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4-Traders Homepage  >  Equities  >  Nasdaq  >  Columbia Banking System Inc    COLB

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11/07 COLUMBIA BANKIN : ex-dividend day
10/27 COLUMBIA BANKIN : posts 3Q profit
10/27 COLUMBIA BANKIN : Announces Regular Cash Dividend of $0.20 and Decla..
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COLUMBIA BANKING SYSTEM : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/09/2016 | 12:05pm CET
This discussion should be read in conjunction with the unaudited consolidated
financial statements of Columbia Banking System, Inc. (referred to in this
report as "we", "our", "Columbia" and "the Company") and notes thereto presented
elsewhere in this report and with the December 31, 2015 audited consolidated
financial statements and its accompanying notes included in our Annual Report on
Form 10-K. In the following discussion, unless otherwise noted, references to
increases or decreases in average balances in items of income and expense for a
particular period and balances at a particular date refer to the comparison with
corresponding amounts for the period or date one year earlier.
              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions that are not historical facts,
and statements identified by words such as "expects," "anticipates," "intends,"
"plans," "believes," "should," "projects," "seeks," "estimates" or the negative
version of those words or other comparable words or phrases of a future or
forward-looking nature. Forward-looking statements are based on current beliefs
and expectations of management and are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond our control. In addition, forward-looking statements are
subject to assumptions with respect to future business strategies and decisions
that are subject to change. In addition to the factors set forth in the section
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in this report and the factors set forth in the section titled
"Risk Factors" in the Company's Form 10-K, the following factors, among others,
could cause actual results to differ materially from the anticipated results
expressed or implied by forward-looking statements:
•      national and global economic conditions could be less favorable than
       expected or could have a more direct and pronounced effect on us than

expected and adversely affect our ability to continue internal growth and

maintain the quality of our earning assets;

• the local housing/real estate markets where we operate and make loans

could face challenges;

• the risks presented by the economy, which could adversely affect credit

quality, collateral values, including real estate collateral, investment

values, liquidity and loan originations and loan portfolio delinquency

       rates;


•      the efficiencies and enhanced financial and operating performance we
       expect to realize from investments in personnel, acquisitions and
       infrastructure may not be realized;

• the ability to complete future acquisitions and to successfully integrate

acquired entities;

• interest rate changes could significantly reduce net interest income and

negatively affect funding sources;

• projected business increases following strategic expansion or opening of

new branches could be lower than expected;

• changes in the scope and cost of Federal Deposit Insurance Corporation

("FDIC") insurance and other coverages;

• the impact of acquired loans on our earnings;

• changes in accounting principles, policies, and guidelines applicable to

bank holding companies and banking;

• changes in laws and regulations affecting our businesses, including

changes in the enforcement and interpretation of such laws and regulations

by applicable governmental and regulatory agencies;

• competition among financial institutions and nontraditional providers of

financial services could increase significantly;

• continued consolidation in the Pacific Northwest financial services

industry resulting in the creation of larger financial institutions that

       may have greater resources could change the competitive landscape;

• the goodwill we have recorded in connection with acquisitions could become

impaired, which may have an adverse impact on our earnings and capital;

• the reputation of the financial services industry could deteriorate, which

       could adversely affect our ability to access markets for funding and to
       acquire and retain customers;

• our ability to identify and address cyber-security risks, including

security breaches, "denial of service attacks," "hacking" and identity

theft;

• any material failure or interruption of our information and communications

systems or inability to keep pace with technological changes;

• our ability to effectively manage credit risk, interest rate risk, market

       risk, operational risk, legal risk, liquidity risk and regulatory and
       compliance risk;


•      the effect of geopolitical instability, including wars, conflicts and
       terrorist attacks;

• our profitability measures could be adversely affected if we are unable to

effectively manage our capital;

• natural disasters, including earthquakes, tsunamis, flooding, fires and

other unexpected events; and

• the effects of any damage to our reputation resulting from developments

       related to any of the items identified above.



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You should take into account that forward-looking statements speak only as of
the date of this report. Given the described uncertainties and risks, we cannot
guarantee our future performance or results of operations and you should not
place undue reliance on forward-looking statements. We undertake no obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required under federal
securities laws.
CRITICAL ACCOUNTING POLICIES
Management has identified the accounting policies related to the allowance for
loan and lease losses (the "allowance"), business combinations, purchased credit
impaired ("PCI") loans, FDIC loss-sharing asset and the valuation and
recoverability of goodwill as critical to an understanding of our financial
statements. These policies and related estimates are discussed in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the headings "Allowance for Loan and Lease Losses," "Business
Combinations," "Purchased Credit Impaired Loans," "FDIC Loss-sharing Asset" and
"Valuation and Recoverability of Goodwill" in our 2015 Annual Report on Form
10-K. There have not been any material changes in our critical accounting
policies as compared to those disclosed in our 2015 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Our results of operations are dependent to a large degree on our net interest
income. We also generate noninterest income from our broad range of products and
services including treasury management, wealth management, debit and credit
cards and merchant card processing. Our operating expenses consist primarily of
compensation and employee benefits, occupancy, data processing and legal and
professional fees. Like most financial institutions, our interest income and
cost of funds are affected significantly by general economic conditions,
particularly changes in market interest rates, and by government policies and
actions of regulatory authorities.
Earnings Summary
Comparison of current quarter to prior year period
The Company reported net income for the third quarter of $27.5 million or $0.47
per diluted common share, compared to $25.8 million or $0.45 per diluted common
share for the third quarter of 2015. Net interest income for the three months
ended September 30, 2016 was $85.6 million, an increase of $3.9 million from the
prior year period. The increase was a result of higher interest income on loans
and taxable securities primarily due to higher volume of such interest-earning
assets. Noninterest income for the current quarter was $23.2 million, an
increase of $667 thousand from the prior year period. The increase was primarily
due to the change in FDIC loss-sharing asset.
The provision for loan and lease losses for the third quarter of 2016 was $1.9
million compared to a provision of $2.8 million during the third quarter of
2015. The provision recorded in the third quarter of 2016 was due to the
recording of a $2.3 million provision on loans, excluding PCI loans, and a $433
thousand provision recapture related to PCI loans.
Total noninterest expense for the quarter ended September 30, 2016 was $67.3
million, an increase from $64.1 million for the third quarter of 2015. The
increase from the prior year period was primarily due to higher compensation and
employee benefits expense.
Comparison of current year-to-date to prior year period
Net interest income for the nine months ended September 30, 2016 was $247.9
million, an increase of $4.8 million from the prior year period. The increase
was due to higher loan and securities volumes, partially offset by lower
incremental accretion income on loans. Noninterest income for the current period
was $65.8 million, a decrease of $1.0 million from the prior year period. The
decrease was due to lower financial services revenue.
The provision for loan and lease losses for the nine months ended September 30,
2016 was $10.8 million compared to a provision of $6.2 million for the first
nine months of 2015. The $10.8 million provision was due to recording a
provision of $10.4 million for loans, excluding PCI loans, and a provision of
$311 thousand related to PCI loans.
Total noninterest expense for the nine months ended September 30, 2016 was
$196.1 million, a 2% decrease from the prior year period. The decrease from the
prior-year period was primarily due to lower acquisition-related expenses,
partially offset by higher compensation and employee benefits expense and lower
net OREO benefit.

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Net Interest Income
The following table sets forth the average balances of all major categories of
interest-earning assets and interest-bearing liabilities, the total dollar
amounts of interest income on interest-earning assets and interest expense on
interest-bearing liabilities, the average yield earned on interest-earning
assets and average cost of interest-bearing liabilities by category and, in
total, net interest income and net interest margin:
                                      Three Months Ended September 30,                   Three Months Ended September 30,
                                                    2016                                               2015
                                   Average            Interest        Average         Average            Interest        Average
                                  Balances          Earned / Paid       Rate         Balances          Earned / Paid       Rate
                                                                    (dollars in thousands)
ASSETS
Loans, net (1)(2)             $     6,179,163     $        76,195       4.93 %   $     5,712,614     $        73,231       5.13 %
Taxable securities                  1,870,466               8,988       1.92 %         1,498,211               7,472       1.99 %
Tax exempt securities (2)             480,627               4,306       3.58 %           446,963               4,491       4.02 %
Interest-earning deposits
with banks                             14,620                  15       0.41 %            53,743                  31       0.23 %
Total interest-earning
assets                              8,544,876     $        89,504       4.19 %         7,711,531     $        85,225       4.42 %
Other earning assets                  155,663                                            149,895
Noninterest-earning assets            792,912                                            811,266
Total assets                  $     9,493,451                                    $     8,672,692
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit       $       417,887     $           124       0.12 %   $       480,132     $           213       0.18 %
Savings accounts                      705,923                  18       0.01 %           643,672                  17       0.01 %
Interest-bearing demand               961,527                 189       0.08 %           916,388                 158       0.07 %
Money market accounts               2,033,450                 492       0.10 %         1,870,503                 368       0.08 %
Total interest-bearing
deposits                            4,118,787                 823       0.08 %         3,910,695                 756       0.08 %
Federal Home Loan Bank
advances                               96,931                 229       0.95 %            13,968                  78       2.23 %
Other borrowings                       79,767                 134       0.67 %            82,535                 137       0.66 %
Total interest-bearing
liabilities                         4,295,485     $         1,186       0.11 %         4,007,198     $           971       0.10 %
Noninterest-bearing
deposits                            3,799,745                                          3,323,168
Other noninterest-bearing
liabilities                           119,633                                            102,496
Shareholders' equity                1,278,588                                          1,239,830
Total liabilities &
shareholders' equity          $     9,493,451                                    $     8,672,692
Net interest income (tax equivalent)              $        88,318                                    $        84,254
Net interest margin (tax equivalent)                                    4.13 %                                             4.37 %


__________

(1) Nonaccrual loans have been included in the tables as loans carrying a zero

yield. Amortized net deferred loan fees and net unearned discounts on

acquired loans were included in the interest income calculations. The

amortization of net deferred loan fees was $1.4 million and $1.2 million for

the three month periods ended September 30, 2016 and 2015, respectively. The

incremental accretion income on acquired loans was $4.6 million and $6.4

million for the three months ended September 30, 2016 and 2015, respectively.

(2) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent

yield adjustment to interest earned on loans was $1.2 million and $989

thousand for the three months ended September 30, 2016 and 2015,

respectively. The tax equivalent yield adjustment to interest earned on tax

exempt securities was $1.5 million and $1.6 million for the three months

    ended September 30, 2016 and 2015, respectively.



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The following table sets forth the average balances of all major categories of
interest-earning assets and interest-bearing liabilities, the total dollar
amounts of interest income on interest-earning assets and interest expense on
interest-bearing liabilities, the average yield earned on interest-earning
assets and average cost of interest-bearing liabilities by category and, in
total, net interest income and net interest margin:
                                         Nine Months Ended September 30,                         Nine Months Ended September 30,
                                                      2016                                                    2015
                                     Average               Interest        Average           Average               Interest        Average
                                     Balances            Earned / Paid       Rate            Balances            Earned / Paid       Rate
                                                                         (dollars in thousands)
ASSETS
Loans, net (1)(2)             $     6,002,656          $       220,445       4.90 %   $     5,557,771          $       217,128       5.21 %
Taxable securities                  1,787,288                   25,834       1.93 %         1,541,018                   22,258       1.93 %
Tax exempt securities (2)             466,589                   12,918       3.69 %           455,509                   13,802       4.04 %
Interest-earning deposits
with banks                             23,106                       81       0.47 %            46,656                       84       0.24 %
Total interest-earning
assets                              8,279,639          $       259,278       4.18 %         7,600,954          $       253,272       4.44 %
Other earning assets                  154,950                                                 148,189
Noninterest-earning assets            790,877                                                 821,682
Total assets                  $     9,225,466                                         $     8,570,825
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit       $       431,643          $           408       0.13 %   $       490,720          $           689       0.19 %
Savings accounts                      691,379                       53       0.01 %           631,979                       53       0.01 %
Interest-bearing demand               946,437                      541       0.08 %         1,003,544                      451       0.06 %
Money market accounts               1,973,646                    1,350       0.09 %         1,813,282                    1,051       0.08 %
Total interest-bearing
deposits                            4,043,105                    2,352       0.08 %         3,939,525                    2,244       0.08 %
Federal Home Loan Bank
advances                              103,023                      594       0.77 %            88,121                      391       0.59 %
Other borrowings                       82,403                      407       0.66 %            92,169                      419       0.61 %
Total interest-bearing
liabilities                         4,228,531          $         3,353       0.11 %         4,119,815          $         3,054       0.10 %
Noninterest-bearing
deposits                            3,619,994                                               3,108,293
Other noninterest-bearing
liabilities                           108,680                                                  99,864
Shareholders' equity                1,268,261                                               1,242,853
Total liabilities &
shareholders' equity          $     9,225,466                                         $     8,570,825
Net interest income (tax equivalent)                   $       255,925                                         $       250,218
Net interest margin (tax equivalent)                                         4.12 %                                                  4.39 %


__________

(1) Nonaccrual loans have been included in the table as loans carrying a zero

yield. Amortized net deferred loan fees and net unearned discounts on

acquired loans were included in the interest income calculations. The

amortization of net deferred loan fees was $3.6 million and $3.8 million for

the nine months ended September 30, 2016 and 2015, respectively. The

incremental accretion income on acquired loans was $13.7 million and $21.2

million for the nine months ended September 30, 2016 and 2015, respectively.

(2) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent

yield adjustment to interest earned on loans was $3.5 million and $2.3

million for the nine months ended September 30, 2016 and 2015, respectively.

    The tax equivalent yield adjustment to interest earned on tax exempt
    securities was $4.5 million and $4.8 million for the nine months ended
    September 30, 2016 and 2015, respectively.



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The following table sets forth the total dollar amount of change in interest
income and interest expense. The changes have been segregated for each major
category of interest-earning assets and interest-bearing liabilities into
amounts attributable to changes in volume and changes in rates. Changes
attributable to the combined effect of volume and interest rates have been
allocated proportionately to the changes due to volume and the changes due to
interest rates:
                                            Three Months Ended September 30,
                                                 2016 Compared to 2015
                                               Increase (Decrease) Due to
                                          Volume            Rate          Total
                                                     (in thousands)
Interest Income
Loans, net                             $    5,825       $    (2,861 )   $ 2,964
Taxable securities                          1,798              (282 )     1,516
Tax exempt securities                         323              (508 )      (185 )
Interest earning deposits with banks          (32 )              16         (16 )
Interest income                        $    7,914       $    (3,635 )   $ 4,279
Interest Expense
Deposits:
Certificates of deposit                $      (25 )     $       (64 )   $   (89 )
Savings accounts                                1                 -           1
Interest-bearing demand                         8                23          31
Money market accounts                          34                90         124
Total interest on deposits                     18                49          67
Federal Home Loan Bank advances               219               (68 )       151
Other borrowings                               (6 )               3          (3 )
Interest expense                       $      231       $       (16 )   $   215


The following table sets forth the total dollar amount of change in interest
income and interest expense. The changes have been segregated for each major
category of interest-earning assets and interest-bearing liabilities into
amounts attributable to changes in volume and changes in rates. Changes
attributable to the combined effect of volume and interest rates have been
allocated proportionately to the changes due to volume and the changes due to
interest rates:
                                            Nine Months Ended September 30,
                                                 2016 Compared to 2015
                                              Increase (Decrease) Due to
                                           Volume           Rate         Total
                                                    (in thousands)
Interest Income
Loans, net                             $    16,785       $ (13,468 )   $ 3,317
Taxable securities                           3,560              16       3,576
Tax exempt securities                          329          (1,213 )      (884 )
Interest earning deposits with banks           (56 )            53          (3 )
Interest income                        $    20,618       $ (14,612 )   $ 6,006
Interest Expense
Deposits:
Certificates of deposit                $       (76 )     $    (205 )   $  (281 )
Savings accounts                                 5              (5 )         -
Interest-bearing demand                        (27 )           117          90
Money market accounts                           98             201         299
Total interest on deposits                       -             108         108
Federal Home Loan Bank advances                 73             130         203
Other borrowings                               (67 )            55         (12 )
Interest expense                       $         6       $     293     $   299



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The following table shows the impact to interest income of incremental accretion
income as well as the net interest margin and operating net interest margin for
the periods presented:
                                     Three Months Ended September 30,           Nine Months Ended September 30,
                                        2016                   2015                2016                 2015
                                                              (dollars in

thousands)

Incremental accretion income
due to:
FDIC purchased credit impaired
loans                            $         1,816         $         2,082     $        4,773       $        6,896
Other FDIC acquired loans (2)                  -                      34                  -                  166
Other acquired loans                       2,749                   4,293              8,896               14,116

Incremental accretion income $ 4,565 $ 6,409

 $       13,669       $       21,178

Net interest margin (tax
equivalent)                                 4.13 %                  4.37 %             4.12 %               4.39 %
Operating net interest
margin (tax equivalent) (1)                 4.03 %                  4.18 %             4.02 %               4.18 %


__________

(1) Operating net interest margin (tax equivalent) is a non-GAAP measurement.
See Non-GAAP measures section of Item 2, Management's Discussion and Analysis.
(2) For 2016, incremental accretion income on other FDIC acquired loans is no
longer considered significant.
Comparison of current quarter to prior year period
Net interest income for the third quarter of 2016 was $85.6 million, up from
$81.7 million for the same quarter in 2015. The increase was due to higher loan
and securities volumes, partially offset by lower incremental accretion income
on loans. As shown in the table above, incremental accretion income continued to
decline which was reflective of the decrease in volume of acquired loans.
Average interest-earning assets were up $833.3 million from the prior year
period due to loan growth and purchases of investment securities. The Company's
net interest margin (tax equivalent) decreased to 4.13% in the third quarter of
2016, from 4.37% for the prior year period. This decrease was due to a
combination of lower incremental accretion income on acquired loans and lower
yielding originated loans. The Company's operating net interest margin (tax
equivalent) decreased to 4.03% from 4.18% due to lower yielding originated loans
(see footnote 1 in prior table).
Comparison of current year-to-date to prior year period
Net interest income for the nine months ended September 30, 2016 was $247.9
million, an increase of 2% from $243.1 million for the prior year period. The
increase in net interest income was due to higher loan and securities volumes,
partially offset by lower incremental accretion income on loans. The Company's
net interest margin (tax equivalent) decreased to 4.12% for the first nine
months of 2016, from 4.39% for the prior year period. The decrease in the
Company's net interest margin (tax equivalent) was due to a combination of lower
accretion income on the acquired loans and lower yielding originated loans. As
shown in the table above, the Company recorded $13.7 million in total
incremental accretion during the nine months ended September 30, 2016, a
decrease of $7.5 million from the prior year period. The Company's operating net
interest margin (tax equivalent) for the nine months ended September 30, 2016
decreased to 4.02% from 4.18% due to lower yielding originated loans (see
footnote 1 in prior table).
Provision for Loan and Lease Losses
Comparison of current quarter to prior year period
During the third quarter of 2016, the Company recorded a $1.9 million provision
expense compared with a provision expense of $2.8 million during the third
quarter of 2015. The $1.9 million net provision for loan and lease losses
recorded during the current quarter was driven by loans, excluding PCI loans,
which was $2.3 million. Net provision recapture for PCI loans was $433 thousand.
The $2.3 million provision for loans, excluding PCI loans, was due to growth in
the loan portfolio and net charge-off activity. The provision recapture recorded
relating to PCI loans was due to the increase in the present value of expected
future cash flows as remeasured during the current quarter, compared to the
present value of expected future cash flows measured during the second quarter
of 2016. The amount of provision was calculated in accordance with the Company's
methodology for determining the allowance, discussed in Note 5 to the
Consolidated Financial Statements in "Item 1. Financial Statements (unaudited)"
of this report.

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Comparison of current year-to-date to prior year period
The provision for loan and lease losses for the nine months ended September 30,
2016 was $10.8 million compared with provision expense of $6.2 million during
the same period in 2015. The $10.8 million provision expense for loans recorded
for the current year-to-date period included a provision of $10.4 million for
loans, excluding PCI loans and a provision of $311 thousand related to PCI
loans. The provision of $10.4 million related to loans, excluding PCI loans, was
due to the combination of loan growth and net loan charge-offs experienced in
the period. The $311 thousand in provision expense for PCI loans was primarily
due to the decrease in the present value of expected future cash flows as
remeasured during the current period, compared to the present value of expected
future cash flows at the end of 2015, net of activity during the period. The
amount of provision was calculated in accordance with the Company's methodology
for determining the allowance, discussed in Note 5 to the Consolidated Financial
Statements in "Item 1. Financial Statements (unaudited)" of this report.
Noninterest Income
The following table presents the significant components of noninterest income
and the related dollar and percentage change from period to period:
                              Three Months Ended September 30,                        Nine Months Ended September 30,
                        2016         2015 (1)     $ Change     % Change        2016        2015 (1)     $ Change      % Change
                                                               (dollars in thousands)
Deposit account
and treasury
management fees
(1)                 $    7,222      $  7,230     $     (8 )        -  %     

$ 21,304 $ 21,441 $ (137 ) (1 )% Card revenue (1) 6,114 5,849 265 5 %

        17,817       16,914           903          5  %

Financial

services and
trust revenue (1)        2,746         3,316         (570 )      (17 )%     

8,347 9,657 (1,310 ) (14 )% Loan revenue (1) 2,949 3,200 (251 ) (8 )%

    8,013        8,125          (112 )       (1 )%
Merchant
processing
revenue                  2,352         2,422          (70 )       (3 )%         6,726        6,802           (76 )       (1 )%
Bank owned life
insurance                1,073         1,086          (13 )       (1 )%         3,459        3,370            89          3  %

Investment

securities gains,
net                        572           236          336        142  %         1,174        1,300          (126 )      (10 )%
Change in FDIC
loss-sharing
asset                     (104 )      (1,635 )      1,531        (94 )%        (2,197 )     (2,979 )         782        (26 )%
Other (1)                  242           795         (553 )      (70 )%         1,109        2,098          (989 )      (47 )%
Total noninterest
income              $   23,166      $ 22,499     $    667          3  %     $  65,752     $ 66,728     $    (976 )       (1 )%


__________
(1) Reclassified to conform to the current period's presentation.
Reclassifications consisted of disaggregating fee revenue previously presented
in 'Service charges and other fees' and certain revenue previously presented in
'Other' into the presentation above. The Company made these reclassifications to
provide additional information about its sources of noninterest income. There
was no change to total noninterest income as previously reported as a result of
these reclassifications.
Comparison of current quarter to prior year period
Noninterest income was $23.2 million for the third quarter of 2016, compared to
$22.5 million for the same period in 2015. The increase was due to lower
expenses from the FDIC loss-sharing asset, partially offset by lower financial
services revenue which is sensitive to stock market volatility and lower other
noninterest income.
The change in the FDIC loss-sharing asset has been a significant component of
noninterest income. Changes in the asset are primarily driven by amortization of
the asset, the provision recorded for reimbursable losses on covered loans and
write-downs of covered other real estate owned ("OREO"). For the third quarter
of 2016, the change in the asset was primarily driven by $315 thousand of
amortization of the asset. For additional information on the FDIC loss-sharing
asset, please see the "FDIC Loss-sharing Asset" section of this Management's
Discussion and Analysis and Note 7 to the Consolidated Financial Statements in
"Item 1. Financial Statements (unaudited)" of this report.

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Comparison of current year-to-date to prior year period
For the nine months ended September 30, 2016, noninterest income was $65.8
million compared to $66.7 million for the same period in 2015. The decrease was
due to lower financial services revenue which is sensitive to stock market
volatility as well as lower other noninterest income, partially offset by higher
card revenue. Card revenue, which consists principally of debit card interchange
and ATM fees, was up $903 thousand, principally from higher interchange fees
driven by higher transaction volumes.
Noninterest Expense
The following table presents the significant components of noninterest expense
and the related dollar and percentage change from period to period:
                                Three Months Ended September 30,                      Nine Months Ended September 30,
                          2016          2015       $ Change     % Change       2016          2015        $ Change     % Change
                                                                (dollars in

thousands)

Compensation and
employee benefits      $  38,476     $ 35,175     $   3,301          9  %   $ 112,086     $ 112,721     $   (635 )       (1 )%
All other
noninterest expense:
Occupancy                  8,219        8,101           118          1  %      26,044        24,781        1,263          5  %
Merchant processing
expense                    1,161        1,090            71          7  %       3,312         3,146          166          5  %
Advertising and
promotion                  1,993        1,354           639         47  %       3,878         3,480          398         11  %
Data processing            4,275        3,796           479         13  %      12,350        13,022         (672 )       (5 )%
Legal and
professional
services                   2,264        2,173            91          4  %  

5,366 7,527 (2,161 ) (29 )% Taxes, license and fees

                       1,491        1,344           147         11  %       4,079         4,003           76          2  %

Regulatory premiums 776 1,084 (308 ) (28 )%

     2,985         3,626         (641 )      (18 )%
Net cost (benefit)
of operation of
other real estate
owned                       (249 )        240          (489 )     (204 )%         (61 )      (1,569 )      1,508        (96 )%
Amortization of
intangibles                1,460        1,695          (235 )      (14 )%       4,526         5,230         (704 )      (13 )%
Other                      7,398        8,015          (617 )       (8 )%  

21,563 23,305 (1,742 ) (7 )% Total all other noninterest expense 28,788 28,892 (104 ) - %

84,042 86,551 (2,509 ) (3 )% Total noninterest expense

                $  67,264     $ 64,067     $   3,197          5  %   

$ 196,128 $ 199,272 $ (3,144 ) (2 )%

The following table shows the impact of the acquisition-related expenses for the periods indicated to the various components of noninterest expense:

                                                  Three Months Ended            Nine Months Ended
                                                     September 30,                September 30,
                                                   2016          2015           2016            2015
                                                                    (in thousands)
Acquisition-related expenses:
Compensation and employee benefits             $        -     $      -     $       35        $  3,373
Occupancy                                               -          181          2,383           1,484
Advertising and promotion                               -           40              -             383
Data processing                                         -           42             18           1,780
Legal and professional fees                             -           71              -           1,095
Other                                                   -           94              -             930
Total impact of acquisition-related expense
to noninterest expense (1)                     $        -     $    428     $    2,436        $  9,045


__________
(1) There were no acquisition-related expenses recorded during the three months
ended September 30, 2016 and all of the acquisition-related expenses recorded
during the nine months ended September 30, 2016 were related to the 2014
acquisition of Intermountain Community Bancorp ("Intermountain"). Substantially
all of the $9.0 million in acquisition-related expenses recorded during the nine
months ended September 30, 2015 were related to the Intermountain acquisition.

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Comparison of current quarter to prior year period
Total noninterest expense for the third quarter of 2016 was $67.3 million, an
increase of $3.2 million, or 5% from the prior year period. The increase was due
to higher compensation and employee benefits, driven by $1.4 million higher
health insurance costs as well as higher incentive compensation expense. Also
contributing to the increased noninterest expense was higher advertising costs,
which were the result of refreshed television commercials and the associated
media costs during the current quarter.
Comparison of current year-to-date to prior year period
For the nine months ended September 30, 2016, noninterest expense was $196.1
million, a decrease of $3.1 million, or 2% from $199.3 million a year earlier.
The decrease from the prior year period was partially due to lower
acquisition-related expenses. After removing the effect of the
acquisition-related expenses, noninterest expense for the current year-to-date
period was $3.5 million higher than the prior year period on the same basis.
This increase was due to higher compensation and employee benefits expense as
well as lower net OREO benefit, partially offset by lower legal and professional
fees. The higher compensation and employee benefits were a result of higher
health insurance costs in the current period.
The following table presents selected items included in other noninterest
expense and the associated change from period to period:

                               Three Months Ended September 30,          Increase        Nine Months Ended September 30,        Increase
                                                                        (Decrease)                                             (Decrease)
                                  2016                 2015 (1)           Amount            2016               2015 (1)          Amount
                                                                            (in thousands)
Postage                    $           499         $           626     $     (127 )   $        1,630       $        2,042     $      (412 )
Software support and
maintenance                          1,231                     699            532              3,500                2,570             930
Supplies                               353                     322             31              1,064                1,044              20
Loan expenses (1)                      587                     507             80              1,277                1,324             (47 )
Dues and subscriptions
(1)                                    310                     243             67                927                  807             120
Insurance                              484                     474             10              1,441                1,500             (59 )
Card expenses (1)                      683                     735            (52 )            2,053                2,334            (281 )
Travel and entertainment
(1)                                    874                   1,004           (130 )            2,490                3,058            (568 )
Employee expenses                      288                     246             42                943                  903              40
Sponsorships and
charitable contributions               593                     573             20              1,737                1,568             169
Directors fees                         181                     206            (25 )              562                  661             (99 )
Correspondent bank
processing fees                        142                     173            (31 )              417                  501             (84 )
Investor relations                      25                      41            (16 )              189                  311            (122 )
Other personal property
owned                                   (5 )                   (11 )            6                 (7 )                 (5 )            (2 )
FDIC clawback expense                   29                     174           (145 )              308                  167             141
Fraud losses (1)                       209                     835           (626 )              376                1,273            (897 )
Miscellaneous (1)                      915                   1,168           (253 )            2,656                3,247            (591 )
Total other noninterest
expense                    $         7,398         $         8,015     $     (617 )   $       21,563       $       23,305     $    (1,742 )


__________
(1) Reclassified to conform to the current period's presentation. The
reclassification was limited to creating new lines within other noninterest
expense. There were no changes to previously reported total other noninterest
expense as a result of these reclassifications.
Comparison of current quarter to prior year period
Other noninterest expense decreased $617 thousand due to lower fraud losses as
well as decreases in postage, travel and entertainment and FDIC clawback
expense. These decreases were partially offset by increased software support and
maintenance expense in the current quarter.
Comparison of current year-to-date to prior year period
Other noninterest expense decreased $1.7 million due to lower
acquisition-related expenses and lower fraud losses, partially offset by higher
software support and maintenance in the current period.

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FDIC Acquired Loan Accounting
The loss-sharing provisions for four of our eight FDIC loss-sharing agreements
have expired. In addition, the balance of our FDIC-acquired loan portfolios
continues to diminish over time. As a result, the significance of FDIC acquired
loan accounting to our results of operations has also diminished. The following
table illustrates the impact to earnings associated with the Company's FDIC
acquired loan portfolios for the periods indicated:
                                               Three Months Ended September 30,             Nine Months Ended September 30,
                                                  2016                   2015                 2016                   2015
                                                                              (in thousands)
Incremental accretion income on FDIC
purchased credit impaired loans            $         1,816         $        

2,082 $ 4,773 $ 6,896 Incremental accretion income on other FDIC acquired loans (1)

                                  -                      34                   -                     166
Recapture (provision) for losses on FDIC
purchased credit impaired loans                        433                     519                (311 )                (2,566 )
Change in FDIC loss-sharing asset (2)                 (104 )                (1,635 )            (2,197 )                (2,979 )
FDIC clawback liability expense                        (29 )                  (174 )              (308 )                  (167 )
Pre-tax earnings impact of FDIC acquired
loan portfolios                            $         2,116         $           826     $         1,957         $         1,350


__________
(1) For 2016, incremental accretion income on other FDIC acquired loans is no
longer considered significant.
(2) For additional information on the FDIC loss-sharing asset, please see the
"FDIC Loss-sharing Asset" section of this Management's Discussion and Analysis
and Note 7 to the Consolidated Financial Statements in "Item 1. Financial
Statements (unaudited)" of this report.
Income Taxes
We recorded an income tax provision of $12.1 million for the third quarter of
2016, compared to a provision of $11.5 million for the same period in 2015, with
an effective tax rate of 31% for both periods. For the nine months ended
September 30, 2016 and 2015, we recorded income tax provisions of $32.6 million
and $32.2 million, respectively, with an effective tax rate of 31% for both
periods. Our effective tax rate remains lower than the statutory tax rate due to
the amount of tax-exempt municipal securities held in the investment portfolio,
tax-exempt earnings on bank owned life insurance and loans with favorable tax
attributes. For additional information, please refer to the Company's annual
report on Form 10-K for the year ended December 31, 2015.
FINANCIAL CONDITION
Total assets were $9.59 billion as of September 30, 2016, an increase of $635.1
million from $8.95 billion at December 31, 2015. Loan growth of $444.7 million
during the current year was driven by strong loan originations. Loan production
was diversified across the portfolio, but was centered in commercial business
loans. Securities available for sale were $2.36 billion at September 30, 2016,
an increase of $202.4 million from December 31, 2015. Total liabilities were
$8.31 billion as of September 30, 2016, an increase of $600.5 million from $7.71
billion at December 31, 2015. The increase was primarily due to increased
deposits.
Investment Securities Available for Sale
At September 30, 2016, the Company held investment securities totaling $2.36
billion compared to $2.16 billion at December 31, 2015. The increase in the
investment securities portfolio from year-end is due to $502.6 million in
purchases and a $35.3 million increase in the net unrealized gain of securities
in the portfolio, partially offset by $319.3 million in principal payments,
maturities and sales and $16.2 million in premium amortization. The average
duration of our investment portfolio was approximately 3 years and 10 months at
September 30, 2016. This duration takes into account calls, where appropriate,
and consensus prepayment speeds.
The investment securities are used by the Company as a component of its balance
sheet management strategies. From time-to-time, securities may be sold to
reposition the portfolio in response to strategies developed by the Company's
asset liability committee. In accordance with our investment strategy,
management monitors market conditions with a view to realize gains on its
available for sale securities portfolio when prudent.
The Company performs a quarterly assessment of the debt and equity securities in
its investment portfolio that have an unrealized loss to determine whether the
decline in the fair value of these securities below their amortized cost basis
is other-

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than-temporary. Impairment is considered other-than-temporary when it becomes
probable that the Company will be unable to recover the entire amortized cost
basis of its investment. The Company's impairment assessment takes into
consideration factors such as the length of time and the extent to which the
market value has been less than cost, defaults or deferrals of scheduled
interest or principal, external credit ratings and recent downgrades, internal
assessment of credit quality, and whether the Company intends to sell the
security and whether it is more likely than not it will be required to sell the
security prior to recovery of its amortized cost basis. If a decline in fair
value is judged to be other-than-temporary, the cost basis of the individual
security is written down to fair value which then becomes the new cost basis.
The new cost basis is not adjusted for subsequent recoveries in fair value.
When there are credit losses associated with an impaired debt security and the
Company does not have the intent to sell the security and it is more likely than
not that it will not have to sell the security before recovery of its cost
basis, the Company will separate the amount of the impairment into the amount
that is credit-related and the amount related to non-credit factors. The
credit-related impairment is recognized in earnings and the non-credit-related
impairment is recognized in accumulated other comprehensive income.
At September 30, 2016, the market value of securities available for sale had a
net unrealized gain of $35.4 million compared to a net unrealized gain of $84
thousand at December 31, 2015. The change in valuation was the result of
fluctuations in market interest rates subsequent to purchase. At September 30,
2016, the Company had $404.7 million of investment securities with gross
unrealized losses of $3.1 million; however, we did not consider these investment
securities to be other-than-temporarily impaired.
The following table sets forth our securities portfolio by type for the dates
indicated:
                                                       September 30, 2016       December 31, 2015
                                                                     (in thousands)
Securities Available for Sale
U.S. government agency and government-sponsored
enterprise mortgage-backed securities and
collateralized mortgage obligations                  $          1,512,924     $         1,286,489
State and municipal securities                                    503,118                 492,169
U.S. government and government-sponsored
enterprise securities                                             338,292                 353,782
U.S. government securities                                            548                  20,137
Other securities                                                    5,202                   5,117
Total                                                $          2,360,084     $         2,157,694


For further information on our investment portfolio, see Note 3 of the
Consolidated Financial Statements in "Item 1. Financial Statements (unaudited)"
of this report.
Credit Risk Management
The extension of credit in the form of loans or other credit substitutes to
individuals and businesses is one of our principal commerce activities. Our
policies, applicable laws, and regulations require risk analysis as well as
ongoing portfolio and credit management. We manage our credit risk through
lending limit constraints, credit review, approval policies, and extensive,
ongoing internal monitoring. We also manage credit risk through diversification
of the loan portfolio by type of loan, type of industry and type of borrower and
by limiting the aggregation of debt to a single borrower.
In analyzing our existing portfolio, we review our consumer and residential loan
portfolios by their performance as a pool of loans, since no single loan is
individually significant or judged by its risk rating, size or potential risk of
loss. In contrast, the monitoring process for the commercial business, real
estate construction, and commercial real estate portfolios includes periodic
reviews of individual loans with risk ratings assigned to each loan and
performance judged on a loan-by-loan basis.

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We review these loans to assess the ability of our borrowers to service all
interest and principal obligations and, as a result, the risk rating may be
adjusted accordingly. In the event that full collection of principal and
interest is not reasonably assured, the loan is appropriately downgraded and, if
warranted, placed on nonaccrual status even though the loan may be current as to
principal and interest payments. Additionally, we assess whether an impairment
of a loan warrants specific reserves or a write-down of the loan. For additional
discussion on our methodology in managing credit risk within our loan portfolio,
see the "Allowance for Loan and Lease Losses" section in this Management's
Discussion and Analysis and Note 1 to the Consolidated Financial Statements in
"Item 8. Financial Statements and Supplementary Data" of the Company's 2015
Annual Report on Form 10-K.
Loan policies, credit quality criteria, portfolio guidelines and other controls
are established under the guidance of our Chief Credit Officer and approved, as
appropriate, by the board of directors. Credit Administration, together with the
management loan committee, has the responsibility for administering the credit
approval process. As another part of its control process, we use an internal
credit review and examination function to provide reasonable assurance that
loans and commitments are made and maintained as prescribed by our credit
policies. This includes a review of documentation when the loan is initially
extended and subsequent examination to ensure continued performance and proper
risk assessment.
Loan Portfolio Analysis
Our wholly owned banking subsidiary Columbia State Bank is a full service
commercial bank, which originates a wide variety of loans, and focuses its
lending efforts on originating commercial business and commercial real estate
loans.
The following table sets forth the Company's loan portfolio by type of loan for
the dates indicated:
                                         September 30, 2016    % of Total     December 31, 2015    % of Total
                                                                (dollars in thousands)
Commercial business                     $        2,630,017         42.0  %   $       2,362,575         40.6  %
Real estate:
One-to-four family residential                     168,511          2.7  %             176,295          3.0  %
Commercial and multifamily
residential                                      2,686,783         43.0  %           2,491,736         42.9  %
Total real estate                                2,855,294         45.7  %           2,668,031         45.9  %
Real estate construction:
One-to-four family residential                     130,163          2.1  %             135,874          2.3  %
Commercial and multifamily
residential                                        202,014          3.2  %             167,413          2.9  %
Total real estate construction                     332,177          5.3  %             303,287          5.2  %
Consumer                                           325,741          5.2  %             342,601          5.9  %
Purchased credit impaired                          152,764          2.4  %             180,906          3.1  %
Subtotal                                         6,295,993        100.6  %           5,857,400        100.7  %
Less: Net unearned income                          (36,236 )       (0.6 )%             (42,373 )       (0.7 )%
Loans, net of unearned income (before
Allowance for Loan and Lease Losses)    $        6,259,757        100.0  %   $       5,815,027        100.0  %
Loans held for sale                     $            3,361                   $           4,509


Total loans increased $444.7 million from year-end 2015. The loan growth was
driven by substantial loan production during the first nine months of the year,
partially offset by contractual payments and prepayments. The loan portfolio
continues to be diversified, with the intent to mitigate risk by monitoring
concentration in any one sector. The $36.2 million in unearned income recorded
at September 30, 2016 was comprised of $23.3 million in discount on acquired
loans and $12.9 million in deferred loan fees. The $42.4 million in unearned
income recorded at December 31, 2015 consisted of $32.2 million in discount on
acquired loans and $10.2 million in deferred loan fees.

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The following table provides additional detail related to the net discount of acquired and purchased loans, excluding PCI loans, by acquisition:

                                    September 30, 2016     December 31, 2015
Acquisition:                                     (in thousands)
Intermountain                      $            7,037     $           8,237
West Coast                                     16,613                24,367
Other                                            (355 )                (432 )
Total net discount at period end   $           23,295     $          32,172


Commercial Loans: We are committed to providing competitive commercial lending
in our primary market areas. Management expects a continued focus within its
commercial lending products and to emphasize, in particular, relationship
banking with businesses and business owners.
Real Estate Loans: One-to-four family residential loans are secured by
properties located within our primary market areas and, typically, have
loan-to-value ratios of 80% or lower at origination. Our underwriting standards
for commercial and multifamily residential loans generally require that the
loan-to-value ratio for these loans not exceed 75% of appraised value, cost, or
discounted cash flow value, as appropriate, and that commercial properties
maintain debt coverage ratios (net operating income divided by annual debt
servicing) of 1.2 or better. However, underwriting standards can be influenced
by competition and other factors. We endeavor to maintain the highest practical
underwriting standards while balancing the need to remain competitive in our
lending practices.
Real Estate Construction Loans: We originate a variety of real estate
construction loans. Underwriting guidelines for these loans vary by loan type
but include loan-to-value limits, term limits and loan advance limits, as
applicable. Our underwriting guidelines for commercial and multifamily
residential real estate construction loans generally require that the
loan-to-value ratio not exceed 75% and stabilized debt coverage ratios (net
operating income divided by annual debt servicing) of 1.2 or better. As noted
above, underwriting standards can be influenced by competition and other
factors. However, we endeavor to maintain the highest practical underwriting
standards while balancing the need to remain competitive in our lending
practices.
Consumer Loans: Consumer loans include automobile loans, boat and recreational
vehicle financing, home equity and home improvement loans and miscellaneous
personal loans.
Foreign Loans: The Company has no material foreign activities. Substantially all
of the Company's loans and unfunded commitments are geographically concentrated
in its service areas within the states of Washington, Oregon and Idaho.
Purchased Credit Impaired Loans: PCI loans are comprised of loans and loan
commitments acquired in connection with the 2011 FDIC-assisted acquisitions of
First Heritage Bank and Summit Bank, as well as the 2010 FDIC-assisted
acquisitions of Columbia River Bank and American Marine Bank. PCI loans are
generally accounted for under ASC Topic 310-30, Loans and Debt Securities
Acquired with Deteriorated Credit Quality ("ASC 310-30").
For additional information on our loan portfolio, including amounts pledged as
collateral on borrowings, see Note 4 to the Consolidated Financial Statements in
"Item 1. Financial Statements (unaudited)" of this report.
Nonperforming Assets
Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans
placed on a nonaccrual basis when the loan becomes past due 90 days or when
there are otherwise serious doubts about the collectability of principal or
interest within the existing terms of the loan, (ii) OREO; and (iii) other
personal property owned, if applicable.
Nonaccrual loans: The Consolidated Financial Statements are prepared according
to the accrual basis of accounting. This includes the recognition of interest
income on the loan portfolio, unless a loan is placed on nonaccrual status,
which occurs when there are serious doubts about the collectability of principal
or interest. Our policy is generally to discontinue the accrual of interest on
all loans past due 90 days or more and place them on nonaccrual status. Loans
accounted for under ASC 310-30 are generally considered accruing and performing
as the loans accrete interest income over the estimated lives of the loans when
cash flows are reasonably estimable. Accordingly, PCI loans accounted for under
ASC 310-30 that are contractually past due are still considered to be accruing
and performing loans.

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The following table sets forth, at the dates indicated, information with respect to our nonaccrual loans and total nonperforming assets:

                                                              September 30,      December 31,
                                                                   2016              2015
                                                                      (in thousands)
Nonperforming assets
Nonaccrual loans:
Commercial business                                          $        9,502     $      9,437
Real estate:
One-to-four family residential                                          579              820
Commercial and multifamily residential                                7,052            9,513
Total real estate                                                     7,631 

10,333

Real estate construction:
One-to-four family residential                                          461              928
Total real estate construction                                          461              928
Consumer                                                              3,772              766
Total nonaccrual loans                                               21,366           21,464
Other real estate owned and other personal property owned             8,994 

13,738

Total nonperforming assets                                   $       30,360 

$ 35,202


Loans, net of unearned income                                $    6,259,757     $  5,815,027
Total assets                                                 $    9,586,754 

$ 8,951,697


Nonperforming loans to period end loans                                0.34 %           0.37 %
Nonperforming assets to period end assets                              0.32 %           0.39 %


At September 30, 2016, nonperforming assets were $30.4 million, compared to
$35.2 million at December 31, 2015. Nonperforming assets decreased $4.8 million
during the nine months ended September 30, 2016, primarily due to OREO sales
during the period.
Other Real Estate Owned: The following table sets forth activity in OREO for the
periods indicated:
                                              Three Months Ended September 30,          Nine Months Ended September 30,
                                                  2016                 2015                2016                 2015
                                                                           (in thousands)
Balance, beginning of period               $        10,613       $        20,617     $       13,738       $       22,190
Transfers in                                           891                   915              1,202                8,751
Valuation adjustments                                  (14 )                (664 )             (290 )             (1,457 )
Proceeds from sale of OREO property                 (2,569 )              (1,675 )           (5,845 )            (13,283 )
Gain on sale of OREO, net                               73                   263                189                3,255
Balance, end of period                     $         8,994       $        19,456     $        8,994       $       19,456


Allowance for Loan and Lease Losses
We record an allowance to recognize management's estimate of credit losses
incurred in the loan portfolio at each balance sheet date. Management's
allowance estimate is measured quarterly and the primary components include
allowances related to:
1.      Loans collectively evaluated for impairment under the Contingencies topic
        of the FASB ASC.


2.      Loans individually determined to be impaired in accordance with the
        Receivables topic of the FASB ASC.


3.      Purchased credit impaired loans accounted for under the Receivables topic
        of the FASB ASC.



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On a quarterly basis, our Chief Credit Officer reviews with executive management
and the board of directors the various factors that management considers when
determining the adequacy of the allowance. These factors include the following:
• Existing general economic and business conditions affecting our market place


• Credit quality trends

• Historical loss experience

• Seasoning of the loan portfolio

• Bank regulatory examination results

• Findings of internal credit examiners

• Duration of current business cycle

• Specific loss estimates for problem loans



The allowance is increased by provisions for loan and lease losses ("provision")
charged to expense, and is reduced by loans charged off, net of recoveries or
recapture of previous provision. While we believe the best information available
is used to determine the allowance, changes in conditions could result in
adjustments to the allowance, affecting net income, if circumstances differ from
management's assumptions. In addition, the allowance may include an unallocated
amount to recognize factors inherent in our loan portfolio not otherwise
contemplated. Any unallocated amount generally comprises less than 5% of the
allowance.
For loans individually determined to be impaired, the Company measures
impairment on a loan-by-loan basis using either the discounted expected future
cash flows, observable market price, or the fair value of the collateral less
selling costs if the loan is collateral dependent or if foreclosure is probable.
A specific reserve for such loans is recognized to the extent the measured value
is less than the loan's recorded investment.
PCI loans are accounted for under ASC 310-30 and initially measured at fair
value based on expected future cash flows over the life of the loans. PCI loans
that have common risk characteristics are aggregated into pools. The Company
re-measures contractual and expected loan cash flows, at the pool-level, on a
quarterly basis. If, due to credit deterioration, the present value of expected
cash flows, as periodically re-measured, is less than the carrying value of the
loan pool, the Company adjusts the carrying value of the loan pool to the lower
amount by adjusting the allowance with a charge to earnings through the
provision for loan losses. If the present value of expected cash flows is
greater than the carrying value of the loan pool, the Company adjusts the
carrying value of the loan pool to a higher amount by recapturing previously
recorded allowance for loan losses, if any.
At September 30, 2016, our allowance was $70.3 million, or 1.12% of total loans
(excluding loans held for sale). This compares with an allowance of $68.2
million, or 1.17% of total loans (excluding loans held for sale) at December 31,
2015 and an allowance of $69.0 million or 1.20% of total loans (excluding loans
held for sale) at September 30, 2015.
In addition to the allowance, we recognize a liability for unfunded commitments
and letters of credit. We report this amount in other liabilities on our
Consolidated Balance Sheet. We measure this amount based upon our estimates of
the probability of funding and losses related to those credit exposures. This
methodology is similar to how we measure our allowance. For additional
information on the liability for unfunded commitments and letters of credit, see
Note 5 to the Consolidated Financial Statements presented elsewhere in this
report.


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The following table provides an analysis of the Company's allowance for loans at the dates and the periods indicated:

                                         Three Months Ended September 30,           Nine Months Ended September 30,
                                            2016                   2015                 2016                 2015
                                                                      (in thousands)
Beginning balance                    $         69,304       $         69,257     $         68,172       $     69,569
Charge-offs:
Commercial business                            (2,159 )               (2,570 )             (8,873 )           (6,082 )
One-to-four family residential                      -                      -                  (35 )             (297 )
Commercial and multifamily
residential                                         -                   (198 )                (26 )             (241 )
Consumer                                         (383 )                 (311 )               (983 )           (1,521 )
Purchased credit impaired                      (2,062 )               (3,198 )             (7,826 )          (10,174 )
Total charge-offs                              (4,604 )               (6,277 )            (17,743 )          (18,315 )

Recoveries:

Commercial business                               854                    623                2,269              1,450
One-to-four family residential                     81                    261                  142                288
Commercial and multifamily
residential                                        20                    417                  219              3,698
One-to-four family residential
construction                                       21                    105                  280                141
Commercial and multifamily
residential construction                          107                      2                  109                  7
Consumer                                          399                    297                  765                707
Purchased credit impaired                       2,216                  1,533                5,291              5,262
Total recoveries                                3,698                  3,238                9,075             11,553
Net charge-offs                                  (906 )               (3,039 )             (8,668 )           (6,762 )
Provision for loan and lease
losses                                          1,866                  2,831               10,760              6,242
Ending balance                       $         70,264       $         69,049     $         70,264       $     69,049
Total loans, net at end of period,
excluding loans held of sale         $      6,259,757       $      5,746,511     $      6,259,757       $  5,746,511
Allowance for loan and lease
losses to period-end loans                       1.12 %                 1.20 %               1.12 %             1.20 %

Allowance for unfunded commitments and letters of credit Beginning balance

                    $          2,780       $          2,930     $          2,930       $      2,655
Net changes in the allowance for
unfunded commitments and letters
of credit                                         125                      -                  (25 )              275
Ending balance                       $          2,905       $          2,930     $          2,905       $      2,930




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FDIC Loss-sharing Asset
The Company has elected to account for amounts receivable under loss-sharing
agreements with the FDIC as an indemnification asset in accordance with the
Business Combinations topic of the FASB ASC. The FDIC indemnification asset is
initially recorded at fair value, based on the discounted expected future cash
flows under the loss-sharing agreements.
Subsequent to initial recognition, the FDIC indemnification asset is reviewed
quarterly and adjusted for any changes in expected cash flows. These adjustments
are measured on the same basis as the related covered loans. Any decrease in
expected cash flows on the covered loans due to an increase in expected credit
losses will increase the FDIC indemnification asset and any increase in expected
future cash flows on the covered loans due to a decrease in expected credit
losses will decrease the FDIC indemnification asset. Changes in the estimated
cash flows on covered assets that are immediately recognized in income generally
result in a similar immediate adjustment to the loss-sharing asset while changes
in expected cash flows on covered assets that are accounted for as an adjustment
to yield generally result in adjustments to the amortization or accretion rate
for the loss-sharing asset. Increases and decreases to the FDIC loss-sharing
asset are recorded as adjustments to noninterest income.
At September 30, 2016, the FDIC loss-sharing asset was $3.6 million, which was
comprised of a $3.2 million FDIC indemnification asset and a $438 thousand FDIC
receivable. The FDIC receivable represents the amounts due from the FDIC for
claims related to covered losses the Company has incurred net of amounts due to
the FDIC relating to shared recoveries.
The following table summarizes the activity related to the FDIC loss-sharing
asset for the three and nine months ended September 30, 2016 and 2015:
                                         Three Months Ended September 30,           Nine Months Ended September 30,
                                            2016                   2015                2016                2015
                                                                      (in

thousands)

Balance at beginning of period       $         4,266         $         9,344     $       6,568       $        15,174
Adjustments not reflected in
income:
Cash (received from) paid to the
FDIC, net                                         20                     799               (23 )              (2,723 )
FDIC reimbursable recoveries, net               (590 )                  (362 )            (756 )              (1,326 )
Adjustments reflected in income:
Amortization, net                               (315 )                (1,416 )          (2,530 )              (5,086 )
Loan impairment (recapture)                      266                    (119 )             393                 1,413
Sale of other real estate                        (49 )                  (126 )              71                  (753 )
Valuation adjustments of other
real estate owned                                  -                      25               (22 )               1,148
Other                                             (6 )                     1              (109 )                 299
Balance at end of period             $         3,592         $         8,146     $       3,592       $         8,146


For additional information on the FDIC loss-sharing asset, please see Note 7 to
the Consolidated Financial Statements presented elsewhere in this report.
Liquidity and Sources of Funds
Our primary sources of funds are customer deposits. Additionally, we utilize
advances from the FHLB of Des Moines ("FHLB"), the Federal Reserve Bank of San
Francisco ("FRB"), and term and sweep repurchase agreements to supplement our
funding needs. These funds, together with loan repayments, loan sales, retained
earnings, equity and other borrowed funds are used to make loans, to acquire
securities and other assets, and to fund continuing operations.
In addition, we have a shelf registration statement on file with the Securities
and Exchange Commission registering an unlimited amount of any combination of
debt or equity securities, depositary shares, purchase contracts, units and
warrants in one or more offerings. Specific information regarding the terms of
and the securities being offered will be provided at the time of any offering.
Proceeds from any future offerings are expected to be used for general corporate
purposes, including, but not limited to, the repayment of debt, repurchasing or
redeeming outstanding securities, working capital, funding future acquisitions
or other purposes identified at the time of any offering.


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Deposit Activities
Our deposit products include a wide variety of transaction accounts, savings
accounts and time deposit accounts. Core deposits (demand deposit, savings,
money market accounts and certificates of deposit less than $250,000) increased
$570.4 million since year-end 2015.
We have established a branch system to serve our consumer and business
depositors. In addition, management's strategy for funding asset growth is to
make use of brokered and other wholesale deposits on an as-needed basis. The
Company participates in the Certificate of Deposit Account Registry Service
(CDARS®) program. CDARS® is a network that allows participating banks to offer
extended FDIC deposit insurance coverage on time deposits. The Company also
participates in a similar program to offer extended FDIC deposit insurance
coverage on money market accounts. These extended deposit insurance programs are
generally available only to existing customers and are not used as a means of
generating additional liquidity. At September 30, 2016, CDARS® deposits and
brokered money market deposits were $169.1 million, or 2% of total deposits,
compared to $127.8 million at year-end 2015. The brokered deposits have varied
maturities.
The following table sets forth the Company's deposit base by type of product for
the dates indicated:
                                                      September 30, 2016         December 31, 2015 (1)
                                                                     % of                          % of
                                                      Balance        Total         Balance         Total
                                                                   (dollars in thousands)
Core deposits:
Demand and other noninterest-bearing               $  3,942,434      48.9 %   $     3,507,358      47.2 %
Interest-bearing demand                                 963,242      12.0 %           925,909      12.4 %
Money market                                          1,873,376      23.2 %         1,788,552      24.0 %
Savings                                                 714,047       8.9 %           657,016       8.8 %
Certificates of deposit, less than $250,000 (1)         315,965       3.9 %           359,878       4.8 %
Total core deposits                                   7,809,064      96.9 %         7,238,713      97.2 %
Certificates of deposit, $250,000 or more (1)            79,590       1.0 %            72,126       1.0 %
Certificates of deposit insured by CDARS®                16,951       0.2 %            26,901       0.4 %
Brokered money market accounts                          152,151       1.9 %           100,854       1.4 %
Subtotal                                              8,057,756     100.0 %         7,438,594     100.0 %
Premium resulting from acquisition date fair
value adjustment                                             60                           235
Total deposits                                     $  8,057,816               $     7,438,829


__________
(1) Reclassified to conform to the current period's presentation. The
reclassification was limited to changing the threshold for certificates of
deposit presented to the current FDIC insurance limit.
Borrowings
We rely on FHLB advances and FRB borrowings as another source of both short and
long-term funding. FHLB advances and FRB borrowings are secured by bonds within
our investment portfolio, and residential, commercial and commercial real estate
loans. At September 30, 2016, we had FHLB advances of $66.5 million compared to
$68.5 million at December 31, 2015.
We also utilize wholesale and retail repurchase agreements as a supplement to
our funding sources. Our wholesale repurchase agreements are secured by
mortgage-backed securities. At September 30, 2016 and December 31, 2015, we had
term repurchase agreements of $25.0 million, which mature in 2018, and deposit
customer sweep-related repurchase agreements of $44.2 million and $74.7 million,
respectively, which mature on a daily basis. Management anticipates we will
continue to rely on FHLB advances, FRB borrowings, and wholesale and retail
repurchase agreements in the future and we will use those funds primarily to
make loans and purchase securities.
Contractual Obligations, Commitments & Off-Balance Sheet Arrangements
We are party to many contractual financial obligations, including repayment of
borrowings, operating and equipment lease payments, off-balance sheet
commitments to extend credit and investments in affordable housing partnerships.
At September 30, 2016, we had commitments to extend credit of $2.15 billion
compared to $1.98 billion at December 31, 2015.

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Capital Resources
Shareholders' equity at September 30, 2016 was $1.28 billion, an increase from
$1.24 billion at December 31, 2015. Shareholders' equity was 13% and 14% of
total period-end assets at September 30, 2016 and December 31, 2015,
respectively.
Capital Ratios: Basel III capital requirements and various provisions of the
Dodd-Frank Act (the "New Capital Rules") became effective on January 1, 2015.
The New Capital Rules, among other things, (i) introduce a new capital measure
called "Common Equity Tier 1," or CET1, (ii) specify that Tier 1 capital
consists of CET1 and "Additional Tier 1 capital" instruments meeting specified
requirements, (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 and (iv) expand the scope of the
deductions/adjustments to capital as compared to existing regulations. Under the
requirements that are now effective, the minimum capital ratios are now (i) 4.5%
CET1 to risk-weighted assets, (ii) 6% Tier 1 capital to risk-weighted assets,
(iii) 8% total capital to risk-weighted assets and (iv) 4% Tier 1 leverage. The
Company and the Bank have made the one-time election to opt-out of including
accumulated other comprehensive income items in regulatory capital calculations.
The New Capital Rules also require a capital conservation buffer designed to
absorb losses during periods of economic stress. The capital conservation buffer
is composed entirely of CET1, on top of these minimum risk-weighted asset
ratios. In addition, the New Capital Rules provide for a countercyclical capital
buffer applicable only to certain covered institutions. We do not expect the
countercyclical capital buffer to be applicable to us or the Bank. Banking
institutions with a ratio of CET1 to risk-weighted assets above the minimum but
below the capital conservation buffer (or below the combined capital
conservation buffer and countercyclical capital buffer, when the latter is
applied) will face constraints on dividends, equity repurchases and compensation
based on the amount of the shortfall.
The implementation of the capital conservation buffer began on January 1, 2016
at the 0.625% level and will be phased-in over a three-year period (increasing
by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1,
2019). When fully phased-in, the New Capital Rules will require us, and the
Bank, to maintain such additional capital conservation buffer of 2.5% of CET1,
effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets,
(ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital
to risk-weighted assets. At September 30, 2016, the capital conservation buffer
was 4.4132% and 4.2350% for the Company and Bank, respectively. Therefore, we
met all capital adequacy requirements under the New Capital Rules on a fully
phased-in basis as if all such requirements were in effect at September 30,
2016.
FDIC regulations set forth the qualifications necessary for a bank to be
classified as "well capitalized," primarily for assignment of FDIC insurance
premium rates. To qualify as "well capitalized," banks must have a CET1
risk-adjusted capital ratio of 6.5%, a Tier I risk-adjusted capital ratio of at
least 8%, a total risk-adjusted capital ratio of at least 10% and a leverage
ratio of at least 5%. Failure to qualify as "well capitalized" can negatively
impact a bank's ability to expand and to engage in certain activities.
The Company and its banking subsidiary qualified as "well-capitalized" at
September 30, 2016 and December 31, 2015. The following table presents the
capital ratios and the capital conservation buffer, as applicable, for the
Company and its banking subsidiary at September 30, 2016 and December 31, 2015:
                                                            Company                                   Columbia Bank
                                            September 30, 2016     December

31, 2015 September 30, 2016 December 31, 2015 Common equity tier 1 (CET1) risk-based capital ratio

                                       11.4292 %               11.94 %              11.2641 %               11.76 %
Tier 1 risk-based capital ratio                     11.4430 %               11.95 %              11.2641 %               11.76 %
Total risk-based capital ratio                      12.4132 %               12.94 %              12.2350 %               12.75 %
Leverage ratio                                       9.5268 %               10.03 %               9.3782 %                9.89 %
Capital conservation buffer                          4.4132 %                 N/A                 4.2350 %                 N/A


Stock Repurchase Program
In June 2016, the Board of Directors approved a stock repurchase program which
succeeds the prior program that was adopted in October 2011. The program
authorizes the Company to repurchase up to 2.9 million shares of our outstanding
common stock, representing approximately 5% of the common shares outstanding.
The Company intends to purchase the shares from time to time in the open market
or in private transactions, under conditions which allow such repurchases to be
accretive to earnings per share while maintaining capital ratios that exceed the
guidelines for a well-capitalized financial institution.

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Non-GAAP Financial Measures


The Company considers operating net interest margin (tax equivalent) to be an
important measurement as it more closely reflects the ongoing operating
performance of the Company. Additionally, presentation of the operating net
interest margin allows readers to compare certain aspects of the Company's net
interest margin to other organizations. Despite the importance of the operating
net interest margin (tax equivalent) to the Company, there is no standardized
definition for it and, as a result, the Company's calculations may not be
comparable with other organizations. The Company encourages readers to consider
its consolidated financial statements in their entirety and not to rely on any
single financial measure.

The following table reconciles the Company's calculation of the operating net
interest margin (tax equivalent) to the net interest margin (tax equivalent) for
the periods indicated:
                                               Three Months Ended September 30,           Nine Months Ended September 30,
                                                  2016                   2015                 2016                 2015
Operating net interest margin non-GAAP
reconciliation:                                                         (dollars in thousands)
Net interest income (tax equivalent) (1)   $         88,318       $         84,254     $        255,925       $    250,218
Adjustments to arrive at operating net
interest income (tax equivalent):
Incremental accretion income on FDIC
purchased credit impaired loans                      (1,816 )               (2,082 )             (4,773 )           (6,896 )
Incremental accretion income on other
FDIC acquired loans (2)                                   -                    (34 )                  -               (166 )
Incremental accretion income on other
acquired loans                                       (2,749 )               (4,293 )             (8,896 )          (14,116 )
Premium amortization on acquired
securities                                            1,991                  2,396                6,390              7,964
Interest reversals on nonaccrual loans                  266                    325                  826              1,131
Operating net interest income (tax
equivalent) (1)                            $         86,010       $         80,566     $        249,472       $    238,135
Average interest earning assets            $      8,544,876       $      7,711,531     $      8,279,639       $  7,600,954
Net interest margin (tax equivalent) (1)               4.13 %                 4.37 %               4.12 %             4.39 %
Operating net interest margin (tax
equivalent) (1)                                        4.03 %                 4.18 %               4.02 %             4.18 %


__________
(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The
amount of such adjustment was an addition to net interest income of $2.7
million and $2.6 million for the three months ended September 30, 2016 and 2015,
respectively, and an addition to net interest income of $8.0 million and $7.2
million for the nine months ended September 30, 2016 and 2015.
(2) For 2016, incremental accretion income on other FDIC acquired loans is no
longer considered significant and will no longer be tracked for this non-GAAP
financial measure.

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Financials ($)
Sales 2016 430 M
EBIT 2016 173 M
Net income 2016 102 M
Debt 2016 -
Yield 2016 3,52%
P/E ratio 2016 24,46
P/E ratio 2017 22,17
Capi. / Sales 2016 5,87x
Capi. / Sales 2017 5,53x
Capitalization 2 524 M
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Mean consensus HOLD
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Average target price 36,6 $
Spread / Average Target -16%
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