacoma, Washington and leased corporate office space in Lake Oswego, Oregon.
Removed
The Company’s branch network as of December 31, 2022 is made up of 152 branches located throughout several Washington, Oregon, Idaho and California counties compared to 153 branches at December 31, 2021.
Added
As of December 31, 2023, the Company had the following properties located throughout several counties in Oregon, Washington, California, Idaho, Nevada, Colorado, Arizona, and Utah: Owned Properties Leased Properties Total Properties Customer-facing locations 169 149 318 Administrative locations 7 23 30 Total locations 176 172 348
Removed
The number of branches per state, as well as whether they are owned or operated under a lease agreement is detailed in the following table: Number of Branches Occupancy Type Owned Leased Washington branches 67 49 18 Oregon branches 59 31 28 Idaho branches 15 10 5 California branches 11 9 2 Total Columbia Bank branches 152 99 53 For additional information concerning our premises and equipment and lease obligations, see Notes 8 , 10 and 29 , respectively, to the Consolidated Financial Statements in “Item 8.
Removed
Financial Statements and Supplementary Data” of this report.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+9 added−6 removed0 unchanged
Biggest changeThe following table provides information about repurchases of common stock by the Company during the quarter ended December 31, 2022: Period Total Number of Common Shares Purchased (1) Average Price Paid per Common Share Total Number of Shares Purchased as Part of Publicly Announced Plan (2) Maximum Number of Remaining Shares That May Yet Be Purchased Under the Plan (2) 10/1/2022 - 10/31/2022 344 $ 31.15 — — 11/1/2022 - 11/30/2022 — — — — 12/1/2022 - 12/31/2022 101 29.86 — — 445 30.85 — __________ (1) Common shares repurchased by the Company during the quarter consisted of cancellation of 445 shares of common stock to pay the shareholders’ withholding taxes.
Biggest change(c) The following table provides information about repurchases of common stock by the Company during the quarter ended December 31, 2023: Period Total number of Common Shares Purchased (1) Average Price Paid per Common Share Total Number of Shares Purchased as Part of Publicly Announced Plan (2) Maximum Dollar Value of Shares that May be Purchased at Period End under the Plan 10/01/23 - 10/31/23 8,142 $ 19.56 — $ — 11/01/23 - 11/30/23 301 $ 20.52 — $ — 12/01/23 - 12/31/23 364 $ 27.18 — $ — Total for quarter 8,807 $ 19.90 — (1) Common shares repurchased by the Company during the quarter consist of cancellation of 8,807 shares to be issued upon vesting of restricted stock to pay withholding taxes.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock The Company’s common stock is traded on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC under the symbol “COLB.” At January 31, 2023, the number of shareholders of record was 3,040.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Removed
This figure does not represent the actual number of beneficial owners of common stock because shares are frequently held in “street name” by securities dealers and others for the benefit of individual owners who may vote the shares. At December 31, 2022, there were no stock options outstanding.
Added
(a) Our common stock is traded on the Nasdaq Stock Market LLC under the symbol "COLB." As of December 31, 2023, our common stock was held by 5,345 shareholders of record, a number that does not include beneficial owners who hold shares in "street name," or shareholders from previously acquired companies that have not exchanged their stock.
Removed
Additional information about stock options and other equity compensation plans is included in Note 24 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Added
As of December 31, 2023, a total of 1.7 million shares of unvested restricted stock units and awards were outstanding. The payment of future cash dividends is at the discretion of our Board and subject to a number of factors, including results of operations, general business conditions, growth, financial condition, and other factors deemed relevant by the Board.
Removed
Equity Compensation Plan Information The following table provides information as of December 31, 2022, regarding securities issued and to be issued under our equity compensation plans that were in effect during 2022: Year Ended December 31, 2022 Number of Shares to be Issued Upon Exercise of Outstanding Options and Rights Weighted Average Exercise Price of Outstanding Options and Rights Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (1) Equity compensation plans approved by security holders — $ — 1,777,175 Equity compensation plans not approved by security holders — — — __________ (1) Includes 1,691,529 shares available for future issuance under the current stock option and equity compensation plan and 85,646 shares available for purchase under the Employee Stock Purchase Plan as of December 31, 2022.
Added
Further, our ability to pay future cash dividends is subject to certain regulatory requirements and restrictions discussed in the Supervision and Regulation section in Item 1 above. (b) Not applicable.
Removed
(2) The Company does not have a current share repurchase authorization from its Board of Directors. 30 Table of Contents Five-Year Stock Performance Graph The following graph shows a five-year comparison of the total return to shareholders of Columbia’s common stock, the NASDAQ Composite Index (which is a broad nationally recognized index of stock performance by companies listed on the Nasdaq Stock Market) and the KBW Regional Banking Index (comprised of 50 banks and bank holding companies headquartered throughout the country, including Columbia).
Added
During the three months ended December 31, 2023, no shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below. (2) As of December 31, 2023, the Company does not have a current share repurchase authorization from the Board of Directors.
Removed
The definition of total return includes appreciation in market value of the stock as well as the actual cash and stock dividends paid to shareholders. The graph assumes that the value of the investment in Columbia’s common stock, the NASDAQ Composite and the KBW Regional Banking Index was $100 on December 31, 2017, and that all dividends were reinvested.
Added
Restricted shares cancelled to pay withholding taxes totaled 261,000 and 120,000 shares during the years ended December 31, 2023 and 2022, respectively.
Removed
Index Period Ending 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Columbia Banking System, Inc. 100.00 85.96 100.06 92.43 86.66 82.97 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 KBW Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59 Source: Bloomberg LP, New York City, NY ITEM 6. RESERVED 31 Table of Contents
Added
Information relating to compensation plans under which the Company's equity securities are authorized for issuance is set forth in "Part III—Item 12" of this Annual Report on Form 10-K. 39 Table of Contents Stock Performance Graph The following chart, which is furnished as part of our annual report to shareholders and not filed, compares the yearly percentage changes in the cumulative shareholder return on our common stock during the five fiscal years ended December 31, 2023, with (i) the Nasdaq Composite Index, (ii) the Standard and Poor's 500 Index and (iii) the Nasdaq Bank Index.
Added
This comparison assumes $100.00 was invested on December 31, 2018, in our common stock and the comparison indices, and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.
Added
Price information from December 31, 2018 to December 31, 2023, was obtained by using the closing prices as of the last trading day of each year.
Added
Period Ending 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Columbia Banking System, Inc. $100.00 $116.40 $107.37 $100.78 $96.48 $90.78 Nasdaq Composite Index $100.00 $136.73 $198.33 $242.38 $163.58 $236.70 S&P 500 Index $100.00 $131.47 $155.65 $200.29 $163.98 $207.04 Nasdaq Bank Index $100.00 $124.38 $115.04 $164.41 $137.65 $132.92 ITEM 6. RESERVED 40 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

13 edited+233 added−146 removed0 unchanged
Biggest changeThe tax equivalent yield adjustment to interest earned on tax exempt securities was $3.9 million, $3.1 million and $2.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. 36 Table of Contents Net interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by prior volume) and the mix of interest-earning assets and interest-bearing liabilities.
Biggest changeThe amount of such adjustment was an addition to recorded income of approximately $4.1 million, $1.3 million, and $1.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. 49 Table of Contents The following table sets forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for 2023 compared to 2022, as well as between 2022 and 2021.
Based on the results of the annual goodwill impairment test, we determined that no goodwill impairment charges were required as our single reporting unit’s fair value exceeded its carrying amount.
Based on the results of the annual goodwill impairment test, it was determined that no goodwill impairment charges were required as our single reporting unit’s fair value exceeded its carrying amount.
Prior to completing the impairment test, however, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
In testing goodwill, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
The test for impairment requires the Company to compare the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, the difference is the amount of impairment and goodwill is written down to the fair value of the reporting unit.
If the fair value of the reporting unit is less than its carrying value, the difference is the amount of impairment and goodwill is written down to the fair value of the reporting unit. The Company has a single reporting unit.
As of December 31, 2022, we determined there were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying amount. Please refer to Note 9 to the Consolidated Financial Statements in “Item 8.
As of December 31, 2023 , we determined there were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying amount.
Such events and circumstances may include among others: a significant adverse change in legal factors or in the general business climate; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse action or assessment by a regulator.
In this qualitative assessment, the Company evaluates events and circumstances which may include, but are not limited to : the general economic environment; banking industry and market conditions; a significant adverse change in legal factors; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse action or assessment by a regulator.
For additional information on our allowance for credit losses, see Note 6 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
For additional information related to the Company's ACL, see Note 6 in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
As of December 31, 2022, the Company had approximately $7.19 billion of uninsured deposits, which is an estimated amount based on the same methodologies and assumptions used for the Bank’s regulatory requirements.
Uninsured deposits as of December 31, 2023, totaled $13.5 billion, as compared to $10.1 billion as of December 31, 2022. The increase was primarily driven by balances added with the Merger. Uninsured deposits are an estimated amount based on the methodologies and assumptions used for the Bank's regulatory requirements.
Net interest income on a fully taxable-equivalent basis expressed as a percentage of average total interest-earning assets is referred to as the net interest margin, which represents the average net effective yield on interest-earning assets.
The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was 3.91% for 2023, an increase of 29 basis points compared to 2022.
The Company recorded provision expense of $2.0 million for credit losses during 2022 compared to a provision expense of $4.8 million for 2021. A provision expense of $77.7 million was recorded in 2020.
PROVISION FOR CREDIT LOSSES The Company had a $213.2 million provision for credit losses for 2023, as compared to an $84.0 million provision for credit losses for 2022.
As part of their response to the impact of COVID-19, the U.S. federal regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three year transition period.
Along with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with our Consolidated Financial Statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this report.
The following discussion and analysis of our financial condition and results of operations constitutes management's review of the factors that affected our financial and operating performance for the years ended December 31, 2023 and 2022. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this Annual Report on Form 10-K.
We review goodwill for impairment annually as of July 31, and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.
Goodwill Goodwill is tested for impairment at the reporting unit level on an annual basis as of October 31 each year, and more frequently if events or circumstances indicate that there may be impairment. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount.
Removed
In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date for the previous year.
Added
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS AND RISK FACTORS See the discussion of forward-looking statements and risk factors in Part I Item 1 and Item 1A of this Annual Report on Form 10-K.
Removed
For comparison of 2021 to 2020 results and other 2020 information not included herein, refer to “Management Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of our 2021 Form 10-K filed with the SEC on February 25, 2022.
Added
Since the Merger was accounted for as a reverse acquisition, the Company's financial results for any periods prior to the Merger Date reflect UHC results only on a standalone basis, and all share and per-share data have been restated based on the exchange ratio from the Merger of 0.5958.
Removed
Critical Accounting Policies and Estimates We have established certain accounting policies in preparing our Consolidated Financial Statements that are in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are presented in Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Added
Accordingly, for a discussion of the year ended December 31, 2021, including a comparison to the year ended December 31, 2022, see Item 7.
Removed
Certain of these policies require the use of judgments, estimates and economic assumptions which may prove inaccurate or are subject to variation that may significantly affect our reported results of operations and financial position for the periods presented or in future periods.
Added
Management's Discussion and Analysis of Financial Condition and Results of Operations, on Umpqua Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 24, 2023. EXECUTIVE OVERVIEW Business Combination • Columbia completed its previously announced merger with UHC on February 28, 2023.
Removed
Management believes that the judgments, estimates and economic assumptions used in the preparation of the Consolidated Financial Statements are appropriate given the factual circumstances at the time. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements.
Added
Promptly following the Merger, Columbia’s wholly-owned bank subsidiary, Columbia State Bank, merged with and into UHC’s wholly-owned bank subsidiary, Umpqua Bank, with Umpqua Bank surviving such merger. The Company acquired approximately $19.2 billion in assets, including $10.9 billion in loans measured at fair value and $15.2 billion in deposits.
Removed
Allowance for Credit Losses The Company’s determination of its ACL is a critical accounting estimate. The allowance for credit losses under ASC 326 is an accounting estimate of expected losses over the contractual life of assets carried at amortized cost within the Company’s loan portfolio at the balance sheet date.
Added
The comparison of the year ended December 31, 2023 to prior periods is significantly impacted by the Merger. See Note 2 - Business Combination to the consolidated financial statements in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information regarding the Mergers.
Removed
The ASU requires a financial asset (or group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected.
Added
Financial Performance • Earnings per diluted common share were $1.78 for the year ended December 31, 2023, compared to $2.60 for the year ended December 31, 2022.
Removed
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The quantitative allowance is calculated using a DCF approach with a probability of default methodology.
Added
The decrease for the year ended December 31, 2023, as compared to the prior period, reflects an increase in average diluted shares to 195.9 million for the year ended December 31, 2023, as compared to 129.7 million for the year ended December 31, 2022, due to shares issued on February 28, 2023 in connection with the Merger. • Net income was $348.7 million for the year ended December 31, 2023, as compared to $336.8 million for the year ended December 31, 2022.
Removed
The probability of default is an assumption derived from regression models which determine the relationship between historical defaults and certain economic variables. The Company determines a reasonable and supportable forecast and applies that forecast to the model to determine defaults over the forecast period. The forecast includes estimates for key economic variables.
Added
The increase was primarily driven by higher interest income as a result of additional loans and securities acquired through the Merger and the favorable impact of higher interest rates on loan repricing, as well as higher non-interest income related to customers added through the Merger.
Removed
While there are several economic variables included, the ones most predominantly used in our models are unemployment rate, consumer price index, real gross domestic product and disposable personal income. Following the forecast period, the economic variables used to calculate the probability of default revert to a historical average.
Added
The increase was partially offset by an increase in interest expense as a result of higher funding costs related to balances added through the Merger, deposit and liability mix shifting, and rising interest rates, as well as higher provision for credit loss largely due to the initial provision for historical Columbia non-PCD loans and higher non-interest expense due to the Merger.
Removed
Other assumptions relevant to the discounted cash flow model to derive the quantitative allowance include the loss given default, which is the estimate of loss for a defaulted loan, and the discount rate applied to future cash flows. The model calculates the net present value of each loan using both the contractual and expected cash flows, respectively.
Added
Net income in 2023 was also impacted by lower mortgage banking income following strategic business changes made in 2022 and reduced demand for single-family mortgage loans. 41 Table of Contents • Net interest margin, on a tax equivalent basis, was 3.91% for the year ended December 31, 2023, compared to 3.62% for the year ended December 31, 2022.
Removed
The ACL is determined at the end of each quarter and is based on all relevant information and expectations at that time in accordance with GAAP and the ACL guidance. Future changes to the estimate are likely as new information becomes available regarding economic conditions, loan composition and identifiable risk factors.
Added
The increase is primarily due to an increase in interest earning asset yields given upward interest rate movements, with the most impactful average rate increases in the loan and taxable securities categories, as well as ten months of purchase accounting accretion and amortization. These effects were partially offset by higher funding costs.
Removed
While quantifiable estimates are generated, management judgements regarding credit risks and the inherent imprecision with the models utilized support the overall ACL.
Added
Trends affecting net interest margin had a similar impact on net interest income, which increased to $1.8 billion for the year ended December 31, 2023, compared to $1.1 billion for the year ended December 31, 2022, partly reflecting a larger balance sheet for the year ended December 31, 2023 due to the Merger. • Non-interest income was $203.9 million for the year ended December 31, 2023, compared to $199.5 million for the year ended December 31, 2022.
Removed
In addition to the quantitative portion of the allowance for credit losses, the Company also considers the effects of the following qualitative factors in its calculation of expected losses in the loan portfolio: • Economic and business conditions; • Concentration of credit; • Lending management and staff; • Lending policies and procedures; • Loss and recovery trends; • Nature and volume of the portfolio; • Trends in problem loans, loan delinquencies and nonaccrual loans; • Quality of internal loan review; and • Other external factors such as the effect of economic stimulus and loan modification programs. 32 Table of Contents These qualitative factors are based in quantitative factors but also include a high degree of subjectivity and changes in any of the factors could have a significant impact on our calculation of the allowance.
Added
The increase was primarily driven by increases in service charges on deposits, card-based fees, and financial services and trust revenue, due to ten months of the higher run rate for the combined organization, in addition to a favorable change in the fair value adjustment for certain loans held for investment of $61.1 million, partially offset by a decrease in mortgage banking revenue driven by a $34.8 million decrease related to origination and sales of residential mortgages and an unfavorable change of $51.3 million related to fair value of the MSR asset. • Non-interest expense was $1.3 billion for the year ended December 31, 2023, compared to $735.0 million for the year ended December 31, 2022.
Removed
Loans for which repayment is expected to be provided substantially through the operation or sale of collateral are considered collateral-dependent. The allowance for credit losses for collateral-dependent loans is measured on the basis of the fair value of the collateral when foreclosure is probable. Our ACL at December 31, 2022 was $158.4 million.
Added
This reflects an increase in salaries and employee benefits of $174.9 million, due to ten months of the higher expense run rate as a combined organization, an increase in merger-related expenses of $154.3 million, an increase in intangible amortization of $107.2 million due to the core deposit intangible asset associated with the Merger, and an increase in FDIC assessments of $57.4 million largely driven by the $32.9 million FDIC special assessment expense incurred during the fourth quarter of 2023. • Total gross loans and leases were $37.4 billion as of December 31, 2023, an increase of $11.3 billion, or 43%, compared to December 31, 2022.
Removed
Given the dynamic relationships between economic variables, it is difficult to estimate the impact of a change in any one individual variable on the ACL. To illustrate a hypothetical sensitivity, however, we performed an analysis on the unemployment rate economic variable to evaluate the impact of a change in that assumption over the reasonable and supportable forecast period.
Added
The increase in total loans was primarily due to $10.9 billion in loans acquired through the Merger, which offset the sale of $743.9 million in loans during the year.
Removed
If the unemployment rate increased by 100 basis points, the quantitative ACL estimate would increase by $2.9 million and if the unemployment rate were decreased by 100 basis points, the quantitative ACL estimate would decrease by $2.4 million.
Added
The Bank is focused on generating business through customer relationships that drive balanced growth in loans, deposits, and core fee income. • Total deposits were $41.6 billion as of December 31, 2023, an increase of $14.5 billion, or 54%, from December 31, 2022.
Removed
Our allowance policy and the judgments, estimates and economic assumptions involved are described in greater detail in the “Allowance for Credit Losses and Unfunded Commitments and Letters of Credit” section of this discussion and in Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Added
The increase was primarily due to $15.2 billion in deposits acquired in the Merger, partially offset by lower customer balances due primarily to the impact of inflation and market liquidity tightening.
Removed
Business Combinations The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.
Added
The deposit portfolio mix also reflects a migration from non-interest bearing to interest-bearing accounts and alternative investments, as customers evaluated the interest rate earned on excess cash balances in the higher interest rate environment. • Total consolidated assets were $52.2 billion as of December 31, 2023, compared to $31.8 billion as of December 31, 2022.
Removed
Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Merger-related costs are expensed as incurred.
Added
The increase was primarily due to $19.2 billion in acquired assets as a result of the Merger, with the majority of the increase attributable to loans and investment securities. Refer to Note 2 - Business Combination for more information pertaining to the completed Merger.
Removed
Valuation and Recoverability of Goodwill Goodwill represented $823.2 million of our $20.27 billion in total assets as of December 31, 2022. The Company has a single reporting unit.
Added
Credit Quality • Non-performing assets increased to $113.9 million, or 0.22% of total assets, as of December 31, 2023, compared to $58.8 million, or 0.18% of total assets, as of December 31, 2022.
Removed
Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our Consolidated Financial Statements. Under the Intangibles-Goodwill and Other topic of the FASB ASC, goodwill is not amortized but rather is tested for impairment at the reporting unit level on at least an annual basis.
Added
Non-performing loans were $112.9 million, or 0.30% of total loans and leases, as of December 31, 2023, compared to $58.6 million, or 0.22% of total loans and leases, as of December 31, 2022.
Removed
If such an assessment indicates the fair value of the reporting unit is more likely than not greater than its carrying value, then the impairment test need not be completed. The accounting estimates related to our goodwill require us to make considerable assumptions about fair value.
Added
The increases in non-performing assets and non-performing loans reflects assets acquired in the Merger and a move toward a more normalized credit environment following a phase of exceptionally high-quality performance. 42 Table of Contents • The ACL was $464.1 million, or 1.24% of loans and leases, as of December 31, 2023, an increase of $148.7 million, as compared to $315.4 million, or 1.21% of loans and leases, as of December 31, 2022.
Removed
Our assumptions regarding fair value require significant judgment about economic and industry factors and the growth and earnings prospects of the Bank. Changes in these judgments, either individually or collectively, may have a significant effect on the estimated fair value.
Added
The increase in the ACL was due to loan portfolio growth, largely reflective of loans acquired through the Merger, and changes in the economic forecasts used in credit models.
Removed
Financial Statements and Supplementary Data” of this report for further discussion. 33 Table of Contents 2022 Financial Summary Income Statement • Consolidated net income for 2022 was $250.2 million, or $3.20 per diluted common share, compared with net income of $202.8 million, or $2.78 per diluted common share in 2021. ◦ Net interest income in 2022 increased 18% to $622.8 million compared to $527.5 million in 2021.
Added
As a result of the Merger, the ACL increased by $120.7 million, which reflects a $32.3 million upward adjustment at closing with no impact to the statement of operations due to acquired PCD loans and acquired unfunded commitments, in addition to an $88.4 million provision expense due to acquired non-PCD loans. • The Company had a provision for credit losses of $213.2 million for the year ended December 31, 2023, compared to a provision for credit losses of $84.0 million in the prior year.
Removed
Interest income was $646.5 million in 2022, compared to $536.1 million in 2021. The increase was primarily due to higher interest income from loans.
Added
The increase in provision expense for the year ended December 31, 2023 as compared to the prior year reflects the $88.4 million initial provision for historical Columbia non-PCD loans related to the Merger, changes in the economic forecasts used in credit models, and portfolio migration trends.
Removed
Interest expense for 2022 increased $15.1 million to $23.6 million compared to $8.5 million in 2021, due to higher deposit interest expense as a result of higher average rates and increased average balances of FHLB advances. ◦ Provision for credit loss on loans was $2.0 million in 2022, compared to $4.8 million in 2021.
Added
As a percentage of average outstanding loans and leases, the provision for credit losses for the year ended December 31, 2023 was 0.60%, as compared to 0.35% for the prior year. Liquidity • Total cash and cash equivalents were $2.2 billion as of December 31, 2023, an increase of $867.9 million from December 31, 2022.
Removed
The decrease in provision expense for 2022 reflects improving credit quality, the removal of allowance for credit loss on loans transferred to held for sale in connection with the branch divestitures related to our pending merger with Umpqua, a reduction in COVID-19 related reserve impacts and recoveries outpacing charge-offs. ◦ Noninterest income was $99.1 million in 2022, an increase from $94.1 million in 2021.
Added
The increase is mainly due to an increase in borrowings to support short-term liquidity, as there was reduced available liquidity within the banking industry as a result of recent volatility in response to the bank failures in early 2023. • Including secured off-balance sheet lines of credit, total available liquidity was $18.7 billion as of December 31, 2023, representing 36% of total assets, 45% of total deposits, and 138% of uninsured deposits.
Removed
The increase in 2022 was primarily due to a $3.7 million gain from the sale-leaseback of owned real estate, increased deposit account and treasury management fees, card revenue, financial services and trust revenue.
Added
Capital and Growth Initiatives • The Company realized $143 million in annualized cost-savings due to the Merger as of December 31, 2023, exceeding our original $135 million target. • The Company's total risk-based capital ratio was 11.9% and its common equity tier 1 risk-based capital ratio was 9.6% as of December 31, 2023, as compared to 13.7% and 11.0%, respectively, as of December 31, 2022.
Removed
This was partially offset by a decrease in mortgage banking revenue. ◦ Noninterest expense in 2022 increased $42.1 million to $402.4 million compared to $360.3 million in 2021. The increase was primarily due to higher compensation and employee benefits and occupancy expense mainly driven by our acquisition of Bank of Commerce Holdings in the fourth quarter of 2021.
Added
The decline in regulatory capital ratios was primarily driven by initial fair value marks related to historical Columbia asset and liability balances added to the balance sheet as a result of the Merger, and we expect net capital accretion as purchase accounting marks accrete into income on a quarterly basis.
Removed
Higher other noninterest expense, data processing and software, regulatory premiums and merger-related expenses also contributed to the increase from the prior period.
Added
Post-closing capital ratios, as reported for the quarter ended March 31, 2023, represented the low point for the year as regulatory capital ratios expanded thereafter as capital generated through earnings offset capital paid out to shareholders through dividends. • The Company paid cash dividends of $1.43 per common share during the year ended December 31, 2023.
Removed
Balance Sheet • Total assets at December 31, 2022 were $20.27 billion, down 3%, or $679.5 million from $20.95 billion at the end of 2021. • The Company is well-capitalized with a total risk-based capital ratio of 13.98% at December 31, 2022. ◦ Cash and cash equivalents at December 31, 2022 were $291.7 million, down 65% from $824.7 million at December 31, 2021 due to a decrease in interest-earning deposits with banks. ◦ Debt securities at December 31, 2022 were $6.62 billion, down 18% from $8.06 billion at December 31, 2021 due to a combination of fair value movement and repayments and maturities. ◦ Loans were $11.61 billion, an increase of $969.0 million from $10.64 billion at the end of 2021. ◦ The ACL increased to $158.4 million at December 31, 2022 compared to $155.6 million at December 31, 2021 due to loan growth.
Added
FDIC Special Assessment • In November 2023, the FDIC approved the final rule to impose a special assessment to recover the losses to the deposit insurance fund resulting from the closures of Silicon Valley Bank and Signature Bank.
Removed
The Company’s allowance was 1.36% of total loans, compared with 1.46% at the end of 2021 as a result of improving credit quality. ◦ Nonperforming assets totaled $23.4 million at December 31, 2022, down from $35.4 million at December 31, 2021.
Added
Under the final rule, the assessment base is the estimated uninsured deposits, as reported in Umpqua Bank and Columbia State Bank's December 31, 2022 Call Reports, excluding the first $5 billion in estimated uninsured deposits, allocated in proportion to each Bank's estimated uninsured deposits.
Removed
Nonperforming assets to year end assets decreased to 0.11% at December 31, 2022 compared to 0.21% at December 31, 2021. ◦ Deposits were $16.71 billion at December 31, 2022, a decrease of $1.30 billion compared to $18.01 billion at December 31, 2021. ◦ FHLB advances were $954.3 million at December 31, 2022, an increase of $947.0 million compared to December 31, 2021. 34 Table of Contents Business Combinations On October 1, 2021, the Company completed its acquisition of Bank of Commerce.

… 312 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

0 edited+43 added−29 removed0 unchanged
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity We are exposed to interest rate risk, which is the risk that changes in prevailing interest rates will adversely affect assets, liabilities, capital, income and expenses at different times or in different amounts.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk management is an integral part of our risk culture. Our Enterprise Risk Management group is a risk management function that partners with the line of business to identify, measure, and monitor market risks throughout the company.
Removed
Generally, there are four sources of interest rate risk as described below: Repricing risk —Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities.
Added
It ensures transparency of significant market risks, monitoring compliance with Board established risk appetite limits and escalates limit exceptions to appropriate executive management and the Board. The various business units are responsible for identification, acceptance, and ownership of the risks and for ensuring that market risk exposures are well-managed and prudent.
Removed
Basis risk —Basis risk is the risk of adverse consequence resulting from unequal changes in the spread between two or more rates for different instruments with the same maturity. Yield curve risk —Yield curve risk is the risk of adverse consequence resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument.
Added
Market risk is monitored through various measures, such as simulations, and through routine stress testing, sensitivity, and scenario analysis. Market risk is the risk that movements in market risk factors, including interest rates, credit spreads and volatilities will reduce our income and the value of our portfolios. These factors influence prospective yields, values, or prices associated with the instrument.
Removed
Option risk —In banking, option risks are known as borrower options to prepay loans and depositor options to make deposits, withdrawals, and early redemptions. Option risk arises whenever bank products give customers the right, but not the obligation, to alter the quantity or the timing of cash flows.
Added
Our market risk arises primarily from credit risk and interest rate risk inherent in our investment, lending, and financing activities. To manage our credit risk, we rely on various controls, including our underwriting standards and loan policies, internal loan monitoring, and periodic credit reviews, as well as our ACL methodology.
Removed
Option risk is also present in the investment portfolio as mortgage-backed securities could prepay or callable bonds could be called. An Asset/Liability Management Committee is responsible for developing, monitoring and reviewing asset/liability processes, interest rate risk exposures, strategies and tactics and reporting to the board of directors.
Added
Additionally, the Company's Enterprise Risk Management Committee provides board oversight over the Company's loan portfolio risk management functions, and the Audit Committee provides board oversight of the ACL process and reviews and approves the ACL methodology. The Company's Board provides oversight over the Company's investment portfolio and hedging risk management functions.
Removed
It is the responsibility of the board of directors to establish policies and interest rate limits and approve these policies and interest rate limits annually. It is the responsibility of management to execute the approved policies, develop and implement risk management strategies and to report to the board of directors on a regular basis.
Added
Interest rate risk is the potential for loss resulting from adverse changes in the level of interest rates on the Company's net interest income. The absolute level and volatility of interest rates can have a significant impact on our profitability.
Removed
We maintain an asset/liability management policy that provides guidelines for controlling exposure to interest rate risk. The policy guidelines direct management to assess the impact of changes in interest rates upon both earnings and capital. The guidelines establish limits for interest rate risk sensitivity.
Added
The objective of interest rate risk management is to identify and manage the sensitivity of net interest income to changing interest rates to achieve our overall financial objectives. We manage exposure to fluctuations in interest rates through actions that are established by the Asset/Liability Management Committee.
Removed
Interest Rate Risk Sensitivity We use a number of measures are used to monitor and manage interest rate risk, including income simulations and interest sensitivity (gap) analysis. An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates.
Added
The ALCO meets monthly and has responsibility for developing asset/liability management policy, formulating and implementing strategies to improve balance sheet positioning and earnings, and reviewing interest rate sensitivity. The Company's Board provides oversight of the asset/liability management process, reviews the results of the interest rate risk analyses prepared for the ALCO, and approves the asset/liability policy on an annual basis.
Removed
Basic assumptions in the model include prepayment speeds on mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently subjective and may not be realized and, as a result, actual results will differ from our projections.
Added
We measure our interest rate risk position monthly. The primary tools we use to measure our interest rate risk are net interest income simulation analyses and economic value of equity (fair value of financial instruments) modeling. The results of these analyses are reviewed by the ALCO monthly.
Removed
In addition, variances in the timing, magnitude and frequency of interest rate changes, overall market conditions including volumes and pricing, changes in management strategies, among other factors will also result in variances between projected and actual results.
Added
If hypothetical changes to interest rates cause changes to our simulated net interest income simulation or economic value of equity modeling outside of our pre-established internal limits, we may adjust the asset and liability size or mix in an effort to bring our interest rate risk exposure within our established limits.
Removed
The following table summarizes the expected impact on net interest income over a one or two year period if interest rates gradually increased or decreased during the first year, based on the results of the simulation model as of December 31, 2022: Year one Year two Change in basis points (bps) Change in net interest income % Change in net interest income Change in net interest income % Change in net interest income (dollars in thousands) +200 $ 6,420 0.99 % $ 43,017 6.27 % -100 $ (6,445) (0.99) % $ (31,589) (4.61) % The following table summarizes the expected impact on net interest income over a one or two year period if interest rates instantaneously increased or decreased, based on the results of the simulation model as of December 31, 2022: Year one Year two Change in basis points (bps) Change in net interest income % Change in net interest income Change in net interest income % Change in net interest income (dollars in thousands) +200 $ 18,971 2.93 % $ 62,062 9.05 % -100 $ (19,518) (3.01) % $ (41,788) (6.09) % 51 Table of Contents The projections are based on the current interest rate environment and a stable balance sheet.
Added
Net Interest Income Simulation Interest rate sensitivity is a function of the repricing characteristics of our interest earning assets and interest-bearing liabilities. These repricing characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at replacement, repricing, or maturity during the life of the instruments.
Removed
Market interest rates increased substantially during 2022 with short-term interest rates increasing substantially more than long-term interest rates resulting in an inverted yield curve at year end. Due to the rise in short-term interest rates, the majority of our floating rate loans are no longer constrained by interest rate floors.
Added
Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates. An interest rate simulation model is used to estimate the sensitivity of net interest income to changes in market interest rates.
Removed
However our ability to reprice deposits downward is still limited given our low cost of funds. Our asset sensitivity decreased since the prior quarter and year ends mainly due to the decline in deposits during the quarter and the corresponding increase in short-term FHLB borrowings.
Added
This model has inherent limitations, and these results are predicated on assumptions for interest rates, loan and investment pricing, loan and investment prepayments, deposit decay and deposit rate movements.
Removed
Balance sheet projections for this analysis include the sales of branches and a corresponding increase in borrowings. The net impact of the change in funding mix was a decrease in the duration of funding, which reduced the net interest income benefits of rising interest rates but also reduced our exposure to falling interest rates.
Added
Our primary analysis assumes a static balance sheet, both in terms of the total size and mix of our balance sheet, meaning cash flows from the maturity or repricing of assets and liabilities are redeployed in the same instrument at modeled rates.
Removed
Prudent management of deposit rates and balances will be the key driver in realizing the projected asset sensitivity. Net interest income sensitivity excludes the amortization of premiums, discounts and deferred fees on the existing loan portfolio although the amortization of the collar is included in loan interest income.
Added
We employ estimates based upon assumptions for each scenario, including changes in the size or mix of the balance sheet, new volume rates for new balances, the rate of prepayments, and the correlation of pricing to changes in the interest rate environment.
Removed
On January 23, 2019, the Company entered into an interest rate collar derivative transaction with a $500.0 million notional based on 1-month LIBOR. In October 2020, the collar was terminated and resulted in a $34.4 million realized gain that was recorded in accumulated other comprehensive income, net of deferred income taxes.
Added
For example, for interest-bearing deposit balances we utilize a repricing "beta" assumption, which is an estimate for the change in interest-bearing deposit costs given a change in the short-term market interest rates. 68 Table of Contents Our simulation beta estimates in both rising and falling rate environments are generally consistent with cumulative betas utilized in the current rising rate cycle.
Removed
The gain will amortize into interest income through February 2024, which is in line with the initial term of the interest rate collar. The gain will be amortized in this manner as long as the cash flows pertaining to the hedged item are expected to occur.
Added
The following table shows the beta realized in the current rising rate market cycle.
Removed
The analysis of an institution’s interest rate gap (the difference between the repricing of interest-earning assets and interest-bearing liabilities during a given period of time) is one standard tool for the measurement of the exposure to interest rate risk.
Added
Deposit and Funding Repricing Betas During the Current Rising-Rate Cycle (1) Cost of Combined Company (1) Effective Federal Funds Target Rate (Daily Avg.) Interest-Bearing Deposits Total Deposits Total Funding Three months ending 12/31/2023 5.33 % 2.54 % 1.63 % 2.05 % Three months ending 12/31/2022 3.65 % 0.62 % 0.35 % 0.51 % Three months ending 12/31/2021 0.08 % 0.10 % 0.05 % 0.09 % Variance: Peak (Peak value less Q4 2021) +5.25% +2.44% +1.58% +1.96% Repricing Beta: Cycle-to-Date 47 % 30 % 37 % (1) Deposit and funding repricing data present combined company results as if historical Columbia and historical UHC were one Company for all periods through December 2022, for presentation purposes.
Removed
We believe that because interest rate gap analysis does not address all factors that can affect earnings performance, it should be used in conjunction with other methods of evaluating interest rate risk.
Added
Loan repricing characteristics are a significant component of interest rate sensitivity. Variable and adjustable-rate loans may or may not contain a rate floor, which impacts the sensitivity of the instrument based on repricing timing and the magnitude of the change in interest rate.
Removed
The table on the following page sets forth the estimated maturity or repricing, and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities at December 31, 2022. The amounts in the table are derived from our internal data and are based upon SEC reporting formats.
Added
The following tables show certain pricing characteristics including rate type, maturity, and floor detail of the loan portfolio as of December 31, 2023: Loan Repricing Detail (1),(2) Loan Maturities as of December 31, 2023 ($ in millions) Q4 2023 % Total 7 to 12 13 to 24 25 to 36 37 to 60 61+ Fixed $ 15,557 41 % ($ in millions) Mos Mos Mos Mos Mos Mos Total Fixed $ 1,849 $ 224 $ 645 $ 887 $ 2,294 $ 9,658 $ 15,557 Prime 2,868 8 % Floating 1,620 1,140 1,280 778 1,611 4,814 11,243 1 Month 8,375 22 % Adjustable 62 61 234 264 697 9,863 11,181 Floating 11,243 30 % Total $ 3,531 $ 1,425 $ 2,159 $ 1,929 $ 4,602 $ 24,335 $ 37,981 Prime 377 1 % 1 month 180 — % Floors: Floating and Adjustable Rate Loans as of December 31, 2023 (3) 6 months 5,939 16 % ($ in millions) No Floor At Floor Above Floor Total 1 Year 1,259 3 % Floating $6,900 $34 $4,309 $11,243 3 Year 205 1 % Adjustable 1,736 79 9,366 $11,181 5 Year 2,272 6 % Total $8,636 $113 $13,675 $22,424 10 Year 949 2 % % of Total 39% 1% 61% 100% Adjustable 11,181 29 % Total $ 37,981 100 % (1) Index rates are mapped to the closest material index.
Removed
Therefore, they may not be consistent with financial information appearing elsewhere herein that has been prepared in accordance with accounting principles generally accepted in the United States. The estimates for net interest income sensitivity and interest rate gap could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawal of deposits and competition.
Added
(2) Loan balances reported here are customer principal book balances and exclude items such as deferred fees and costs . (3) Loans were grouped into three buckets: (1) No Floor: no contractual floor on the loan; (2) At Floor: current rate = floor; (3) Above Floor: current rate exceeds floor.
Removed
For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while other types may lag changes in market interest rates.
Added
The amount above the floor was based on the current margin plus the current index assuming the loan repriced on December 31, 2023.
Removed
Additionally, certain assets, such as adjustable-rate mortgages, have features that restrict changes in the interest rates of such assets both on a short-term basis and over the lives of such assets. Further, in the event of a change in market interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables.
Added
The adjustable loans may not reprice until well into the future, depending on the timing and size of interest rate changes. 69 Table of Contents Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.
Removed
Finally, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of a substantial increase in market interest rates. 52 Table of Contents December 31, 2022 Estimated Maturity or Repricing 0-3 months 4-12 months Over 1 year through 5 years Due after 5 years Total (dollars in thousands) Interest-Earning Assets Interest-earning deposits $ 29,283 $ — $ — $ — $ 29,283 Loans, net of deferred fees 3,978,005 1,127,424 4,392,671 2,112,873 11,610,973 Loans held for sale 76,843 — — — 76,843 Investments 167,010 418,387 2,673,919 3,426,160 6,685,476 Total interest-earning assets $ 4,251,141 $ 1,545,811 $ 7,066,590 $ 5,539,033 18,402,575 ACL (158,438) Cash and due from banks 262,458 Premises and equipment, net 160,578 Other assets 1,598,670 Total assets $ 20,265,843 Interest-Bearing Liabilities Interest-bearing non-maturity deposits $ 7,976,013 $ — $ — $ — $ 7,976,013 Time deposits 155,589 111,284 95,203 11 362,087 Subordinated debentures 10,000 — — — 10,000 Borrowings 1,054,478 15 — 5,300 1,059,793 Total interest-bearing liabilities $ 9,196,080 $ 111,299 $ 95,203 $ 5,311 9,407,893 Other liabilities 8,644,797 Total liabilities 18,052,690 Shareholders’ equity 2,213,153 Total liabilities and shareholders’ equity $ 20,265,843 Interest-bearing liabilities as a percent of total interest-earning assets 49.97 % 0.60 % 0.52 % 0.03 % Rate sensitivity gap $ (4,944,939) $ 1,434,512 $ 6,971,387 $ 5,533,722 Cumulative rate sensitivity gap $ (4,944,939) $ (3,510,427) $ 3,460,960 $ 8,994,682 Rate sensitivity gap as a percentage of interest-earning assets (26.87) % 7.80 % 37.88 % 30.07 % Cumulative rate sensitivity gap as a percentage of interest-earning assets (26.87) % (19.08) % 18.81 % 48.88 % Impact of Inflation and Changing Prices The impact of inflation on our operations is increased operating costs.
Added
Also, some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances may occur. In addition, the simulation model does not take into account actions management could undertake to mitigate the impact a change in interest rates may have on our credit risk profile, loan prepayment estimates and spread relationships, which can change regularly.
Removed
Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than the effect of general levels of inflation.
Added
Actions we could undertake include, but are not limited to, growing or contracting the balance sheet, changing the composition of the balance sheet, or changing our pricing strategies for loans or deposits.
Removed
Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates. LIBOR Transition Management has discontinued use of LIBOR in new contracts, including loans, investment securities and interest rate derivatives.
Added
The estimated impact on our net interest income over a time horizon of one year as of December 31, 2023, 2022, and 2021 are indicated in the table below.
Removed
Current actions include the implementation of substitute language for legacy LIBOR-based loans to transition to SOFR before June 2023, at which point LIBOR will no longer be an option for Columbia Bank to use. This is likely to require some additional costs and litigation risk may rise with contract renewals.
Added
For the scenarios shown, the interest rate simulation assumes a parallel and sustained shift in market interest rates ratably over a twelve-month period and no change in the composition or size of the balance sheet.
Removed
We are in discussions with our counterparties and tracking industry developments to ensure a smooth transition for clients and competitive loan pricing. Please refer to Note 17 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report for further information regarding the interest rate derivatives.
Added
For example, the "up 200 basis points" scenario is based on a theoretical increase in market rates of 16.7 basis points per month for twelve months applied to the balance sheet of December 31 for each respective year.
Removed
As the FASB and the IRS have proposed hedge accounting and taxation relief with regards to the transition, the Company does not anticipate any material impact to our Consolidated Financial Statements as a result of the transition away from LIBOR. 53 Table of Contents
Added
Interest Rate Simulation Impact on Net Interest Income As of December 31, 2023 2022 2021 Up 300 basis points (2.1) % 1.7 % 9.7 % Up 200 basis points (1.4) % 1.1 % 6.3 % Up 100 basis points (0.7) % 0.6 % 3.0 % Down 100 basis points 0.6 % (2.4) % (1.2) % Down 200 basis points 1.1 % (5.1) % (2.4) % Down 300 basis points 1.6 % (7.8) % (3.1) % Our interest rate risk sensitivity at December 31, 2023 is minimal.
Added
Our projections indicate that in rising and falling interest rate environments the Company's net interest income would decrease or increase by a very modest amount. In 2021 and 2022, we were "asset-sensitive" meaning we expected our net interest income to increase as market rates increased and to decrease as market rates decreased.
Added
The change in sensitivity as of December 31, 2023, from the prior year was due to the impact of increasing interest rates resulting from Federal Reserve monetary policy and changes in funding and asset mixes. The mix shift of deposits from non-interest-bearing deposits to higher beta funding sources was a significant contributor of the change.
Added
It should be noted that prior to 2022, although net interest income simulation results are presented for down rate scenarios, most market rates would have reached zero before declining the full 100 basis points, and our simulation floors rates at zero and assumes they do not go negative.
Added
Interest rate sensitivity in the first year of the net interest income simulation for increasing interest rate scenarios is negatively impacted by the cost of non-maturity deposits repricing immediately while interest earnings assets (primarily the loan and leases held for investment portfolio) reprice at a slower rate based upon the instrument repricing characteristics.
Added
As a result, interest sensitivity in increasing interest rates scenarios improves in subsequent years as these assets reprice. Conversely, in a declining interest scenario, net interest income is negatively impacted by assets repricing lower.
Added
Deposit products reprice lower but certain low interest rate products remain at or hit their floors during the forecast horizon. 70 Table of Contents Management also prepares and reviews the long-term trends of the net interest income simulation to measure and monitor risk.
Added
This analysis assumes the same rate shift over the first year of the scenario as described above and holding steady thereafter. The estimated impact on our net interest income over the first and second-year time horizons as it relates to our balance sheet as of December 31, 2023 is indicated in the table below.
Added
Interest Rate Simulation Impact on Net Interest Income As of December 31, 2023 Year 1 Year 2 Up 300 basis points (2.1) % (1.9) % Up 200 basis points (1.4) % (1.1) % Up 100 basis points (0.7) % (0.5) % Down 100 basis points 0.6 % 0.1 % Down 200 basis points 1.1 % (0.2) % Down 300 basis points 1.6 % (0.8) % In general, we view the net interest income model results as more relevant to the Company's current operating profile (a going concern), and we primarily manage our balance sheet based on this information.
Added
Economic Value of Equity Another interest rate sensitivity measure we utilize is the quantification of economic value changes for all financial assets and liabilities, given an increase or decrease in market interest rates. This approach provides a longer-term view of interest rate risk, capturing all future expected cash flows.
Added
Assets and liabilities with option characteristics are measured based on different interest rate path valuations using statistical rate simulation techniques. The projections are by their nature forward-looking and therefore inherently uncertain and include various assumptions regarding cash flows and discount rates.
Added
The table below illustrates the effects of various instantaneous market interest rate changes on the fair values of financial assets and liabilities compared to the corresponding carrying values and fair values: Interest Rate Simulation Impact on Fair Value of Financial Assets and Liabilities As of December 31, 2023 2022 Up 300 basis points (21.9) % (14.0) % Up 200 basis points (14.6) % (9.4) % Up 100 basis points (7.1) % (4.4) % Down 100 basis points 6.8 % 0.9 % Down 200 basis points 12.0 % 0.1 % Down 300 basis points 15.1 % (2.5) % As of December 31, 2023, our economic value of equity analysis indicates a liability sensitive profile.
Added
This suggests a sudden or sustained increase in market interest rates would result in a decrease in our estimated economic value of equity, as the decrease in value of our interest earning assets exceeds the economic value change of interest-bearing liabilities. In declining interest rate scenarios, our economic value of equity increases.
Added
This occurs as the increase in value of interest earning assets exceeds the decline in economic value of interest-bearing liabilities, including the core deposit intangible. Our overall sensitivity to changes in market interest rates shifted from the prior year, primarily due to the relative level of market interest rates and changes in asset and funding mix during the year.
Added
As of December 31, 2023, our estimated economic value of equity (fair value of financial assets and liabilities) was above our book value of equity primarily due to an increase in the economic value core deposit intangible. 71 Table of Contents

Other COLB 10-K year-over-year comparisons