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

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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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08/09/2017 | 12:06pm CEST
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, 2016 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 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 (including

       the pending acquisition of Pacific Continental Corporation ("Pacific
       Continental")), and infrastructure may not be realized;

• the ability to complete the proposed acquisition of Pacific Continental in

a timely manner or at all because required regulatory or other approvals

and other conditions to closing are not received or satisfied on a timely

       basis or at all, or to complete future acquisitions;


•      the ability to successfully integrate Pacific Continental if the
       acquisition is completed, or to integrate future acquired entities;

• interest rate changes could significantly reduce net interest income and

negatively affect funding sources;

• projected business increases following strategic expansion 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, including purchased credit impaired loans,

on our earnings;

• 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 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;

• 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 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" and "Valuation and Recoverability of Goodwill" in our 2016 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 2016 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 second quarter of $27.1 million or $0.47
per diluted common share, compared to $25.4 million or $0.44 per diluted common
share for the second quarter of 2016. Net interest income for the three months
ended June 30, 2017 was $86.2 million, an increase of $4.0 million from the
prior year period. The increase was a result of higher interest income on loans
and taxable securities due to higher volume of such interest-earning assets.
Noninterest income for the current quarter was $24.1 million, an increase of
$2.2 million from the prior year period. The increase was primarily due to lower
expense recorded for the change in FDIC loss-sharing asset as well as a $431
thousand bank owned life insurance benefit in the current quarter, which was
recorded to other noninterest income.
The provision for loan and lease losses for the second quarter of 2017 was $3.2
million compared to a provision of $3.6 million during the second quarter of
2016. The provision recorded in the second quarter of 2017 was due to the
recording of a $3.9 million provision on loans, excluding PCI loans, and a $738
thousand provision recapture related to PCI loans.
Total noninterest expense for the quarter ended June 30, 2017 was $68.9 million,
an increase from $63.8 million for the second quarter of 2016. The increase from
the prior year period was primarily due to a $2.4 million charge recorded in the
current quarter related to our early termination of FDIC loss share agreements
as well as an increase of $1.0 million in acquisition-related expenses.
Comparison of current year-to-date to prior year period
Net interest income for the six months ended June 30, 2017 was $172.8 million,
an increase of $10.5 million from the prior year period. The increase was due to
higher loan and securities volumes and lower market-driven premium amortization
on securities, partially offset by lower incremental accretion income on loans.
Noninterest income for the current period was $49.0 million, an increase of $6.4
million from the prior year period. The increase was due to higher other
noninterest income due to a $1.9 million bank owned life insurance benefit in
the current year, lower expense recorded for the change in FDIC loss-sharing
asset and higher loan fee revenue.
The provision for loan and lease losses for the six months ended June 30, 2017
was $6.0 million compared to a provision of $8.9 million for the first six
months of 2016. The $6.0 million provision was due to recording a provision of
$7.1 million for loans, excluding PCI loans, and a provision recapture of $1.1
million related to PCI loans.
Total noninterest expense for the six months ended June 30, 2017 was $137.9
million, a 7% increase from the prior year period. The increase from the
prior-year period was driven by increased compensation and employee benefits
expense as well as the $2.4 million charge recorded in the current year related
to our early termination of FDIC loss share agreement.

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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 June 30,                       Three Months Ended June 30,
                                                   2017                                              2016
                                  Average            Interest        Average        Average            Interest        Average
                                  Balances         Earned / Paid       Rate         Balances         Earned / Paid       Rate
                                                                   (dollars in thousands)
ASSETS
Loans, net (1)(2)             $    6,325,462     $        77,030       4.87 %   $    5,999,428     $        72,952       4.86 %
Taxable securities                 1,861,895               9,468       2.03 %        1,801,195               8,829       1.96 %
Tax exempt securities (2)            454,182               4,179       3.68 %          460,817               4,300       3.73 %
Interest-earning deposits
with banks                            10,196                  23       0.90 %           23,743                  28       0.47 %
Total interest-earning
assets                             8,651,735     $        90,700       4.19 %        8,285,183     $        86,109       4.16 %
Other earning assets                 173,044                                           154,843
Noninterest-earning assets           772,495                                           790,765
Total assets                  $    9,597,274                                    $    9,230,791
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit       $      386,361     $            95       0.10 %   $      428,279     $           140       0.13 %
Savings accounts                     755,253                  19       0.01 %          692,179                  18       0.01 %
Interest-bearing demand              983,936                 192       0.08 %          949,669                 183       0.08 %
Money market accounts              1,997,585                 602       0.12 %        1,956,257                 446       0.09 %
Total interest-bearing
deposits                           4,123,135                 908       0.09 %        4,026,384                 787       0.08 %
Federal Home Loan Bank
advances                             195,369                 591       1.21 %          161,637                 241       0.60 %
Other borrowings                      48,712                 126       1.03 %           76,771                 135       0.70 %
Total interest-bearing
liabilities                        4,367,216     $         1,625       0.15 %        4,264,792     $         1,163       0.11 %
Noninterest-bearing
deposits                           3,842,733                                         3,595,882
Other noninterest-bearing
liabilities                           91,761                                           102,447
Shareholders' equity               1,295,564                                         1,267,670
Total liabilities &
shareholders' equity          $    9,597,274                                    $    9,230,791
Net interest income (tax equivalent)             $        89,075                                   $        84,946
Net interest margin (tax equivalent)                                   4.12 %                                            4.10 %


__________

(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 $1.8 million and $1.2 million for

the three month periods ended June 30, 2017 and 2016, respectively. The

incremental accretion income on acquired loans was $3.1 million and $4.4

million for the three months ended June 30, 2017 and 2016, respectively.

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

yield adjustment to interest earned on loans was $1.5 million and $1.3

million for the three months ended June 30, 2017 and 2016, respectively. The

tax equivalent yield adjustment to interest earned on tax exempt securities

    was $1.5 million and for the three months ended June 30, 2017 and 2016.



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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:
                                       Six Months Ended June 30,                      Six Months Ended June 30,
                                                  2017                                           2016
                                 Average          Interest        Average       Average          Interest        Average
                                Balances        Earned / Paid       Rate       Balances        Earned / Paid       Rate
                                                                (dollars in thousands)
ASSETS
Loans, net (1)(2)             $ 6,262,190     $       152,544       4.87 %   $ 5,913,434     $       144,250       4.88 %
Taxable securities              1,861,762              20,454       2.20 %     1,745,242              16,846       1.93 %
Tax exempt securities (2)         451,537               8,319       3.68 %       459,492               8,612       3.75 %
Interest-earning deposits
with banks                         10,887                  42       0.77 %        27,396                  66       0.48 %
Total interest-earning
assets                          8,586,376     $       181,359       4.22 %     8,145,564     $       169,774       4.17 %
Other earning assets              175,554                                        154,589
Noninterest-earning assets        773,897                                        789,848
Total assets                  $ 9,535,827                                    $ 9,090,001
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit       $   392,798     $           190       0.10 %   $   438,597     $           284       0.13 %
Savings accounts                  746,988                  38       0.01 %       684,027                  35       0.01 %
Interest-bearing demand           978,279                 351       0.07 %       938,809                 352       0.07 %
Money market accounts           2,002,817               1,116       0.11 %     1,943,416                 858       0.09 %
Total interest-bearing
deposits                        4,120,882               1,695       0.08 %     4,004,849               1,529       0.08 %
Federal Home Loan Bank
advances                          138,787                 816       1.18 %       106,103                 365       0.69 %
Other borrowings                   56,055                 255       0.91 %        83,735                 273       0.65 %
Total interest-bearing
liabilities                     4,315,724     $         2,766       0.13 %     4,194,687     $         2,167       0.10 %
Noninterest-bearing
deposits                        3,839,410                                      3,529,131
Other noninterest-bearing
liabilities                       101,991                                        103,143
Shareholders' equity            1,278,702                                      1,263,040
Total liabilities &
shareholders' equity          $ 9,535,827                                    $ 9,090,001
Net interest income (tax equivalent)          $       178,593                                $       167,607
Net interest margin (tax equivalent)                                4.16 %                                         4.12 %


__________

(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 $3.4 million and $2.3 million for

the six months ended June 30, 2017 and 2016, respectively. The incremental

accretion income on acquired loans was $7.2 million and $9.1 million for the

six months ended June 30, 2017 and 2016, respectively.

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

yield adjustment to interest earned on loans was $2.8 million and $2.3

million for the six months ended June 30, 2017 and 2016, respectively. The

tax equivalent yield adjustment to interest earned on tax exempt securities

was $2.9 million and $3.0 million for the six months ended June 30, 2017 and

    2016, 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 June 30,
                                               2017 Compared to 2016
                                            Increase (Decrease) Due to
                                          Volume          Rate       Total
                                                  (in thousands)
Interest Income
Loans, net                             $    3,970       $  108     $ 4,078
Taxable securities                            303          336         639
Tax exempt securities                         (61 )        (60 )      (121 )
Interest earning deposits with banks          (22 )         17          (5 )
Interest income                        $    4,190       $  401     $ 4,591
Interest Expense
Deposits:
Certificates of deposit                $      (13 )     $  (32 )   $   (45 )
Savings accounts                                1            -           1
Interest-bearing demand                         6            3           9
Money market accounts                          11          145         156
Total interest on deposits                      5          116         121
Federal Home Loan Bank advances                59          291         350
Other borrowings                               28          (37 )        (9 )
Interest expense                       $       92       $  370     $   462


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:
                                            Six Months Ended June 30,
                                              2017 Compared to 2016
                                            Increase (Decrease) Due to
                                         Volume        Rate        Total
                                                  (in thousands)
Interest Income
Loans, net                             $   8,496     $  (202 )   $  8,294
Taxable securities                         1,175       2,433        3,608
Tax exempt securities                       (148 )      (145 )       (293 )
Interest earning deposits with banks         (51 )        27          (24 )
Interest income                        $   9,472     $ 2,113     $ 11,585
Interest Expense
Deposits:
Certificates of deposit                $     (27 )   $   (67 )   $    (94 )
Savings accounts                               3           -            3
Interest-bearing demand                       14         (15 )         (1 )
Money market accounts                         27         231          258
Total interest on deposits                    17         149          166
Federal Home Loan Bank advances              137         314          451
Other borrowings                              83        (101 )        (18 )
Interest expense                       $     237     $   362     $    599



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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 June 30,          Six Months Ended June 30,
                                        2017               2016             2017               2016
                                                          (dollars in thousands)
Incremental accretion income due
to:
FDIC purchased credit impaired
loans                              $        753       $      1,300     $      2,870       $      2,957
Other acquired loans                      2,356              3,074            4,304              6,147
Incremental accretion income       $      3,109       $      4,374     $      7,174       $      9,104

Net interest margin (tax
equivalent)                                4.12 %             4.10 %           4.16 %             4.12 %
Operating net interest
margin (tax equivalent) (1)                4.09 %             4.00 %           4.09 %             4.01 %


__________
(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.
Comparison of current quarter to prior year period
Net interest income for the second quarter of 2017 was $86.2 million, up from
$82.1 million for the same quarter in 2016. The increase was primarily due to
higher loan and security 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 $366.6 million from the
prior year period due to loan growth and purchases of investment securities. The
Company's net interest margin (tax equivalent) increased to 4.12% in the second
quarter of 2017, from 4.10% for the prior year period. This increase was due to
higher loan and security volumes, partially offset by lower incremental
accretion. The Company's operating net interest margin (tax equivalent) (see
footnote 1 in prior table) increased to 4.09% from 4.00% due to higher loan and
security volumes.
Comparison of current year-to-date to prior year period
Net interest income for the six months ended June 30, 2017 was $172.8 million,
an increase of 6% from $162.3 million for the prior year period. The increase in
net interest income was due to higher loan and securities volumes and lower
market-driven premium amortization on securities, partially offset by lower
incremental accretion income on loans. The Company's net interest margin (tax
equivalent) increased to 4.16% for the first six months of 2017, from 4.12% for
the prior year period. The increase in the Company's net interest margin (tax
equivalent) was primarily due to lower premium amortization on taxable
securities, partially offset by lower accretion income on acquired loans. As
shown in the table above, the Company recorded $7.2 million in total incremental
accretion during the six months ended June 30, 2017, a decrease of $1.9 million
from the prior year period. The Company's operating net interest margin (tax
equivalent) for the six months ended June 30, 2017 increased to 4.09% from 4.01%
due to lower premium amortization on taxable securities (see footnote 1 in prior
table).
Provision for Loan and Lease Losses
Comparison of current quarter to prior year period
During the second quarter of 2017, the Company recorded a $3.2 million provision
expense compared to $3.6 million during the second quarter of 2016. The $3.2
million net provision for loan and lease losses recorded during the current
quarter was driven by loans, excluding PCI loans, which was $3.9 million. Net
provision recapture for PCI loans was $738 thousand. The $3.9 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 first quarter of 2017. 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 six months ended June 30, 2017
was $6.0 million compared to $8.9 million during the same period in 2016. The
$6.0 million provision expense for loans recorded for the current year-to-date
period included a provision of $7.1 million for loans, excluding PCI loans and a
provision recapture of $1.1 million related to PCI loans. The provision of $7.1
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 $1.1 million
in provision recapture for PCI loans was primarily due to the increase 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 2016, 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 June 30,                    

Six Months Ended June 30,

                      2017         2016       $ Change    % Change       2017         2016       $ Change    % Change
                                                         (dollars in thousands)
Deposit account
and treasury
management fees    $  7,396     $  7,093     $    303          4  %   $ 14,683     $ 14,082     $    601          4  %
Card revenue          6,202        6,051          151          2  %     11,925       11,703          222          2  %
Financial
services and
trust revenue         3,036        2,780          256          9  %      5,875        5,601          274          5  %
Loan revenue          2,989        2,802          187          7  %      6,582        5,064        1,518         30  %
Merchant
processing
revenue               2,264        2,272           (8 )        -  %      4,283        4,374          (91 )       (2 )%
Bank owned life
insurance             1,433        1,270          163         13  %      2,713        2,386          327         14  %
Investment
securities
gains, net                -          229         (229 )     (100 )%          -          602         (602 )     (100 )%
Change in FDIC
loss-sharing
asset                  (173 )       (990 )        817        (83 )%       (447 )     (2,093 )      1,646        (79 )%
Other                   988          433          555        128  %      3,380          867        2,513        290  %
Total
noninterest
income             $ 24,135     $ 21,940     $  2,195         10  %   $ 

48,994 $ 42,586 $ 6,408 15 %



Comparison of current quarter to prior year period
Noninterest income was $24.1 million for the second quarter of 2017, compared to
$21.9 million for the same period in 2016. The increase was driven by lower
expense recorded for the change in FDIC loss-sharing asset as well as higher
other noninterest income. The lower expense recorded for the change in FDIC
loss-sharing asset was due to lower amortization expense in the current quarter
due to the termination of the FDIC loss-sharing agreements. For additional
information on our FDIC loss-sharing agreements, see Note 7 to the Consolidated
Financial Statements in "Item 1. Financial Statements (unaudited)" of this
report. The increase in other noninterest income was due to a $431 thousand bank
owned life insurance benefit in the current quarter.
Comparison of current year-to-date to prior year period
For the six months ended June 30, 2017, noninterest income was $49.0 million
compared to $42.6 million for the same period in 2016. The increase was due to
higher other noninterest income, lower expense recorded for the change in FDIC
loss-sharing asset and higher loan fee revenue. The increase in other
noninterest income was driven by a $1.9 million bank owned life insurance
benefit in the current year as well as a $573 thousand benefit from re-measuring
to zero our estimated mortgage repurchase liability. The mortgage repurchase
liability was initially established in 2013 in connection with a prior
acquisition. The lower expense recorded for the change in FDIC loss-sharing
asset was due to lower amortization expense in the current year. For additional
information on our FDIC loss-sharing agreements, see Note 7 to the Consolidated
Financial Statements in "Item 1. Financial Statements (unaudited)" of this
report.

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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 June 30,                           Six Months Ended June 30,
                         2017         2016       $ Change     % Change       2017          2016        $ Change     % Change
                                                               (dollars in thousands)
Compensation and
employee benefits     $ 38,393     $ 37,291     $   1,102          3  %   $  79,218     $  73,610     $  5,608          8  %
All other
noninterest
expense:
Occupancy                7,577        7,652           (75 )       (1 )%      14,768        17,825       (3,057 )      (17 )%
Merchant processing
expense                  1,147        1,118            29          3  %       2,196         2,151           45          2  %
Advertising and
promotion                1,137        1,043            94          9  %       1,954         1,885           69          4  %
Data processing          4,741        3,929           812         21  %       8,949         8,075          874         11  %
Legal and
professional
services                 2,947        1,777         1,170         66  %       6,316         3,102        3,214        104  %
Taxes, license and
fees                       748        1,298          (550 )      (42 )%       1,989         2,588         (599 )      (23 )%
Regulatory premiums        741        1,068          (327 )      (31 )%       1,517         2,209         (692 )      (31 )%
Net cost (benefit)
of operation of
other real estate
owned                       (1 )         84           (85 )     (101 )%         151           188          (37 )      (20 )%
Amortization of
intangibles              1,249        1,483          (234 )      (16 )%       2,598         3,066         (468 )      (15 )%
Other                   10,188        7,047         3,141         45  %      18,197        14,165        4,032         28  %
Total all other
noninterest expense     30,474       26,499         3,975         15  %      58,635        55,254        3,381          6  %
Total noninterest
expense               $ 68,867     $ 63,790     $   5,077          8  %   $ 

137,853 $ 128,864 $ 8,989 7 %

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             Six Months Ended
                                                            June 30,                      June 30,
                                                       2017            2016           2017         2016
                                                                       (in thousands)
Acquisition-related expenses:
Compensation and employee benefits                $           -     $       -     $        -     $    35
Occupancy                                                   351             -            352       2,383
Advertising and promotion                                    11             -             17           -
Data processing                                             473             -            473          18
Legal and professional fees                                 119             -          1,430           -
Taxes, licenses and fees                                      3             -              3           -
Other                                                        66             -            112           -
Total impact of acquisition-related expense to
noninterest expense                               $       1,023     $       -     $    2,387     $ 2,436
Acquisition-related expenses by transaction:
Pacific Continental (1)                           $       1,023     $       -     $    2,387     $     -
Intermountain                                                 -             -              -       2,436
Total impact of acquisition-related expense to
noninterest expense                               $       1,023     $       -     $    2,387     $ 2,436


__________

(1) Definitive agreements have been signed; however, completion of this transaction is pending as of the date of this filing.

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Comparison of current quarter to prior year period
Total noninterest expense for the second quarter of 2017 was $68.9 million, an
increase of $5.1 million, or 8% from the prior year period. The increase was due
to higher other noninterest expense, driven by the $2.4 million charge related
to the FDIC loss share agreement termination as well as $1.0 million in
acquisition-related expense in the current quarter. In addition, legal and
professional fees were higher due to costs from both our investment in a
customer relationship management application and the search for a permanent
Chief Executive Officer.
Comparison of current year-to-date to prior year period
For the six months ended June 30, 2017, noninterest expense was $137.9 million,
an increase of $9.0 million, or 7% from $128.9 million a year earlier. In
addition to the previously noted $2.4 million charge related to our FDIC loss
share agreement termination, the increase from the prior year period was driven
by higher compensation and employee benefits due to recognizing additional
incentive expense from solid loan production, deposit growth and financial
performance as well as higher stock compensation expense. The increase in stock
compensation expense related to the immediate vesting of certain restricted
share awards. In addition, legal and professional fees were higher due to costs
from both our investment in a customer relationship management application and
the search for a permanent Chief Executive Officer. Also contributing to the
increased noninterest expense was higher miscellaneous other noninterest expense
due to the recording of an additional $850 thousand for the allowance for
unfunded commitments and letters of credit in the current year compared to a
provision recapture of $150 thousand in the prior year period.
The following table presents selected items included in "Other" noninterest
expense and the associated change from period to period:

                             Three Months Ended June      Increase                                            Increase
                                       30,               (Decrease)         

Six Months Ended June 30, (Decrease)

                                2017          2016         Amount            2017               2016           Amount
                                                                    (in thousands)
Postage                      $     506     $    546     $       (40 )   $      1,060       $      1,131     $       (71 )
Software support and
maintenance                      1,288        1,235              53            2,571              2,269             302
Supplies                           511          256             255              920                711             209
Loan expenses                      299          383             (84 )            583                690            (107 )
Dues and subscriptions             370          260             110              805                617             188
Insurance                          452          482             (30 )            911                957             (46 )
Card expenses                      691          703             (12 )          1,348              1,370             (22 )
Travel and entertainment           857          929             (72 )          1,543              1,616             (73 )
Employee expenses                  343          365             (22 )            739                655              84
Sponsorships and
charitable contributions           666          525             141            1,262              1,144             118
Directors fees                     328          189             139              561                381             180
Correspondent bank
processing fees                    136          143              (7 )            268                275              (7 )
Investor relations                 150          124              26              186                164              22
Other personal property
owned                                -            -               -               (2 )               (2 )             -
FDIC clawback expense
(recovery)                           -           70             (70 )            (54 )              279            (333 )
Fraud losses                       371          101             270              542                167             375
Termination of FDIC loss
share agreements charge          2,409            -           2,409            2,409                  -           2,409
Miscellaneous                      811          736              75            2,545              1,741             804
Total other noninterest
expense                      $  10,188     $  7,047     $     3,141     $     18,197       $     14,165     $     4,032



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Income Taxes
We recorded an income tax provision of $11.1 million for the second quarter of
2017, compared to a provision of $11.2 million for the same period in 2016, with
effective tax rates of 29% for the second quarter of 2017 and 31% for the same
period in 2016. For the six months ended June 30, 2017 and 2016, we recorded
income tax provisions of $21.7 million and $20.5 million, respectively, with
effective tax rates of 28% for the current year and 30% for the prior year
period. 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. In addition, our effective tax rate was reduced in the current year
due to the adoption of new share-based payment accounting (ASU 2016-09). For
additional information, please refer to the Company's annual report on Form 10-K
for the year ended December 31, 2016 and Note 2 to the Consolidated Financial
Statements in "Item 1. Financial Statements (unaudited)" of this report.
FINANCIAL CONDITION
Total assets were $9.69 billion at June 30, 2017, an increase of $175.5 million
from $9.51 billion at December 31, 2016. Loan growth of $209.7 million during
the current year was driven by strong loan originations. Securities available
for sale were $2.26 billion at June 30, 2017, a decrease of $13.9 million from
December 31, 2016. Total liabilities were $8.39 billion as of June 30, 2017, an
increase of $129.2 million from $8.26 billion at December 31, 2016. The increase
was primarily due to additional Federal Home Loan Bank advances driven by our
loan growth.
Investment Securities Available for Sale
At June 30, 2017, the Company held investment securities totaling $2.26 billion
compared to $2.28 billion at December 31, 2016. The decrease in the investment
securities portfolio from year-end is due to $131.5 million in principal
payments and maturities and $8.9 million in premium amortization offset by
$114.3 million in purchases and a $12.1 million decrease in net unrealized loss
of securities in the portfolio. The average duration of our investment portfolio
was approximately 3 years and 5 months at June 30, 2017. 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 management committee. In accordance with our investment
strategy, management monitors market conditions with a view to realize gains on
its available for sale securities portfolio when prudent.
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-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 June 30, 2017, the market value of securities available for sale had a net
unrealized loss of $8.3 million compared to a net unrealized loss of $20.5
million at December 31, 2016. The change in valuation was the result of
fluctuations in market interest rates subsequent to purchase. At June 30, 2017,
the Company had $1.36 billion of investment securities with gross unrealized
losses of $22.6 million; however, we did not consider these investment
securities to be other-than-temporarily impaired.

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The following table sets forth our securities portfolio by type for the dates
indicated:
                                                       June 30, 2017       December 31, 2016
                                                                  (in thousands)
Securities Available for Sale
U.S. government agency and government-sponsored
enterprise mortgage-backed securities and
collateralized mortgage obligations                  $     1,423,958     $  

1,465,732

State and municipal securities                               483,093        

475,060

U.S. government and government-sponsored
enterprise securities                                        352,238                 331,902
U.S. government securities                                       250                     800
Other securities                                               5,097                   5,083
Total                                                $     2,264,636     $         2,278,577


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.
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 2016
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.

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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:
                                         June 30, 2017     % of Total     

December 31, 2016 % of Total

                                                              (dollars in thousands)
Commercial business                     $    2,704,468         42.1  %   $       2,551,054         41.1  %
Real estate:
One-to-four family residential                 173,150          2.7  %             170,331          2.7  %
Commercial and multifamily
residential                                  2,787,560         43.5  %           2,719,830         43.7  %
Total real estate                            2,960,710         46.2  %           2,890,161         46.4  %
Real estate construction:
One-to-four family residential                 139,956          2.2  %             121,887          2.0  %
Commercial and multifamily
residential                                    195,565          3.0  %             209,118          3.4  %
Total real estate construction                 335,521          5.2  %             331,005          5.4  %
Consumer                                       323,187          5.0  %             329,261          5.3  %
Purchased credit impaired                      129,853          2.0  %             145,660          2.3  %
Subtotal                                     6,453,739        100.5  %           6,247,141        100.5  %
Less: Net unearned income                      (30,665 )       (0.5 )%             (33,718 )       (0.5 )%
Loans, net of unearned income (before
Allowance for Loan and Lease Losses)    $    6,423,074        100.0  %   $       6,213,423        100.0  %
Loans held for sale                     $        6,918                   $           5,846


Total loans increased $209.7 million from year-end 2016. The increase in loans
was the result of strong loan originations and increases in line utilization
during the first six 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
$30.7 million in unearned income recorded at June 30, 2017 was comprised of
$15.8 million in net purchase discounts and $14.9 million in deferred loan fees.
The $33.7 million in unearned income recorded at December 31, 2016 consisted of
$20.2 million in net purchase discounts and $13.5 million in deferred loan fees.
The following table provides additional detail related to the net discount of
acquired and purchased loans, excluding PCI loans, by acquisition:
                                    June 30, 2017     December 31, 2016
Acquisition:                                  (in thousands)
Intermountain                      $       5,221     $           6,599
West Coast                                10,845                13,957
Other                                       (234 )                (315 )

Total net discount at period end $ 15,832 $ 20,241



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.

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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.
The following table sets forth, at the dates indicated, information with respect
to our nonaccrual loans and total nonperforming assets:
                                                             June 30, 2017      December 31, 2016
                                                                        (in thousands)
Nonperforming assets
Nonaccrual loans:
Commercial business                                         $       24,747     $          11,555
Real estate:
One-to-four family residential                                         697                   568
Commercial and multifamily residential                               7,267                11,187
Total real estate                                                    7,964                11,755
Real estate construction:
One-to-four family residential                                         241                   563
Total real estate construction                                         241                   563
Consumer                                                             3,872                 3,883
Total nonaccrual loans                                              36,824                27,756
Other real estate owned and other personal property owned            4,058                 5,998
Total nonperforming assets                                  $       40,882  

$ 33,754


Loans, net of unearned income                               $    6,423,074     $       6,213,423
Total assets                                                $    9,685,110  

$ 9,509,607


Nonperforming loans to period end loans                               0.57 %                0.45 %
Nonperforming assets to period end assets                             0.42 %                0.35 %



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At June 30, 2017, nonperforming assets were $40.9 million, compared to $33.8
million at December 31, 2016. Nonperforming assets increased $7.1 million during
the six months ended June 30, 2017. This increase was due to a $9.1 million
increase in nonaccrual loans, partially offset by a decrease in OREO.
Other Real Estate Owned: The following table sets forth activity in OREO for the
periods indicated:
                                              Three Months Ended June 30,           Six Months Ended June 30,
                                               2017                2016              2017              2016
                                                                      (in

thousands)

Balance, beginning of period              $      4,519       $       12,427     $     5,998       $      13,738
Transfers in                                         -                  206               -                 311
Valuation adjustments                              (33 )               (139 )          (226 )              (276 )
Proceeds from sale of OREO property               (444 )             (1,950 )        (1,719 )            (3,276 )
Gain on sale of OREO, net                           16                   69               5                 116
Balance, end of period                    $      4,058       $       10,613     $     4,058       $      10,613


Allowance for Loan and Lease Losses
The allowance for loan and lease losses ("ALLL") is an accounting estimate of
incurred credit losses in our loan portfolio at the balance sheet date. The
provision for loan and lease losses is the expense recognized in the
Consolidated Statements of Income to adjust the allowance to the levels deemed
appropriate by management, as measured by the Company's credit loss estimation
methodologies. The allowance for unfunded commitments and letters of credit is
maintained at a level believed by management to be sufficient to absorb
estimated probable losses related to these unfunded credit facilities at the
balance sheet date.
At June 30, 2017, our allowance was $73.0 million, or 1.14% of total loans
(excluding loans held for sale). This compares with an allowance of $70.0
million, or 1.13% of total loans (excluding loans held for sale) at December 31,
2016 and an allowance of $69.3 million or 1.13% of total loans (excluding loans
held for sale) at June 30, 2016.

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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 June 30,        

Six Months Ended June 30,

                                            2017              2016             2017             2016
                                                                (in thousands)
Beginning balance                     $       71,021      $    69,264     $      70,043     $    68,172
Charge-offs:
Commercial business                           (3,600 )         (2,941 )          (4,727 )        (6,714 )
One-to-four family residential                  (153 )            (35 )            (460 )           (35 )
Commercial and multifamily
residential                                        -              (26 )               -             (26 )
One-to-four family residential
construction                                       -                -               (14 )             -
Commercial and multifamily
residential construction                           -                -                 -               -
Consumer                                        (465 )           (334 )            (893 )          (600 )
Purchased credit impaired                     (1,800 )         (2,898 )          (3,739 )        (5,764 )
Total charge-offs                             (6,018 )         (6,234 )          (9,833 )       (13,139 )
Recoveries:
Commercial business                            2,944              753             3,309           1,415
One-to-four family residential                   223               20               340              61
Commercial and multifamily
residential                                      127              130               205             199
One-to-four family residential
construction                                      58                5                87             259
Commercial and multifamily
residential construction                           -                1                 -               2
Consumer                                         248              201               533             366
Purchased credit impaired                      1,204            1,524             2,348           3,075
Total recoveries                               4,804            2,634             6,822           5,377
Net charge-offs                               (1,214 )         (3,600 )          (3,011 )        (7,762 )
Provision for loan and lease losses            3,177            3,640             5,952           8,894
Ending balance                        $       72,984      $    69,304     $      72,984     $    69,304
Total loans, net at end of period,
excluding loans held of sale          $    6,423,074      $ 6,107,143     $   6,423,074     $ 6,107,143
Allowance for loan and lease losses
to period-end loans                             1.14 %           1.13 %            1.14 %          1.13 %
Allowance for unfunded commitments and letters of
credit
Beginning balance                     $        3,555      $     2,930     $       2,705     $     2,930
Net changes in the allowance for
unfunded commitments and letters of
credit                                             -             (150 )             850            (150 )
Ending balance                        $        3,555      $     2,780     $       3,555     $     2,780



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FDIC Loss-sharing Asset
During the current quarter, the Bank entered into an agreement with the FDIC to
terminate all loss-sharing agreements ahead of their contractual maturities.
These loss-sharing agreements were entered into in 2010 and 2011 in conjunction
with our acquisitions of (1) Columbia River Bank in January 2010, (2) American
Marine Bank in January 2010, (3) Summit Bank in May 2011 and (4) First Heritage
Bank in May 2011. Under the early termination, all rights and obligations of the
Company and the FDIC have been resolved and completed. For additional
information on the early termination of the FDIC loss-sharing agreements, see
Note 7 to the Consolidated Financial Statements in "Item 1. Financial Statements
(unaudited)" of 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.
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) decreased
$27.8 million from year-end 2016.
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 June 30, 2017, CDARS® deposits and brokered
money market deposits were $268.8 million, or 3% of total deposits, compared to
$230.4 million at year-end 2016. The brokered deposits have varied maturities.

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The following table sets forth the Company's deposit base by type of product for
the dates indicated:
                                                      June 30, 2017           December 31, 2016
                                                                  % of                      % of
                                                    Balance       Total       Balance       Total
                                                              (dollars in thousands)
Core deposits:
Demand and other noninterest-bearing             $ 3,905,652      48.4 %   $ 3,944,495      48.9 %
Interest-bearing demand                              988,532      12.2 %       985,293      12.2 %
Money market                                       1,787,101      22.1 %     1,791,283      22.2 %
Savings                                              756,825       9.4 %       723,667       9.0 %
Certificates of deposit, less than $250,000          283,656       3.5 %       304,830       3.8 %
Total core deposits                                7,721,766      95.6 %     7,749,568      96.1 %
Certificates of deposit, $250,000 or more             81,861       1.0 %        79,424       1.0 %
Certificates of deposit insured by CDARS®             19,276       0.2 %        22,039       0.3 %
Brokered money market accounts                       249,554       3.2 %       208,348       2.6 %
Subtotal                                           8,072,457     100.0 %     8,059,379     100.0 %
Premium resulting from acquisition date fair
value adjustment                                           7                        36
Total deposits                                   $ 8,072,464               $ 8,059,415


Borrowings
We rely on FHLB advances and FRB borrowings as another source of both short and
long-term funding. FHLB advances and FRB borrowings are secured by investment
securities, and residential, commercial and commercial real estate loans. At
June 30, 2017, we had FHLB advances of $159.5 million compared to $6.5 million
at December 31, 2016.
We also utilize wholesale and retail repurchase agreements to supplement our
funding sources. Our wholesale repurchase agreements are secured by
mortgage-backed securities. At June 30, 2017 and December 31, 2016, we had
deposit customer sweep-related repurchase agreements of $40.9 million and $55.8
million, respectively, which mature on a daily basis as well as a $25.0 million
term repurchase agreement, which matures in 2018. 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 June 30, 2017, we had commitments to extend credit of $2.23 billion compared
to $2.22 billion at December 31, 2016.
Capital Resources
Shareholders' equity at June 30, 2017 was $1.30 billion, an increase from $1.25
billion at December 31, 2016. Shareholders' equity was 13% of total period-end
assets at June 30, 2017 and December 31, 2016.
Regulatory Capital. In July 2013, the federal bank regulators approved the New
Capital Rules (as discussed in our 2016 Annual Report on Form 10-K, "Item 1.
Business-Supervision and Regulation and -Regulatory Capital Requirements"),
which implement the Basel III capital framework and various provisions of the
Dodd-Frank Act. We and the Bank were required to comply with these rules as of
January 1, 2015, subject to the phase-in of certain provisions. We believe that,
as of June 30, 2017, we and the Bank would meet all capital adequacy
requirements under the New Capital Rules on a fully phased-in basis as if all
such requirements were then in effect.
FDIC regulations set forth the qualifications necessary for a bank to be
classified as "well-capitalized," primarily for assignment of FDIC insurance
premium rates. Failure to qualify as "well-capitalized" can negatively impact a
bank's ability to expand and to engage in certain activities. The Company and
the Bank qualified as "well-capitalized" at June 30, 2017 and December 31, 2016.

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The following table presents the capital ratios and the capital conservation
buffer, as applicable, for the Company and its banking subsidiary at June 30,
2017 and December 31, 2016:
                                                    Company                             Columbia Bank
                                      June 30, 2017     December 31, 2016    June 30, 2017     December 31, 2016
Common equity tier 1 (CET1)
risk-based capital ratio                   11.9539 %           11.6450 %          11.7836 %           11.5051 %
Tier 1 risk-based capital ratio            11.9539 %           11.6646 %          11.7836 %           11.5051 %
Total risk-based capital ratio             12.9626 %           12.6347 %          12.7930 %           12.4756 %
Leverage ratio                              9.8518 %            9.5526 %           9.7129 %            9.4275 %
Capital conservation buffer                 4.9626 %            4.6347 %           4.7930 %            4.4756 %


Stock Repurchase Program
On June 22, 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.
Non-GAAP Financial Measures
The Company considers operating net interest margin (tax equivalent) to be a
useful measurement as it more closely reflects the ongoing operating performance
of the Company. Additionally, presentation of the operating net interest margin
allows readers to compare certain aspects of the Company's net interest margin
to other organizations that may not have had significant acquisitions. Despite
the usefulness of the operating net interest margin (tax equivalent) to the
Company, there is no standardized definition for it and, as a result, the
Company's calculations may not be comparable with other organizations. The
Company encourages readers to consider its Consolidated Financial Statements in
their entirety and not to rely on any single financial measure.
The following table reconciles the Company's calculation of the operating net
interest margin (tax equivalent) to the net interest margin (tax equivalent) for
the periods indicated:
                                              Three Months Ended June 30,   

Six Months Ended June 30,

                                                 2017              2016             2017             2016
Operating net interest margin non-GAAP
reconciliation:                                                  (dollars in thousands)
Net interest income (tax equivalent) (1)   $       89,075      $    84,946     $     178,593     $   167,607
Adjustments to arrive at operating net
interest income (tax equivalent):
Incremental accretion income on FDIC
purchased credit impaired loans                      (753 )         (1,300 )          (2,870 )        (2,957 )
Incremental accretion income on other
acquired loans                                     (2,356 )         (3,074 )          (4,304 )        (6,147 )
Premium amortization on acquired
securities                                          1,669            2,075             3,131           4,399
Interest reversals on nonaccrual loans                747              107             1,012             560
Operating net interest income (tax
equivalent) (1)                            $       88,382      $    82,754     $     175,562     $   163,462
Average interest earning assets            $    8,651,735      $ 8,285,183     $   8,586,376     $ 8,145,564
Net interest margin (tax equivalent) (1)             4.12 %           4.10 %            4.16 %          4.12 %
Operating net interest margin (tax
equivalent) (1)                                      4.09 %           4.00 %            4.09 %          4.01 %


__________
(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 $2.9
million and $2.8 million for the three months ended June 30, 2017 and 2016,
respectively, and an addition to net interest income of $5.8 million and $5.3
million for the six months ended June 30, 2017 and 2016.

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Financials ($)
Sales 2017 492 M
EBIT 2017 213 M
Net income 2017 127 M
Debt 2017 -
Yield 2017 2,40%
P/E ratio 2017 21,28
P/E ratio 2018 16,00
Capi. / Sales 2017 4,34x
Capi. / Sales 2018 3,65x
Capitalization 2 137 M
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Mean consensus OUTPERFORM
Number of Analysts 6
Average target price 44,0 $
Spread / Average Target 20%
EPS Revisions
Managers
NameTitle
Hadley S. Robbins President, Chief Executive Officer & Director
William Toycen Weyerhaeuser Chairman
Clint E. Stein Chief Operating Officer & Executive Vice President
John P. Folsom Independent Director
Thomas M. Hulbert Independent Director
Sector and Competitors