UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________ 

FORM 10-Q

________________________________________________________ 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File Number 0-20288

 ________________________________________________________ 

COLUMBIA BANKING SYSTEM, INC.

(Exact name of registrant as specified in its charter)

 ________________________________________________________ 

Washington	91-1422237
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
1301 A Street Tacoma, Washington	98402-2156
(Address of principal executive offices)	(Zip Code)

(253) 305-1900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)________________________________________________________ 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ☐  No  ☒

The number of shares of common stock outstanding at July 31, 2017 was 58,380,971.

TABLE OF CONTENTS

		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets - June 30, 2017 and December 31, 2016	1
	Consolidated Statements of Income - three and six months ended June 30, 2017 and 2016	2
	Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2017 and 2016	3
	Consolidated Statements of Changes in Shareholders’ Equity - six months ended June 30, 2017 and 2016	4
	Consolidated Statements of Cash Flows - six months ended June 30, 2017 and 2016	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	53
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
	Signatures	56

i

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)

			June 30, 2017			December 31, 2016
ASSETS			(in thousands)
Cash and due from banks			$	197,623		$	193,038
Interest-earning deposits with banks			14,425			31,200
Total cash and cash equivalents			212,048			224,238
Securities available for sale at fair value (amortized cost of $2,272,959 and $2,299,037, respectively)			2,264,636			2,278,577
Federal Home Loan Bank stock at cost			16,360			10,240
Loans held for sale			6,918			5,846
Loans, net of unearned income of ($30,665) and ($33,718), respectively			6,423,074			6,213,423
Less: allowance for loan and lease losses			72,984			70,043
Loans, net			6,350,090			6,143,380
FDIC loss-sharing asset			—			3,535
Interest receivable			30,856			30,074
Premises and equipment, net			146,728			150,342
Other real estate owned			4,058			5,998
Goodwill			382,762			382,762
Other intangible assets, net			15,033			17,631
Other assets			255,621			256,984
Total assets			$	9,685,110		$	9,509,607
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing			$	3,905,652		$	3,944,495
Interest-bearing			4,166,812			4,114,920
Total deposits			8,072,464			8,059,415
Federal Home Loan Bank advances			159,474			6,493
Securities sold under agreements to repurchase			65,895			80,822
Other liabilities			89,963			111,865
Total liabilities			8,387,796			8,258,595
Commitments and contingent liabilities (Note 10)
Shareholders’ equity:
	June 30, 2017	December 31, 2016
Preferred stock (no par value)	(in thousands)
Authorized shares	2,000	2,000
Issued and outstanding	—	9	—			2,217
Common stock (no par value)
Authorized shares	115,000	115,000
Issued and outstanding	58,353	58,042	1,001,292			995,837
Retained earnings			302,550			271,957
Accumulated other comprehensive loss			(6,528		)	(18,999		)
Total shareholders’ equity			1,297,314			1,251,012
Total liabilities and shareholders’ equity			$	9,685,110		$	9,509,607

See accompanying Notes to unaudited Consolidated Financial Statements.

1

CONSOLIDATED STATEMENTS OF INCOME

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
	(in thousands except per share amounts)
Interest Income
Loans	$	75,579		$	71,651		$	149,699		$	141,967
Taxable securities	9,468			8,829			20,454			16,846
Tax-exempt securities	2,716			2,795			5,407			5,598
Deposits in banks	23			28			42			66
Total interest income	87,786			83,303			175,602			164,477
Interest Expense
Deposits	908			787			1,695			1,529
Federal Home Loan Bank advances	591			241			816			365
Other borrowings	126			135			255			273
Total interest expense	1,625			1,163			2,766			2,167
Net Interest Income	86,161			82,140			172,836			162,310
Provision for loan and lease losses	3,177			3,640			5,952			8,894
Net interest income after provision for loan and lease losses	82,984			78,500			166,884			153,416
Noninterest Income
Deposit account and treasury management fees	7,396			7,093			14,683			14,082
Card revenue	6,202			6,051			11,925			11,703
Financial services and trust revenue	3,036			2,780			5,875			5,601
Loan revenue	2,989			2,802			6,582			5,064
Merchant processing revenue	2,264			2,272			4,283			4,374
Bank owned life insurance	1,433			1,270			2,713			2,386
Investment securities gains	—			229			—			602
Change in FDIC loss-sharing asset	(173		)	(990		)	(447		)	(2,093		)
Other	988			433			3,380			867
Total noninterest income	24,135			21,940			48,994			42,586
Noninterest Expense
Compensation and employee benefits	38,393			37,291			79,218			73,610
Occupancy	7,577			7,652			14,768			17,825
Merchant processing expense	1,147			1,118			2,196			2,151
Advertising and promotion	1,137			1,043			1,954			1,885
Data processing	4,741			3,929			8,949			8,075
Legal and professional fees	2,947			1,777			6,316			3,102
Taxes, licenses and fees	748			1,298			1,989			2,588
Regulatory premiums	741			1,068			1,517			2,209
Net cost (benefit) of operation of other real estate owned	(1		)	84			151			188
Amortization of intangibles	1,249			1,483			2,598			3,066
Other	10,188			7,047			18,197			14,165
Total noninterest expense	68,867			63,790			137,853			128,864
Income before income taxes	38,252			36,650			78,025			67,138
Income tax provision	11,120			11,245			21,694			20,474
Net Income	$	27,132		$	25,405		$	56,331		$	46,664
Earnings per common share
Basic	$	0.47		$	0.44		$	0.97		$	0.80
Diluted	$	0.47		$	0.44		$	0.97		$	0.80
Dividends paid per common share	$	0.22		$	0.37		$	0.44		$	0.75
Weighted average number of common shares outstanding	57,520			57,185			57,437			57,149
Weighted average number of diluted common shares outstanding	57,525			57,195			57,442			57,160

See accompanying Notes to unaudited Consolidated Financial Statements.

2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Columbia Banking System, Inc.

(Unaudited) 

	Three Months Ended
	June 30,
	2017		2016
	(in thousands)
Net income	$	27,132	$	25,405
Other comprehensive income (loss), net of tax:
Unrealized gain from securities:
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($3,435) and ($4,844)	6,033		8,508
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $0 and $83	—		(146		)
Net unrealized gain from securities, net of reclassification adjustment	6,033		8,362
Pension plan liability adjustment:
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($26) and ($61)	45		106
Pension plan liability adjustment, net	45		106
Other comprehensive income	6,078		8,468
Total comprehensive income	$	33,210	$	33,873

	Six Months Ended
	June 30,
	2017		2016
	(in thousands)
Net income	$	56,331	$	46,664
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from securities:
Net unrealized holding gain from available for sale securities arising during the period, net of tax of ($4,404) and ($15,530)	7,735		27,278
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $0 and $218	—		(384		)
Net unrealized gain from securities, net of reclassification adjustment	7,735		26,894
Pension plan liability adjustment:
Reduction in unfunded defined benefit plan liability during the period, net of tax of ($2,622) and $0	4,604		—
Amortization of unrecognized net actuarial loss included in net periodic pension cost, net of tax of ($75) and ($122)	132		212
Pension plan liability adjustment, net	4,736		212
Other comprehensive income	12,471		27,106
Total comprehensive income	$	68,802	$	73,770

See accompanying Notes to unaudited Consolidated Financial Statements.

3

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Columbia Banking System, Inc.

(Unaudited)

	Preferred Stock					Common Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Number of Shares		Amount			Number of Shares		Amount
	(in thousands)
Balance at January 1, 2017	9		$	2,217		58,042		$	995,837		$	271,957		$	(18,999	)	$	1,251,012
Adjustment to opening retained earnings pursuant to adoption of ASU 2016-09	—		—			—		184			(117		)	—			67
Net income	—		—			—		—			56,331			—			56,331
Other comprehensive income	—		—			—		—			—			12,471			12,471
Issuance of common stock - stock option and other plans	—		—			28		1,155			—			—			1,155
Issuance of common stock - restricted stock awards, net of canceled awards	—		—			235		4,114			—			—			4,114
Preferred stock conversion to common stock	(9	)	(2,217		)	102		2,217			—			—			—
Purchase and retirement of common stock	—		—			(54	)	(2,215		)	—			—			(2,215		)
Cash dividends paid on common stock	—		—			—		—			(25,621		)	—			(25,621		)
Balance at June 30, 2017	—		$	—		58,353		$	1,001,292		$	302,550		$	(6,528	)	$	1,297,314
Balance at January 1, 2016	9		$	2,217		57,724		$	990,281		$	255,925		$	(6,295	)	$	1,242,128
Net income	—		—			—		—			46,664			—			46,664
Other comprehensive income	—		—			—		—			—			27,106			27,106
Issuance of common stock - stock option and other plans	—		—			21		603			—			—			603
Issuance of common stock - restricted stock awards, net of canceled awards	—		—			317		2,551			—			—			2,551
Purchase and retirement of common stock	—		—			(37	)	(1,092		)	—			—			(1,092		)
Preferred dividends	—		—			—		—			(77		)	—			(77		)
Cash dividends paid on common stock	—		—			—		—			(43,404		)	—			(43,404		)
Balance at June 30, 2016	9		$	2,217		58,025		$	992,343		$	259,108		$	20,811		$	1,274,479

See accompanying Notes to unaudited Consolidated Financial Statements.

4

CONSOLIDATED STATEMENTS OF CASH FLOWS Columbia Banking System, Inc. (Unaudited)
	Six Months Ended June 30,
	2017			2016
	(in thousands)
Cash Flows From Operating Activities
Net income	$	56,331		$	46,664
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan and lease losses	5,952			8,894
Stock-based compensation expense	4,114			2,551
Depreciation, amortization and accretion	13,968			18,898
Investment securities gains	—			(602		)
Net realized (gain) loss on sale of premises and equipment, loans held for investment and other assets	(176		)	170
Net realized loss on sale and valuation adjustments of other real estate owned	221			160
Termination of FDIC loss share agreements charge	2,409			—
Originations of loans held for sale	(65,902		)	(46,705		)
Proceeds from sales of loans held for sale	64,830			43,565
Net change in:
Interest receivable	(782		)	(1,861		)
Interest payable	35			(74		)
Other assets	(5,987		)	(7,818		)
Other liabilities	(9,230		)	9,809
Net cash provided by operating activities	65,783			73,651
Cash Flows From Investing Activities
Loans originated and acquired, net of principal collected	(216,541		)	(298,259		)
Purchases of:
Securities available for sale	(114,309		)	(296,920		)
Premises and equipment	(1,947		)	(1,199		)
Federal Home Loan Bank stock	(86,840		)	(42,400		)
Proceeds from:
FDIC reimbursement on loss-sharing asset	26			668
Sales of securities available for sale	—			83,410
Principal repayments and maturities of securities available for sale	131,472			123,817
Sales of premises and equipment and loans held for investment	8,133			4,631
Redemption of Federal Home Loan Bank stock	80,720			36,961
Sales of other real estate and other personal property owned	1,719			3,276
Payment to FDIC to terminate loss-sharing agreements	(4,666		)	—
Payments to FDIC related to loss-sharing asset	(210		)	(625		)
Net cash used in investing activities	(202,443		)	(386,640		)
Cash Flows From Financing Activities
Net increase in deposits	13,078			234,526
Net decrease in sweep repurchase agreements	(14,927		)	(10,481		)
Proceeds from:
Federal Home Loan Bank advances	2,171,000			962,000
Federal Reserve Bank borrowings	10			10
Exercise of stock options	1,155			603
Payments for:
Repayment of Federal Home Loan Bank advances	(2,018,000		)	(826,000		)
Repayment of Federal Reserve Bank borrowings	(10		)	(10		)
Common stock dividends	(25,621		)	(43,404		)
Preferred stock dividends	—			(77		)
Purchase and retirement of common stock	(2,215		)	(1,092		)
Net cash provided by financing activities	124,470			316,075
Increase (decrease) in cash and cash equivalents	(12,190		)	3,086
Cash and cash equivalents at beginning of period	224,238			175,302
Cash and cash equivalents at end of period	$	212,048		$	178,388

5

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued Columbia Banking System, Inc. (Unaudited)
	Six Months Ended June 30,
	2017		2016
	(in thousands)
Supplemental Information:
Cash paid during the period for:
Cash paid for interest	$	2,731	$	2,241
Cash paid for income tax	$	22,881	$	11,130
Non-cash investing and financing activities
Loans transferred to other real estate owned	$	—	$	311

See accompanying Notes to unaudited Consolidated Financial Statements.

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Columbia Banking System, Inc.

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The interim unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The Consolidated Financial Statements include the accounts of Columbia Banking System, Inc. (“we”, “our”, “Columbia” or the “Company”) and its subsidiaries, including its wholly owned banking subsidiary Columbia State Bank (“Columbia Bank” or the “Bank”) and Columbia Trust Company (“Columbia Trust”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of results to be anticipated for the year ending December 31, 2017. The accompanying interim unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2016 Annual Report on Form 10-K.

Significant Accounting Policies

The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2016 Annual Report on Form 10-K. There have not been any changes in our significant accounting policies compared to those contained in our 2016 Form 10-K disclosure for the year ended December 31, 2016.

2. Accounting Pronouncements Recently Issued

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in ASU 2017-09 are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities. The amendments included in this ASU change guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, the amendments shorten the premium amortization period to the earliest call date. The amendments in ASU 2017-08 are effective for fiscal years and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company early adopted the amendments of ASU 2017-08 during the first quarter of 2017. The impact of the adoption of ASU 2017-08 to net income and opening retained earnings was not material.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The amendments in this are intended to reduce the cost and complexity of the goodwill impairment test by eliminating the second step of the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The amendments in ASU 2017-04 are effective for annual or interim periods beginning after December 15, 2019. Early adoption is permitted. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The amendments included in this ASU require an entity to reflect its current estimate of all expected credit losses for assets held at an amortized cost basis. For available for sale debt securities, credit losses will be measured in a manner similar to current GAAP, however, this ASU will require that credit losses be presented as an allowance rather than as a write-down. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and are required to be adopted through a modified retrospective approach, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is effective.

7

Currently, the Company cannot reasonably estimate the impact that adoption of ASU 2016-13 will have on its Consolidated Financial Statements; however, the impact may be significant. That assessment is based upon the fact that, unlike the incurred loss models in existing GAAP, the current expected credit loss (“CECL”) model in ASU 2016-13 does not specify a threshold for the recognition of an impairment allowance. Rather, the Company will recognize an impairment allowance equal to its estimate of lifetime expected credit losses, adjusted for prepayments, for in-scope financial instruments as of the end of the reporting period. Accordingly, the impairment allowance measured under the CECL model could increase significantly from the impairment allowance measured under the Company’s existing incurred loss model. Significant CECL implementation matters to be addressed by the Company include selecting loss estimation methodologies, identifying, sourcing and storing data, addressing data gaps, defining a reasonable and supportable forecast period, selecting historical loss information which will be reverted to, documenting the CECL estimation process, assessing the impact to internal controls over financial reporting, capital planning and seeking process approval from audit and regulatory stakeholders.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments included in this ASU simplify several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the amendments of ASU 2016-09 during the first quarter of 2017. Adoption of amended forfeiture guidance resulted in an opening period adjustment decreasing retained earnings $117 thousand and increasing common stock $184 thousand. Adoption of the amended excess tax benefit guidance resulted in an income tax benefit of $100 thousand for the three months ended June 30, 2017 and an income tax benefit of $1.3 million or $0.02 per diluted common share for the six months ended June 30, 2017.

In February 2016, the FASB issued ASU 2016-02, Leases. The amendments included in this ASU create a new accounting model for both lessees and lessors. The new guidance requires lessees to recognize lease liabilities, initially measured as the present value of future lease payments, and corresponding right-of-use assets for all leases with lease terms greater than 12 months. This model differs from the current lease accounting model, which does not require such lease liabilities and corresponding right-of-use assets to be recorded for operating leases. The amendments in ASU 2016-02 must be adopted using the modified retrospective approach and will be effective for the first interim or annual period beginning after December 15, 2018. Early adoption is permitted. Significant implementation matters to be addressed by the Company include selecting a third-party lease accounting application, assessing the impact to its Consolidated Financial Statements and internal controls over financial reporting and documenting the new lease accounting process. See Note 17, “Commitments and Contingent Liabilities” to our 2016 Form 10-K, for more information regarding the minimum future payments related to our operating leases.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The guidance in this update will replace most existing revenue recognition guidance in GAAP when it becomes effective. For public companies, this update was to be effective for interim and annual periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year and permits companies to voluntarily adopt the new standard as of the original effective date. The FASB subsequently issued ASU 2016-08, ASU 2016-10 and ASU 2016-12 to provide implementation guidance and practical expedients related to ASU 2014-09. The Company’s revenue is comprised of interest income on financial assets, which is excluded from the scope of this new guidance, and non-interest income. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

8

3. Securities

The following table summarizes the amortized cost, gross unrealized gains and losses and the resulting fair value of securities available for sale:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
June 30, 2017
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	1,438,875	$	3,478	$	(18,395	)	$	1,423,958
State and municipal securities	476,510		9,279		(2,696		)	483,093
U.S. government agency and government-sponsored enterprise securities	352,039		1,486		(1,287		)	352,238
U.S. government securities	251		—		(1		)	250
Other securities	5,284		70		(257		)	5,097
Total	$	2,272,959	$	14,313	$	(22,636	)	$	2,264,636
December 31, 2016
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	1,486,690	$	2,760	$	(23,718	)	$	1,465,732
State and municipal securities	473,914		6,343		(5,197		)	475,060
U.S. government agency and government-sponsored enterprise securities	332,348		1,065		(1,511		)	331,902
U.S. government securities	801		—		(1		)	800
Other securities	5,284		63		(264		)	5,083
Total	$	2,299,037	$	10,231	$	(30,691	)	$	2,278,577

The following table provides the proceeds and gross realized gains and losses on the sales of securities for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
	(in thousands)
Proceeds from sales of available for sale securities	$	—	$	44,534	$	—	$	83,410
Gross realized gains	$	—	$	229	$	—	$	602
Gross realized losses	—		—		—		—
Net realized gains	$	—	$	229	$	—	$	602

The scheduled contractual maturities of investment securities available for sale at June 30, 2017 are presented as follows:

	June 30, 2017
	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	99,775	$	99,740
Due after one year through five years	461,043		464,716
Due after five years through ten years	726,133		724,520
Due after ten years	980,724		970,563
Other securities with no stated maturity	5,284		5,097
Total investment securities available-for-sale	$	2,272,959	$	2,264,636

9

The following table summarizes the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:

	June 30, 2017
	(in thousands)
Washington and Oregon State to secure public deposits	$	244,580
Federal Reserve Bank to secure borrowings	54,877
Other securities pledged	122,932
Total securities pledged as collateral	$	422,389

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2017 and December 31, 2016:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
June 30, 2017
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	858,558	$	(12,683	)	$	180,212	$	(5,712	)	$	1,038,770	$	(18,395	)
State and municipal securities	108,038		(2,189		)	13,246		(507		)	121,284		(2,696		)
U.S. government agency and government-sponsored enterprise securities	194,738		(1,287		)	—		—			194,738		(1,287		)
U.S. government securities	251		(1		)	—		—			251		(1		)
Other securities	2,276		(39		)	2,737		(218		)	5,013		(257		)
Total	$	1,163,861	$	(16,199	)	$	196,195	$	(6,437	)	$	1,360,056	$	(22,636	)
December 31, 2016
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	1,029,116	$	(18,788	)	$	159,046	$	(4,930	)	$	1,188,162	$	(23,718	)
State and municipal securities	211,342		(5,064		)	3,384		(133		)	214,726		(5,197		)
U.S. government agency and government-sponsored enterprise securities	218,811		(1,511		)	—		—			218,811		(1,511		)
U.S. government securities	251		(1		)	—		—			251		(1		)
Other securities	2,263		(51		)	2,743		(213		)	5,006		(264		)
Total	$	1,461,783	$	(25,415	)	$	165,173	$	(5,276	)	$	1,626,956	$	(30,691	)

At June 30, 2017, there were 172 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 54 were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017.

At June 30, 2017, there were 99 state and municipal government securities in an unrealized loss position, of which 11 were in a continuous loss position for 12 months or more. The unrealized losses on state and municipal securities were caused by interest rate changes or widening of market spreads subsequent to the purchase of the individual securities. Management monitors published credit ratings of these securities for adverse changes. As of June 30, 2017, none of the rated obligations of state and local government entities held by the Company had a below investment grade credit rating. Because the credit quality of these securities are investment grade and the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017.

10

At June 30, 2017, there were 22 U.S. government agency and government-sponsored enterprise securities in an unrealized loss position, of which none were in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where these investments fall within the yield curve and their individual characteristics. Because the Company does not currently intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017.

At June 30, 2017, there was one U.S. government security in an unrealized loss position, which was not in a continuous loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates relative to where this investment falls within the yield curve and its individual characteristics. Because the Company does not currently intend to sell this security nor does the Company consider it more likely than not that it will be required to sell this security before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider this investment to be other-than-temporarily impaired at June 30, 2017.

At June 30, 2017, there were two other securities in an unrealized loss position, of which one was in a continuous unrealized loss position for 12 months or more. The decline in fair value is attributable to changes in interest rates and the additional risk premium investors are demanding for investment securities with these characteristics. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017 as it has the intent and ability to hold these investments for sufficient time to allow for recovery in the market value.

4. Loans

The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments are referred to collectively as loans, excluding purchased credit impaired loans. Purchased loans for which there was, at acquisition date, evidence of credit deterioration since their origination and it was probable that we would be unable to collect all contractually required payments are referred to as purchased credit impaired loans, or “PCI loans.”

The following is an analysis of the loan portfolio by segment (net of unearned income):

	June 30, 2017									December 31, 2016
	Loans, excluding PCI loans			PCI Loans			Total			Loans, excluding PCI loans			PCI Loans			Total
	(in thousands)
Commercial business	$	2,704,468		$	15,299		$	2,719,767		$	2,551,054		$	20,185		$	2,571,239
Real estate:
One-to-four family residential	173,150			14,735			187,885			170,331			17,862			188,193
Commercial and multifamily residential	2,787,560			84,385			2,871,945			2,719,830			89,231			2,809,061
Total real estate	2,960,710			99,120			3,059,830			2,890,161			107,093			2,997,254
Real estate construction:
One-to-four family residential	139,956			453			140,409			121,887			832			122,719
Commercial and multifamily residential	195,565			961			196,526			209,118			1,565			210,683
Total real estate construction	335,521			1,414			336,935			331,005			2,397			333,402
Consumer	323,187			14,020			337,207			329,261			15,985			345,246
Less: Net unearned income	(30,665		)	—			(30,665		)	(33,718		)	—			(33,718		)
Total loans, net of unearned income	6,293,221			129,853			6,423,074			6,067,763			145,660			6,213,423
Less: Allowance for loan and lease losses	(64,923		)	(8,061		)	(72,984		)	(59,528		)	(10,515		)	(70,043		)
Total loans, net	$	6,228,298		$	121,792		$	6,350,090		$	6,008,235		$	135,145		$	6,143,380
Loans held for sale	$	6,918		$	—		$	6,918		$	5,846		$	—		$	5,846

At June 30, 2017 and December 31, 2016, the Company had 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.

11

The Company has made loans to executive officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans was $10.1 million at both June 30, 2017 and December 31, 2016. During the first six months of 2017, there were $203 thousand in advances and $200 thousand in repayments.

At June 30, 2017 and December 31, 2016, $2.28 billion and $2.29 billion of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank of Des Moines (“FHLB”) borrowings and additional borrowing capacity. The Company has also pledged $70.1 million and $54.2 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at June 30, 2017 and December 31, 2016, respectively.

The following is an analysis of nonaccrual loans as of June 30, 2017 and December 31, 2016:

	June 30, 2017				December 31, 2016
	Recorded Investment Nonaccrual Loans		Unpaid Principal Balance Nonaccrual Loans		Recorded Investment Nonaccrual Loans		Unpaid Principal Balance Nonaccrual Loans
	(in thousands)
Commercial business:
Secured	$	24,663	$	38,586	$	11,524	$	21,503
Unsecured	84		237		31		303
Real estate:
One-to-four family residential	697		1,248		568		1,302
Commercial & multifamily residential:
Commercial land	3,198		3,503		934		922
Income property	3,411		3,741		4,005		4,247
Owner occupied	658		2,137		6,248		9,030
Real estate construction:
One-to-four family residential:
Land and acquisition	27		27		14		102
Residential construction	214		214		549		549
Consumer	3,872		4,543		3,883		4,331
Total	$	36,824	$	54,236	$	27,756	$	42,289

12

Loans, excluding purchased credit impaired loans

The following is an aging of the recorded investment of the loan portfolio as of June 30, 2017 and December 31, 2016:

	Current Loans		30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Nonaccrual Loans		Total Loans
June 30, 2017	(in thousands)
Commercial business:
Secured	$	2,572,664	$	5,227	$	1,810	$	—	$	7,037	$	24,663	$	2,604,364
Unsecured	95,132		180		23		—		203		84		95,419
Real estate:
One-to-four family residential	169,244		965		148		—		1,113		697		171,054
Commercial & multifamily residential:
Commercial land	280,322		—		—		—		—		3,198		283,520
Income property	1,351,539		561		256		—		817		3,411		1,355,767
Owner occupied	1,126,857		2,309		943		—		3,252		658		1,130,767
Real estate construction:
One-to-four family residential:
Land and acquisition	6,022		—		—		—		—		27		6,049
Residential construction	132,953		—		—		—		—		214		133,167
Commercial & multifamily residential:
Income property	153,529		—		—		—		—		—		153,529
Owner occupied	35,416		4,050		—		—		4,050		—		39,466
Consumer	314,196		1,748		303		—		2,051		3,872		320,119
Total	$	6,237,874	$	15,040	$	3,483	$	—	$	18,523	$	36,824	$	6,293,221
	Current Loans		30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Nonaccrual Loans		Total Loans
December 31, 2016	(in thousands)
Commercial business:
Secured	$	2,439,250	$	806	$	10	$	—	$	816	$	11,524	$	2,451,590
Unsecured	94,118		287		301		—		588		31		94,737
Real estate:
One-to-four family residential	164,416		2,448		500		—		2,948		568		167,932
Commercial & multifamily residential:
Commercial land	269,816		64		—		—		64		934		270,814
Income property	1,365,150		480		111		—		591		4,005		1,369,746
Owner occupied	1,052,078		1,652		—		—		1,652		6,248		1,059,978
Real estate construction:
One-to-four family residential:
Land and acquisition	11,542		—		—		—		—		14		11,556
Residential construction	109,080		—		—		—		—		549		109,629
Commercial & multifamily residential:
Income property	103,779		—		—		—		—		—		103,779
Owner occupied	103,480		—		—		—		—		—		103,480
Consumer	318,369		2,035		235		—		2,270		3,883		324,522
Total	$	6,031,078	$	7,772	$	1,157	$	—	$	8,929	$	27,756	$	6,067,763

13

The following is an analysis of impaired loans as of June 30, 2017 and December 31, 2016:

	Recorded Investment of Loans Collectively Measured for Contingency Provision		Recorded Investment of Loans Individually Measured for Specific Impairment		Impaired Loans With Recorded Allowance						Impaired Loans Without Recorded Allowance
					Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
June 30, 2017	(in thousands)
Commercial business:
Secured	$	2,580,972	$	23,392	$	10,275	$	10,275	$	3,425	$	13,117	$	18,238
Unsecured	95,419		—		—		—		—		—		—
Real estate:
One-to-four family residential	170,271		783		320		574		4		463		908
Commercial & multifamily residential:
Commercial land	280,721		2,799		—		—		—		2,799		2,787
Income property	1,352,109		3,658		525		530		25		3,133		3,422
Owner occupied	1,127,370		3,397		—		—		—		3,397		6,297
Real estate construction:
One-to-four family residential:
Land and acquisition	6,049		—		—		—		—		—		—
Residential construction	133,167		—		—		—		—		—		—
Commercial & multifamily residential:
Income property	153,529		—		—		—		—		—		—
Owner occupied	39,466		—		—		—		—		—		—
Consumer	314,476		5,643		4,877		4,920		45		766		905
Total	$	6,253,549	$	39,672	$	15,997	$	16,299	$	3,499	$	23,675	$	32,557
	Recorded Investment of Loans Collectively Measured for Contingency Provision		Recorded Investment of Loans Individually Measured for Specific Impairment		Impaired Loans With Recorded Allowance						Impaired Loans Without Recorded Allowance
					Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
December 31, 2016	(in thousands)
Commercial business:
Secured	$	2,442,772	$	8,818	$	2,414	$	2,484	$	664	$	6,404	$	12,831
Unsecured	94,737		—		—		—		—		—		—
Real estate:
One-to-four family residential	167,403		529		435		693		12		94		291
Commercial & multifamily residential:
Commercial land	270,106		708		—		—		—		708		687
Income property	1,365,321		4,425		540		544		27		3,885		4,148
Owner occupied	1,054,564		5,414		—		—		—		5,414		8,102
Real estate construction:
One-to-four family residential:
Land and acquisition	11,542		14		14		102		1		—		—
Residential construction	109,293		336		—		—		—		336		336
Commercial & multifamily residential:
Income property	103,779		—		—		—		—		—		—
Owner occupied	103,480		—		—		—		—		—		—
Consumer	319,307		5,215		4,464		4,558		57		751		833
Total	$	6,042,304	$	25,459	$	7,867	$	8,381	$	761	$	17,592	$	27,228

14

The following table provides additional information on impaired loans for the three and six month periods indicated:

	Three Months Ended June 30,									Six Months Ended June 30,
	2017				2016					2017				2016
	Average Recorded Investment Impaired Loans		Interest Recognized on Impaired Loans		Average Recorded Investment Impaired Loans		Interest Recognized on Impaired Loans			Average Recorded Investment Impaired Loans		Interest Recognized on Impaired Loans		Average Recorded Investment Impaired Loans		Interest Recognized on Impaired Loans
	(in thousands)
Commercial business:
Secured	$	15,590	$	50	$	12,859	$	20		$	13,332	$	69	$	10,414	$	33
Real estate:
One-to-four family residential	648		21		676		(3		)	608		22		879		3
Commercial & multifamily residential:
Commercial land	2,549		—		354		—			1,936		—		236		—
Income property	3,676		7		1,749		10			3,925		6		1,868		14
Owner occupied	3,453		192		5,102		—			4,107		192		5,420		—
Real estate construction:
One-to-four family residential:
Land and acquisition	—		—		206		1			5		—		293		3
Residential construction	—		—		562		—			112		—		562		—
Consumer	5,584		31		2,332		20			5,461		57		1,581		21
Total	$	31,500	$	301	$	23,840	$	48		$	29,486	$	346	$	21,253	$	74

15

The following is an analysis of loans classified as troubled debt restructurings (“TDR”) during the three and six months ended June 30, 2017 and 2016:

	Three months ended June 30, 2017					Three months ended June 30, 2016
	Number of TDR Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of TDR Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
Commercial business:
Secured	2	$	1,422	$	1,422	2	$	293	$	293
Real estate:
One-to-four family residential	1	382		382		—	—		—
Commercial and multifamily residential:
Owner occupied	—	—		—		1	30		30
Consumer	8	815		815		14	2,214		2,214
Total	11	$	2,619	$	2,619	17	$	2,537	$	2,537

	Six months ended June 30, 2017					Six months ended June 30, 2016
	Number of TDR Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of TDR Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
Commercial business:
Secured	5	$	1,778	$	1,778	5	$	1,663	$	1,663
Real estate:
One-to-four family residential	1	382		382		—	—		—
Commercial and multifamily residential:
Owner occupied	—	—		—		2	280		280
Consumer	18	2,361		2,361		18	2,711		2,711
Total	24	$	4,521	$	4,521	25	$	4,654	$	4,654

The Company’s loans classified as TDR are loans that have been modified or the borrower has been granted special concessions due to financial difficulties that, if not for the challenges of the borrower, the Company would not otherwise consider. The TDR modifications or concessions are made to increase the likelihood that these borrowers with financial difficulties will be able to satisfy their debt obligations as amended. The concessions granted in the restructurings summarized in the table above largely consisted of maturity extensions, interest rate modifications or a combination of both. In limited circumstances, a reduction in the principal balance of the loan could also be made as a concession. Credit losses for loans classified as TDR are measured on the same basis as impaired loans. For impaired loans, an allowance is established when the collateral value less selling costs (or discounted cash flows or observable market price) of the impaired loan is lower than the recorded investment of that loan.

The Company had commitments to lend $371 thousand of additional funds on loans classified as TDR as of June 30, 2017. The Company had $508 thousand of such commitments at December 31, 2016. The Company did not have any loans modified as TDR that defaulted within twelve months of being modified as TDR during the three or six months ended June 30, 2017 and 2016.

Purchased Credit Impaired Loans

Purchased credit impaired (“PCI”) loans are accounted for under ASC 310-30 and initially measured at fair value based on expected future cash flows over the life of the loans. Loans that have common risk characteristics are aggregated into pools. The Company remeasures contractual and expected cash flows, at the pool-level, on a quarterly basis.

Contractual cash flows are calculated based upon the loan pool terms after applying a prepayment factor. Calculation of the applied prepayment factor for contractual cash flows is the same as described below for expected cash flows.

16

Inputs to the determination of expected cash flows include cumulative default and prepayment data as well as loss severity and recovery lag information. Cumulative default and prepayment data are calculated via a transition matrix, which utilizes probability values of a loan pool transitioning into a particular delinquency state (e.g. 0-30 days past due, 31 to 60 days, etc.) given its delinquency state at the remeasurement date. Loss severity factors are based upon either actual charge-off data within the loan pools or industry averages, and recovery lags are based upon the collateral within the loan pools.

The excess of cash flows expected to be collected over the initial fair value of purchased credit impaired loans is referred to as the accretable yield and is accreted into interest income over the estimated life of the acquired loans using the effective yield method. Other adjustments to the accretable yield include changes in the estimated remaining life of the acquired loans, changes in expected cash flows and changes of indices for acquired loans with variable interest rates.

The following is an analysis of our PCI loans, net of related allowance for losses and remaining valuation discounts as of June 30, 2017 and December 31, 2016:

	June 30, 2017		December 31, 2016
	(in thousands)
Commercial business	$	16,608	$	21,606
Real estate:
One-to-four family residential	17,242		20,643
Commercial and multifamily residential	88,398		94,795
Total real estate	105,640		115,438
Real estate construction:
One-to-four family residential	453		832
Commercial and multifamily residential	1,074		1,726
Total real estate construction	1,527		2,558
Consumer	15,527		17,649
Subtotal of PCI loans	139,302		157,251
Less:
Valuation discount resulting from acquisition accounting	9,449		11,591
Allowance for loan losses	8,061		10,515
PCI loans, net of allowance for loan losses	$	121,792	$	135,145

The following table shows the changes in accretable yield for PCI loans for the three and six months ended June 30, 2017 and 2016:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Balance at beginning of period	$	38,444		$	56,607		$	45,191		$	58,981
Accretion	(2,882		)	(3,774		)	(7,064		)	(8,003		)
Disposals	—			149			(158		)	1,910
Reclassifications from (to) nonaccretable difference	144			(73		)	(2,263		)	21
Balance at end of period	$	35,706		$	52,909		$	35,706		$	52,909

5. Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit

We record an allowance for loan and lease losses (the “allowance”) to recognize management’s estimate of credit losses incurred in the loan portfolio at each balance sheet date. We have used the same methodology for allowance calculations during the six months ended June 30, 2017 and 2016.

17

The following tables show a detailed analysis of the allowance for the three and six months ended June 30, 2017 and 2016:

	Beginning Balance		Charge-offs			Recoveries		Provision (Recovery)			Ending Balance		Specific Reserve		General Allocation
Three months ended June 30, 2017	(in thousands)
Commercial business:
Secured	$	35,672	$	(3,600	)	$	2,903	$	4,564		$	39,539	$	3,425	$	36,114
Unsecured	1,188		—			41		(82		)	1,147		—		1,147
Real estate:
One-to-four family residential	645		(153		)	223		(87		)	628		4		624
Commercial & multifamily residential:
Commercial land	2,288		—			—		68			2,356		—		2,356
Income property	6,803		—			60		(9		)	6,854		25		6,829
Owner occupied	6,534		—			67		(89		)	6,512		—		6,512
Real estate construction:
One-to-four family residential:
Land and acquisition	509		—			27		(175		)	361		—		361
Residential construction	1,109		—			31		237			1,377		—		1,377
Commercial & multifamily residential:
Income property	782		—			—		203			985		—		985
Owner occupied	1,768		—			—		(386		)	1,382		—		1,382
Consumer	3,360		(465		)	248		408			3,551		45		3,506
Purchased credit impaired	9,395		(1,800		)	1,204		(738		)	8,061		—		8,061
Unallocated	968		—			—		(737		)	231		—		231
Total	$	71,021	$	(6,018	)	$	4,804	$	3,177		$	72,984	$	3,499	$	69,485
	Beginning Balance		Charge-offs			Recoveries		Provision (Recovery)			Ending Balance		Specific Reserve		General Allocation
Six months ended June 30, 2017	(in thousands)
Commercial business:
Secured	$	36,050	$	(4,709	)	$	3,200	$	4,998		$	39,539	$	3,425	$	36,114
Unsecured	960		(18		)	109		96			1,147		—		1,147
Real estate:
One-to-four family residential	599		(460		)	340		149			628		4		624
Commercial & multifamily residential:
Commercial land	1,797		—			—		559			2,356		—		2,356
Income property	7,342		—			95		(583		)	6,854		25		6,829
Owner occupied	6,439		—			110		(37		)	6,512		—		6,512
Real estate construction:
One-to-four family residential:
Land and acquisition	316		(14		)	47		12			361		—		361
Residential construction	669		—			40		668			1,377		—		1,377
Commercial & multifamily residential:
Income property	404		—			—		581			985		—		985
Owner occupied	1,192		—			—		190			1,382		—		1,382
Consumer	3,534		(893		)	533		377			3,551		45		3,506
Purchased credit impaired	10,515		(3,739		)	2,348		(1,063		)	8,061		—		8,061
Unallocated	226		—			—		5			231		—		231
Total	$	70,043	$	(9,833	)	$	6,822	$	5,952		$	72,984	$	3,499	$	69,485

18

	Beginning Balance		Charge-offs			Recoveries		Provision (Recovery)			Ending Balance		Specific Reserve		General Allocation
Three months ended June 30, 2016	(in thousands)
Commercial business:
Secured	$	32,114	$	(2,900	)	$	728	$	1,866		$	31,808	$	2,486	$	29,322
Unsecured	1,300		(41		)	25		(19		)	1,265		—		1,265
Real estate:
One-to-four family residential	654		(35		)	20		35			674		1		673
Commercial & multifamily residential:
Commercial land	1,262		(26		)	2		184			1,422		—		1,422
Income property	7,402		—			120		524			8,046		100		7,946
Owner occupied	6,086		—			8		242			6,336		—		6,336
Real estate construction:
One-to-four family residential:
Land and acquisition	640		—			2		(55		)	587		—		587
Residential construction	1,449		—			3		(76		)	1,376		—		1,376
Commercial & multifamily residential:
Income property	715		—			1		188			904		—		904
Owner occupied	1,210		—			—		174			1,384		—		1,384
Consumer	3,368		(334		)	201		325			3,560		118		3,442
Purchased credit impaired	13,064		(2,898		)	1,524		91			11,781		—		11,781
Unallocated	—		—			—		161			161		—		161
Total	$	69,264	$	(6,234	)	$	2,634	$	3,640		$	69,304	$	2,705	$	66,599
	Beginning Balance		Charge-offs			Recoveries		Provision (Recovery)			Ending Balance		Specific Reserve		General Allocation
Six months ended June 30, 2016	(in thousands)
Commercial business:
Secured	$	32,321	$	(6,670	)	$	1,339	$	4,818		$	31,808	$	2,486	$	29,322
Unsecured	1,299		(44		)	76		(66		)	1,265		—		1,265
Real estate:
One-to-four family residential	916		(35		)	61		(268		)	674		1		673
Commercial & multifamily residential:
Commercial land	1,178		(26		)	2		268			1,422		—		1,422
Income property	6,616		—			181		1,249			8,046		100		7,946
Owner occupied	5,550		—			16		770			6,336		—		6,336
Real estate construction:
One-to-four family residential:
Land and acquisition	339		—			53		195			587		—		587
Residential construction	733		—			206		437			1,376		—		1,376
Commercial & multifamily residential:
Income property	388		—			2		514			904		—		904
Owner occupied	1,006		—			—		378			1,384		—		1,384
Consumer	3,531		(600		)	366		263			3,560		118		3,442
Purchased credit impaired	13,726		(5,764		)	3,075		744			11,781		—		11,781
Unallocated	569		—			—		(408		)	161		—		161
Total	$	68,172	$	(13,139	)	$	5,377	$	8,894		$	69,304	$	2,705	$	66,599

19

Changes in the allowance for unfunded commitments and letters of credit, a component of “Other liabilities” in the Consolidated Balance Sheets, are summarized as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016
	(in thousands)
Balance at beginning of period	$	3,555	$	2,930		$	2,705	$	2,930
Net changes in the allowance for unfunded commitments and letters of credit	—		(150		)	850		(150		)
Balance at end of period	$	3,555	$	2,780		$	3,555	$	2,780

Risk Elements

The extension of credit in the form of loans or other credit products to individuals and businesses is one of our principal business activities. Our policies and applicable laws and regulations require risk analysis as well as ongoing portfolio and credit management. We manage our credit risk through lending limit constraints, credit review, approval policies and extensive, ongoing internal monitoring. We also manage credit risk through diversification of the loan portfolio by type of loan, type of industry and type of borrower and by limiting the aggregation of debt to a single borrower.

Risk ratings are reviewed and updated whenever appropriate, with more periodic reviews as the risk and dollar value of loss on the loan increases. In the event 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.

Pass rated loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. Special Mention rated loans have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans with a risk rating of Substandard or worse are reported as classified loans in our allowance analysis. 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. Loans risk rated as Substandard reflect loans where a loss is possible if loan weaknesses are not corrected. Doubtful rated loans have a high probability of loss; however, the amount of loss has not yet been determined. Loss rated loans are considered uncollectable and when identified, are charged off.

20

The following is an analysis of the credit quality of our loan portfolio, excluding PCI loans, as of June 30, 2017 and December 31, 2016:

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
June 30, 2017	(in thousands)
Loans, excluding PCI loans:
Commercial business:
Secured	$	2,423,195	$	74,148	$	107,021	$	—	$	—	$	2,604,364
Unsecured	93,716		701		1,002		—		—		95,419
Real estate:
One-to-four family residential	168,062		1,204		1,788		—		—		171,054
Commercial and multifamily residential:
Commercial land	274,000		4,761		4,759		—		—		283,520
Income property	1,328,708		8,678		18,381		—		—		1,355,767
Owner occupied	1,098,775		8,269		23,723		—		—		1,130,767
Real estate construction:
One-to-four family residential:
Land and acquisition	6,022		—		27		—		—		6,049
Residential construction	132,555		399		213		—		—		133,167
Commercial and multifamily residential:
Income property	153,529		—		—		—		—		153,529
Owner occupied	35,416		—		4,050		—		—		39,466
Consumer	311,990		2		8,127		—		—		320,119
Total	$	6,025,968	$	98,162	$	169,091	$	—	$	—	6,293,221
Less:
Allowance for loan and lease losses											64,923
Loans, excluding PCI loans, net											$	6,228,298

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
December 31, 2016	(in thousands)
Loans, excluding PCI loans:
Commercial business:
Secured	$	2,289,307	$	65,846	$	96,437	$	—	$	—	$	2,451,590
Unsecured	93,721		800		216		—		—		94,737
Real estate:
One-to-four family residential	164,797		395		2,740		—		—		167,932
Commercial and multifamily residential:
Commercial land	263,195		3,228		4,391		—		—		270,814
Income property	1,341,978		17,902		9,866		—		—		1,369,746
Owner occupied	1,027,019		6,608		26,351		—		—		1,059,978
Real estate construction:
One-to-four family residential:
Land and acquisition	11,541		—		15		—		—		11,556
Residential construction	108,941		—		688		—		—		109,629
Commercial and multifamily residential:
Income property	103,779		—		—		—		—		103,779
Owner occupied	98,948		88		4,444		—		—		103,480
Consumer	317,728		—		6,794		—		—		324,522
Total	$	5,820,954	$	94,867	$	151,942	$	—	$	—	6,067,763
Less:
Allowance for loan and lease losses											59,528
Loans, excluding PCI loans, net											$	6,008,235

21

The following is an analysis of the credit quality of our PCI loan portfolio as of June 30, 2017 and December 31, 2016:

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
June 30, 2017	(in thousands)
PCI loans:
Commercial business:
Secured	$	14,930	$	87	$	819	$	—	$	—	$	15,836
Unsecured	703		—		69		—		—		772
Real estate:
One-to-four family residential	16,379		—		863		—		—		17,242
Commercial and multifamily residential:
Commercial land	10,411		—		—		—		—		10,411
Income property	26,047		—		138		—		—		26,185
Owner occupied	50,999		—		803		—		—		51,802
Real estate construction:
One-to-four family residential:
Land and acquisition	382		—		71		—		—		453
Commercial and multifamily residential:
Income property	786		—		—		—		—		786
Owner occupied	288		—		—		—		—		288
Consumer	14,998		—		529		—		—		15,527
Total	$	135,923	$	87	$	3,292	$	—	$	—	139,302
Less:
Valuation discount resulting from acquisition accounting											9,449
Allowance for loan losses											8,061
PCI loans, net											$	121,792

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
December 31, 2016	(in thousands)
PCI loans:
Commercial business:
Secured	$	18,824	$	92	$	1,954	$	—	$	—	$	20,870
Unsecured	736		—		—		—		—		736
Real estate:
One-to-four family residential	19,293		—		1,350		—		—		20,643
Commercial and multifamily residential:
Commercial land	7,333		—		213		—		—		7,546
Income property	31,042		—		1,678		—		—		32,720
Owner occupied	53,623		—		906		—		—		54,529
Real estate construction:
One-to-four family residential:
Land and acquisition	744		—		88		—		—		832
Commercial and multifamily residential:
Income property	1,217		—		—		—		—		1,217
Owner occupied	509		—		—		—		—		509
Consumer	17,202		—		447		—		—		17,649
Total	$	150,523	$	92	$	6,636	$	—	$	—	157,251
Less:
Valuation discount resulting from acquisition accounting											11,591
Allowance for loan losses											10,515
PCI loans, net											$	135,145

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6. Other Real Estate Owned (“OREO”)

The following tables set forth activity in OREO for the three and six months ended June 30, 2017 and 2016:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Balance, beginning of period	$	4,519		$	12,427		$	5,998		$	13,738
Transfers in	—			206			—			311
Valuation adjustments	(33		)	(139		)	(226		)	(276		)
Proceeds from sale of OREO property	(444		)	(1,950		)	(1,719		)	(3,276		)
Gain on sale of OREO, net	16			69			5			116
Balance, end of period	$	4,058		$	10,613		$	4,058		$	10,613

At June 30, 2017, there were no foreclosed residential real estate properties held as OREO and the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $537 thousand.

7. FDIC Loss-sharing Asset and Covered Assets

During the current quarter, we entered into an agreement with the FDIC to terminate all loss-sharing agreements ahead of their contractual maturities. These loss-sharing agreements were entered into in 2010 and 2011 in conjunction with our acquisitions of (1) Columbia River Bank in January 2010, (2) American Marine Bank in January 2010, (3) Summit Bank in May 2011 and (4) First Heritage Bank in May 2011. Under the early termination, all rights and obligations of the Company and the FDIC have been resolved and completed. The Company paid the FDIC $4.7 million as consideration for early termination. The early termination was recorded in the Company’s financial statements by removing the remaining FDIC loss-sharing asset of $3.1 million and the remaining FDIC clawback liability of $5.4 million and recording a one-time, pre-tax charge on termination of $2.4 million, recorded to “Other” noninterest expense. Prior to entering into the termination agreement, the Company had $74.0 million of non-single family covered assets and $26.4 million of single family covered assets at March 31, 2017. As a result of the termination agreement, the Company will benefit from all future recoveries, and be responsible for all future losses and expenses related to the assets previously subject to the loss-sharing agreements.

The following table shows a detailed analysis of the FDIC loss-sharing asset for the three and six months ended June 30, 2017 and 2016:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Balance at beginning of period	$	3,239		$	5,954		$	3,535		$	6,568
Adjustments not reflected in income:
Cash paid to (received from) the FDIC, net	—			(396		)	184			(43		)
FDIC reimbursable losses (recoveries), net	57			(302		)	(149		)	(166		)
Termination of FDIC loss-sharing agreements	(3,123		)	—			(3,123		)	—
Adjustments reflected in noninterest income (1):
Amortization, net	(99		)	(883		)	(414		)	(2,215		)
Loan impairment (recapture)	—			(20		)	40			127
Sale of other real estate	11			(24		)	18			120
Valuation adjustments of other real estate owned	—			(40		)	—			(22		)
Other	(85		)	(23		)	(91		)	(103		)
Balance at end of period	$	—		$	4,266		$	—		$	4,266

__________

(1) Amounts shown in the table above for adjustments reflected in noninterest income include only those adjustments recorded to the noninterest income line item “Change in FDIC loss-sharing asset” in the Consolidated Statements of Income and do not include the charge related to the termination of the FDIC loss-sharing agreements.

23

8. Goodwill and Other Intangible Assets

In accordance with the Intangibles – Goodwill and Other topic of the FASB ASC, goodwill is not amortized but is reviewed for potential impairment at the reporting unit level. Management analyzes its goodwill for impairment on an annual basis on July 31 and between annual tests in certain circumstances such as material adverse changes in legal, business, regulatory and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.

The core deposit intangible (“CDI”) is evaluated for impairment if events and circumstances indicate a possible impairment. The CDI is amortized on an accelerated basis over an estimated life of 10 years.

The following table sets forth activity for goodwill and other intangible assets for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Goodwill
Total goodwill	$	382,762		$	382,762		$	382,762		$	382,762
Other intangible assets, net
Core deposit intangible:
Gross core deposit intangible balance at beginning of period	58,598			58,598			58,598			58,598
Accumulated amortization at beginning of period	(43,235		)	(37,523		)	(41,886		)	(35,940		)
Core deposit intangible, net at beginning of period	15,363			21,075			16,712			22,658
CDI current period amortization	(1,249		)	(1,483		)	(2,598		)	(3,066		)
Total core deposit intangible, net at end of period	14,114			19,592			14,114			19,592
Intangible assets not subject to amortization	919			919			919			919
Other intangible assets, net at end of period	15,033			20,511			15,033			20,511
Total goodwill and other intangible assets at end of period	$	397,795		$	403,273		$	397,795		$	403,273

The following table provides the estimated future amortization expense of core deposit intangibles for the remaining six months ending December 31, 2017 and the succeeding four years:

	Amount
	(in thousands)
Year ending December 31,
2017	$	2,315
2018	3,855
2019	2,951
2020	2,048
2021	1,440

9. Derivatives and Balance Sheet Offsetting

The Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively converts the customer’s variable rate loan into a fixed rate. The Company then enters into a corresponding swap agreement with a third-party in order to offset its exposure on the variable and fixed components of the customer agreement. As the interest rate swap agreements with the customers and third parties are not designated as hedges under the Derivatives and Hedging topic of the FASB ASC, the instruments are marked to market in earnings. The notional amount of open interest rate swap agreements at June 30, 2017 and December 31, 2016 was $346.7 million and $309.3 million, respectively. During the three and six months ended June 30, 2017, mark-to-market gains of $2 thousand and $6 thousand were recorded to “Other” noninterest expense. During the three and six months ended June 30, 2016, a mark-to-market gain of $1 thousand and a loss of $7 thousand were recorded to “Other” noninterest expense.

24

The following table presents the fair value of derivatives not designated as hedging instruments at June 30, 2017 and December 31, 2016:

Asset Derivatives

Liability Derivatives

June 30, 2017

December 31, 2016

June 30, 2017

December 31, 2016

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

(in thousands)

Interest rate contracts

Other assets

$

9,077

Other assets

$

9,012

Other liabilities

$

9,096

Other liabilities

$

9,036

The Company is party to interest rate contracts and repurchase agreements that are subject to enforceable master netting arrangements or similar agreements. Under these agreements, the Company may have the right to net settle multiple contracts with the same counterparty. The following tables show the gross interest rate swap agreements and repurchase agreements in the Consolidated Balance Sheets and the respective collateral received or pledged in the form of other financial instruments, which are generally marketable securities. The collateral amounts in these tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of overcollateralization are not shown.

	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets/Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
							Collateral Posted			Net Amount
June 30, 2017	(in thousands)
Assets
Interest rate contracts	$	9,077	$	—	$	9,077	$	—		$	9,077
Liabilities
Interest rate contracts	$	9,096	$	—	$	9,096	$	(9,096	)	$	—
Repurchase agreements	$	65,895	$	—	$	65,895	$	(65,895	)	$	—
December 31, 2016
Assets
Interest rate contracts	$	9,012	$	—	$	9,012	$	—		$	9,012
Liabilities
Interest rate contracts	$	9,036	$	—	$	9,036	$	(9,036	)	$	—
Repurchase agreements	$	80,822	$	—	$	80,822	$	(80,822	)	$	—

The following table presents the class of collateral pledged for repurchase agreements as well as the remaining contractual maturity of the repurchase agreements:

	Remaining contractual maturity of the agreements
	Overnight and continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
June 30, 2017	(in thousands)
Class of collateral pledged for repurchase agreements
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	40,895	$	—	$	—	$	25,000	$	65,895
Gross amount of recognized liabilities for repurchase agreements									65,895
Amounts related to agreements not included in offsetting disclosure									$	—

25

The collateral utilized for the Company’s repurchase agreements is subject to market fluctuations as well as prepayments of principal. The Company monitors the risk of the fair value of its pledged collateral falling below acceptable amounts based on the type of the underlying repurchase agreement. The pledged collateral related to the Company’s term wholesale repurchase agreement, which matures in 2018, is monitored on a monthly basis and additional capital is pledged when necessary. The pledged collateral related to the Company’s sweep repurchase agreements, which mature on an overnight basis, is monitored on a daily basis as the underlying sweep accounts can have frequent transaction activity and the amount of pledged collateral is adjusted as necessary.

10. Commitments and Contingent Liabilities

Lease Commitments: The Company’s lease commitments consist primarily of leased locations under various non-cancellable operating leases that expire between 2017 and 2043. The majority of the leases contain renewal options and provisions for increases in rental rates based on an agreed upon index or predetermined escalation schedule.

Sale-leaseback transaction: On August 24, 2016, the Company sold one of its Washington facilities and leased back the portion of the facility utilized for branch operations. The lease term is through July 2026, with monthly payments of approximately $12 thousand. The resulting gain on sale of $742 thousand was deferred in accordance with the Leases topic of the FASB ASC and is being amortized over the life of the respective lease. At June 30, 2017, the deferred gain was $679 thousand and is a component of "Other liabilities" in the Consolidated Balance Sheets.

Financial Instruments with Off-Balance Sheet Risk: In the normal course of business, the Company makes loan commitments (typically unfunded loans and unused lines of credit) and issues standby letters of credit to accommodate the financial needs of its customers. At June 30, 2017 and December 31, 2016, the Company’s loan commitments amounted to$2.18 billion and $2.17 billion, respectively.

Standby letters of credit commit the Company to make payments on behalf of customers under specified conditions. Historically, no significant losses have been incurred by the Company under standby letters of credit. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies, including collateral requirements, where appropriate. Standby letters of credit were $49.6 million and $49.7 million at June 30, 2017 and December 31, 2016, respectively. In addition, commitments under commercial letters of credit used to facilitate customers’ trade transactions and other off-balance sheet liabilities amounted to $3.0 million and $3.4 million at June 30, 2017 and December 31, 2016, respectively.

Legal Proceedings: The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from their regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.

11. Shareholders’ Equity

Preferred Stock: In conjunction with the 2013 acquisition of West Coast Bancorp, the Company issued 8,782 shares of mandatorily convertible cumulative participating preferred stock, Series B (“Series B Preferred Stock”). On January 12, 2017, all outstanding shares of Series B Preferred Stock were converted to Company common stock.

Dividends: On January 26, 2017, the Company declared a quarterly cash dividend of $0.22 per common share payable on February 22, 2017 to shareholders of record at the close of business on February 8, 2017.

On April 27, 2017, the Company declared a regular quarterly cash dividend of $0.22 per common share payable on May 24, 2017 to shareholders of record at the close of business on May 10, 2017.

Subsequent to quarter end, on July 27, 2017, the Company declared a regular quarterly cash dividend of $0.22 per common share payable on August 23, 2017 to shareholders of record at the close of business on August 9, 2017.

The payment of cash dividends is subject to federal regulatory requirements for capital levels and other restrictions. In addition, the cash dividends paid by Columbia Bank to the Company are subject to both federal and state regulatory requirements.

26

12. Accumulated Other Comprehensive Loss

The following table shows changes in accumulated other comprehensive income (loss) by component for the three and six month periods ended June 30, 2017 and 2016:

	Unrealized Gains and Losses on Available-for-Sale Securities (1)			Unrealized Gains and Losses on Pension Plan Liability (1)			Total (1)
Three months ended June 30, 2017	(in thousands)
Beginning balance	$	(11,002	)	$	(1,604	)	$	(12,606	)
Other comprehensive income before reclassifications	6,033			—			6,033
Amounts reclassified from accumulated other comprehensive income	—			45			45
Net current-period other comprehensive income	6,033			45			6,078
Ending balance	$	(4,969	)	$	(1,559	)	$	(6,528	)
Three months ended June 30, 2016
Beginning balance	$	18,918		$	(6,575	)	$	12,343
Other comprehensive income before reclassifications	8,508			—			8,508
Amounts reclassified from accumulated other comprehensive income (loss)	(146		)	106			(40		)
Net current-period other comprehensive income	8,362			106			8,468
Ending balance	$	27,280		$	(6,469	)	$	20,811
Six months ended June 30, 2017
Beginning balance	$	(12,704	)	$	(6,295	)	$	(18,999	)
Other comprehensive income before reclassifications	7,735			4,604			12,339
Amounts reclassified from accumulated other comprehensive income	—			132			132
Net current-period other comprehensive income	7,735			4,736			12,471
Ending balance	$	(4,969	)	$	(1,559	)	$	(6,528	)
Six months ended June 30, 2016
Beginning balance	$	386		$	(6,681	)	$	(6,295	)
Other comprehensive income before reclassifications	27,278			—			27,278
Amounts reclassified from accumulated other comprehensive income (loss)	(384		)	212			(172		)
Net current-period other comprehensive income	26,894			212			27,106
Ending balance	$	27,280		$	(6,469	)	$	20,811

__________

(1) All amounts are net of tax. Amounts in parenthesis indicate debits.

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The following table shows details regarding the reclassifications from accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2017 and 2016:

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
	Three Months Ended June 30,						Six Months Ended June 30,						Affected line Item in the Consolidated
	2017			2016			2017			2016			Statement of Income
	(in thousands)
Unrealized gains and losses on available-for-sale securities
Investment securities gains	$	—		$	229		$	—		$	602		Investment securities gains, net
	—			229			—			602			Total before tax
	—			(83		)	—			(218		)	Income tax provision
	$	—		$	146		$	—		$	384		Net of tax
Amortization of pension plan liability
Actuarial losses	$	(71	)	$	(167	)	$	(207	)	$	(334	)	Compensation and employee benefits
	(71		)	(167		)	(207		)	(334		)	Total before tax
	26			61			75			122			Income tax benefit
	$	(45	)	$	(106	)	$	(132	)	$	(212	)	Net of tax

13. Fair Value Accounting and Measurement

The Fair Value Measurements and Disclosures topic of the FASB ASC defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value. We hold fixed and variable rate interest-bearing securities, investments in marketable equity securities and certain other financial instruments, which are carried at fair value. Fair value is determined based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available.

The valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our own market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets that are accessible at the measurement date.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

Fair values are determined as follows:

Securities at fair value are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors. These fair value calculations are considered a Level 2 input method under the provisions of the Fair Value Measurements and Disclosures topic of the FASB ASC for all securities other than U.S. Treasury Notes, which are considered a Level 1 input method.

Interest rate contract positions are valued in models, which use as their basis, readily observable market parameters and are classified within Level 2 of the valuation hierarchy.

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The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2017 and December 31, 2016 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

	Fair value		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
June 30, 2017	(in thousands)
Assets
Securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations	$	1,423,958	$	—	$	1,423,958	$	—
State and municipal debt securities	483,093		—		483,093		—
U.S. government agency and government-sponsored enterprise securities	352,238		—		352,238		—
U.S. government securities	250		250		—		—
Other securities	5,097		—		5,097		—
Total securities available for sale	$	2,264,636	$	250	$	2,264,386	$	—
Other assets (Interest rate contracts)	$	9,077	$	—	$	9,077	$	—
Liabilities
Other liabilities (Interest rate contracts)	$	9,096	$	—	$	9,096	$	—

	Fair value		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
December 31, 2016	(in thousands)
Assets
Securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations	$	1,465,732	$	—	$	1,465,732	$	—
State and municipal debt securities	475,060		—		475,060		—
U.S. government agency and government-sponsored enterprise securities	331,902		—		331,902		—
U.S. government securities	800		800		—		—
Other securities	5,083		—		5,083		—
Total securities available for sale	$	2,278,577	$	800	$	2,277,777	$	—
Other assets (Interest rate contracts)	$	9,012	$	—	$	9,012	$	—
Liabilities
Other liabilities (Interest rate contracts)	$	9,036	$	—	$	9,036	$	—

There were no transfers between Level 1 and Level 2 of the valuation hierarchy during the six month periods ended June 30, 2017 and 2016. The Company recognizes transfers between levels of the valuation hierarchy based on the valuation level at the end of the reporting period.

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Nonrecurring Measurements

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and OREO. The following methods were used to estimate the fair value of each such class of financial instrument:

Impaired loans—A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price, or the fair market value of the collateral less estimated costs to sell if the loan is a collateral-dependent loan. Generally, the Company utilizes the fair market value of the collateral to measure impairment. The impairment evaluations are performed in conjunction with the allowance process on a quarterly basis by officers in the Special Credits group, which reports to the Chief Credit Officer. The Real Estate Appraisal Services Department (“REASD”), which also reports to the Chief Credit Officer, is responsible for obtaining appraisals from third-parties or performing internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy and reasonableness.

Other real estate owned—OREO is real property that the Bank has taken ownership of in partial or full satisfaction of a loan or loans. OREO is generally measured based on the property’s fair market value as indicated by an appraisal or a letter of intent to purchase. OREO is initially recorded at the fair value less estimated costs to sell. This amount becomes the property’s new basis. Any fair value adjustments based on the property’s fair value less estimated costs to sell at the date of acquisition are charged to the allowance, or in the event of a write-up without previous losses charged to the allowance, a credit to earnings is recorded. Management periodically reviews OREO in an effort to ensure the property is recorded at its fair value, net of estimated costs to sell. Any fair value adjustments subsequent to acquisition are charged or credited to earnings. The initial and subsequent evaluations are performed by officers in the Special Credits group, which reports to the Chief Credit Officer. The REASD obtains appraisals from third-parties for OREO and performs internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy and reasonableness.

The following tables set forth information related to the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the current and prior year quarterly periods:

	Fair value at June 30, 2017		Fair Value Measurements at Reporting Date Using						Losses During the Three Months Ended June 30, 2017		Losses During the Six Months Ended June 30, 2017
			Level 1		Level 2		Level 3
	(in thousands)
Impaired loans	$	7,019	$	—	$	—	$	7,019	$	3,669	$	3,669
OREO	105		—		—		105		33		33
	$	7,124	$	—	$	—	$	7,124	$	3,702	$	3,702

	Fair value at June 30, 2016		Fair Value Measurements at Reporting Date Using						Losses During the Three Months Ended June 30, 2016		Losses During the Six Months Ended June, 2016
			Level 1		Level 2		Level 3
	(in thousands)
Impaired loans	$	3,218	$	—	$	—	$	3,218	$	2,691	$	2,691
OREO	6,338		—		—		6,338		138		233
	$	9,556	$	—	$	—	$	9,556	$	2,829	$	2,924

The losses on impaired loans disclosed above represent the amount of the specific reserve and/or charge-offs during the period applicable to loans held at period end. The amount of the specific reserve is included in the allowance for loan and lease losses. The losses on OREO disclosed above represent the write-downs taken at foreclosure that were charged to the allowance for loan and lease losses, as well as subsequent changes in any valuation allowances from updated appraisals that were recorded to earnings.

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Quantitative information about Level 3 fair value measurements

The range and weighted-average of the significant unobservable inputs used to fair value our Level 3 nonrecurring assets, along with the valuation techniques used, are shown in the following table:

	Fair value at June 30, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average) (1)
	(dollars in thousands)
Impaired loans - collateral-dependent (3)	$	7,019	Fair Market Value of Collateral	Adjustment to Stated Value	0.00% - 75.00% (60.59%)
OREO	$	105	Fair Market Value of Collateral	Adjustment to Appraisal Value	N/A (2)
(1) Discount applied to appraisal value or stated value (in the case of accounts receivable, fixed assets, and inventory).
(2) Quantitative disclosures are not provided for OREO because there were no adjustments made to the appraisal values.
(3) Collateral consists of accounts receivable, fixed assets, inventory, and real estate.

	Fair value at June 30, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average) (1)
	(dollars in thousands)
Impaired loans - collateral-dependent (3)	$	303	Fair Market Value of Collateral	Adjustment to Stated Value	N/A (2)
Impaired loans - other	$	2,915	Discounted Cash Flow	Discount Rate	2.99% - 10.25% (6.03%)
OREO	$	6,338	Fair Market Value of Collateral	Adjustment to Appraisal Value	N/A (2)
(1) Discount rate used in discounted cash flow valuation.
(2) Quantitative disclosures are not provided for collateral-dependent impaired loans and OREO because there were no adjustments made to the appraisal values or stated values during the current period.
(3) Collateral consists of fixed assets and accounts receivable.

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Fair value of financial instruments

Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and due from banks and interest-earning deposits with banks—The fair value of financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value that approximates carrying value (Level 1).

Securities available for sale—Securities at fair value, other than U.S. Treasury Notes, are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors (Level 2). U.S. Treasury Notes are priced using quotes in active markets (Level 1).

Federal Home Loan Bank stock—The fair value is based upon the par value of the stock which equates to its carrying value (Level 2).

Loans held for sale—The carrying amount of loans held for sale approximates their fair values due to the short period of time between the origination and sale dates (Level 2).

Loans—Loans are not recorded at fair value on a recurring basis. Nonrecurring fair value adjustments are periodically recorded on impaired loans that are measured for impairment based on the fair value of collateral. For most performing loans, fair value is estimated using expected duration and lending rates that would have been offered on June 30, 2017 or December 31, 2016, for loans which mirror the attributes of the loans with similar rate structures and average maturities. The fair values resulting from these calculations are reduced by an amount representing the change in estimated fair value attributable to changes in borrowers’ credit quality since the loans were originated. For nonperforming loans, fair value is estimated by applying a valuation discount based upon loan sales data from the FDIC. For PCI loans, fair value is estimated by discounting the expected future cash flows using a lending rate that would have been offered on June 30, 2017 (Level 3).

FDIC loss-sharing asset —The fair value of the FDIC loss-sharing asset is estimated based on discounting the expected future cash flows using an estimated market rate (Level 3).

Interest rate contracts—Interest rate swap positions are valued in discounted cash flow models, which use readily observable market parameters as their basis (Level 2).

Deposits—For deposits with no contractual maturity, the fair value is equal to the carrying value (Level 1). The fair value of fixed maturity deposits is based on discounted cash flows using the difference between the deposit rate and current market rates for deposits of similar remaining maturities (Level 2).

FHLB advances—The fair value of FHLB advances is estimated based on discounting the future cash flows using the market rate currently offered (Level 2).

Repurchase Agreements—The fair value of term repurchase agreements is estimated based on discounting the future cash flows using the market rate currently offered. The carrying amount of sweep repurchase agreements approximates their fair values due to the short period of time between repricing dates (Level 2).

Other Financial Instruments—The majority of our commitments to extend credit and standby letters of credit carry current market interest rates if converted to loans, as such, carrying value is assumed to equal fair value.

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The following tables summarize carrying amounts and estimated fair values of selected financial instruments as well as assumptions used by the Company in estimating fair value at June 30, 2017 and December 31, 2016:

	June 30, 2017
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash and due from banks	$	197,623	$	197,623	$	197,623	$	—	$	—
Interest-earning deposits with banks	14,425		14,425		14,425		—		—
Securities available for sale	2,264,636		2,264,636		250		2,264,386		—
FHLB stock	16,360		16,360		—		16,360		—
Loans held for sale	6,918		6,918		—		6,918		—
Loans	6,350,090		6,233,490		—		—		6,233,490
Interest rate contracts	9,077		9,077		—		9,077		—
Liabilities
Deposits	$	8,072,464	$	8,067,980	$	7,687,671	$	380,309	$	—
FHLB advances	159,474		160,397		—		160,397		—
Repurchase agreements	65,895		66,102		—		66,102		—
Interest rate contracts	9,096		9,096		—		9,096		—

	December 31, 2016
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash and due from banks	$	193,038	$	193,038	$	193,038	$	—	$	—
Interest-earning deposits with banks	31,200		31,200		31,200		—		—
Securities available for sale	2,278,577		2,278,577		800		2,277,777		—
FHLB stock	10,240		10,240		—		10,240		—
Loans held for sale	5,846		5,846		—		5,846		—
Loans	6,143,380		6,040,439		—		—		6,040,439
FDIC loss-sharing asset	3,535		867		—		—		867
Interest rate contracts	9,012		9,012		—		9,012		—
Liabilities
Deposits	$	8,059,415	$	8,055,168	$	7,653,122	$	402,046	$	—
FHLB advances	6,493		7,070		—		7,070		—
Repurchase agreements	80,822		81,131		—		81,131		—
Interest rate contracts	9,036		9,036		—		9,036		—

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14. Earnings per Common Share

The Company applies the two-class method of computing basic and diluted EPS. Under the two-class method, EPS is determined for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The Company issues restricted shares under share-based compensation plans and preferred shares which qualify as participating securities.

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2017 and 2016:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
	(in thousands except per share)
Basic EPS:
Net income	$	27,132	$	25,405	$	56,331	$	46,664
Less: Earnings allocated to participating securities:
Preferred shares	—		45		3		82
Nonvested restricted shares	362		343		759		578
Earnings allocated to common shareholders	$	26,770	$	25,017	$	55,569	$	46,004
Weighted average common shares outstanding	57,520		57,185		57,437		57,149
Basic earnings per common share	$	0.47	$	0.44	$	0.97	$	0.80
Diluted EPS:
Earnings allocated to common shareholders	$	26,770	$	25,017	$	55,569	$	46,004
Weighted average common shares outstanding	57,520		57,185		57,437		57,149
Dilutive effect of equity awards	5		10		5		11
Weighted average diluted common shares outstanding	57,525		57,195		57,442		57,160
Diluted earnings per common share	$	0.47	$	0.44	$	0.97	$	0.80
Potentially dilutive share options that were not included in the computation of diluted EPS because to do so would be anti-dilutive	12		19		13		23

15. Subsequent Event

In July 2017, we entered into an asset purchase agreement (the “Agreement”) with a third-party by which we transitioned our merchant services delivery from in-house to an outsourced model. The carrying amount of both assets and liabilities subject to this Agreement was zero. The sale transaction resulted in a one-time $14.0 million gain to be recognized in the third quarter of 2017. In addition to the one-time gain, prospectively Columbia will receive net monthly revenue from merchant services. If the Agreement is terminated by Columbia or the third-party during its initial ten-year term, we must pay the third-party a termination fee.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the unaudited Consolidated Financial Statements of Columbia Banking System, Inc. (referred to in this report as “we”, “our”, “Columbia” and “the Company”) and notes thereto presented elsewhere in this report and with the December 31, 2016 audited Consolidated Financial Statements and its accompanying notes included in our Annual Report on Form 10-K. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date one year earlier.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions that are not historical facts, and statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “projects,” “seeks,” “estimates” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. In addition to the factors set forth in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the factors set forth in the section titled “Risk Factors” in the Company’s Form 10-K, the following factors, among others, could cause actual results to differ materially from the anticipated results expressed or implied by forward-looking statements:

• national and global economic conditions could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth and maintain the quality of our earning assets;

• the housing/real estate markets where we operate and make loans could face challenges;

• the risks presented by the economy, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;

• the efficiencies and enhanced financial and operating performance we expect to realize from investments in personnel, acquisitions (including the pending acquisition of Pacific Continental Corporation (“Pacific Continental”)), and infrastructure may not be realized;

• the ability to complete the proposed acquisition of Pacific Continental in a timely manner or at all because required regulatory or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, or to complete future acquisitions;

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

• interest rate changes could significantly reduce net interest income and negatively affect funding sources;

• projected business increases following strategic expansion could be lower than expected;

• changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverages;

• the impact of acquired loans, including purchased credit impaired loans, on our earnings;

• changes in laws and regulations affecting our businesses, including changes in the enforcement and interpretation of such laws and regulations by applicable governmental and regulatory agencies;

• competition among financial institutions and nontraditional providers of financial services could increase significantly;

• continued consolidation in the Northwest financial services industry resulting in the creation of larger financial institutions that may have greater resources could change the competitive landscape;

• the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings and capital;

• our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,” “hacking” and identity theft;

• any material failure or interruption of our information and communications systems or inability to keep pace with technological changes;

• our ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk and regulatory and compliance risk;

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

• our profitability measures could be adversely affected if we are unable to effectively manage our capital;

• natural disasters, including earthquakes, tsunamis, flooding, fires and other unexpected events; and

• the effects of any damage to our reputation resulting from developments related to any of the items identified above.

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You should take into account that forward-looking statements speak only as of the date of this report. Given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under federal securities laws.

CRITICAL ACCOUNTING POLICIES

Management has identified the accounting policies related to the allowance for loan and lease losses (the “allowance”), business combinations and the valuation and recoverability of goodwill as critical to an understanding of our financial statements. These policies and related estimates are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Allowance for Loan and Lease Losses,” “Business Combinations” and “Valuation and Recoverability of Goodwill” in our 2016 Annual Report on Form 10-K. There have not been any material changes in our critical accounting policies as compared to those disclosed in our 2016 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Our results of operations are dependent to a large degree on our net interest income. We also generate noninterest income from our broad range of products and services including treasury management, wealth management, debit and credit cards and merchant card processing. Our operating expenses consist primarily of compensation and employee benefits, occupancy, data processing and legal and professional fees. Like most financial institutions, our interest income and cost of funds are affected significantly by general economic conditions, particularly changes in market interest rates, and by government policies and actions of regulatory authorities.

Earnings Summary

Comparison of current quarter to prior year period

The Company reported net income for the second quarter of $27.1 million or $0.47 per diluted common share, compared to $25.4 million or $0.44 per diluted common share for the second quarter of 2016. Net interest income for the three months ended June 30, 2017 was $86.2 million, an increase of $4.0 million from the prior year period. The increase was a result of higher interest income on loans and taxable securities due to higher volume of such interest-earning assets. Noninterest income for the current quarter was $24.1 million, an increase of $2.2 million from the prior year period. The increase was primarily due to lower expense recorded for the change in FDIC loss-sharing asset as well as a $431 thousand bank owned life insurance benefit in the current quarter, which was recorded to other noninterest income.

The provision for loan and lease losses for the second quarter of 2017 was $3.2 million compared to a provision of $3.6 million during the second quarter of 2016. The provision recorded in the second quarter of 2017 was due to the recording of a $3.9 million provision on loans, excluding PCI loans, and a $738 thousand provision recapture related to PCI loans.

Total noninterest expense for the quarter ended June 30, 2017 was $68.9 million, an increase from $63.8 million for the second quarter of 2016. The increase from the prior year period was primarily due to a $2.4 million charge recorded in the current quarter related to our early termination of FDIC loss share agreements as well as an increase of $1.0 million in acquisition-related expenses.

Comparison of current year-to-date to prior year period

Net interest income for the six months ended June 30, 2017 was $172.8 million, an increase of $10.5 million from the prior year period. The increase was due to higher loan and securities volumes and lower market-driven premium amortization on securities, partially offset by lower incremental accretion income on loans. Noninterest income for the current period was $49.0 million, an increase of $6.4 million from the prior year period. The increase was due to higher other noninterest income due to a $1.9 million bank owned life insurance benefit in the current year, lower expense recorded for the change in FDIC loss-sharing asset and higher loan fee revenue.

The provision for loan and lease losses for the six months ended June 30, 2017 was $6.0 million compared to a provision of $8.9 million for the first six months of 2016. The $6.0 million provision was due to recording a provision of $7.1 million for loans, excluding PCI loans, and a provision recapture of $1.1 million related to PCI loans.

Total noninterest expense for the six months ended June 30, 2017 was $137.9 million, a 7%increase from the prior year period. The increase from the prior-year period was driven by increased compensation and employee benefits expense as well as the $2.4 million charge recorded in the current year related to our early termination of FDIC loss share agreement.

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Net Interest Income

The following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities, the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities, the average yield earned on interest-earning assets and average cost of interest-bearing liabilities by category and, in total, net interest income and net interest margin:

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

__________

(1) Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.8 million and $1.2 million for the three month periods ended June 30, 2017 and 2016, respectively. The incremental accretion income on acquired loans was $3.1 million and $4.4 million for the three months ended June 30, 2017 and 2016, respectively.

(2) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.5 million and $1.3 million for the three months ended June 30, 2017 and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and for the three months ended June 30, 2017 and 2016.

37

The following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities, the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities, the average yield earned on interest-earning assets and average cost of interest-bearing liabilities by category and, in total, net interest income and net interest margin:

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

__________

(1) Nonaccrual loans have been included in the table as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $3.4 million and $2.3 million for the six months ended June 30, 2017 and 2016, respectively. The incremental accretion income on acquired loans was $7.2 million and $9.1 million for the six months ended June 30, 2017 and 2016, respectively.

(2) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.8 million and $2.3 million for the six months ended June 30, 2017 and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.9 million and $3.0 million for the six months ended June 30, 2017 and 2016, respectively.

38

The following table sets forth the total dollar amount of change in interest income and interest expense. The changes have been segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in volume and changes in rates. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates:

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

The following table sets forth the total dollar amount of change in interest income and interest expense. The changes have been segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in volume and changes in rates. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates:

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

39

The following table shows the impact to interest income of incremental accretion income as well as the net interest margin and operating net interest margin for the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(dollars in thousands)
Incremental accretion income due to:
FDIC purchased credit impaired loans	$	753		$	1,300		$	2,870		$	2,957
Other acquired loans	2,356			3,074			4,304			6,147
Incremental accretion income	$	3,109		$	4,374		$	7,174		$	9,104
Net interest margin (tax equivalent)	4.12		%	4.10		%	4.16		%	4.12		%
Operating net interest margin(tax equivalent) (1)	4.09		%	4.00		%	4.09		%	4.01		%

__________

(1) Operating net interest margin (tax equivalent) is a non-GAAP measurement. See Non-GAAP measures section of Item 2, Management’s Discussion and Analysis.

Comparison of current quarter to prior year period

Net interest income for the second quarter of 2017 was $86.2 million, up from $82.1 million for the same quarter in 2016. The increase was primarily due to higher loan and security volumes, partially offset by lower incremental accretion income on loans. As shown in the table above, incremental accretion income continued to decline which was reflective of the decrease in volume of acquired loans. Average interest-earning assets were up$366.6 million from the prior year period due to loan growth and purchases of investment securities. The Company’s net interest margin (tax equivalent) increased to 4.12% in the second quarter of 2017, from 4.10% for the prior year period. This increase was due to higher loan and security volumes, partially offset by lower incremental accretion. The Company’s operating net interest margin (tax equivalent) (see footnote 1 in prior table) increased to 4.09% from 4.00% due to higher loan and security volumes.

Comparison of current year-to-date to prior year period

Net interest income for the six months ended June 30, 2017 was $172.8 million, an increase of 6% from $162.3 million for the prior year period. The increase in net interest income was due to higher loan and securities volumes and lower market-driven premium amortization on securities, partially offset by lower incremental accretion income on loans. The Company’s net interest margin (tax equivalent) increased to 4.16% for the first six months of 2017, from 4.12% for the prior year period. The increase in the Company’s net interest margin (tax equivalent) was primarily due to lower premium amortization on taxable securities, partially offset by lower accretion income on acquired loans. As shown in the table above, the Company recorded $7.2 million in total incremental accretion during the six months ended June 30, 2017, a decrease of $1.9 million from the prior year period. The Company’s operating net interest margin (tax equivalent) for the six months ended June 30, 2017increased to 4.09% from 4.01% due to lower premium amortization on taxable securities (see footnote 1 in prior table).

Provision for Loan and Lease Losses

Comparison of current quarter to prior year period

During the second quarter of 2017, the Company recorded a $3.2 million provision expense compared to $3.6 million during the second quarter of 2016. The $3.2 million net provision for loan and lease losses recorded during the current quarter was driven by loans, excluding PCI loans, which was $3.9 million. Net provision recapture for PCI loans was $738 thousand. The $3.9 million provision for loans, excluding PCI loans, was due to growth in the loan portfolio and net charge-off activity. The provision recapture recorded relating to PCI loans was due to the increase in the present value of expected future cash flows as remeasured during the current quarter, compared to the present value of expected future cash flows measured during the first quarter of 2017. The amount of provision was calculated in accordance with the Company’s methodology for determining the allowance, discussed in Note 5 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.

40

Comparison of current year-to-date to prior year period

The provision for loan and lease losses for the six months ended June 30, 2017 was $6.0 million compared to $8.9 million during the same period in 2016. The $6.0 million provision expense for loans recorded for the current year-to-date period included a provision of $7.1 million for loans, excluding PCI loans and a provision recapture of $1.1 million related to PCI loans. The provision of $7.1 million related to loans, excluding PCI loans, was due to the combination of loan growth and net loan charge-offs experienced in the period. The $1.1 million in provision recapture for PCI loans was primarily due to the increase in the present value of expected future cash flows as remeasured during the current period, compared to the present value of expected future cash flows at the end of 2016, net of activity during the period. The amount of provision was calculated in accordance with the Company’s methodology for determining the allowance, discussed in Note 5 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.

Noninterest Income

The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:

	Three Months Ended June 30,											Six Months Ended June 30,
	2017			2016			$ Change			% Change		2017			2016			$ Change			% Change
	(dollars in thousands)
Deposit account and treasury management fees	$	7,396		$	7,093		$	303		4	%	$	14,683		$	14,082		$	601		4	%
Card revenue	6,202			6,051			151			2	%	11,925			11,703			222			2	%
Financial services and trust revenue	3,036			2,780			256			9	%	5,875			5,601			274			5	%
Loan revenue	2,989			2,802			187			7	%	6,582			5,064			1,518			30	%
Merchant processing revenue	2,264			2,272			(8		)	—	%	4,283			4,374			(91		)	(2	)%
Bank owned life insurance	1,433			1,270			163			13	%	2,713			2,386			327			14	%
Investment securities gains, net	—			229			(229		)	(100	)%	—			602			(602		)	(100	)%
Change in FDIC loss-sharing asset	(173		)	(990		)	817			(83	)%	(447		)	(2,093		)	1,646			(79	)%
Other	988			433			555			128	%	3,380			867			2,513			290	%
Total noninterest income	$	24,135		$	21,940		$	2,195		10	%	$	48,994		$	42,586		$	6,408		15	%

Comparison of current quarter to prior year period

Noninterest income was $24.1 million for the second quarter of 2017, compared to $21.9 million for the same period in 2016. The increase was driven by lower expense recorded for the change in FDIC loss-sharing asset as well as higher other noninterest income. The lower expense recorded for the change in FDIC loss-sharing asset was due to lower amortization expense in the current quarter due to the termination of the FDIC loss-sharing agreements. For additional information on our FDIC loss-sharing agreements, see Note 7 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report. The increase in other noninterest income was due to a $431 thousand bank owned life insurance benefit in the current quarter.

Comparison of current year-to-date to prior year period

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

41

Noninterest Expense

The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:

	Three Months Ended June 30,										Six Months Ended June 30,
	2017			2016		$ Change			% Change		2017		2016		$ Change			% Change
	(dollars in thousands)
Compensation and employee benefits	$	38,393		$	37,291	$	1,102		3	%	$	79,218	$	73,610	$	5,608		8	%
All other noninterest expense:
Occupancy	7,577			7,652		(75		)	(1	)%	14,768		17,825		(3,057		)	(17	)%
Merchant processing expense	1,147			1,118		29			3	%	2,196		2,151		45			2	%
Advertising and promotion	1,137			1,043		94			9	%	1,954		1,885		69			4	%
Data processing	4,741			3,929		812			21	%	8,949		8,075		874			11	%
Legal and professional services	2,947			1,777		1,170			66	%	6,316		3,102		3,214			104	%
Taxes, license and fees	748			1,298		(550		)	(42	)%	1,989		2,588		(599		)	(23	)%
Regulatory premiums	741			1,068		(327		)	(31	)%	1,517		2,209		(692		)	(31	)%
Net cost (benefit) of operation of other real estate owned	(1		)	84		(85		)	(101	)%	151		188		(37		)	(20	)%
Amortization of intangibles	1,249			1,483		(234		)	(16	)%	2,598		3,066		(468		)	(15	)%
Other	10,188			7,047		3,141			45	%	18,197		14,165		4,032			28	%
Total all other noninterest expense	30,474			26,499		3,975			15	%	58,635		55,254		3,381			6	%
Total noninterest expense	$	68,867		$	63,790	$	5,077		8	%	$	137,853	$	128,864	$	8,989		7	%

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

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

__________

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

42

Comparison of current quarter to prior year period

Total noninterest expense for the second quarter of 2017 was $68.9 million, an increase of $5.1 million, or 8% from the prior year period. The increase was due to higher other noninterest expense, driven by the $2.4 million charge related to the FDIC loss share agreement termination as well as $1.0 million in acquisition-related expense in the current quarter. In addition, legal and professional fees were higher due to costs from both our investment in a customer relationship management application and the search for a permanent Chief Executive Officer.

Comparison of current year-to-date to prior year period

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

The following table presents selected items included in “Other” noninterest expense and the associated change from period to period:

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

43

Income Taxes

We recorded an income tax provision of $11.1 million for the second quarter of 2017, compared to a provision of $11.2 million for the same period in 2016, with effective tax rates of 29% for the second quarter of 2017 and 31% for the same period in 2016. For the six months ended June 30, 2017 and 2016, we recorded income tax provisions of $21.7 million and $20.5 million, respectively, with effective tax rates of 28% for the current year and 30% for the prior year period. Our effective tax rate remains lower than the statutory tax rate due to the amount of tax-exempt municipal securities held in the investment portfolio, tax-exempt earnings on bank owned life insurance and loans with favorable tax attributes. In addition, our effective tax rate was reduced in the current year due to the adoption of new share-based payment accounting (ASU 2016-09). For additional information, please refer to the Company’s annual report on Form 10-K for the year ended December 31, 2016 and Note 2 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.

FINANCIAL CONDITION

Total assets were $9.69 billion at June 30, 2017, an increase of $175.5 million from $9.51 billion at December 31, 2016. Loan growth of $209.7 million during the current year was driven by strong loan originations. Securities available for sale were $2.26 billion at June 30, 2017, a decrease of $13.9 million from December 31, 2016. Total liabilities were $8.39 billion as of June 30, 2017, an increase of $129.2 million from $8.26 billion at December 31, 2016. The increase was primarily due to additional Federal Home Loan Bank advances driven by our loan growth.

Investment Securities Available for Sale

At June 30, 2017, the Company held investment securities totaling $2.26 billion compared to $2.28 billion at December 31, 2016. The decrease in the investment securities portfolio from year-end is due to $131.5 million in principal payments and maturities and $8.9 million in premium amortization offset by $114.3 million in purchases and a $12.1 million decrease in net unrealized loss of securities in the portfolio. The average duration of our investment portfolio was approximately 3 years and 5 months at June 30, 2017. This duration takes into account calls, where appropriate, and consensus prepayment speeds.

The investment securities are used by the Company as a component of its balance sheet management strategies. From time-to-time, securities may be sold to reposition the portfolio in response to strategies developed by the Company’s asset liability management committee. In accordance with our investment strategy, management monitors market conditions with a view to realize gains on its available for sale securities portfolio when prudent.

The Company performs a quarterly assessment of the debt and equity securities in its investment portfolio that have an unrealized loss to determine whether the decline in the fair value of these securities below their amortized cost basis is other-than-temporary. Impairment is considered other-than-temporary when it becomes probable that the Company will be unable to recover the entire amortized cost basis of its investment. The Company’s impairment assessment takes into consideration factors such as the length of time and the extent to which the market value has been less than cost, defaults or deferrals of scheduled interest or principal, external credit ratings and recent downgrades, internal assessment of credit quality, and whether the Company intends to sell the security and whether it is more likely than not it will be required to sell the security prior to recovery of its amortized cost basis. If a decline in fair value is judged to be other-than-temporary, the cost basis of the individual security is written down to fair value which then becomes the new cost basis. The new cost basis is not adjusted for subsequent recoveries in fair value.

When there are credit losses associated with an impaired debt security and the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, the Company will separate the amount of the impairment into the amount that is credit-related and the amount related to non-credit factors. The credit-related impairment is recognized in earnings and the non-credit-related impairment is recognized in accumulated other comprehensive income.

At June 30, 2017, the market value of securities available for sale had a net unrealized loss of $8.3 million compared to a net unrealized loss of $20.5 million at December 31, 2016. The change in valuation was the result of fluctuations in market interest rates subsequent to purchase. At June 30, 2017, the Company had $1.36 billion of investment securities with gross unrealized losses of $22.6 million; however, we did not consider these investment securities to be other-than-temporarily impaired.

44

The following table sets forth our securities portfolio by type for the dates indicated:

	June 30, 2017		December 31, 2016
	(in thousands)
Securities Available for Sale
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	1,423,958	$	1,465,732
State and municipal securities	483,093		475,060
U.S. government and government-sponsored enterprise securities	352,238		331,902
U.S. government securities	250		800
Other securities	5,097		5,083
Total	$	2,264,636	$	2,278,577

For further information on our investment portfolio, see Note 3 of the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.

Credit Risk Management

The extension of credit in the form of loans or other credit substitutes to individuals and businesses is one of our principal commerce activities. Our policies, applicable laws, and regulations require risk analysis as well as ongoing portfolio and credit management. We manage our credit risk through lending limit constraints, credit review, approval policies, and extensive, ongoing internal monitoring. We also manage credit risk through diversification of the loan portfolio by type of loan, type of industry and type of borrower and by limiting the aggregation of debt to a single borrower.

In analyzing our existing portfolio, we review our consumer and residential loan portfolios by their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. In contrast, the monitoring process for the commercial business, real estate construction, and commercial real estate portfolios includes periodic reviews of individual loans with risk ratings assigned to each loan and performance judged on a loan-by-loan basis.

We review these loans to assess the ability of our borrowers to service all interest and principal obligations and, as a result, the risk rating may be adjusted accordingly. In the event that full collection of principal and interest is not reasonably assured, the loan is appropriately downgraded and, if warranted, placed on nonaccrual status even though the loan may be current as to principal and interest payments. Additionally, we assess whether an impairment of a loan warrants specific reserves or a write-down of the loan. For additional discussion on our methodology in managing credit risk within our loan portfolio, see the “Allowance for Loan and Lease Losses” section in this Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of the Company’s 2016 Annual Report on Form 10-K.

Loan policies, credit quality criteria, portfolio guidelines and other controls are established under the guidance of our Chief Credit Officer and approved, as appropriate, by the board of directors. Credit Administration, together with the management loan committee, has the responsibility for administering the credit approval process. As another part of its control process, we use an internal credit review and examination function to provide reasonable assurance that loans and commitments are made and maintained as prescribed by our credit policies. This includes a review of documentation when the loan is initially extended and subsequent examination to ensure continued performance and proper risk assessment.

45

Loan Portfolio Analysis

Our wholly owned banking subsidiary Columbia State Bank is a full service commercial bank, which originates a wide variety of loans, and focuses its lending efforts on originating commercial business and commercial real estate loans.

The following table sets forth the Company’s loan portfolio by type of loan for the dates indicated:

	June 30, 2017			% of Total		December 31, 2016			% of Total
	(dollars in thousands)
Commercial business	$	2,704,468		42.1	%	$	2,551,054		41.1	%
Real estate:
One-to-four family residential	173,150			2.7	%	170,331			2.7	%
Commercial and multifamily residential	2,787,560			43.5	%	2,719,830			43.7	%
Total real estate	2,960,710			46.2	%	2,890,161			46.4	%
Real estate construction:
One-to-four family residential	139,956			2.2	%	121,887			2.0	%
Commercial and multifamily residential	195,565			3.0	%	209,118			3.4	%
Total real estate construction	335,521			5.2	%	331,005			5.4	%
Consumer	323,187			5.0	%	329,261			5.3	%
Purchased credit impaired	129,853			2.0	%	145,660			2.3	%
Subtotal	6,453,739			100.5	%	6,247,141			100.5	%
Less: Net unearned income	(30,665		)	(0.5	)%	(33,718		)	(0.5	)%
Loans, net of unearned income (before Allowance for Loan and Lease Losses)	$	6,423,074		100.0	%	$	6,213,423		100.0	%
Loans held for sale	$	6,918				$	5,846

Total loans increased$209.7 million from year-end 2016. The increase in loans was the result of strong loan originations and increases in line utilization during the first six months of the year, partially offset by contractual payments and prepayments. The loan portfolio continues to be diversified, with the intent to mitigate risk by monitoring concentration in any one sector. The $30.7 million in unearned income recorded at June 30, 2017 was comprised of $15.8 million in net purchase discounts and $14.9 million in deferred loan fees. The $33.7 million in unearned income recorded at December 31, 2016 consisted of $20.2 million in net purchase discounts and $13.5 million in deferred loan fees.

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

	June 30, 2017			December 31, 2016
Acquisition:	(in thousands)
Intermountain	$	5,221		$	6,599
West Coast	10,845			13,957
Other	(234		)	(315		)
Total net discount at period end	$	15,832		$	20,241

Commercial Loans: We are committed to providing competitive commercial lending in our primary market areas. Management expects a continued focus within its commercial lending products and to emphasize, in particular, relationship banking with businesses and business owners.

Real Estate Loans: One-to-four family residential loans are secured by properties located within our primary market areas and, typically, have loan-to-value ratios of 80% or lower at origination. Our underwriting standards for commercial and multifamily residential loans generally require that the loan-to-value ratio for these loans not exceed 75% of appraised value, cost, or discounted cash flow value, as appropriate, and that commercial properties maintain debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. However, underwriting standards can be influenced by competition and other factors. We endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

46

Real Estate Construction Loans: We originate a variety of real estate construction loans. Underwriting guidelines for these loans vary by loan type but include loan-to-value limits, term limits and loan advance limits, as applicable. Our underwriting guidelines for commercial and multifamily residential real estate construction loans generally require that the loan-to-value ratio not exceed 75% and stabilized debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. As noted above, underwriting standards can be influenced by competition and other factors. However, we endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

Consumer Loans: Consumer loans include automobile loans, boat and recreational vehicle financing, home equity and home improvement loans and miscellaneous personal loans.

Foreign Loans: The Company has no material foreign activities. Substantially all of the Company’s loans and unfunded commitments are geographically concentrated in its service areas within the states of Washington, Oregon and Idaho.

Purchased Credit Impaired Loans: PCI loans are comprised of loans and loan commitments acquired in connection with the 2011 FDIC-assisted acquisitions of First Heritage Bank and Summit Bank, as well as the 2010 FDIC-assisted acquisitions of Columbia River Bank and American Marine Bank. PCI loans are generally accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”).

For additional information on our loan portfolio, including amounts pledged as collateral on borrowings, see Note 4 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.

Nonperforming Assets

Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans placed on a nonaccrual basis when the loan becomes past due 90 days or when there are otherwise serious doubts about the collectability of principal or interest within the existing terms of the loan, (ii) OREO and (iii) other personal property owned, if applicable.

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

	June 30, 2017			December 31, 2016
	(in thousands)
Nonperforming assets
Nonaccrual loans:
Commercial business	$	24,747		$	11,555
Real estate:
One-to-four family residential	697			568
Commercial and multifamily residential	7,267			11,187
Total real estate	7,964			11,755
Real estate construction:
One-to-four family residential	241			563
Total real estate construction	241			563
Consumer	3,872			3,883
Total nonaccrual loans	36,824			27,756
Other real estate owned and other personal property owned	4,058			5,998
Total nonperforming assets	$	40,882		$	33,754
Loans, net of unearned income	$	6,423,074		$	6,213,423
Total assets	$	9,685,110		$	9,509,607
Nonperforming loans to period end loans	0.57		%	0.45		%
Nonperforming assets to period end assets	0.42		%	0.35		%

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At June 30, 2017, nonperforming assets were $40.9 million, compared to $33.8 million at December 31, 2016. Nonperforming assets increased$7.1 million during the six months ended June 30, 2017. This increase was due to a $9.1 million increase innonaccrual loans, partially offset by a decrease in OREO.

Other Real Estate Owned: The following table sets forth activity in OREO for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Balance, beginning of period	$	4,519		$	12,427		$	5,998		$	13,738
Transfers in	—			206			—			311
Valuation adjustments	(33		)	(139		)	(226		)	(276		)
Proceeds from sale of OREO property	(444		)	(1,950		)	(1,719		)	(3,276		)
Gain on sale of OREO, net	16			69			5			116
Balance, end of period	$	4,058		$	10,613		$	4,058		$	10,613

Allowance for Loan and Lease Losses

The allowance for loan and lease losses (“ALLL”) is an accounting estimate of incurred credit losses in our loan portfolio at the balance sheet date. The provision for loan and lease losses is the expense recognized in the Consolidated Statements of Income to adjust the allowance to the levels deemed appropriate by management, as measured by the Company’s credit loss estimation methodologies. The allowance for unfunded commitments and letters of credit is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities at the balance sheet date.

At June 30, 2017, our allowance was $73.0 million, or 1.14% of total loans (excluding loans held for sale). This compares with an allowance of $70.0 million, or 1.13% of total loans (excluding loans held for sale) at December 31, 2016 and an allowance of $69.3 million or 1.13% of total loans (excluding loans held for sale) at June 30, 2016.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Beginning balance	$	71,021		$	69,264		$	70,043		$	68,172
Charge-offs:
Commercial business	(3,600		)	(2,941		)	(4,727		)	(6,714		)
One-to-four family residential	(153		)	(35		)	(460		)	(35		)
Commercial and multifamily residential	—			(26		)	—			(26		)
One-to-four family residential construction	—			—			(14		)	—
Commercial and multifamily residential construction	—			—			—			—
Consumer	(465		)	(334		)	(893		)	(600		)
Purchased credit impaired	(1,800		)	(2,898		)	(3,739		)	(5,764		)
Total charge-offs	(6,018		)	(6,234		)	(9,833		)	(13,139		)
Recoveries:
Commercial business	2,944			753			3,309			1,415
One-to-four family residential	223			20			340			61
Commercial and multifamily residential	127			130			205			199
One-to-four family residential construction	58			5			87			259
Commercial and multifamily residential construction	—			1			—			2
Consumer	248			201			533			366
Purchased credit impaired	1,204			1,524			2,348			3,075
Total recoveries	4,804			2,634			6,822			5,377
Net charge-offs	(1,214		)	(3,600		)	(3,011		)	(7,762		)
Provision for loan and lease losses	3,177			3,640			5,952			8,894
Ending balance	$	72,984		$	69,304		$	72,984		$	69,304
Total loans, net at end of period, excluding loans held of sale	$	6,423,074		$	6,107,143		$	6,423,074		$	6,107,143
Allowance for loan and lease losses to period-end loans	1.14		%	1.13		%	1.14		%	1.13		%
Allowance for unfunded commitments and letters of credit
Beginning balance	$	3,555		$	2,930		$	2,705		$	2,930
Net changes in the allowance for unfunded commitments and letters of credit	—			(150		)	850			(150		)
Ending balance	$	3,555		$	2,780		$	3,555		$	2,780

49

FDIC Loss-sharing Asset

During the current quarter, the Bank entered into an agreement with the FDIC to terminate all loss-sharing agreements ahead of their contractual maturities. These loss-sharing agreements were entered into in 2010 and 2011 in conjunction with our acquisitions of (1) Columbia River Bank in January 2010, (2) American Marine Bank in January 2010, (3) Summit Bank in May 2011 and (4) First Heritage Bank in May 2011. Under the early termination, all rights and obligations of the Company and the FDIC have been resolved and completed. For additional information on the early termination of the FDIC loss-sharing agreements, see Note 7 to the Consolidated Financial Statements in “Item 1. Financial Statements (unaudited)” of this report.

Liquidity and Sources of Funds

Our primary sources of funds are customer deposits. Additionally, we utilize advances from the FHLB of Des Moines (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), and term and sweep repurchase agreements to supplement our funding needs. These funds, together with loan repayments, loan sales, retained earnings, equity and other borrowed funds are used to make loans, to acquire securities and other assets and to fund continuing operations.

In addition, we have a shelf registration statement on file with the Securities and Exchange Commission registering an unlimited amount of any combination of debt or equity securities, depositary shares, purchase contracts, units and warrants in one or more offerings. Specific information regarding the terms of and the securities being offered will be provided at the time of any offering. Proceeds from any future offerings are expected to be used for general corporate purposes, including, but not limited to, the repayment of debt, repurchasing or redeeming outstanding securities, working capital, funding future acquisitions or other purposes identified at the time of any offering.

Deposit Activities

Our deposit products include a wide variety of transaction accounts, savings accounts and time deposit accounts. Core deposits (demand deposit, savings, money market accounts and certificates of deposit less than $250,000) decreased$27.8 million from year-end 2016.

We have established a branch system to serve our consumer and business depositors. In addition, management’s strategy for funding asset growth is to make use of brokered and other wholesale deposits on an as-needed basis. The Company participates in the Certificate of Deposit Account Registry Service (CDARS^®) program. CDARS^® is a network that allows participating banks to offer extended FDIC deposit insurance coverage on time deposits. The Company also participates in a similar program to offer extended FDIC deposit insurance coverage on money market accounts. These extended deposit insurance programs are generally available only to existing customers and are not used as a means of generating additional liquidity. At June 30, 2017, CDARS^® deposits and brokered money market deposits were $268.8 million, or 3% of total deposits, compared to $230.4 million at year-end 2016. The brokered deposits have varied maturities.

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The following table sets forth the Company’s deposit base by type of product for the dates indicated:

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

Borrowings

We rely on FHLB advances and FRB borrowings as another source of both short and long-term funding. FHLB advances and FRB borrowings are secured by investment securities, and residential, commercial and commercial real estate loans. At June 30, 2017, we had FHLB advances of $159.5 million compared to $6.5 million at December 31, 2016.

We also utilize wholesale and retail repurchase agreements to supplement our funding sources. Our wholesale repurchase agreements are secured by mortgage-backed securities. At June 30, 2017 and December 31, 2016, we had deposit customer sweep-related repurchase agreements of $40.9 million and $55.8 million, respectively, which mature on a daily basis as well as a $25.0 million term repurchase agreement, which matures in 2018. Management anticipates we will continue to rely on FHLB advances, FRB borrowings and wholesale and retail repurchase agreements in the future and we will use those funds primarily to make loans and purchase securities.

Contractual Obligations, Commitments & Off-Balance Sheet Arrangements

We are party to many contractual financial obligations, including repayment of borrowings, operating and equipment lease payments, off-balance sheet commitments to extend credit and investments in affordable housing partnerships. At June 30, 2017, we had commitments to extend credit of $2.23 billion compared to $2.22 billion at December 31, 2016.

Capital Resources

Shareholders’ equity at June 30, 2017 was $1.30 billion, an increase from $1.25 billion at December 31, 2016. Shareholders’ equity was 13% of total period-end assets at June 30, 2017 and December 31, 2016.

Regulatory Capital. In July 2013, the federal bank regulators approved the New Capital Rules (as discussed in our 2016 Annual Report on Form 10-K, “Item 1. Business—Supervision and Regulation and —Regulatory Capital Requirements”), which implement the Basel III capital framework and various provisions of the Dodd-Frank Act. We and the Bank were required to comply with these rules as of January 1, 2015, subject to the phase-in of certain provisions. We believe that, as of June 30, 2017, we and the Bank would meet all capital adequacy requirements under the New Capital Rules on a fully phased-in basis as if all such requirements were then in effect.

FDIC regulations set forth the qualifications necessary for a bank to be classified as “well-capitalized,” primarily for assignment of FDIC insurance premium rates. Failure to qualify as “well-capitalized” can negatively impact a bank’s ability to expand and to engage in certain activities. The Company and the Bank qualified as “well-capitalized” at June 30, 2017 and December 31, 2016.

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The following table presents the capital ratios and the capital conservation buffer, as applicable, for the Company and its banking subsidiary at June 30, 2017 and December 31, 2016:

	Company				Columbia Bank
	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Common equity tier 1 (CET1) risk-based capital ratio	11.9539	%	11.6450	%	11.7836	%	11.5051	%
Tier 1 risk-based capital ratio	11.9539	%	11.6646	%	11.7836	%	11.5051	%
Total risk-based capital ratio	12.9626	%	12.6347	%	12.7930	%	12.4756	%
Leverage ratio	9.8518	%	9.5526	%	9.7129	%	9.4275	%
Capital conservation buffer	4.9626	%	4.6347	%	4.7930	%	4.4756	%

Stock Repurchase Program

On June 22, 2016, the Board of Directors approved a stock repurchase program which succeeds the prior program that was adopted in October 2011. The program authorizes the Company to repurchase up to 2.9 million shares of our outstanding common stock, representing approximately 5% of the common shares outstanding. The Company intends to purchase the shares from time to time in the open market or in private transactions, under conditions which allow such repurchases to be accretive to earnings per share while maintaining capital ratios that exceed the guidelines for a well-capitalized financial institution.

Non-GAAP Financial Measures

The Company considers operating net interest margin (tax equivalent) to be a useful measurement as it more closely reflects the ongoing operating performance of the Company. Additionally, presentation of the operating net interest margin allows readers to compare certain aspects of the Company’s net interest margin to other organizations that may not have had significant acquisitions. Despite the usefulness of the operating net interest margin (tax equivalent) to the Company, there is no standardized definition for it and, as a result, the Company’s calculations may not be comparable with other organizations. The Company encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

The following table reconciles the Company’s calculation of the operating net interest margin (tax equivalent) to the net interest margin (tax equivalent) for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Operating net interest margin non-GAAP reconciliation:	(dollars in thousands)
Net interest income (tax equivalent) (1)	$	89,075		$	84,946		$	178,593		$	167,607
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on FDIC purchased credit impaired loans	(753		)	(1,300		)	(2,870		)	(2,957		)
Incremental accretion income on other acquired loans	(2,356		)	(3,074		)	(4,304		)	(6,147		)
Premium amortization on acquired securities	1,669			2,075			3,131			4,399
Interest reversals on nonaccrual loans	747			107			1,012			560
Operating net interest income (tax equivalent) (1)	$	88,382		$	82,754		$	175,562		$	163,462
Average interest earning assets	$	8,651,735		$	8,285,183		$	8,586,376		$	8,145,564
Net interest margin (tax equivalent) (1)	4.12		%	4.10		%	4.16		%	4.12		%
Operating net interest margin (tax equivalent) (1)	4.09		%	4.00		%	4.09		%	4.01		%

__________

(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of $2.9 million and $2.8 million for the three months ended June 30, 2017 and 2016, respectively, and an addition to net interest income of $5.8 million and $5.3 million for the six months ended June 30, 2017 and 2016.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A number of measures are used to monitor and manage interest rate risk, including income simulations and interest sensitivity (gap) analysis. An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Basic assumptions in the model include prepayment speeds on mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently subjective and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. At June 30, 2017, based on the measures used to monitor and manage interest rate risk, there has not been a material change in the Company’s interest rate risk since December 31, 2016. For additional information, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2016 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is (i) accumulated and communicated to our management (including the CEO and CFO) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are party to routine litigation arising in the ordinary course of business. Management believes that, based on information currently known to it, any liabilities arising from such litigation will not have a material adverse impact on the Company’s financial conditions, results of operations or cash flows.

Item 1A. RISK FACTORS

Refer to Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of risk factors relating to the Company’s business. The Company believes that there has been no material change in its risk factors as previously disclosed in the Company’s Form 10-K.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable

(b) Not applicable

(c) The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2017:

Period	Total Number of Common Shares Purchased (1)	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (2)	Maximum Number of Remaining Shares That May Yet Be Purchased Under the Plan (2)
4/1/2017 - 4/30/2017	1,038	$	38.71	—	2,900,000
5/1/2017 - 5/31/2017	3,101	39.44		—	2,900,000
6/1/2017 - 6/30/2017	336	38.42		—	2,900,000
	4,475	$	39.19	—

(1) Common shares repurchased by the Company during the quarter consisted of cancellation of 4,475 shares of common stock to pay the shareholders’ withholding taxes.

(2) The repurchase plan, which was approved in 2016, authorized the Company to repurchase up to 2.9 million shares of its outstanding common stock.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

10.1*	Employment Agreement dated June 28, 2017, by and between Columbia State Bank, Columbia Banking System, Inc. and Hadley S. Robbins (1)
31.1+	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32+	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101+	The following financial information from Columbia Banking System, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 is formatted in XBRL: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income, (iv) the Unaudited Consolidated Statements of Changes in Shareholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Consolidated Financial Statements.

(1) Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 29, 2017

* Management contract or compensatory plan or arrangement

+ Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		COLUMBIA BANKING SYSTEM, INC.
Date:	August 8, 2017	By	/s/ HADLEY S. ROBBINS
			Hadley S. Robbins
			President and Chief Executive Officer (Principal Executive Officer)
Date:	August 8, 2017	By	/s/ CLINT E. STEIN
			Clint E. Stein
			Executive Vice President, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)
Date:	August 8, 2017	By	/s/ BARRY S. RAY
			Barry S. Ray
			Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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