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COLUMBIA BANKING SYSTEM : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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03/01/2017 | 12:05pm CET
This discussion should be read in conjunction with our Consolidated Financial
Statements and related notes in "Item 8. Financial Statements and Supplementary
Data" of this report. In the following discussion, unless otherwise noted,
references to increases or decreases in average balances in items of income and
expense for a particular period and balances at a particular date refer to the
comparison with corresponding amounts for the period or date for the previous
year.
Critical Accounting Policies
We have established certain accounting policies in preparing our Consolidated
Financial Statements that are in accordance with accounting principles generally
accepted in the United States. Our significant accounting policies are presented
in Note 1 to the Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data" of this report. Certain of these policies
require the use of judgments, estimates and economic assumptions which may prove
inaccurate or are subject to variation that may significantly affect our
reported results of operations and financial position for the periods presented
or in future periods. Management believes that the judgments, estimates and
economic assumptions used in the preparation of the Consolidated Financial
Statements are appropriate given the factual circumstances at the time. We
consider the following policies to be most critical in understanding the
judgments that are involved in preparing our Consolidated Financial Statements.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (the "allowance") is an accounting
estimate of incurred credit losses in our loan portfolio at the balance sheet
date. The primary components of the allowance are 1) loans collectively
evaluated for impairment in accordance with the Financial Accounting Standards
Board Accounting Standards Codification Topic 450, Contingencies (ASC 450), 2)
loans individually determined to be impaired in accordance with the FASB ASC
Subtopic 310-10, Receivables: Overall (ASC 310-10) and 3) loans acquired with
deteriorated credit quality in accordance with FASB ASC Subtopic 310-30,
Receivables: Loans and Debt Securities Acquired with Deteriorated Credit Quality
(ASC 310-30).
The measure of estimated credit losses for the ASC 450 component is based upon
the loss experience over a historical base period adjusted for a loss emergence
period. The loss emergence period is an estimate of the period that it takes, on
average, for us to identify the amount of loss incurred for a loan that has
suffered a loss-causing event. Management then considers the effects of the
following qualitative factors to ensure our allowance reflects the inherent
losses in the loan portfolio:
• Economic and business conditions


• Concentration of credit

• Lending management and staff

• Lending policies and procedures

• Loss and recovery trends

• Nature and volume of the portfolio

• Trends in problem loans, loan delinquencies and nonaccrual loans

• Quality of internal loan review

• External factors



These qualitative factors have a high degree of subjectivity and changes in any
of the factors could have a significant impact on our calculation of the
allowance.
The measure of estimated credit losses for the ASC 310-10 component begins if,
based upon current information and events, we believe it is probable that we
will be unable to collect all amounts due according to the contractual terms of
the loan agreement or when a loan has been modified in a troubled debt
restructuring. When a loan has been identified as impaired, the amount of
impairment will be measured using discounted cash flows, except when it is
determined that the remaining source of repayment for the loan is the operation
or liquidation of the underlying collateral. In these cases, the current fair
value of the collateral, reduced by costs to sell, will be used in place of
discounted cash flows. As a final alternative, the observable market price of
the debt may be used to assess impairment. Predominantly, the Company uses the
fair value of collateral approach based upon a reliable valuation.

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The measure of estimated credit losses for the ASC 310-30 component is based
upon management's estimate of future cash flows. Loans acquired with
deteriorated credit quality 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 for loan losses
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.
Our allowance policy and the judgments, estimates and economic assumptions
involved are described in greater detail in the "Allowance for Loan and Lease
Losses and Unfunded Commitments and Letters of Credit" section of this
discussion and in Note 1 to the Consolidated Financial Statements in "Item 8.
Financial Statements and Supplementary Data" of this report.
Business Combinations
The Company applies the acquisition method of accounting for business
combinations. Under the acquisition method, the acquiring entity in a business
combination recognizes the assets acquired and liabilities assumed at their
acquisition date fair values. Management utilizes prevailing valuation
techniques appropriate for the asset or liability being measured in determining
these fair values. Any excess of the purchase price over amounts allocated to
assets acquired, including identifiable intangible assets, and liabilities
assumed is recorded as goodwill. Where amounts allocated to assets acquired and
liabilities assumed is greater than the purchase price, a bargain purchase gain
is recognized. Acquisition-related costs are expensed as incurred.
Valuation and Recoverability of Goodwill
Goodwill represented $382.8 million of our $9.51 billion in total assets as of
December 31, 2016. The Company has a single reporting unit. We review goodwill
for impairment annually, during the third quarter, and also test for impairment
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of our reporting unit below its carrying
amount. Such events and circumstances may include among others: a significant
adverse change in legal factors or in the general business climate; significant
decline in our stock price and market capitalization; unanticipated competition;
the testing for recoverability of a significant asset group within the reporting
unit; and an adverse action or assessment by a regulator. Any adverse change in
these factors could have a significant impact on the recoverability of goodwill
and could have a material impact on our Consolidated Financial Statements.
Under the Intangibles - Goodwill and Other topic of the FASB ASC, the testing
for impairment may begin with an assessment of qualitative factors to determine
if it is more likely than not that the fair value of a reporting unit is less
than its carrying amount. When required, the goodwill impairment test involves a
two-step process. In step one, we would test goodwill for impairment by
comparing the fair value of the reporting unit with its carrying amount. If the
fair value of the reporting unit exceeds the carrying amount of the reporting
unit, goodwill is not deemed to be impaired, and no further testing is
necessary. If the carrying amount of the reporting unit were to exceed the fair
value of the reporting unit, we would perform a second test to measure the
amount of impairment loss, if any. To measure the amount of any impairment loss,
we would determine the implied fair value of goodwill in the same manner as if
the reporting unit were being acquired in a business combination. Specifically,
we would allocate the fair value of the reporting unit to all of the assets and
liabilities of the reporting unit in a hypothetical calculation that would
determine the implied fair value of goodwill. If the implied fair value of
goodwill is less than the recorded goodwill, we would record an impairment
charge for the difference.
The accounting estimates related to our goodwill require us to make considerable
assumptions about fair values. Our assumptions regarding fair values require
significant judgment about economic and industry factors and the growth and
earnings prospects of the Bank. Changes in these judgments, either individually
or collectively, may have a significant effect on the estimated fair values.
Based on the results of the annual goodwill impairment test, we determined that
no goodwill impairment charges were required as our single reporting unit's fair
value exceeded its carrying amount. As of December 31, 2016, we determined there
were no events or circumstances which would more likely than not reduce the fair
value of our reporting unit below its carrying amount.
Please refer to Note 10 to the Consolidated Financial Statements in "Item 8.
Financial Statements and Supplementary Data" of this report for further
discussion.

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2016 Financial Summary
Income Statement
•      Consolidated net income for 2016 was $104.9 million, or $1.81 per diluted
       common share, compared with net income of $98.8 million, or $1.71 per
       diluted common share, in 2015.


•            Net interest income for 2016 increased 3% to $333.6 million compared
             to $324.9 million for 2015. Interest income was $338.0 million in
             2016, compared to $328.9 million in 2015. The increase was primarily
             due to higher average loan and securities volumes, partially offset
             by lower earning rates. Interest expense increased $346 thousand
             compared to 2015, due to higher average interest-bearing liability
             balances.


•            Provision for loan and lease losses was $10.8 million in 2016,
             compared to $8.6 million in 2015. The loan provision for the current
             year was driven by net charge-offs and growth in the loan portfolio.


•            Noninterest income was $88.1 million for 2016, a decrease from $91.5
             million for 2015. The decrease was due to the $3.1 million prior
             year adjustment to the mortgage repurchase liability related to our
             acquisition of West Coast. The current year adjustment to the
             mortgage repurchase liability was $391 thousand.


•            Noninterest expense decreased $5.0 million, or 2% to $261.1 million
             for 2016 due to lower acquisition-related expenses in the current
             year.

Balance Sheet • Total assets at December 31, 2016 were $9.51 billion, up 6% from $8.95

billion at the end of 2015.

• The Company is well-capitalized with a total risk-based capital ratio of

12.63% at December 31, 2016.



•            Investment securities available for sale at December 31, 

2016 were

             $2.28 billion, up 6% from $2.16 billion at December 31, 2015.


•            Loans were $6.21 billion, an increase of 7% from $5.82 

billion at

             the end of 2015. The increase from December 31, 2015 was due to
             strong loan originations during 2016.


•            The allowance for loan and lease losses increased to $70.0

million

             at December 31, 2016 compared to $68.2 million at December 31, 

2015

             due to the increase in size of the loan portfolio. The

Company's

             allowance was 1.13% of total loans, compared with 1.17% at the end
             of 2015.


•            Nonperforming assets totaled $33.8 million at December 31, 2016,
             down from $35.2 million at December 31, 2015. The decrease in
             nonperforming assets was due to a $7.7 million decrease in Other
             Real Estate Owned ("OREO") and Other Personal Property Owned
             ("OPPO") balances, partially offset by an increase in

nonaccrual

             loans. Nonperforming assets to year end assets decreased to 0.35% at
             December 31, 2016 compared to 0.39% at December 31, 2015.


•            Deposits totaled $8.06 billion at December 31, 2016 compared to
             $7.44 billion at December 31, 2015.


•            Core deposits totaled $7.75 billion at December 31, 2016, compared
             to $7.24 billion at December 31, 2015. Core deposits

represented 96%

             of total deposits at December 31, 2016 and 2015.


•            Federal Home Loan Bank advances were $6.5 million at 

December 31,

             2016, a decrease of $62.0 million compared to December 31, 2015 due
             to decreased short-term advances.



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Business Combinations
On November 1, 2014, the Company completed its acquisition of Intermountain. The
Company acquired approximately $964.4 million in assets, including $502.6
million in loans measured at fair value and $736.8 million in deposits. See Note
2 to the Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report for further information regarding this
acquisition.
On April 1, 2013, the Company completed its acquisition of West Coast. The
Company acquired approximately $2.63 billion in assets, including $1.41 billion
in loans measured at fair value and $1.88 billion in deposits.
RESULTS OF OPERATIONS
Summary
A summary of the Company's results of operations for each of the last five years
ended December 31 follows:
                                      Increase                              Increase
                  Year ended         (Decrease)         Year ended         (Decrease)               Years ended December 31,
                     2016         Amount       %           2015          Amount       %         2014          2013          2012
                                                  (dollars in thousands, except per share amounts)
Interest
income          $    337,969     $ 9,078        3     $    328,891     $ 20,849        7     $ 308,042     $ 296,935     $ 248,504
Interest
expense                4,350         346        9            4,004           10        -         3,994         5,840         9,577
Net interest
income               333,619       8,732        3          324,887       20,839        7       304,048       291,095       238,927
Provision
(recapture)
for loan and
lease losses          10,778       2,187       25            8,591       

1,864 28 6,727 (101 ) 39,367 Noninterest income

                88,082      (3,391 )     (4 )         91,473       31,723       53        59,750        26,700        27,058
Noninterest
expense:
Compensation
and employee
benefits             150,282         872        1          149,410      

18,546 14 130,864 125,432 85,434 Other expense 110,860 (5,879 ) (5 ) 116,739 8,317 8 108,422 105,454 77,479 Total

                261,142      (5,007 )     (2 )        266,149       26,863       11       239,286       230,886       162,913
Income before
income taxes         149,781       8,161        6          141,620       23,835       20       117,785        87,010        63,705
Provision for
income taxes          44,915       2,122        5           42,793        6,582       18        36,211        26,994        17,562
Net income      $    104,866     $ 6,039        6     $     98,827     $ 17,253       21     $  81,574     $  60,016     $  46,143
Less:
earnings
allocated to
participating
securities             1,556         306       24            1,250          313       33           937           618           443
Earnings
allocated to
common
shareholders    $    103,310     $ 5,733        6     $     97,577     $ 16,940       21     $  80,637     $  59,398     $  45,700
Earnings per
common share,
diluted         $       1.81     $  0.10        6     $       1.71     $   0.19       13     $    1.52     $    1.21     $    1.16


Net Interest Income
Net interest income is the difference between interest income and interest
expense. Net interest income on a fully taxable-equivalent basis expressed as a
percentage of average total interest-earning assets is referred to as the net
interest margin, which represents the average net effective yield on
interest-earning assets.

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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, net interest spread, net interest margin and the
ratio of average interest-earning assets to interest-earning liabilities:
Net Interest Income Summary
                                               2016                                     2015                                     2014
                                               Interest                                 Interest                                 Interest
                                 Average        Earned/     Average       Average        Earned/     Average       Average        Earned/     Average
                                Balances         Paid         Rate       Balances         Paid         Rate       Balances         Paid         Rate
                                                                               (dollars in thousands)
ASSETS
Loans, net (1)(2)(4)          $ 6,052,389     $ 296,283       4.90 %   $ 5,609,261     $ 289,450       5.16 %   $ 4,782,369     $ 270,210       5.65 %
Taxable securities (3)          1,804,004        35,167       1.95 %     1,577,711        30,774       1.95 %     1,332,144        28,754       2.16 %
Tax exempt securities (4)         465,117        17,109       3.68 %       454,148        18,219       4.01 %       376,431        16,997       4.52 %
Interest-earning deposits
with banks                         41,799           216       0.52 %        44,614           109       0.24 %        70,103           179       0.26 %
Total interest-earning
assets                          8,363,309       348,775       4.17 %     7,685,734       338,552       4.40 %     6,561,047       316,140       4.82 %
Other earning assets              156,871                                  149,476                                  132,419
Noninterest-earning assets        791,441                                  820,033                                  774,625
Total assets                  $ 9,311,621                              $ 8,655,243                              $ 7,468,091
LIABILITIES AND SHAREHOLDERS' EQUITY
Certificates of deposit       $   426,296     $     522       0.12 %   $   483,193     $     868       0.18 %   $   485,487     $   1,259       0.26 %
Savings accounts                  698,687            71       0.01 %       637,464            70       0.01 %       543,303            60       0.01 %
Interest-bearing demand           952,135           695       0.07 %       982,491           612       0.06 %     1,204,584           478       0.04 %
Money market accounts           1,993,283         1,846       0.09 %     1,834,733         1,427       0.08 %     1,668,150         1,208       0.07 %
Total interest-bearing
deposits                        4,070,401         3,134       0.08 %     3,937,881         2,977       0.08 %     3,901,524         3,005       0.08 %
Federal Home Loan Bank
advances                           79,673           671       0.84 %        70,678           474       0.67 %        44,876           396       0.88 %
Other borrowings and
interest-bearing
liabilities                        77,022           545       0.71 %        88,924           553       0.62 %        39,617           593       1.50 %
Total interest-bearing
liabilities                     4,227,096         4,350       0.10 %     4,097,483         4,004       0.10 %     3,986,017         3,994       0.10 %
Noninterest-bearing
deposits                        3,703,908                                3,208,947                                2,285,818
Other noninterest-bearing
liabilities                       110,816                                  101,861                                   86,675
Shareholders' equity            1,269,801                                1,246,952                                1,109,581
Total liabilities &
shareholders' equity          $ 9,311,621                              $ 8,655,243                              $ 7,468,091
Net interest income (tax equivalent)          $ 344,425                                $ 334,548                                $ 312,146
Net interest spread (tax equivalent)                          4.07 %                                   4.30 %                                   4.72 %
Net interest margin (tax equivalent)                          4.12 %                                   4.35 %                                   4.76 %
Average interest-earning assets to average
interest-bearing liabilities                                197.85 %                                 187.57 %                                 164.60 %


__________

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

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

acquired loans were included in the interest income calculations. The

amortization of net deferred loan fees was $5.3 million in 2016, $4.9 million

in 2015 and $4.5 million in 2014. The accretion of net unearned discounts on

certain acquired loans was $12.0 million in 2016, $18.1 million in 2015, and

$21.6 million in 2014.

(2) Incremental accretion on purchased credit impaired loans is also included in

loan interest earned. The incremental accretion income on purchased credit

impaired loans was $6.0 million in 2016, $9.1 million in 2015 and $20.2

million in 2014.

(3) During the twelve months ended December 31, 2014, the Company recorded a $2.6

million reversal of premium amortization, which increased interest income on

taxable securities.

(4) Yields on fully taxable equivalent basis. The tax equivalent yield adjustment

to interest earned on loans was $4.8 million, $3.3 million and $1.9 million

for the years ended December 31, 2016, 2015, and 2014, respectively. The tax

equivalent yield adjustment to interest earned on tax exempt securities was

$6.0 million, $6.4 million and $6.2 million for the years ended December 31,

    2016, 2015, and 2014, respectively.



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Net interest income is impacted by the volume (changes in volume multiplied by
prior rate), interest rate (changes in rate multiplied by prior volume) and the
mix of interest-earning assets and interest-bearing liabilities. The following
table shows changes in net interest income on a fully taxable-equivalent basis
between 2016 and 2015, as well as between 2015 and 2014 broken down between
volume and rate. 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:
                         Changes in Net Interest Income
                                                                                               2015 Compared to 2014
                                 2016 Compared to 2015 Increase (Decrease) Due to           Increase (Decrease) Due to
                                   Volume              Rate              Total           Volume        Rate         Total
                                                                      (in thousands)
Interest Income
Loans, net                    $       22,155       $  (15,322 )     $        6,833     $ 44,022     $ (24,782 )   $ 19,240
Taxable securities                     4,411              (18 )              4,393        4,964        (2,944 )      2,020
Tax-exempt securities                    432           (1,542 )             (1,110 )      3,255        (2,033 )      1,222
Interest earning deposits
with banks                                (7 )            114                  107          (61 )          (9 )        (70 )
Interest income               $       26,991       $  (16,768 )     $       10,223     $ 52,180     $ (29,768 )   $ 22,412
Interest Expense
Deposits:
Certificates of deposit       $          (93 )     $     (253 )     $         (346 )   $     (6 )   $    (385 )   $   (391 )
Savings accounts                           6               (5 )                  1           11            (1 )         10
Interest-bearing demand                  (19 )            102                   83         (100 )         234          134
Money market accounts                    131              288                  419          125            94          219
Total interest on deposits                25              132                  157           30           (58 )        (28 )
Federal Home Loan Bank
advances                                  65              132                  197          189          (111 )         78
Other borrowings and
interest-bearing
liabilities                              267             (275 )                 (8 )        (74 )          34          (40 )
Interest expense              $          357       $      (11 )     $          346     $    145     $    (135 )   $     10
                              $       26,634       $  (16,757 )     $        9,877     $ 52,035     $ (29,633 )   $ 22,402


Incremental accretion income represents the amount of interest income recorded
on acquired loans above the contractual rate stated in the individual loan
notes. The additional interest income stems from the net discount established at
the time these loan portfolios were acquired. 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:
                                            Year Ended December   Year 

Ended December Year Ended December

                                                 31, 2016              31, 2015              31, 2014
                                                                    (in 

thousands)

Incremental accretion income due to:
FDIC purchased credit impaired loans        $        5,972        $        9,096        $       20,224
Other FDIC acquired loans (2)                            -                   234                   484
Other acquired loans                                11,983                17,862                21,093

Total incremental accretion income $ 17,955 $ 27,192 $ 41,801 Net interest margin (tax equivalent)

                  4.12 %                4.35 %                4.76 %
Operating net interest margin (tax
equivalent) (1)                                       4.01 %                4.15 %                4.21 %


__________

(1) Operating net interest margin (tax equivalent) is a Non-GAAP financial measure. See Non-GAAP financial measures section of "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations." (2) For 2016, incremental accretion income on other FDIC acquired loans is no longer considered significant.

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Comparison of 2016 with 2015
Taxable-equivalent net interest income totaled $344.4 million in 2016, compared
with $334.5 million for 2015. The increase in net interest income during 2016
resulted from the increase in the size of the loan and securities portfolios,
partially offset by lower incremental accretion income from acquired loans as
well as lower yields on loan originations and renewals and purchased securities.
The Company's net interest margin (tax equivalent) decreased from 4.35% for the
year ended December 31, 2015 to 4.12% for the current year due primarily to the
decreased impact of accretion income on the loan portfolio as well as lower
yields on loans and securities. The Company's operating net interest margin (tax
equivalent) decreased from 4.15% for the year ended December 31, 2015 to 4.01%
for the current year due to lower rates on loans due to the overall decreasing
trend in rates.
For a discussion of the methodologies used by management in recording interest
income on loans, please see Note 1 to the Consolidated Financial Statements in
"Item 8. Financial Statements and Supplementary Data" of this report.
Comparison of 2015 with 2014
Taxable-equivalent net interest income totaled $334.5 million in 2015, compared
with $312.1 million for 2014. The increase in net interest income during 2015
resulted from the increase in the size of the loan and securities portfolios.
These increases were partially offset by lower incremental accretion from
acquired loans.
The Company's net interest margin (tax equivalent) decreased from 4.76% for the
year ended December 31, 2014 to 4.35% for the year ended December 31, 2015 due
to the decreased impact of accretion income on the loan portfolio. The Company's
operating net interest margin (tax equivalent) decreased from 4.21% in 2014 to
4.15% for 2015. The decrease was due to the combination of lower rates on loans
as well as securities due to the overall decreasing trend in rates.
Provision for Loan and Lease Losses
The Company accounts for the credit risk associated with lending activities
through its "Allowance for loan and lease losses" and "Provision for loan and
lease losses". The provision is the expense recognized in the Consolidated
Statements of Income to adjust the allowance to the levels deemed appropriate by
management, as determined through its application of the Company's allowance
methodology procedures. For discussion of the methodology used by management in
determining the adequacy of the ALLL see the "Allowance for Loan and Lease
Losses and Unfunded Commitments and Letters of Credit" and "Critical Accounting
Policies" sections of this discussion.
The Company recorded provision expense of $10.8 million, $8.6 million and $6.7
million in 2016, 2015 and 2014. respectively. The provision recorded in 2016
reflected management's ongoing assessment of the credit quality of the Company's
loan portfolio. Factors affecting the provision include net charge-offs, credit
quality migration, and size and composition of the loan portfolio and changes in
the economic environment during the period. See "Allowance for Loan and Lease
Losses and Unfunded Commitments and Letters of Credit" section of this
discussion for further information on factors considered by the Company in
assessing the credit quality of the loan portfolio and establishing the
allowance for loan and lease losses.
For the years ended December 31, 2016, 2015 and 2014, net loan charge-offs
amounted to $8.9 million, $10.0 million, and $9.6 million, respectively.

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Noninterest Income
The following table presents the significant components of noninterest income
and the related dollar and percentage change from period to period:
                                                           Years ended December 31,
                                             $            %                         $            %
                               2016        Change       Change      2015 (1)      Change      Change      2014 (1)
                                                            (dollars in thousands)
Deposit account and
treasury management fees
(1)                         $ 28,500     $     49           -  %   $ 28,451     $  2,729         11  %   $ 25,722
Card revenue (1)              23,620          930           4  %     22,690        2,911         15  %     19,779
Financial services and
trust revenue (1)             11,266       (1,330 )       (11 )%     12,596        1,011          9  %     11,585
Loan revenue (1)              10,967           35           -  %     10,932        2,594         31  %      8,338
Merchant processing
revenue                        8,732         (243 )        (3 )%      8,975        1,000         13  %      7,975
Bank owned life insurance
(BOLI)                         4,546          105           2  %      4,441          618         16  %      3,823
Other (1)                      1,855       (3,962 )       (68 )%      5,817        3,852        196  %      1,965
Noninterest income before
investment securities
gains and change in FDIC
loss-sharing asset            89,486       (4,416 )        (5 )%     93,902       14,715         19  %     79,187
Investment securities
gains                          1,181         (400 )       (25 )%      1,581        1,029        186  %        552
Change in FDIC
loss-sharing asset            (2,585 )      1,425         (36 )%     (4,010 )     15,979        (80 )%    (19,989 )
Total noninterest income    $ 88,082     $ (3,391 )        (4 )%   $ 91,473 

$ 31,723 53 % $ 59,750

__________

(1) Reclassified to conform to the current period's presentation.
Reclassifications consisted of disaggregating income previously presented as
"Service charges and other fees" and certain income previously presented in
"Other" into the presentation above. There was no change to "Total noninterest
income" as previously reported as a result of these reclassifications.
Comparison of 2016 with 2015
The $4.4 million decrease in noninterest income before the change in FDIC
loss-sharing asset and investment securities gains from the prior year was due
to a decrease of $4.0 million in other noninterest income primarily due to the
$3.1 million mortgage repurchase reserve adjustment recorded in 2015 as well as
a decrease of $1.3 million in financial services and trust revenue. The decrease
in financial services revenue was driven by reduced investment activity in the
current year. Investment activity was negatively impacted by employee turnover
and efforts expended to comply with certain new fiduciary rules related to
providing investment advice. Partially offsetting these decreases was an
increase in card revenue, which consists principally of debit card interchange
and ATM fees.
The change in FDIC loss-sharing asset declined from $4.0 million in 2015 to $2.6
million in 2016. The change in the FDIC loss-sharing asset recognizes the
decreased amount that Columbia expects to collect from the FDIC under the terms
of its loss-sharing agreements. The Company remeasures contractual and expected
cash flows of purchased credit impaired loans on a quarterly basis. When the
quarterly remeasurement results in an increase in expected future cash flows due
to a decrease in expected credit losses the nonaccretable difference decreases
and the accretable yield of the related loan pool is increased and recognized as
interest income over the life of the loan portfolio. As a result of the improved
expected cash flows, the FDIC loss-sharing asset is reduced first by the amount
of any impairment previously recorded and, second, by increased amortization
over the remaining life of the loss-sharing agreements. For additional
information on the FDIC loss-sharing asset, please see the "Loss-sharing Asset"
section of "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 8 to the Consolidated Financial Statements
in "Item 8. Financial Statements and Supplementary Data" of this report.
Comparison of 2015 with 2014
Noninterest income before the change in FDIC loss-sharing asset and investment
securities gains for the year ended December 31, 2015 was $93.9 million, an
increase of $14.7 million from 2014. The increase from the prior year was due to
the increased customer base from the 2014 Intermountain acquisition as well as
organic growth. Also contributing to the increase in other noninterest income
was a $3.1 million adjustment recorded in 2015 to the mortgage repurchase
liability related to our acquisition of West Coast.

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In addition to these increases there was a decrease in the charge relating to
the change in FDIC loss-sharing asset from a charge of $20.0 million in 2014 to
$4.0 million in 2015. For additional information on the FDIC loss-sharing asset,
please see the "Loss-sharing Asset" section of "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 8 to the
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report.
Noninterest Expense
The following table presents the significant components of noninterest expense
and the related dollar and percentage change from period to period:
                                                            Years ended December 31,
                                                $           %                        $           %
                                 2016         Change     Change       2015         Change     Change       2014
                                                             (dollars in thousands)
Compensation and employee
benefits                      $ 150,282     $    872        1  %   $ 149,410     $ 18,546       14  %   $ 130,864
All other noninterest
expense:
Occupancy                        33,734       (1,084 )     (3 )%      34,818        2,518        8  %      32,300
Merchant processing               4,330          126        3  %       4,204          198        5  %       4,006
Advertising and promotion         4,598         (115 )     (2 )%       4,713          749       19  %       3,964
Data processing                  16,488         (933 )     (5 )%      17,421        2,052       13  %      15,369
Legal and professional
services                          7,889       (1,719 )    (18 )%       9,608       (1,781 )    (16 )%      11,389
Taxes, license and fees           5,185         (210 )     (4 )%       5,395          843       19  %       4,552
Regulatory premiums               3,777       (1,029 )    (21 )%       4,806          257        6  %       4,549
Net cost (benefit) of
operation of other real
estate owned                        551        2,180     (134 )%      (1,629 )       (584 )     56  %      (1,045 )
Amortization of intangibles       5,946         (936 )    (14 )%       6,882          589        9  %       6,293
Other                            28,362       (2,159 )     (7 )%      30,521        3,476       13  %      27,045
Total all other noninterest
expense                         110,860       (5,879 )     (5 )%     

116,739 8,317 8 % 108,422 Total noninterest expense $ 261,142 $ (5,007 ) (2 )% $ 266,149 $ 26,863 11 % $ 239,286

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

                                                               Years ended December 31,
                                                            2016           2015         2014
                                                                    (in thousands)
Acquisition-related expenses:
Compensation and employee benefits                      $      35       $  3,893     $  2,875
Occupancy                                                   2,383          2,357          740
Advertising and promotion                                       -            448          464
Data processing                                                18          2,005          684
Legal and professional fees                                   291          1,254        2,497
Other                                                           -            960        2,172
Total impact of acquisition-related costs to
noninterest expense                                     $   2,727       $ 10,917     $  9,432
Acquisition-related expenses by transaction:
West Coast                                              $       -       $     72     $  4,535
Intermountain                                               2,436         10,845        4,897
Pacific Continental (1)                                       291              -            -
Total impact of acquisition-related costs to
noninterest expense                                     $   2,727       $ 10,917     $  9,432


__________

(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 2016 with 2015
Noninterest expense was $261.1 million in 2016, a decrease of $5.0 million, or
2%, over 2015. This decrease was driven by lower acquisition-related expenses in
the current year of $2.7 million compared to $10.9 million in 2015. After
removing the effect of acquisition-related expenses, noninterest expense
increased $3.2 million primarily due to higher cost of operation of OREO, which
was a net cost of $551 thousand in 2016 compared to a net benefit of $1.6
million in 2015.
Comparison of 2015 with 2014
Noninterest expense increased $26.9 million, or 11%, in 2015 over 2014.
Compensation and employee benefits expense increased 14% to $149.4 million in
2015 from $130.9 million in 2014 primarily due to the added personnel costs
associated with the Intermountain acquisition. The remaining noninterest expense
categories increased $8.3 million, or 8%, between 2014 and 2015. The increase
was primarily due to higher occupancy and data processing expenses, which were
due to higher acquisition-related expenses for these items in 2015.
Acquisition-related expenses were $10.9 million in 2015 compared to $9.4 million
in 2014.
Other Noninterest Expense: The following table presents selected items of "Other
noninterest expense" and the related dollar and percentage change from period to
period:
                                                         Years ended December 31,
                                             $           %                        $          %
                               2016        Change      Change     2015 (1)     Change      Change     2014 (1)
                                                          (dollars in thousands)
Software support and
maintenance                    4,682        1,356        41  %      3,326       1,148        53  %      2,178
Correspondent bank
processing fees                  555          (80 )     (13 )%        635         132        26  %        503
Supplies                       1,466          (31 )      (2 )%      1,497          24         2  %      1,473
Loan expenses (1)              1,478           46         3  %      1,432         253        21  %      1,179
Dues and subscriptions
(1)                            1,382           40         3  %      1,342         431        47  %        911
Postage                        2,141         (355 )     (14 )%      2,496        (440 )     (15 )%      2,936
Sponsorships and
charitable contributions       2,110           65         3  %      2,045          84         4  %      1,961
Travel and entertainment
(1)                            3,373         (625 )     (16 )%      3,998         864        28  %      3,134
Investor relations               221         (109 )     (33 )%        330          87        36  %        243
Insurance                      1,934            2         -  %      1,932         309        19  %      1,623
Director fees                    749          (87 )     (10 )%        836         125        18  %        711
Employee expenses              1,336          103         8  %      1,233         187        18  %      1,046
Card expenses (1)              2,692         (317 )     (11 )%      3,009         231         8  %      2,778
Other personal property
owned                             (7 )         88       (93 )%        (95 )        42       (31 )%       (137 )
FDIC clawback expense            280         (700 )     (71 )%        980         685       232  %        295
Fraud losses                     592         (889 )     (60 )%      1,481         805       119  %        676
Miscellaneous (1)              3,378         (666 )     (16 )%      4,044      (1,491 )     (27 )%      5,535
Total other noninterest
expense                     $ 28,362     $ (2,159 )      (7 )%   $ 30,521     $ 3,476        13  %   $ 27,045


__________
(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.
Income Tax
For the years ended December 31, 2016, 2015 and 2014 we recorded income tax
provisions of $44.9 million, $42.8 million and $36.2 million, respectively. The
effective tax rate was 30% in 2016 and 2015, and was 31% in 2014. Our effective
tax rate continues to be less than our federal statutory rate of 35% primarily
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, see Note 23 to the
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report.

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Financial Condition
Our total assets increased 6% to $9.51 billion at December 31, 2016 from $8.95
billion at December 31, 2015. Cash and cash equivalents increased $48.9 million.
Our available for sale securities portfolio increased $120.9 million, or 6%, due
primarily to purchases of securities resulting from deposits growing in excess
of loans. The loan portfolio increased $396.5 million, or 7%, to $6.14 billion
due to substantial new loan production partially offset by contractual payments
and prepayments. Partially offsetting these increases, premises and equipment,
net decreased $13.9 million or 8%, primarily due to depreciation.
Deposit balances increased $620.6 million, or 8%, to $8.06 billion, due to
organic growth. Federal Home Loan Bank advances decreased $62.0 million to $6.5
million as deposit inflows were used to repay short-term advances. Securities
sold under agreements to repurchase decreased $18.9 million to $80.8 million.
Total shareholders' equity increased $8.9 million to $1.25 billion.
Investment Portfolio
We invest in securities to generate revenue for the Company, to manage liquidity
while minimizing interest rate risk and to provide collateral for certain public
deposits and short-term borrowings. The amortized cost amounts represent the
Company's original cost for the investments, adjusted for accumulated
amortization or accretion of any yield adjustments related to the security. The
estimated fair values are the amounts we believe the securities could be sold
for as of the dates indicated. At December 31, 2016 gross unrealized losses in
our securities portfolio were $30.7 million related to 397 separate available
for sale securities. Based on past experience with these types of securities and
our own financial performance, we do not currently intend to sell any securities
in a loss position nor does available evidence suggest it is more likely than
not that management will be required to sell any securities currently in a loss
position before the recovery of the amortized cost basis. We review these
investments for other-than-temporary impairment on an ongoing basis.
During 2016, there were securities purchases of $570.0 million, while
maturities, repayments and sales totaled $407.2 million. During 2015, there were
purchases of $467.6 million, while maturities, repayments and sales totaled
$377.0 million.
At December 31, 2016, U.S. government agency and government-sponsored enterprise
mortgage-backed securities ("MBS") and collateralized mortgage obligations
("CMO") comprised 64% of our investment portfolio, state and municipal
securities were 21%, and government agency and government-sponsored enterprise
securities were 15%. Our entire investment portfolio is categorized as available
for sale and carried on our balance sheet at fair value. The average duration of
our investment portfolio was approximately 4 years at December 31, 2016. This
duration takes into account calls, where appropriate, and consensus prepayment
speeds.

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The following table presents the contractual maturities and weighted average yield of our investment portfolio:

                                                                December 31, 2016
                                                      Amortized         Fair
                                                        Cost            Value         Yield
                                                              (dollars in thousands)
U.S. government agency and government-sponsored
enterprise mortgage-backed securities &
collateralized mortgage obligations (1)
Due through 1 year                                  $       201     $       199         2.02 %
Over 1 through 5 years                                   97,627          97,376         2.23 %
Over 5 through 10 years                                 459,404         451,862         2.81 %
Over 10 years                                           929,458         916,295         2.35 %
Total                                               $ 1,486,690     $ 1,465,732         2.48 %
State and municipal securities (2)
Due through 1 year                                  $    16,135     $    16,244         3.40 %
Over 1 through 5 years                                  132,182         134,384         3.65 %
Over 5 through 10 years                                 194,694         195,251         3.59 %
Over 10 years                                           130,903         129,181         3.83 %
Total                                               $   473,914     $   475,060         3.66 %
U.S. government agency and government-sponsored
enterprise securities (1)
Due through 1 year                                  $    21,712     $    21,725         0.98 %
Over 1 through 5 years                                  284,996         285,273         1.55 %
Over 5 through 10 years                                  25,640          24,904         1.72 %
Total                                               $   332,348     $   331,902         1.52 %
U.S. government securities (1)
Due through 1 year                                  $       549     $       549         0.61 %
Over 1 through 5 years                                      252             251         1.39 %
Total                                               $       801     $       800         0.85 %


 __________

(1) The maturities reported for mortgage-backed securities, collateralized

mortgage obligations, government agency, government-sponsored enterprise, and

government securities are based on contractual maturities and principal

amortization.

(2) Yields on fully taxable equivalent basis.



For further information on our investment portfolio, see Note 4 of the
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report.
Federal Home Loan Bank Stock
Federal Home Loan Bank of Des Moines (the "FHLB Des Moines") stock is composed
of two sub-classes: membership stock and activity based stock. Membership stock
is stock we are required to purchase and hold as a condition of membership in
the FHLB. The Company's membership stock purchase requirement is measured as a
percentage of our year-end assets, subject to a $10 million cap. Activity based
stock is stock we are required to purchase and hold in order to obtain an
advance or participate in FHLB mortgage programs. The Company's activity based
stock purchase requirement is measured as a percentage of our advance proceeds.
At December 31, 2016 the Company held $10.2 million of FHLB Des Moines Class B
stock, $10.0 million of which was membership stock and the remaining $240
thousand was activity based. The FHLB stock is issued, transferred, redeemed,
and repurchased at a par value of $100.

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Loan Portfolio
The 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 our loan portfolio
by type of loan for the dates indicated:
                                                                                           December 31,
                                                 % of                       % of                       % of                       % of                       % of
                                   2016         Total         2015         Total         2014         Total         2013         Total         2012         Total
                                                                                      (dollars in thousands)
Commercial business            $ 2,551,054      41.1  %   $ 2,362,575      40.6  %   $ 2,119,565      38.9  %   $ 1,561,782      34.6  %   $ 1,155,158      39.2  %
Real estate:
One-to-four family
residential                        170,331       2.7  %       176,295       3.0  %       175,571       3.2  %       108,317       2.4  %        43,922       1.5  %
Commercial and multifamily
residential                      2,719,830      43.7  %     2,491,736      42.9  %     2,363,541      43.5  %     2,080,075      46.0  %     1,061,201      36.0  %
Total real estate                2,890,161      46.4  %     2,668,031      45.9  %     2,539,112      46.7  %     2,188,392      48.4  %     1,105,123      37.5  %
Real estate construction:
One-to-four family
residential                        121,887       2.0  %       135,874       

2.3 % 116,866 2.1 % 54,155 1.2 % 50,602

      1.7  %
Commercial and multifamily
residential                        209,118       3.4  %       167,413       2.9  %       134,443       2.5  %       126,390       2.8  %        65,101       2.2  %
Total real estate
construction                       331,005       5.4  %       303,287       5.2  %       251,309       4.6  %       180,545       4.0  %       115,703       3.9  %
Consumer                           329,261       5.3  %       342,601       5.9  %       364,182       6.7  %       357,014       7.9  %       157,493       5.4  %
Purchased credit impaired      $   145,660       2.3  %   $   180,906       3.1  %   $   230,584       4.2  %   $   297,845       6.6  %   $   421,393      14.3  %
Subtotal                         6,247,141     100.5  %     5,857,400     100.7  %     5,504,752     101.1  %     4,585,578     101.5  %     2,954,870     100.3  %
Less: Net unearned income          (33,718 )    (0.5 )%       (42,373 )    (0.7 )%       (59,374 )    (1.1 )%       (68,282 )    (1.5 )%        (7,767 )    (0.3 )%
Loans, net of unearned
income (before Allowance for
Loan and Lease Losses)           6,213,423     100.0  %     5,815,027     100.0  %     5,445,378     100.0  %     4,517,296     100.0  %     2,947,103     100.0  %
Loans held for sale            $     5,846                $     4,509                $     1,116                $       735                $     2,563


At December 31, 2016, total loans, gross of the ALLL were $6.21 billion compared
with $5.82 billion in the prior year, an increase of $398.4 million, or 7% from
the previous year. The increase in the loan portfolio was primarily due to new
loan production during the year. Total loans, net of the ALLL represented 65%
and 64% of total assets at December 31, 2016 and 2015, respectively.
Commercial Business 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.

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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").
Net unearned income: The following table provides additional detail related to
the net discount of acquired and purchased loans, excluding PCI loans, by
acquisition for the periods indicated:
                                      2016         2015         2014
Acquisition:                                  (in thousands)
Intermountain                      $  6,599     $  8,237     $ 10,453
West Coast                           13,957       24,367       40,623
Other                                  (315 )       (432 )       (303 )

Total net discount at period end $ 20,241 $ 32,172 $ 50,773



For additional information on our loan portfolio, including amounts pledged as
collateral on borrowings, see Note 5 to the Consolidated Financial Statements in
"Item 8. Financial Statements and Supplementary Data" of this report.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table presents the maturity distribution of our commercial and
real estate construction loan portfolios and the sensitivity of these loans due
after one year to changes in interest rates as of December 31, 2016:
                                                   Maturing
                                Due          Over 1
                             Through 1      Through 5      Over 5
                                Year          Years        Years         Total
                                                (in thousands)
Commercial business         $ 1,014,528    $  752,816    $ 803,895    $ 2,571,239
Real estate construction        143,065        56,588      133,749        333,402
Total                       $ 1,157,593    $  809,404    $ 937,644    $ 

2,904,641

Fixed rate loans due after 1 year          $  497,164    $ 564,016    $ 1,061,180
Variable rate loans due after 1 year          312,240      373,628        685,868
Total                                      $  809,404    $ 937,644    $ 1,747,048


Risk Elements
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, 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 following "Allowance for Loan and Lease Losses and Unfunded Commitments
and Letters of Credit" section and Note 1 to the Consolidated Financial
Statements in "Item 8. Financial Statements and Supplementary Data" of this
report.

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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.
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) OPPO, if
applicable. Nonperforming assets totaled $33.8 million, or 0.35% of year end
assets at December 31, 2016, compared to $35.2 million, or 0.39% of year end
assets at December 31, 2015.
Nonperforming 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.
The following table sets forth information with respect to our nonperforming
loans, OREO, OPPO, total nonperforming assets, accruing loans past-due 90 days
or more, and potential problem loans:
                                                              December 31,
                                        2016         2015         2014         2013         2012
                                                         (dollars in thousands)
Nonaccrual:
Commercial business                  $ 11,555     $  9,437     $ 16,799     $ 12,609     $  9,299
Real estate:
One-to-four family residential            568          820        2,822        2,667        2,349
Commercial and multifamily
residential                            11,187        9,513        7,847       11,043       19,204
Real estate construction:
One-to-four family residential            563          928          465        3,705        4,900
Commercial and multifamily
residential                                 -            -          480            -            -
Consumer                                3,883          766        2,939        3,991        1,643
Total nonaccrual loans:                27,756       21,464       31,352       34,015       37,395
Other real estate owned and other
personal property owned                 5,998       13,738       22,225       36,036       27,464
Total nonperforming assets           $ 33,754     $ 35,202     $ 53,577     $ 70,051     $ 64,859
Accruing loans past-due 90 days or
more                                 $      -     $      -     $  1,386     $      -     $      -
Forgone interest on nonperforming
loans                                $  1,919     $  1,287     $  2,196     $  2,860     $  3,388
Interest recognized on
nonperforming loans                  $    237     $    202     $  1,327     $  1,306     $  1,114
Potential problem loans              $ 31,744     $ 23,654     $  7,846     $ 13,356     $  5,915
Allowance for loan and lease
losses                               $ 70,043     $ 68,172     $ 69,569     $ 72,454     $ 82,300
Nonperforming loans to year end
loans                                    0.45 %       0.37 %       0.58 %       0.75 %       1.27 %
Nonperforming assets to year end
assets                                   0.35 %       0.39 %       0.62 %   

0.98 % 1.32 %



At December 31, 2016, nonperforming loans increased to 0.45% of year end loans,
up from 0.37% of year end loans at December 31, 2015. The largest increase in
nonperforming loans was in consumer loans, which increased from $766 thousand,
or 4% of nonperforming loans at December 31, 2015 to $3.9 million, or 14% of
nonperforming loans at year end 2016. The increase in nonperforming consumer
loans was primarily due to an increase in nonaccrual home equity loans and lines
of credit.

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Other Real Estate Owned and Other Personal Property Owned: As of December 31,
2016 there was $6.0 million in OREO and OPPO, which is primarily comprised of
property from foreclosed real estate loans, a decrease of $7.7 million from
$13.7 million at December 31, 2015. The decrease was primarily driven by OREO
sales of $7.9 million. Properties acquired by foreclosure or deed in lieu of
foreclosure are transferred to OREO and are recorded at fair value less
estimated costs to sell, at the date of transfer of the property. If the
carrying value exceeds the fair value at the time of the transfer, the
difference is charged to the allowance for loan and lease losses. The fair value
of the OREO property is based upon current appraisal. Subsequent losses that
result from the ongoing periodic valuation of these properties are charged to
the net cost of operation of OREO expense in the period in which they are
identified. In general, improvements to the OREO are capitalized and holding
costs are charged to the net cost of operation of OREO as incurred.
Potential Problem Loans: Potential problem loans are loans which are currently
performing and are not on nonaccrual status, restructured or impaired, but about
which there are significant doubts as to the borrower's future ability to comply
with repayment terms and which may later be included in nonaccrual, past due,
restructured or impaired loans. Potential problem loans totaled $31.7 million at
year end 2016, compared to $23.7 million at year end 2015.
The following table summarizes activity in nonperforming loans for the period
indicated:
                                                          Years Ended December 31,
                                                            2016             2015
                                                               (in thousands)
Balance, beginning of period                           $     21,464       $ 

31,352

Loans placed on nonaccrual or restructured                   42,006          31,646
Advances                                                        492           1,613
Charge-offs                                                  (6,600 )        (4,950 )
Loans returned to accrual status                             (4,649 )        (4,804 )
Repayments (including interest applied to principal)        (24,834 )       (30,119 )
Transfers to OREO/OPPO                                         (123 )        (3,274 )
Balance, end of period                                 $     27,756       $  21,464


Loans are considered impaired when based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement or when a loan has been modified
in a troubled debt restructuring. A loan is classified as a troubled debt
restructuring when a borrower is experiencing financial difficulties that lead
to a restructuring of the loan, and the Company grants concessions to the
borrower in the restructuring that it would not otherwise consider. These
concessions may include interest rate reductions, principal forgiveness,
extension of maturity date and other actions intended to minimize potential
losses. Generally, a nonaccrual loan that is restructured remains on nonaccrual
status for a period of six months to demonstrate that the borrower can meet the
restructured terms. If the borrower's performance under the new terms is not
reasonably assured, the loan remains classified as a nonaccrual loan.
The assessment for impairment occurs when and while such loans are designated as
classified per the Company's internal risk rating system or when and while such
loans are on nonaccrual. All nonaccrual loans greater than $500,000 and all
troubled debt restructured loans are considered impaired and analyzed
individually on a quarterly basis. Classified loans with an outstanding balance
greater than $500,000 are evaluated for potential impairment on a quarterly
basis. The Company's policy is to record cash receipts on impaired loans first
as reductions in principal and then as interest income.

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The following table summarizes impaired loan financial data at December 31, 2016
and 2015:
                                               December 31,
                                             2016        2015
                                              (in thousands)
Impaired loans                             $ 25,459    $ 16,080

Impaired loans with specific allocations $ 7,867 $ 1,354 Amount of the specific allocations $ 761 $ 653



Impaired loans with a carrying amount of $25.5 million at December 31, 2016 were
subject to specific allocations of allowance for loan and lease losses of $761
thousand and partial charge-offs of $5.0 million during the year. Collateral
dependent impaired loans without specific allocations at December 31, 2016 and
2015 either had collateral which exceeded the carrying value of the loans or
reflected a partial charge-off to the market value of collateral (less costs to
sell), as of the most recent appraisal date. Restructured loans accruing
interest totaled $6.2 million and $3.2 million at December 31, 2016 and 2015,
respectively.
When a loan with unique risk characteristics has been identified as being
impaired, the amount of impairment will be measured by the Company using
discounted cash flows, except when it is determined that the remaining source of
repayment for the loan is the operation or liquidation of the underlying
collateral. In these cases, the current fair value of the collateral, reduced by
costs to sell, will be used in place of discounted cash flows. As a final
alternative, the observable market price of the debt may be used to assess
impairment. Predominately, the Company uses the fair value of collateral
approach based upon a reliable valuation.
When a loan secured by real estate migrates to nonperforming and impaired status
and it does not have a market valuation less than one year old, the Company
secures an updated market valuation by a third-party appraiser that is reviewed
by the Company's on-staff appraiser. Subsequently, the asset will be appraised
annually by a third-party appraiser or the Company's on-staff appraiser. The
evaluation may occur more frequently if management determines that there has
been increased market deterioration within a specific geographical location.
Upon receipt and verification of the market valuation, the Company will record
the loan at the lower of cost or market (less costs to sell) by recording a
charge-off to the allowance for loan and lease losses or by designating a
specific reserve in accordance with accounting principles generally accepted in
the United States.
For additional information on our nonperforming loans, see Note 5 to our
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report.
Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of
Credit
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.

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Analysis of the ALLL
The following table provides an analysis of our loan loss experience by loan
type for the last five years:
               Changes in Allowance for Loan and Lease Losses and
                   Unfunded Commitments and Letters of Credit
                                                                   December 31,
                                       2016            2015            2014            2013            2012
                                                              (dollars in thousands)
Beginning balance                  $    68,172     $    69,569     $    72,454     $    82,300     $    57,985
Charge-offs:
Commercial business                    (10,068 )        (8,266 )        (4,289 )        (4,942 )       (10,173 )
Real estate:
One-to-four family residential             (35 )          (376 )          (230 )          (228 )          (549 )
Commercial and multifamily
residential                                (89 )          (505 )        (2,993 )        (2,543 )        (5,474 )
Real estate construction:
One-to-four family residential             (88 )             -               -            (133 )        (1,606 )
Commercial and multifamily
residential                                  -               -               -               -             (93 )
Consumer                                (1,238 )        (2,066 )        (2,774 )        (2,242 )        (2,534 )
Purchased credit impaired               (9,944 )       (13,854 )       (14,436 )       (13,852 )        (5,112 )
Total charge-offs                      (21,462 )       (25,067 )       (24,722 )       (23,940 )       (25,541 )
Recoveries:
Commercial business                      2,645           2,336           3,007           2,444           1,548
Real estate:
One-to-four family residential             171             307             159             270             285
Commercial and multifamily
residential                              1,402           3,975             940           1,033           1,599
Real estate construction:
One-to-four family residential             291             193           1,930           2,665           1,488
Commercial and multifamily
residential                                109               8               -               -              66
Consumer                                   933             931           1,353             552           1,171
Purchased credit impaired                7,004           7,329           7,721           7,231           4,332
Total recoveries                        12,555          15,079          15,110          14,195          10,489
Net charge-offs                         (8,907 )        (9,988 )        (9,612 )        (9,745 )       (15,052 )
Provision (recapture) for loan
and lease losses                        10,778           8,591           6,727            (101 )        39,367
Ending balance                     $    70,043     $    68,172     $    69,569     $    72,454     $    82,300
Loans outstanding at end of
period (1)                         $ 6,213,423     $ 5,815,027     $ 5,445,378     $ 4,517,296     $ 2,947,103
Average amount of loans
outstanding (1)                    $ 6,052,389     $ 5,609,261     $ 4,782,369     $ 4,140,826     $ 2,900,520
Allowance for loan and lease
losses to period-end loans                1.13 %          1.17 %          1.28 %          1.60 %          2.79 %
Net charge-offs to average loans
outstanding                               0.15 %          0.18 %          0.20 %          0.24 %          0.52 %
Allowance for unfunded
commitments and letters of
credit
Beginning balance                  $     2,930     $     2,655     $     2,505     $     1,915     $     1,535
Net changes in the allowance for
unfunded commitments and letters
of credit                                 (225 )           275             150             590             380
Ending balance                     $     2,705     $     2,930     $     2,655     $     2,505     $     1,915


 __________

(1) Excludes loans held for sale.

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At December 31, 2016, our ALLL was $70.0 million, or 1.13% 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. This decrease in the allowance relative to loans in the current period as
compared to December 31, 2015 reflects improvements in core asset quality during
the current year.
We have used the same methodology for ALLL calculations during 2016, 2015 and
2014. Adjustments to the percentages of the ALLL allocated to loan categories
are made based on trends with respect to delinquencies and problem loans within
each loan class. The Bank reviews the ALLL quantitative and qualitative
methodology on a quarterly basis and makes adjustments when appropriate. We
continue to make revisions to our ALLL as necessary to maintain adequate
reserves. The Bank carefully monitors the loan portfolio and continues to
emphasize the importance of credit quality while continuously strengthening loan
monitoring systems and controls.
Allocation of the ALLL
The table below sets forth the allocation of the ALLL by loan category:
                                                                   December 31,
                         2016                   2015                   2014                   2013                   2012
Balance at End
of                             % of                   % of                   % of                   % of                   % of
Period                         Total                  Total                  Total                  Total                  Total

Applicable to: Amount Loans* Amount Loans* Amount Loans* Amount Loans* Amount Loans*

                                                              (dollars in 

thousands)

Commercial

business $ 37,010 41.0 % $ 33,620 40.5 % $ 26,850

  38.8 %   $ 31,723      34.4 %   $ 28,023      39.1 %
Real estate
and
construction:
One-to-four
family
residential         1,584       4.7 %      1,988       5.3 %      5,338       5.3 %      2,684       3.5 %      2,500       3.2 %
Commercial and
multifamily
residential        17,174      46.8 %     14,738      45.4 %     16,021      45.4 %     13,671      48.2 %     18,273      38.1 %
Consumer            3,534       5.2 %      3,531       5.7 %      3,180       6.3 %      2,547       7.3 %      2,437       5.3 %
Purchase
credit
impaired           10,515       2.3 %     13,726       3.1 %     16,336    

4.2 % 20,174 6.6 % 30,056 14.3 % Unallocated

           226         - %        569         - %      1,844         - %      1,655         - %      1,011         - %
Total            $ 70,043     100.0 %   $ 68,172     100.0 %   $ 69,569     100.0 %   $ 72,454     100.0 %   $ 82,300     100.0 %

__________

* Represents the total of all outstanding loans in each category as a percent of
total loans outstanding.
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 December 31, 2016, the FDIC loss-sharing asset was comprised of a $2.7
million FDIC indemnification asset and a $794 thousand FDIC receivable. The FDIC
receivable represents amounts due from the FDIC for claims related to covered
losses the Company has incurred less amounts due back to the FDIC relating to
shared recoveries.

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The following table summarizes the activity related to the FDIC loss-sharing asset for the years ended December 31, 2016 and 2015:

                                                 Years Ended December 31,
                                                  2016              2015
                                                      (in thousands)
Balance at beginning of period               $     6,568       $     15,174
Adjustments not reflected in income:
Cash paid to (received from) the FDIC, net           705             (2,794 )
FDIC reimbursable recoveries, net                 (1,153 )           (1,802 )
Adjustments reflected in income:
Amortization, net                                 (2,829 )           (6,184 )
Loan impairment                                      301              2,268
Sale of other real estate                            148             (1,237 )
Valuation adjustments of other real estate           (22 )            1,158
Other                                               (183 )              (15 )
Balance at end of period                     $     3,535       $      6,568


For additional information on the FDIC loss-sharing asset, including the timing
of the expirations of our loss-sharing agreements with the FDIC, please see Note
8 to the Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report.
Deposits
The following table sets forth the composition of the Company's deposits by
significant category:
                                                                   December 31,
                                                       2016          2015 (1)        2014 (1)
                                                                  (in thousands)
Core deposits:
Demand and other noninterest-bearing               $ 3,944,495     $ 3,507,358     $ 2,651,373
Interest-bearing demand                                985,293         925,909       1,304,258
Money market                                         1,791,283       1,788,552       1,760,331
Savings                                                723,667         657,016         615,721
Certificates of deposit, less than $250,000 (1)        304,830         359,878         421,909
Total core deposits                                  7,749,568       7,238,713       6,753,592
Certificates of deposit, $250,000 or more (1)           79,424          72,126          68,366
Certificates of deposit insured through CDARS®          22,039          26,901          18,429
Brokered money market accounts                         208,348         100,854          83,402
Subtotal                                             8,059,379       7,438,594       6,923,789
Premium resulting from acquisition date fair
value adjustment                                            36             235             933
Total deposits                                     $ 8,059,415     $ 7,438,829     $ 6,924,722


_________
(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.
Deposits totaled $8.06 billion at December 31, 2016 compared to $7.44 billion at
December 31, 2015. The increase of $620.6 million was due to organic growth.
Core deposits, which include noninterest-bearing deposits and interest-bearing
deposits excluding time deposits of $250,000 and over, provide a stable source
of low cost funding. Core deposits increased to $7.75 billion at December 31,
2016 compared with $7.24 billion at December 31, 2015. We anticipate continued
growth in our core deposits through both the addition of new customers and our
current client base. During 2015, as part of a product migration to our new
deposit account product line, a substantial portion of our interest-bearing
deposits which were typically bearing a nominal interest rate were migrated to
noninterest-bearing deposit products. This migration resulted in a decrease in
interest-bearing demand deposit balances and an increase in noninterest-bearing
deposit balances during 2015.

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At December 31, 2016, brokered and other wholesale deposits (excluding public
deposits) totaled $230.4 million or 2.9% of total deposits compared to $127.8
million or 1.7% of total deposits, at year-end 2015. The increase in brokered
deposits is attributed to an increase in participation in the brokered money
market account program, which is similar to 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. These extended deposit insurance programs are generally available only
to existing customers and are not used as a means of generating additional
liquidity.
At December 31, 2016, public deposits held by the Company totaled $427.7 million
compared to $373.3 million at December 31, 2015. Uninsured public deposit
balances increased from $312.2 million at December 31, 2015 to $368.2 million at
December 31, 2016. The Company is required to collateralize 50% of Washington
state and Oregon state public deposits.
The following table sets forth the amount outstanding of time certificates of
deposit and other time deposits in amounts of $100,000 or more (which represent
CDARS® accounts) by time remaining until maturity and percentage of total
deposits:
                                                                                      December 31, 2016
                                                           Time Certificates of Deposit                        Other Time Deposits of
                                                                of $100,000 or More                               $100,000 or More
                                                                                        Percent of                                 Percent of
                                                                                          Total                                      Total
Amounts maturing in:                                           Amount                    Deposits              Amount               Deposits
                                                                                    (dollars in thousands)
Three months or less                            $             67,201                        0.8 %     $       17,709                   0.2 %
Over 3 through 6 months                                       31,681                        0.4 %                801                     - %
Over 6 through 12 months                                      38,306                        0.5 %              3,529                   0.1 %
Over 12 months                                                31,067                        0.4 %                  -                     - %
Total                                           $            168,255                        2.1 %     $       22,039                   0.3 %

The following table sets forth the average amount of and the average rate paid on each significant deposit category:

                                                      Years ended December 31,
                                       2016                     2015                     2014
                                 Average                  Average                  Average
                                Deposits       Rate      Deposits       Rate      Deposits       Rate
                                                       (dollars in thousands)
Interest bearing demand       $   952,135     0.07 %   $   982,491     0.06 %   $ 1,204,584     0.04 %
Money market                    1,993,283     0.09 %     1,834,733     0.08 %     1,668,150     0.07 %
Savings                           698,687     0.01 %       637,464     0.01 %       543,303     0.01 %
Certificates of deposit           426,296     0.12 %       483,193     0.18 %       485,487     0.26 %
Total interest-bearing
deposits                        4,070,401     0.08 %     3,937,881     0.08 %     3,901,524     0.08 %
Demand and other
non-interest bearing            3,703,908                3,208,947                2,285,818
Total average deposits        $ 7,774,309              $ 7,146,828              $ 6,187,342


Borrowings
Borrowed funds provide an additional source of funding for loan growth. Our
borrowed funds consist primarily of borrowings from the FHLB Des Moines ("FHLB")
and Federal Reserve Bank ("FRB") as well as securities repurchase agreements.
FHLB and FRB borrowings are secured by our loan portfolio and investment
securities. Securities repurchase agreements are secured by investment
securities. For additional information on our borrowings, including amounts
pledged as collateral, see Notes 12, 13 and 14 to the Consolidated Financial
Statements in "Item 8. Financial Statements and Supplementary Data" of this
report.
Off-Balance Sheet Arrangements
In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount reflected in the Consolidated Balance Sheets.

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Exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of those instruments.
The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Company evaluates
each client's creditworthiness on a case-by-case basis.
Commitments to extend credit are agreements to lend to a client as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
The Company had off-balance sheet loan commitments aggregating $2.17 billion at
December 31, 2016, an increase from $1.93 billion at December 31, 2015. Standby
letters of credit were $49.7 million at December 31, 2016, an increase from
$38.7 million at December 31, 2015. In addition, commitments under commercial
letters of credit used to facilitate customers' trade transactions and other
off-balance sheet liabilities amounted to $3.4 million and $5.0 million at
December 31, 2016 and 2015, respectively.
Contractual Obligations & Commitments
We are party to many contractual financial obligations, including repayment of
borrowings, operating and equipment lease payments, and commitments to extend
credit. The table below presents certain future financial obligations of the
Company:
                                             Payments due within time period at December 31, 2016
                                                                                     Due after
                                       0-12                1-3           4-5           Five
                                      Months              Years         Years          Years           Total
                                                                (in thousands)
Operating & equipment leases   $        8,891          $  15,539     $  11,652     $    13,474     $    49,556
Total deposits (1)                  7,969,748             65,234        24,050             383       8,059,415
Federal Home Loan Bank
advances (1)                                -              1,000             -           5,000           6,000
Other borrowings (1)                   55,822             25,000             -               -          80,822
Total                          $    8,034,461          $ 106,773     $  35,702     $    18,857     $ 8,195,793


__________

(1) In the banking industry, interest-bearing obligations are principally used
to fund interest-earning assets. As such, interest charges on contractual
obligations were excluded from reported amounts, as the potential cash outflows
would have corresponding cash inflows from interest-earning assets.
For additional information regarding future financial commitments, see Note 17
to our Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this report.
Liquidity and Sources of Funds
In general, our primary sources of funds are net income, loan repayments,
maturities and principal payments on investment securities, customer deposits,
advances from the FHLB, securities repurchase agreements and other borrowings.
These funds are used to make loans, purchase investments, meet deposit
withdrawals and maturing liabilities and cover operational expenses. Scheduled
loan repayments and core deposits have proved to be a relatively stable source
of funds while other deposit inflows and unscheduled loan prepayments are
influenced by interest rate levels, competition and general economic conditions.
We manage liquidity through monitoring sources and uses of funds on a daily
basis and had unused credit lines with the FHLB and the FRB of $1.50 billion and
$61.0 million, respectively, at December 31, 2016, that are available to us as a
supplemental funding source. The holding company's sources of funds are
dividends from its banking subsidiary which are used to fund dividends to
shareholders and cover operating expenses.
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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Capital

Our shareholders' equity increased to $1.25 billion at December 31, 2016, from
$1.24 billion at December 31, 2015. Shareholders' equity was 13.16% and 13.88%
of total assets at December 31, 2016 and 2015.
Regulatory Capital. In July 2013, the federal bank regulators approved the New
Capital Rules (as discussed in "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 December 31, 2016, 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 December 31, 2016 and 2015.
The following table sets forth the Company's and the Bank's capital ratios at
December 31, 2016 and 2015:
                                        Company             Columbia Bank               Requirements
                                                                                 Adequately        Well-
                                    2016        2015       2016        2015     Capitalized     Capitalized
Common Equity Tier 1 risk-based
capital ratio                     11.6450 %    11.94 %   11.5051 %    11.76 

% 4.5 % 6.5 % Tier 1 risk-based capital ratio 11.6646 % 11.95 % 11.5051 % 11.76 %

            6 %           8 %

Total risk-based capital ratio 12.6347 % 12.94 % 12.4756 % 12.75 %

            8 %          10 %
Leverage ratio                     9.5526 %    10.03 %    9.4275 %     9.89 %            4 %           5 %

Capital conservation buffer 4.6347 % N/A 4.4756 % N/A

0.625 % N/A



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.
Dividends
The following table sets forth the dividends paid per common share and the
dividend payout ratio (dividends paid per common share divided by basic earnings
per share):
                                       Years ended December 31,
                                     2016          2015       2014

Dividends paid per common share $ 1.53 $ 1.34 $ 0.94 Dividend payout ratio (1)

               85 %         78 %       62 %


______________

(1) Dividends paid per common share as a percentage of earnings per diluted
common share
For quarterly detail of dividends declared during 2016 and 2015, including
special dividends declared, see "Item 5. Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities" of this
report.
Subsequent to year end, on January 26, 2017 the Company declared a quarterly
cash dividend of $0.22 per share payable on February 22, 2017, to shareholders
of record at the close of business on February 8, 2017.
Applicable federal and Washington state regulations restrict capital
distributions, including dividends, by the Company's banking subsidiary. Such
restrictions are tied to the institution's capital levels after giving effect to
distributions. Our ability to pay cash dividends is substantially dependent upon
receipt of dividends from the Bank. In addition, the payment of cash dividends
is subject to Federal regulatory requirements for capital levels and other
restrictions. In this regard, current guidance from the Federal Reserve
provides, among other things, that dividends per share on the Company's common
stock generally should not exceed earnings per share, measured over the previous
four fiscal quarters.

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Reference "Item 6. Selected Financial Data" of this report for our return on
average assets, return on average equity and average equity to average assets
ratios for all reported periods.
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators, the Company
considers various measures when evaluating capital utilization and adequacy,
including:
• Tangible common equity to tangible assets, and


• Tangible common equity to risk-weighted assets.



The Company believes these measures are important because they reflect the level
of capital available to withstand unexpected market conditions. Additionally,
presentation of these measures allows readers to compare certain aspects of the
Company's capitalization to other organizations. These ratios differ from
capital measures defined by banking regulators principally in that the numerator
excludes shareholders' equity associated with preferred securities, the nature
and extent of which varies across organizations. Additionally, these measures
present capital adequacy inclusive and exclusive of accumulated other
comprehensive income. These calculations are intended to complement the capital
ratios defined by banking regulators for both absolute and comparative purposes.
Because generally accepted accounting principles in the United States of America
("GAAP") do not include capital ratio measures, the Company believes there are
no comparable GAAP financial measures to these tangible common equity ratios.
The following table reconciles the Company's calculation of these measures to
amounts reported under GAAP.
Despite the importance of these measures to the Company, there are no
standardized definitions for them and, as a result, the Company's calculations
may not be comparable with other organizations. The Company encourages readers
to consider its Consolidated Financial Statements in their entirety and not to
rely on any single financial measure.
                                                             December 31, 2016     December 31, 2015
                                                                     (dollars in thousands)
Shareholders' equity                                        $       1,251,012     $       1,242,128
Goodwill                                                             (382,762 )            (382,762 )
Other intangible assets, net                                          (17,631 )             (23,577 )
Preferred stock                                                        (2,217 )              (2,217 )
Tangible common equity (a)                                            848,402               833,572
Total assets                                                        9,509,607             8,951,697
Goodwill                                                             (382,762 )            (382,762 )
Core deposit intangible                                               (17,631 )             (23,577 )
Tangible assets (b)                                         $       

9,109,214 $ 8,545,358 Risk-weighted assets, determined in accordance with prescribed regulatory requirements (c)

                      $       7,498,654     $       7,141,545
Ratios
Tangible common equity to tangible assets (a)/(b)                        9.31 %                9.75 %
Tangible common equity to risk-weighted assets (a)/(c)                  11.31 %               11.67 %



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The Company also 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 that may not have had significant
acquisitions. Despite the importance of the operating net interest margin 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:
                                                               Years ended December 31,
                                                         2016            2015            2014
Operating net interest margin non-GAAP
reconciliation:                                                 (dollars in 

thousands)

Net interest income (tax equivalent) (1)             $   344,425     $   334,548     $   312,146
Adjustments to arrive at operating net interest
income (tax equivalent):
Incremental accretion income on FDIC purchased
credit impaired loans                                     (5,972 )        (9,096 )       (20,224 )
Incremental accretion income on other FDIC
acquired loans (2)                                             -            (234 )          (484 )
Incremental accretion income on other acquired
loans                                                    (11,983 )       (17,862 )       (21,093 )
Premium amortization on acquired securities                7,738          10,217           7,123
Correction of immaterial error - securities
premium amortization                                           -               -          (2,622 )
Interest reversals on nonaccrual loans                     1,072           1,713           1,291

Operating net interest income (tax equivalent) (1) $ 335,280 $ 319,286 $ 276,137 Average interest earning assets

                      $ 8,363,309     $ 7,685,734     $ 6,561,047
Net interest margin (tax equivalent) (1)                    4.12 %          

4.35 % 4.76 % Operating net interest margin (tax equivalent) (1) 4.01 % 4.15 % 4.21 %

__________

(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 $10.8
million, $9.7 million and $8.1 million for the years ended December 31, 2016,
2015 and 2014, respectively.
(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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