Annual Report (10-k)

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Quarterly Common Stock Prices and Dividends

The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “COLB.” Quarterly high and low sales prices and dividend information for the last two years are presented in the following table. The prices shown do not include retail mark-ups, mark-downs or commissions:  

										Cash Dividends Declared
2016		High				Low				Regular				Special				Total Cash Dividends Declared
First quarter		$	32.15			$	26.56			$	0.18			$	0.20			$	0.38
Second quarter		$	31.81			$	26.17			0.19				0.18				0.37
Third quarter		$	33.28			$	26.21			0.20				0.19				0.39
Fourth quarter		$	45.27			$	31.75			0.20				0.19				0.39
For the year		$	45.27			$	26.17			$	0.77			$	0.76			$	1.53
										Cash Dividends Declared
2015		High				Low				Regular				Special				Total Cash Dividends Declared
First quarter		$	29.48			$	24.60			$	0.16			$	0.14			$	0.30
Second quarter		$	33.39			$	28.28			0.18				0.16				0.34
Third quarter		$	33.70			$	28.63			0.18				0.16				0.34
Fourth quarter		$	36.27			$	29.52			0.18				0.18				0.36
For the year		$	36.27			$	24.60			$	0.70			$	0.64			$	1.34

On December 31, 2016 , the last sale price for our stock on the NASDAQ Global Select Market was $44.68. At January 31, 2017 , the number of shareholders of record was 2,809. This figure does not represent the actual number of beneficial owners of common stock because shares are frequently held in “street name” by securities dealers and others for the benefit of individual owners who may vote the shares.

At December 31, 2016 , a total of 23,429 stock options were outstanding. Additional information about stock options and other equity compensation plans is included in Note 22 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

The payment of future cash dividends is at the discretion of our board of directors and subject to a number of factors, including results of operations, general business conditions, growth, financial condition and other factors deemed relevant to capital management strategies by the board of directors. In addition, the payment of cash dividends is subject to Federal regulatory requirements for capital levels and other restrictions. In this regard , current guidance from the Federal Reserve provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters.

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

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Equity Compensation Plan Information

The following table provides information as of December 31, 2016 , regarding securities issued and to be issued under our equity compensation plans that were in effect during 2016 :

		Year Ended December 31, 2016
		Number of Shares to be Issued Upon Exercise of Outstanding Options and Rights (1)			Weighted-Average Exercise Price of Outstanding Options and Rights				Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (2)
Equity compensation plans approved by security holders		23,429			$	45.98			1,595,336
Equity compensation plans not approved by security holders		—			—				—

 __________

(1)	Includes shares to be issued upon exercise of options under the West Coast Bancorp (‘West Coast”) plan, which was assumed as a result of the 2013 West Coast acquisition.

(2)	Includes 1,145,842 shares available for future issuance under the current stock option and equity compensation plan and 449,494 shares available for purchase under the Employee Stock Purchase Plan as of December 31, 2016 .

The following table provides information about repurchases of common stock by the Company during the quarter ended December 31, 2016 :

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 Be Purchased at Period End Under the Plan (2)
10/1/2016 - 10/31/2016		—			$	—			—			2,900,000
11/1/2016 - 11/30/2016		266			38.29				—			2,900,000
12/1/2016 - 12/31/2016		—			—				—			2,900,000
		266			$	38.29			—

 __________

(1)	Common shares repurchased by the Company during the quarter relate to shares withheld to pay taxes due upon vesting of restricted stock.

(2)	On June 22, 2016, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 2.9 million shares of its outstanding common stock. The plan was effective on August 24, 2016 and shall terminate no later than August 24, 2017.

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Five-Year Stock Performance Graph

The following graph shows a five-year comparison of the total return to shareholders of Columbia’s common stock, the NASDAQ Composite Index (which is a broad nationally recognized index of stock performance by companies listed on the Nasdaq Stock Market) and the KBW Regional Banking Index (comprised of 50 banks and bank holding companies headquartered throughout the country, including Columbia).

The definition of total return includes appreciation in market value of the stock as well as the actual cash and stock dividends paid to shareholders. The graph assumes that the value of the investment in Columbia’s common stock, the NASDAQ Composite and the KBW Regional Banking Index was $100 on December 31, 2011 , and that all dividends were reinvested.

 

Index		Period Ending
		12/31/2011			12/31/2012			12/31/2013			12/31/2014			12/31/2015			12/31/2016
Columbia Banking System, Inc.		100.00			97.87			152.66			159.03			195.49			282.62
NASDAQ Composite		100.00			117.74			165.03			189.50			202.97			221.17
KBW Regional Banking Index		100.00			113.26			166.30			170.34			180.55			251.18

Source: Bloomberg LP, New York City, NY

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ITEM 6.     SELECTED FINANCIAL DATA

Five-Year Summary of Selected Consolidated Financial Data (1) 

		2016				2015 (2)				2014 (2) (3)				2013 (2) (4)				2012 (2)
		(dollars in thousands except per share amounts)
For the Year
Interest income		$	337,969			$	328,891			$	308,042			$	296,935			$	248,504
Interest expense		$	4,350			$	4,004			$	3,994			$	5,840			$	9,577
Net interest income		$	333,619			$	324,887			$	304,048			$	291,095			$	238,927
Provision (recapture) for loan and lease losses		$	10,778			$	8,591			$	6,727			$	(101	)		$	39,367
Noninterest income		$	88,082			$	91,473			$	59,750			$	26,700			$	27,058
Noninterest expense		$	261,142			$	266,149			$	239,286			$	230,886			$	162,913
Net income		$	104,866			$	98,827			$	81,574			$	60,016			$	46,143
Net income applicable to common shareholders		$	104,709			$	98,690			$	81,478			$	59,984			$	46,143
Per Common Share
Earnings (Basic)		$	1.81			$	1.71			$	1.53			$	1.24			$	1.16
Earnings (Diluted)		$	1.81			$	1.71			$	1.52			$	1.21			$	1.16
Book Value		$	21.52			$	21.48			$	21.34			$	20.50			$	19.25
Averages
Total assets		$	9,311,621			$	8,655,243			$	7,468,091			$	6,558,517			$	4,826,283
Interest-earning assets		$	8,363,309			$	7,685,734			$	6,561,047			$	5,754,543			$	4,246,724
Loans		$	6,052,389			$	5,609,261			$	4,782,369			$	4,140,826			$	2,900,520
Securities, including Federal Home Loan Bank stock		$	2,269,121			$	2,031,859			$	1,708,575			$	1,474,744			$	1,011,294
Deposits		$	7,774,309			$	7,146,828			$	6,187,342			$	5,420,577			$	3,875,666
Shareholders’ equity		$	1,269,801			$	1,246,952			$	1,109,581			$	979,099			$	761,185
Financial Ratios
Net interest margin (tax equivalent)		4.12		%		4.35		%		4.76		%		5.16		%		5.77		%
Return on average assets		1.13		%		1.14		%		1.09		%		0.92		%		0.96		%
Return on average common equity		8.26		%		7.93		%		7.36		%		6.14		%		6.06		%
Average equity to average assets		13.64		%		14.41		%		14.86		%		14.93		%		15.77		%
At Year End
Total assets		$	9,509,607			$	8,951,697			$	8,578,846			$	7,161,582			$	4,906,335
Loans		$	6,213,423			$	5,815,027			$	5,445,378			$	4,517,296			$	2,947,103
Allowance for loan and lease losses		$	70,043			$	68,172			$	69,569			$	72,454			$	82,300
Securities, including Federal Home Loan Bank stock		$	2,288,817			$	2,170,416			$	2,131,622			$	1,696,640			$	1,023,484
Deposits		$	8,059,415			$	7,438,829			$	6,924,722			$	5,959,475			$	4,042,085
Core deposits (2)		$	7,749,568			$	7,238,713			$	6,753,142			$	5,830,384			$	3,930,720
Shareholders’ equity		$	1,251,012			$	1,242,128			$	1,228,175			$	1,053,249			$	764,008
Nonperforming Assets
Nonaccrual loans		$	27,756			$	21,464			$	31,352			$	34,015			$	37,395
Other real estate owned and other personal property owned		5,998				13,738				22,225				36,037				27,464
Total nonperforming assets		$	33,754			$	35,202			$	53,577			$	70,052			$	64,859
Nonperforming loans to year end loans		0.45		%		0.37		%		0.58		%		0.75		%		1.27		%
Nonperforming assets to year end assets		0.35		%		0.39		%		0.62		%		0.98		%		1.32		%
Allowance for loan and lease losses to year end loans		1.13		%		1.17		%		1.28		%		1.60		%		2.79		%
Net loan charge-offs		$	8,907			$	9,988			$	9,612			$	9,745			$	15,052
Other nonfinancial data
Full-time equivalent employees		1,819				1,868				1,934				1,695				1,198
Banking branches		143				149				154				142				99

 __________

(1)	These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

(2)	Reclassified to conform to the current period’s presentation. The reclassification was limited to changing the threshold for certificates of deposit presented to the current FDIC insurance limit.

(3)	During 2014, Columbia acquired Intermountain Community Bancorp.

(4)	During 2013, Columbia acquired West Coast Bancorp.

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Consolidated Five-Year Financial Data (1)  

		Years ended December 31,
		2016				2015				2014				2013				2012
		(in thousands, except per share amounts)
Interest Income:
Loans		$	291,465			$	286,166			$	268,279			$	266,284			$	219,433
Taxable securities		35,167				30,774				28,754				20,459				18,276
Tax-exempt securities		11,121				11,842				10,830				9,837				9,941
Deposits in banks		216				109				179				355				854
Total interest income		337,969				328,891				308,042				296,935				248,504
Interest Expense:
Deposits		3,134				2,977				3,005				3,962				5,887
Federal Home Loan Bank advances		671				474				396				(404		)		2,608
Prepayment charge on Federal Home Loan Bank advances		—				—				—				1,548				603
Other borrowings		545				553				593				734				479
Total interest expense		4,350				4,004				3,994				5,840				9,577
Net Interest Income		333,619				324,887				304,048				291,095				238,927
Provision (recapture) for loan and lease losses		10,778				8,591				6,727				(101		)		39,367
Net interest income after provision (recapture) for loan and lease losses		322,841				316,296				297,321				291,196				199,560
Noninterest income		88,082				91,473				59,750				26,700				27,058
Noninterest expense		261,142				266,149				239,286				230,886				162,913
Income before income taxes		149,781				141,620				117,785				87,010				63,705
Provision for income taxes		44,915				42,793				36,211				26,994				17,562
Net Income		$	104,866			$	98,827			$	81,574			$	60,016			$	46,143
Less: Dividends on preferred stock		157				137				96				32				—
Net Income Applicable to Common Shareholders		$	104,709			$	98,690			$	81,478			$	59,984			$	46,143
Per Common Share
Earnings basic		$	1.81			$	1.71			$	1.53			$	1.24			$	1.16
Earnings diluted		$	1.81			$	1.71			$	1.52			$	1.21			$	1.16
Average number of common shares outstanding (basic)		57,184				57,019				52,618				47,993				39,260
Average number of common shares outstanding (diluted)		57,193				57,032				53,183				49,051				39,263
Total assets at year end		$	9,509,607			$	8,951,697			$	8,578,846			$	7,161,582			$	4,906,335
Cash dividends declared per common share		$	1.53			$	1.34			$	0.94			$	0.41			$	0.98

 __________

(1)	These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

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Selected Quarterly Financial Data (1)

The following table presents selected unaudited consolidated quarterly financial data for each quarter of 2016 and 2015 . The information contained in this table reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods.

		Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Year Ended December 31,
		(in thousands, except per share amounts)
2016
Total interest income		$	86,734			$	86,758			$	83,303			$	81,174			$	337,969
Total interest expense		997				1,186				1,163				1,004				4,350
Net interest income		85,737				85,572				82,140				80,170				333,619
Provision for loan and lease losses		18				1,866				3,640				5,254				10,778
Noninterest income		22,330				23,166				21,940				20,646				88,082
Noninterest expense		65,014				67,264				63,790				65,074				261,142
Income before income taxes		43,035				39,608				36,650				30,488				149,781
Provision for income taxes		12,317				12,124				11,245				9,229				44,915
Net income		$	30,718			$	27,484			$	25,405			$	21,259			$	104,866
Per common share (2)
Earnings (basic)		$	0.53			$	0.47			$	0.44			$	0.37			$	1.81
Earnings (diluted)		$	0.53			$	0.47			$	0.44			$	0.37			$	1.81
2015
Total interest income		$	82,769			$	82,665			$	82,040			$	81,417			$	328,891
Total interest expense		950				971				1,030				1,053				4,004
Net interest income		81,819				81,694				81,010				80,364				324,887
Provision for loan and lease losses		2,349				2,831				2,202				1,209				8,591
Noninterest income		24,745				22,499				21,462				22,767				91,473
Noninterest expense		66,877				64,067				68,471				66,734				266,149
Income before income taxes		37,338				37,295				31,799				35,188				141,620
Provision for income taxes		10,598				11,515				9,853				10,827				42,793
Net income		$	26,740			$	25,780			$	21,946			$	24,361			$	98,827
Per common share (2)
Earnings (basic)		$	0.46			$	0.45			$	0.38			$	0.42			$	1.71
Earnings (diluted)		$	0.46			$	0.45			$	0.38			$	0.42			$	1.71

 __________

(1)	These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this report.

(2)	Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with our Consolidated Financial Statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this report. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date for the previous year.

Critical Accounting Policies

We have established certain accounting policies in preparing our Consolidated Financial Statements that are in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are presented in Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report. Certain of these policies require the use of judgments, estimates and economic assumptions which may prove inaccurate or are subject to variation that may significantly affect our reported results of operations and financial position for the periods presented or in future periods. Management believes that the judgments, estimates and economic assumptions used in the preparation of the Consolidated Financial Statements are appropriate given the factual circumstances at the time. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses (the “allowance”) is an accounting estimate of incurred credit losses in our loan portfolio at the balance sheet date. The primary components of the allowance are 1) loans collectively evaluated for impairment in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 450, Contingencies (ASC 450), 2) loans individually determined to be impaired in accordance with the FASB ASC Subtopic 310-10, Receivables: Overall (ASC 310-10) and 3) loans acquired with deteriorated credit quality in accordance with FASB ASC Subtopic 310-30, Receivables: Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30).

The measure of estimated credit losses for the ASC 450 component is based upon the loss experience over a historical base period adjusted for a loss emergence period. The loss emergence period is an estimate of the period that it takes, on average, for us to identify the amount of loss incurred for a loan that has suffered a loss-causing event. Management then considers the effects of the following qualitative factors to ensure our allowance reflects the inherent losses in the loan portfolio:

•	Economic and business conditions

•	Concentration of credit

•	Lending management and staff

•	Lending policies and procedures

•	Loss and recovery trends

•	Nature and volume of the portfolio

•	Trends in problem loans, loan delinquencies and nonaccrual loans

•	Quality of internal loan review

•	External factors

These qualitative factors have a high degree of subjectivity and changes in any of the factors could have a significant impact on our calculation of the allowance.

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

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The measure of estimated credit losses for the ASC 310-30 component is based upon management’s estimate of future cash flows. Loans acquired with deteriorated credit quality that have common risk characteristics are aggregated into pools. The Company re-measures contractual and expected loan cash flows at the pool-level on a quarterly basis. If, due to credit deterioration, the present value of expected cash flows, as periodically re-measured, is less than the carrying value of the loan pool, the Company adjusts the carrying value of the loan pool to the lower amount by adjusting the allowance for loan losses with a charge to earnings through the provision for loan losses. If the present value of expected cash flows is greater than the carrying value of the loan pool, the Company adjusts the carrying value of the loan pool to a higher amount by recapturing previously recorded allowance for loan losses, if any.

Our allowance policy and the judgments, estimates and economic assumptions involved are described in greater detail in the “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit” section of this discussion and in Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Business Combinations

The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred.

Valuation and Recoverability of Goodwill

Goodwill represented $382.8 million of our $9.51 billion in total assets as of December 31, 2016 . The Company has a single reporting unit. We review goodwill for impairment annually, during the third quarter, and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. Such events and circumstances may include among others: a significant adverse change in legal factors or in the general business climate; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse action or assessment by a regulator. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our Consolidated Financial Statements.

Under the Intangibles – Goodwill and Other topic of the FASB ASC, the testing for impairment may begin with an assessment of qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. When required, the goodwill impairment test involves a two-step process. In step one, we would test goodwill for impairment by comparing the fair value of the reporting unit with its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the reporting unit, goodwill is not deemed to be impaired, and no further testing is necessary. If the carrying amount of the reporting unit were to exceed the fair value of the reporting unit, we would perform a second test to measure the amount of impairment loss, if any. To measure the amount of any impairment loss, we would determine the implied fair value of goodwill in the same manner as if the reporting unit were being acquired in a business combination. Specifically, we would allocate the fair value of the reporting unit to all of the assets and liabilities of the reporting unit in a hypothetical calculation that would determine the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, we would record an impairment charge for the difference.

The accounting estimates related to our goodwill require us to make considerable assumptions about fair values. Our assumptions regarding fair values require significant judgment about economic and industry factors and the growth and earnings prospects of the Bank. Changes in these judgments, either individually or collectively, may have a significant effect on the estimated fair values.

Based on the results of the annual goodwill impairment test, we determined that no goodwill impairment charges were required as our single reporting unit’s fair value exceeded its carrying amount. As of December 31, 2016 , we determined there were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying amount.

Please refer to Note 10 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report for further discussion.

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2016 Financial Summary

Income Statement

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

◦

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

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

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

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

Balance Sheet

•	Total assets at December 31, 2016 were $9.51 billion , up 6% from $8.95 billion at the end of 2015 .

•	The Company is well-capitalized with a total risk-based capital ratio of 12.63% at December 31, 2016 .

◦	Investment securities available for sale at December 31, 2016 were $2.28 billion , up 6% from $2.16 billion at December 31, 2015 .

◦	Loans were $6.21 billion , an increase of 7% from $5.82 billion at the end of 2015 . The increase from December 31, 2015 was due to strong loan originations during 2016.

◦	The allowance for loan and lease losses increased to $70.0 million at December 31, 2016 compared to $68.2 million at December 31, 2015 due to the increase in size of the loan portfolio. The Company’s allowance was 1.13% of total loans, compared with 1.17% at the end of 2015 .

◦

Nonperforming assets totaled $33.8 million at December 31, 2016 , down from $35.2 million at December 31, 2015 . The decrease in nonperforming assets was due to a $7.7 million decrease in Other Real Estate Owned (“OREO”) and Other Personal Property Owned (“OPPO”) balances, partially offset by an increase in nonaccrual loans. Nonperforming assets to year end assets decreased to 0.35% at December 31, 2016 compared to 0.39% at December 31, 2015 .

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

◦	Core deposits totaled $7.75 billion at December 31, 2016 , compared to $7.24 billion at December 31, 2015 . Core deposits represented 96% of total deposits at December 31, 2016 and 2015 .

◦	Federal Home Loan Bank advances were $6.5 million at December 31, 2016 , a decrease of $62.0 million compared to December 31, 2015 due to decreased short-term advances.

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Business Combinations

On November 1, 2014, the Company completed its acquisition of Intermountain. The Company acquired approximately $964.4 million in assets, including $502.6 million in loans measured at fair value and $736.8 million in deposits. See Note 2 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report for further information regarding this acquisition.

On April 1, 2013, the Company completed its acquisition of West Coast. The Company acquired approximately $2.63 billion in assets, including $1.41 billion in loans measured at fair value and $1.88 billion in deposits.

RESULTS OF OPERATIONS

Summary

A summary of the Company’s results of operations for each of the last five years ended December 31 follows:

		Year ended				Increase (Decrease)							Year ended				Increase (Decrease)							Years ended December 31,
		2016				Amount				%			2015				Amount				%			2014				2013				2012
		(dollars in thousands, except per share amounts)
Interest income		$	337,969			$	9,078			3			$	328,891			$	20,849			7			$	308,042			$	296,935			$	248,504
Interest expense		4,350				346				9			4,004				10				—			3,994				5,840				9,577
Net interest income		333,619				8,732				3			324,887				20,839				7			304,048				291,095				238,927
Provision (recapture) for loan and lease losses		10,778				2,187				25			8,591				1,864				28			6,727				(101		)		39,367
Noninterest income		88,082				(3,391		)		(4	)		91,473				31,723				53			59,750				26,700				27,058
Noninterest expense:
Compensation and employee benefits		150,282				872				1			149,410				18,546				14			130,864				125,432				85,434
Other expense		110,860				(5,879		)		(5	)		116,739				8,317				8			108,422				105,454				77,479
Total		261,142				(5,007		)		(2	)		266,149				26,863				11			239,286				230,886				162,913
Income before income taxes		149,781				8,161				6			141,620				23,835				20			117,785				87,010				63,705
Provision for income taxes		44,915				2,122				5			42,793				6,582				18			36,211				26,994				17,562
Net income		$	104,866			$	6,039			6			$	98,827			$	17,253			21			$	81,574			$	60,016			$	46,143
Less: earnings allocated to participating securities		1,556				306				24			1,250				313				33			937				618				443
Earnings allocated to common shareholders		$	103,310			$	5,733			6			$	97,577			$	16,940			21			$	80,637			$	59,398			$	45,700
Earnings per common share, diluted		$	1.81			$	0.10			6			$	1.71			$	0.19			13			$	1.52			$	1.21			$	1.16

Net Interest Income

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

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

Net Interest Income Summary

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

 __________

(1)

Nonaccrual loans have been included in the table as loans carrying a zero yield. Amortized net deferred loan fees and unearned net discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $5.3 million in 2016 , $4.9 million in 2015 and $4.5 million in 2014 . The accretion of net unearned discounts on certain acquired loans was $12.0 million in 2016 , $18.1 million in 2015 , and $21.6 million in 2014 .

(2)	Incremental accretion on purchased credit impaired loans is also included in loan interest earned. The incremental accretion income on purchased credit impaired loans was $6.0 million in 2016 , $9.1 million in 2015 and $20.2 million in 2014 .

(3)	During the twelve months ended December 31, 2014, the Company recorded a $2.6 million reversal of premium amortization, which increased interest income on taxable securities.

(4)

Yields on fully taxable equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $4.8 million , $3.3 million and $1.9 million for the years ended December 31, 2016 , 2015 , and 2014 , respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $6.0 million , $6.4 million and $6.2 million for the years ended December 31, 2016 , 2015 , and 2014 , respectively.

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Net interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by prior volume) and the mix of interest-earning assets and interest-bearing liabilities. The following table shows changes in net interest income on a fully taxable-equivalent basis between 2016 and 2015 , as well as between 2015 and 2014 broken down between volume and rate. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates:

Changes in Net Interest Income

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

Incremental accretion income represents the amount of interest income recorded on acquired loans above the contractual rate stated in the individual loan notes. The additional interest income stems from the net discount established at the time these loan portfolios were acquired. The following table shows the impact to interest income of incremental accretion income as well as the net interest margin and operating net interest margin for the periods presented:

		Year Ended December 31, 2016				Year Ended December 31, 2015				Year Ended December 31, 2014
		(in thousands)
Incremental accretion income due to:
FDIC purchased credit impaired loans		$	5,972			$	9,096			$	20,224
Other FDIC acquired loans (2)		—				234				484
Other acquired loans		11,983				17,862				21,093
Total incremental accretion income		$	17,955			$	27,192			$	41,801
Net interest margin (tax equivalent)		4.12		%		4.35		%		4.76		%
Operating net interest margin (tax equivalent) (1)		4.01		%		4.15		%		4.21		%

__________

(1) Operating net interest margin (tax equivalent) is a Non-GAAP financial measure. See Non-GAAP financial measures section of “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

(2) For 2016, incremental accretion income on other FDIC acquired loans is no longer considered significant.

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Comparison of 2016 with 2015

Taxable-equivalent net interest income totaled $344.4 million in 2016 , compared with $334.5 million for 2015 . The increase in net interest income during 2016 resulted from the increase in the size of the loan and securities portfolios, partially offset by lower incremental accretion income from acquired loans as well as lower yields on loan originations and renewals and purchased securities.

The Company’s net interest margin (tax equivalent) decreased from 4.35% for the year ended December 31, 2015 to 4.12% for the current year due primarily to the decreased impact of accretion income on the loan portfolio as well as lower yields on loans and securities. The Company’s operating net interest margin (tax equivalent) decreased from 4.15% for the year ended December 31, 2015 to 4.01% for the current year due to lower rates on loans due to the overall decreasing trend in rates.

For a discussion of the methodologies used by management in recording interest income on loans, please see Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Comparison of 2015 with 2014

Taxable-equivalent net interest income totaled $334.5 million in 2015 , compared with $312.1 million for 2014 . The increase in net interest income during 2015 resulted from the increase in the size of the loan and securities portfolios. These increases were partially offset by lower incremental accretion from acquired loans.

The Company’s net interest margin (tax equivalent) decreased from 4.76% for the year ended December 31, 2014 to 4.35% for the year ended December 31, 2015 due to the decreased impact of accretion income on the loan portfolio. The Company’s operating net interest margin (tax equivalent) decreased from 4.21% in 2014 to 4.15% for 2015 . The decrease was due to the combination of lower rates on loans as well as securities due to the overall decreasing trend in rates.

Provision for Loan and Lease Losses

The Company accounts for the credit risk associated with lending activities through its “Allowance for loan and lease losses” and “Provision for loan and lease losses”. The provision is the expense recognized in the Consolidated Statements of Income to adjust the allowance to the levels deemed appropriate by management, as determined through its application of the Company’s allowance methodology procedures. For discussion of the methodology used by management in determining the adequacy of the ALLL see the “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit” and “Critical Accounting Policies” sections of this discussion.

The Company recorded provision expense of $10.8 million , $8.6 million and $6.7 million in 2016 , 2015 and 2014 . respectively. The provision recorded in 2016 reflected management’s ongoing assessment of the credit quality of the Company’s loan portfolio. Factors affecting the provision include net charge-offs, credit quality migration, and size and composition of the loan portfolio and changes in the economic environment during the period. See “Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit” section of this discussion for further information on factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for loan and lease losses.

For the years ended December 31, 2016 , 2015 and 2014 , net loan charge-offs amounted to $8.9 million , $10.0 million , and $9.6 million , respectively.

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Noninterest Income

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

		Years ended December 31,
		2016				$ Change				% Change			2015 (1)				$ Change				% Change			2014 (1)
		(dollars in thousands)
Deposit account and treasury management fees (1)		$	28,500			$	49			—	%		$	28,451			$	2,729			11	%		$	25,722
Card revenue (1)		23,620				930				4	%		22,690				2,911				15	%		19,779
Financial services and trust revenue (1)		11,266				(1,330		)		(11	)%		12,596				1,011				9	%		11,585
Loan revenue (1)		10,967				35				—	%		10,932				2,594				31	%		8,338
Merchant processing revenue		8,732				(243		)		(3	)%		8,975				1,000				13	%		7,975
Bank owned life insurance (BOLI)		4,546				105				2	%		4,441				618				16	%		3,823
Other (1)		1,855				(3,962		)		(68	)%		5,817				3,852				196	%		1,965
Noninterest income before investment securities gains and change in FDIC loss-sharing asset		89,486				(4,416		)		(5	)%		93,902				14,715				19	%		79,187
Investment securities gains		1,181				(400		)		(25	)%		1,581				1,029				186	%		552
Change in FDIC loss-sharing asset		(2,585		)		1,425				(36	)%		(4,010		)		15,979				(80	)%		(19,989		)
Total noninterest income		$	88,082			$	(3,391	)		(4	)%		$	91,473			$	31,723			53	%		$	59,750

__________

(1) Reclassified to conform to the current period’s presentation. Reclassifications consisted of disaggregating income previously presented as “Service charges and other fees” and certain income previously presented in “Other” into the presentation above. There was no change to “Total noninterest income” as previously reported as a result of these reclassifications.

Comparison of 2016 with 2015

The $4.4 million decrease in noninterest income before the change in FDIC loss-sharing asset and investment securities gains from the prior year was due to a decrease of $4.0 million in other noninterest income primarily due to the $3.1 million mortgage repurchase reserve adjustment recorded in 2015 as well as a decrease of $1.3 million in financial services and trust revenue. The decrease in financial services revenue was driven by reduced investment activity in the current year. Investment activity was negatively impacted by employee turnover and efforts expended to comply with certain new fiduciary rules related to providing investment advice. Partially offsetting these decreases was an increase in card revenue, which consists principally of debit card interchange and ATM fees.

The change in FDIC loss-sharing asset declined from $4.0 million in 2015 to $2.6 million in 2016 . The change in the FDIC loss-sharing asset recognizes the decreased amount that Columbia expects to collect from the FDIC under the terms of its loss-sharing agreements. The Company remeasures contractual and expected cash flows of purchased credit impaired loans on a quarterly basis. When the quarterly remeasurement results in an increase in expected future cash flows due to a decrease in expected credit losses the nonaccretable difference decreases and the accretable yield of the related loan pool is increased and recognized as interest income over the life of the loan portfolio. As a result of the improved expected cash flows, the FDIC loss-sharing asset is reduced first by the amount of any impairment previously recorded and, second, by increased amortization over the remaining life of the loss-sharing agreements. For additional information on the FDIC loss-sharing asset, please see the “Loss-sharing Asset” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Comparison of 2015 with 2014

Noninterest income before the change in FDIC loss-sharing asset and investment securities gains for the year ended December 31, 2015 was $93.9 million , an increase of $14.7 million from 2014 . The increase from the prior year was due to the increased customer base from the 2014 Intermountain acquisition as well as organic growth. Also contributing to the increase in other noninterest income was a $3.1 million adjustment recorded in 2015 to the mortgage repurchase liability related to our acquisition of West Coast.

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In addition to these increases there was a decrease in the charge relating to the change in FDIC loss-sharing asset from a charge of $20.0 million in 2014 to $4.0 million in 2015 . For additional information on the FDIC loss-sharing asset, please see the “Loss-sharing Asset” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Noninterest Expense

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

		Years ended December 31,
		2016				$ Change				% Change			2015				$ Change				% Change			2014
		(dollars in thousands)
Compensation and employee benefits		$	150,282			$	872			1	%		$	149,410			$	18,546			14	%		$	130,864
All other noninterest expense:
Occupancy		33,734				(1,084		)		(3	)%		34,818				2,518				8	%		32,300
Merchant processing		4,330				126				3	%		4,204				198				5	%		4,006
Advertising and promotion		4,598				(115		)		(2	)%		4,713				749				19	%		3,964
Data processing		16,488				(933		)		(5	)%		17,421				2,052				13	%		15,369
Legal and professional services		7,889				(1,719		)		(18	)%		9,608				(1,781		)		(16	)%		11,389
Taxes, license and fees		5,185				(210		)		(4	)%		5,395				843				19	%		4,552
Regulatory premiums		3,777				(1,029		)		(21	)%		4,806				257				6	%		4,549
Net cost (benefit) of operation of other real estate owned		551				2,180				(134	)%		(1,629		)		(584		)		56	%		(1,045		)
Amortization of intangibles		5,946				(936		)		(14	)%		6,882				589				9	%		6,293
Other		28,362				(2,159		)		(7	)%		30,521				3,476				13	%		27,045
Total all other noninterest expense		110,860				(5,879		)		(5	)%		116,739				8,317				8	%		108,422
Total noninterest expense		$	261,142			$	(5,007	)		(2	)%		$	266,149			$	26,863			11	%		$	239,286

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

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

__________

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

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Comparison of 2016 with 2015

Noninterest expense was $261.1 million in 2016 , a decrease of $5.0 million , or 2% , over 2015 . This decrease was driven by lower acquisition-related expenses in the current year of $2.7 million compared to $10.9 million in 2015. After removing the effect of acquisition-related expenses, noninterest expense increased $3.2 million primarily due to higher cost of operation of OREO, which was a net cost of $551 thousand in 2016 compared to a net benefit of $1.6 million in 2015.

Comparison of 2015 with 2014

Noninterest expense increased $26.9 million , or 11% , in 2015 over 2014 . Compensation and employee benefits expense increased 14% to $149.4 million in 2015 from $130.9 million in 2014 primarily due to the added personnel costs associated with the Intermountain acquisition. The remaining noninterest expense categories increased $8.3 million , or 8% , between 2014 and 2015 . The increase was primarily due to higher occupancy and data processing expenses, which were due to higher acquisition-related expenses for these items in 2015. Acquisition-related expenses were $10.9 million in 2015 compared to $9.4 million in 2014 .

Other Noninterest Expense:  The following table presents selected items of “Other noninterest expense” and the related dollar and percentage change from period to period:

		Years ended December 31,
		2016				$ Change				% Change			2015 (1)				$ Change				% Change			2014 (1)
		(dollars in thousands)
Software support and maintenance		4,682				1,356				41	%		3,326				1,148				53	%		2,178
Correspondent bank processing fees		555				(80		)		(13	)%		635				132				26	%		503
Supplies		1,466				(31		)		(2	)%		1,497				24				2	%		1,473
Loan expenses (1)		1,478				46				3	%		1,432				253				21	%		1,179
Dues and subscriptions (1)		1,382				40				3	%		1,342				431				47	%		911
Postage		2,141				(355		)		(14	)%		2,496				(440		)		(15	)%		2,936
Sponsorships and charitable contributions		2,110				65				3	%		2,045				84				4	%		1,961
Travel and entertainment (1)		3,373				(625		)		(16	)%		3,998				864				28	%		3,134
Investor relations		221				(109		)		(33	)%		330				87				36	%		243
Insurance		1,934				2				—	%		1,932				309				19	%		1,623
Director fees		749				(87		)		(10	)%		836				125				18	%		711
Employee expenses		1,336				103				8	%		1,233				187				18	%		1,046
Card expenses (1)		2,692				(317		)		(11	)%		3,009				231				8	%		2,778
Other personal property owned		(7		)		88				(93	)%		(95		)		42				(31	)%		(137		)
FDIC clawback expense		280				(700		)		(71	)%		980				685				232	%		295
Fraud losses		592				(889		)		(60	)%		1,481				805				119	%		676
Miscellaneous (1)		3,378				(666		)		(16	)%		4,044				(1,491		)		(27	)%		5,535
Total other noninterest expense		$	28,362			$	(2,159	)		(7	)%		$	30,521			$	3,476			13	%		$	27,045

__________

(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to creating new lines within “Other noninterest expense.” There were no changes to previously reported “Total other noninterest expense” as a result of these reclassifications.

Income Tax

For the years ended December 31, 2016 , 2015 and 2014 we recorded income tax provisions of $44.9 million , $42.8 million and $36.2 million , respectively. The effective tax rate was 30% in 2016 and 2015 , and was 31% in 2014 . Our effective tax rate continues to be less than our federal statutory rate of 35% primarily due to the amount of tax-exempt municipal securities held in the investment portfolio, tax-exempt earnings on bank owned life insurance, and loans with favorable tax attributes. For additional information, see Note 23 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

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Financial Condition

Our total assets increased 6% to $9.51 billion at December 31, 2016 from $8.95 billion at December 31, 2015 . Cash and cash equivalents increased $48.9 million . Our available for sale securities portfolio increased $120.9 million , or 6% , due primarily to purchases of securities resulting from deposits growing in excess of loans. The loan portfolio increased $396.5 million , or 7% , to $6.14 billion due to substantial new loan production partially offset by contractual payments and prepayments. Partially offsetting these increases, premises and equipment, net decreased $13.9 million or 8% , primarily due to depreciation.

Deposit balances increased $620.6 million , or 8% , to $8.06 billion , due to organic growth. Federal Home Loan Bank advances decreased $62.0 million to $6.5 million as deposit inflows were used to repay short-term advances. Securities sold under agreements to repurchase decreased $18.9 million to $80.8 million . Total shareholders’ equity increased $8.9 million to $1.25 billion .

Investment Portfolio

We invest in securities to generate revenue for the Company, to manage liquidity while minimizing interest rate risk and to provide collateral for certain public deposits and short-term borrowings. The amortized cost amounts represent the Company’s original cost for the investments, adjusted for accumulated amortization or accretion of any yield adjustments related to the security. The estimated fair values are the amounts we believe the securities could be sold for as of the dates indicated. At December 31, 2016 gross unrealized losses in our securities portfolio were $30.7 million related to 397 separate available for sale securities. Based on past experience with these types of securities and our own financial performance, we do not currently intend to sell any securities in a loss position nor does available evidence suggest it is more likely than not that management will be required to sell any securities currently in a loss position before the recovery of the amortized cost basis. We review these investments for other-than-temporary impairment on an ongoing basis.

During 2016 , there were securities purchases of $570.0 million, while maturities, repayments and sales totaled $407.2 million. During 2015 , there were purchases of $467.6 million, while maturities, repayments and sales totaled $377.0 million.

At December 31, 2016 , U.S. government agency and government-sponsored enterprise mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”) comprised 64% of our investment portfolio, state and municipal securities were 21%, and government agency and government-sponsored enterprise securities were 15%. Our entire investment portfolio is categorized as available for sale and carried on our balance sheet at fair value. The average duration of our investment portfolio was approximately 4 years at December 31, 2016 . This duration takes into account calls, where appropriate, and consensus prepayment speeds.

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

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

 __________

(1)	The maturities reported for mortgage-backed securities, collateralized mortgage obligations, government agency, government-sponsored enterprise, and government securities are based on contractual maturities and principal amortization.

(2)	Yields on fully taxable equivalent basis.

For further information on our investment portfolio, see Note 4 of the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Federal Home Loan Bank Stock

Federal Home Loan Bank of Des Moines (the “FHLB Des Moines”) stock is composed of two sub-classes: membership stock and activity based stock. Membership stock is stock we are required to purchase and hold as a condition of membership in the FHLB. The Company’s membership stock purchase requirement is measured as a percentage of our year-end assets, subject to a $10 million cap. Activity based stock is stock we are required to purchase and hold in order to obtain an advance or participate in FHLB mortgage programs. The Company’s activity based stock purchase requirement is measured as a percentage of our advance proceeds. At December 31, 2016 the Company held $10.2 million of FHLB Des Moines Class B stock, $10.0 million of which was membership stock and the remaining $240 thousand was activity based. The FHLB stock is issued, transferred, redeemed, and repurchased at a par value of $100.

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Loan Portfolio

The Bank is a full service commercial bank, which originates a wide variety of loans, and focuses its lending efforts on originating commercial business and commercial real estate loans. The following table sets forth our loan portfolio by type of loan for the dates indicated:

		December 31,
		2016				% of Total			2015				% of Total			2014				% of Total			2013				% of Total			2012				% of Total
		(dollars in thousands)
Commercial business		$	2,551,054			41.1	%		$	2,362,575			40.6	%		$	2,119,565			38.9	%		$	1,561,782			34.6	%		$	1,155,158			39.2	%
Real estate:
One-to-four family residential		170,331				2.7	%		176,295				3.0	%		175,571				3.2	%		108,317				2.4	%		43,922				1.5	%
Commercial and multifamily residential		2,719,830				43.7	%		2,491,736				42.9	%		2,363,541				43.5	%		2,080,075				46.0	%		1,061,201				36.0	%
Total real estate		2,890,161				46.4	%		2,668,031				45.9	%		2,539,112				46.7	%		2,188,392				48.4	%		1,105,123				37.5	%
Real estate construction:
One-to-four family residential		121,887				2.0	%		135,874				2.3	%		116,866				2.1	%		54,155				1.2	%		50,602				1.7	%
Commercial and multifamily residential		209,118				3.4	%		167,413				2.9	%		134,443				2.5	%		126,390				2.8	%		65,101				2.2	%
Total real estate construction		331,005				5.4	%		303,287				5.2	%		251,309				4.6	%		180,545				4.0	%		115,703				3.9	%
Consumer		329,261				5.3	%		342,601				5.9	%		364,182				6.7	%		357,014				7.9	%		157,493				5.4	%
Purchased credit impaired		$	145,660			2.3	%		$	180,906			3.1	%		$	230,584			4.2	%		$	297,845			6.6	%		$	421,393			14.3	%
Subtotal		6,247,141				100.5	%		5,857,400				100.7	%		5,504,752				101.1	%		4,585,578				101.5	%		2,954,870				100.3	%
Less: Net unearned income		(33,718		)		(0.5	)%		(42,373		)		(0.7	)%		(59,374		)		(1.1	)%		(68,282		)		(1.5	)%		(7,767		)		(0.3	)%
Loans, net of unearned income (before Allowance for Loan and Lease Losses)		6,213,423				100.0	%		5,815,027				100.0	%		5,445,378				100.0	%		4,517,296				100.0	%		2,947,103				100.0	%
Loans held for sale		$	5,846						$	4,509						$	1,116						$	735						$	2,563

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

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

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

Real Estate Construction Loans:  We originate a variety of real estate construction loans. Underwriting guidelines for these loans vary by loan type but include loan-to-value limits, term limits and loan advance limits, as applicable.

Our underwriting guidelines for commercial and multifamily residential real estate construction loans generally require that the loan-to-value ratio not exceed 75% and stabilized debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. As noted above, underwriting standards can be influenced by competition and other factors. However, we endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

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

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

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

Net unearned income: The following table provides additional detail related to the net discount of acquired and purchased loans, excluding PCI loans, by acquisition for the periods indicated:

		2016				2015				2014
Acquisition:		(in thousands)
Intermountain		$	6,599			$	8,237			$	10,453
West Coast		13,957				24,367				40,623
Other		(315		)		(432		)		(303		)
Total net discount at period end		$	20,241			$	32,172			$	50,773

For additional information on our loan portfolio, including amounts pledged as collateral on borrowings, see Note 5 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table presents the maturity distribution of our commercial and real estate construction loan portfolios and the sensitivity of these loans due after one year to changes in interest rates as of December 31, 2016 :

		Maturing
		Due Through 1 Year				Over 1 Through 5 Years				Over 5 Years				Total
		(in thousands)
Commercial business		$	1,014,528			$	752,816			$	803,895			$	2,571,239
Real estate construction		143,065				56,588				133,749				333,402
Total		$	1,157,593			$	809,404			$	937,644			$	2,904,641
Fixed rate loans due after 1 year						$	497,164			$	564,016			$	1,061,180
Variable rate loans due after 1 year						312,240				373,628				685,868
Total						$	809,404			$	937,644			$	1,747,048

Risk Elements

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

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

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

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

Nonperforming Assets

Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans placed on a nonaccrual basis when the loan becomes past due 90 days or when there are otherwise serious doubts about the collectability of principal or interest within the existing terms of the loan, (ii) OREO, and (iii) OPPO, if applicable. Nonperforming assets totaled $33.8 million , or 0.35% of year end assets at December 31, 2016 , compared to $35.2 million , or 0.39% of year end assets at December 31, 2015 .

Nonperforming Loans: The Consolidated Financial Statements are prepared according to the accrual basis of accounting. This includes the recognition of interest income on the loan portfolio, unless a loan is placed on nonaccrual status, which occurs when there are serious doubts about the collectability of principal or interest. Our policy is generally to discontinue the accrual of interest on all loans past due 90 days or more and place them on nonaccrual status. Loans accounted for under ASC 310-30 are generally considered accruing and performing as the loans accrete interest income over the estimated lives of the loans when cash flows are reasonably estimable. Accordingly, PCI loans accounted for under ASC 310-30 that are contractually past due are still considered to be accruing and performing loans.

The following table sets forth information with respect to our nonperforming loans, OREO, OPPO, total nonperforming assets, accruing loans past-due 90 days or more, and potential problem loans:

		December 31,
		2016				2015				2014				2013				2012
		(dollars in thousands)
Nonaccrual:
Commercial business		$	11,555			$	9,437			$	16,799			$	12,609			$	9,299
Real estate:
One-to-four family residential		568				820				2,822				2,667				2,349
Commercial and multifamily residential		11,187				9,513				7,847				11,043				19,204
Real estate construction:
One-to-four family residential		563				928				465				3,705				4,900
Commercial and multifamily residential		—				—				480				—				—
Consumer		3,883				766				2,939				3,991				1,643
Total nonaccrual loans:		27,756				21,464				31,352				34,015				37,395
Other real estate owned and other personal property owned		5,998				13,738				22,225				36,036				27,464
Total nonperforming assets		$	33,754			$	35,202			$	53,577			$	70,051			$	64,859
Accruing loans past-due 90 days or more		$	—			$	—			$	1,386			$	—			$	—
Forgone interest on nonperforming loans		$	1,919			$	1,287			$	2,196			$	2,860			$	3,388
Interest recognized on nonperforming loans		$	237			$	202			$	1,327			$	1,306			$	1,114
Potential problem loans		$	31,744			$	23,654			$	7,846			$	13,356			$	5,915
Allowance for loan and lease losses		$	70,043			$	68,172			$	69,569			$	72,454			$	82,300
Nonperforming loans to year end loans		0.45		%		0.37		%		0.58		%		0.75		%		1.27		%
Nonperforming assets to year end assets		0.35		%		0.39		%		0.62		%		0.98		%		1.32		%

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

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Other Real Estate Owned and Other Personal Property Owned:  As of December 31, 2016 there was $6.0 million in OREO and OPPO, which is primarily comprised of property from foreclosed real estate loans, a decrease of $7.7 million from $13.7 million at December 31, 2015 . The decrease was primarily driven by OREO sales of $7.9 million. Properties acquired by foreclosure or deed in lieu of foreclosure are transferred to OREO and are recorded at fair value less estimated costs to sell, at the date of transfer of the property. If the carrying value exceeds the fair value at the time of the transfer, the difference is charged to the allowance for loan and lease losses. The fair value of the OREO property is based upon current appraisal. Subsequent losses that result from the ongoing periodic valuation of these properties are charged to the net cost of operation of OREO expense in the period in which they are identified. In general, improvements to the OREO are capitalized and holding costs are charged to the net cost of operation of OREO as incurred.

Potential Problem Loans:  Potential problem loans are loans which are currently performing and are not on nonaccrual status, restructured or impaired, but about which there are significant doubts as to the borrower’s future ability to comply with repayment terms and which may later be included in nonaccrual, past due, restructured or impaired loans. Potential problem loans totaled $31.7 million at year end 2016 , compared to $23.7 million at year end 2015 .

The following table summarizes activity in nonperforming loans for the period indicated:

		Years Ended December 31,
		2016				2015
		(in thousands)
Balance, beginning of period		$	21,464			$	31,352
Loans placed on nonaccrual or restructured		42,006				31,646
Advances		492				1,613
Charge-offs		(6,600		)		(4,950		)
Loans returned to accrual status		(4,649		)		(4,804		)
Repayments (including interest applied to principal)		(24,834		)		(30,119		)
Transfers to OREO/OPPO		(123		)		(3,274		)
Balance, end of period		$	27,756			$	21,464

Loans are considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when a loan has been modified in a troubled debt restructuring. A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include interest rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of six months to demonstrate that the borrower can meet the restructured terms. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

The assessment for impairment occurs when and while such loans are designated as classified per the Company’s internal risk rating system or when and while such loans are on nonaccrual. All nonaccrual loans greater than $500,000 and all troubled debt restructured loans are considered impaired and analyzed individually on a quarterly basis. Classified loans with an outstanding balance greater than $500,000 are evaluated for potential impairment on a quarterly basis. The Company’s policy is to record cash receipts on impaired loans first as reductions in principal and then as interest income.

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The following table summarizes impaired loan financial data at December 31, 2016 and 2015 :

		December 31,
		2016				2015
		(in thousands)
Impaired loans		$	25,459			$	16,080
Impaired loans with specific allocations		$	7,867			$	1,354
Amount of the specific allocations		$	761			$	653

Impaired loans with a carrying amount of $25.5 million at December 31, 2016 were subject to specific allocations of allowance for loan and lease losses of $761 thousand and partial charge-offs of $5.0 million during the year. Collateral dependent impaired loans without specific allocations at December 31, 2016 and 2015 either had collateral which exceeded the carrying value of the loans or reflected a partial charge-off to the market value of collateral (less costs to sell), as of the most recent appraisal date . Restructured loans accruing interest totaled $6.2 million and $3.2 million at December 31, 2016 and 2015, respectively.

When a loan with unique risk characteristics has been identified as being impaired, the amount of impairment will be measured by the Company using discounted cash flows, except when it is determined that the remaining source of repayment for the loan is the operation or liquidation of the underlying collateral. In these cases, the current fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. As a final alternative, the observable market price of the debt may be used to assess impairment. Predominately, the Company uses the fair value of collateral approach based upon a reliable valuation.

When a loan secured by real estate migrates to nonperforming and impaired status and it does not have a market valuation less than one year old, the Company secures an updated market valuation by a third-party appraiser that is reviewed by the Company’s on-staff appraiser. Subsequently, the asset will be appraised annually by a third-party appraiser or the Company’s on-staff appraiser. The evaluation may occur more frequently if management determines that there has been increased market deterioration within a specific geographical location. Upon receipt and verification of the market valuation, the Company will record the loan at the lower of cost or market (less costs to sell) by recording a charge-off to the allowance for loan and lease losses or by designating a specific reserve in accordance with accounting principles generally accepted in the United States.

For additional information on our nonperforming loans, see Note 5 to our Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

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

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

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Analysis of the ALLL

The following table provides an analysis of our loan loss experience by loan type for the last five years:

Changes in Allowance for Loan and Lease Losses and

Unfunded Commitments and Letters of Credit

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

 __________

(1)	Excludes loans held for sale.

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At December 31, 2016 , our ALLL was $70.0 million , or 1.13% of total loans (excluding loans held for sale). This compares with an allowance of $68.2 million , or 1.17% of total loans (excluding loans held for sale) at December 31, 2015 . This decrease in the allowance relative to loans in the current period as compared to December 31, 2015 reflects improvements in core asset quality during the current year.

We have used the same methodology for ALLL calculations during 2016 , 2015 and 2014 . Adjustments to the percentages of the ALLL allocated to loan categories are made based on trends with respect to delinquencies and problem loans within each loan class. The Bank reviews the ALLL quantitative and qualitative methodology on a quarterly basis and makes adjustments when appropriate. We continue to make revisions to our ALLL as necessary to maintain adequate reserves. The Bank carefully monitors the loan portfolio and continues to emphasize the importance of credit quality while continuously strengthening loan monitoring systems and controls.

Allocation of the ALLL

The table below sets forth the allocation of the ALLL by loan category:

		December 31,
		2016							2015							2014							2013							2012
Balance at End of Period Applicable to:		Amount				% of Total Loans*			Amount				% of Total Loans*			Amount				% of Total Loans*			Amount				% of Total Loans*			Amount				% of Total Loans*
		(dollars in thousands)
Commercial business		$	37,010			41.0	%		$	33,620			40.5	%		$	26,850			38.8	%		$	31,723			34.4	%		$	28,023			39.1	%
Real estate and construction:
One-to-four family residential		1,584				4.7	%		1,988				5.3	%		5,338				5.3	%		2,684				3.5	%		2,500				3.2	%
Commercial and multifamily residential		17,174				46.8	%		14,738				45.4	%		16,021				45.4	%		13,671				48.2	%		18,273				38.1	%
Consumer		3,534				5.2	%		3,531				5.7	%		3,180				6.3	%		2,547				7.3	%		2,437				5.3	%
Purchase credit impaired		10,515				2.3	%		13,726				3.1	%		16,336				4.2	%		20,174				6.6	%		30,056				14.3	%
Unallocated		226				—	%		569				—	%		1,844				—	%		1,655				—	%		1,011				—	%
Total		$	70,043			100.0	%		$	68,172			100.0	%		$	69,569			100.0	%		$	72,454			100.0	%		$	82,300			100.0	%

 __________

* Represents the total of all outstanding loans in each category as a percent of total loans outstanding.

FDIC Loss-sharing Asset

The Company has elected to account for amounts receivable under loss-sharing agreements with the FDIC as an indemnification asset in accordance with the Business Combinations topic of the FASB ASC. The FDIC indemnification asset is initially recorded at fair value, based on the discounted expected future cash flows under the loss-sharing agreements.

Subsequent to initial recognition, the FDIC indemnification asset is reviewed quarterly and adjusted for any changes in expected cash flows. These adjustments are measured on the same basis as the related covered loans. Any decrease in expected cash flows on the covered loans due to an increase in expected credit losses will increase the FDIC indemnification asset and any increase in expected future cash flows on the covered loans due to a decrease in expected credit losses will decrease the FDIC indemnification asset. Changes in the estimated cash flows on covered assets that are immediately recognized in income generally result in a similar immediate adjustment to the loss-sharing asset while changes in expected cash flows on covered assets that are accounted for as an adjustment to yield generally result in adjustments to the amortization or accretion rate for the loss-sharing asset. Increases and decreases to the FDIC loss-sharing asset are recorded as adjustments to noninterest income.

At December 31, 2016 , the FDIC loss-sharing asset was comprised of a $2.7 million FDIC indemnification asset and a $794 thousand FDIC receivable. The FDIC receivable represents amounts due from the FDIC for claims related to covered losses the Company has incurred less amounts due back to the FDIC relating to shared recoveries.

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

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

For additional information on the FDIC loss-sharing asset, including the timing of the expirations of our loss-sharing agreements with the FDIC, please see Note 8 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Deposits

The following table sets forth the composition of the Company’s deposits by significant category:

		December 31,
		2016				2015 (1)				2014 (1)
		(in thousands)
Core deposits:
Demand and other noninterest-bearing		$	3,944,495			$	3,507,358			$	2,651,373
Interest-bearing demand		985,293				925,909				1,304,258
Money market		1,791,283				1,788,552				1,760,331
Savings		723,667				657,016				615,721
Certificates of deposit, less than $250,000 (1)		304,830				359,878				421,909
Total core deposits		7,749,568				7,238,713				6,753,592
Certificates of deposit, $250,000 or more (1)		79,424				72,126				68,366
Certificates of deposit insured through CDARS®		22,039				26,901				18,429
Brokered money market accounts		208,348				100,854				83,402
Subtotal		8,059,379				7,438,594				6,923,789
Premium resulting from acquisition date fair value adjustment		36				235				933
Total deposits		$	8,059,415			$	7,438,829			$	6,924,722

_________

(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to changing the threshold for certificates of deposit presented to the current FDIC insurance limit.

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

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At December 31, 2016 , brokered and other wholesale deposits (excluding public deposits) totaled $230.4 million or 2.9% of total deposits compared to $127.8 million or 1.7% of total deposits, at year-end 2015 . The increase in brokered deposits is attributed to an increase in participation in the brokered money market account program, which is similar to the Certificate of Deposit Account Registry Service (“CDARS ^® ”) program. CDARS ^® is a network that allows participating banks to offer extended FDIC deposit insurance coverage on time deposits. These extended deposit insurance programs are generally available only to existing customers and are not used as a means of generating additional liquidity.

At December 31, 2016 , public deposits held by the Company totaled $427.7 million compared to $373.3 million at December 31, 2015 . Uninsured public deposit balances increased from $312.2 million at December 31, 2015 to $368.2 million at December 31, 2016 . The Company is required to collateralize 50% of Washington state and Oregon state public deposits.

The following table sets forth the amount outstanding of time certificates of deposit and other time deposits in amounts of $100,000 or more (which represent CDARS ^® accounts) by time remaining until maturity and percentage of total deposits:

Amounts maturing in:		December 31, 2016
		Time Certificates of Deposit of $100,000 or More							Other Time Deposits of $100,000 or More
		Amount				Percent of Total Deposits			Amount				Percent of Total Deposits
		(dollars in thousands)
Three months or less		$	67,201			0.8	%		$	17,709			0.2	%
Over 3 through 6 months		31,681				0.4	%		801				—	%
Over 6 through 12 months		38,306				0.5	%		3,529				0.1	%
Over 12 months		31,067				0.4	%		—				—	%
Total		$	168,255			2.1	%		$	22,039			0.3	%

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

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

Borrowings

Borrowed funds provide an additional source of funding for loan growth. Our borrowed funds consist primarily of borrowings from the FHLB Des Moines (“FHLB”) and Federal Reserve Bank (“FRB”) as well as securities repurchase agreements. FHLB and FRB borrowings are secured by our loan portfolio and investment securities. Securities repurchase agreements are secured by investment securities. For additional information on our borrowings, including amounts pledged as collateral, see Notes 12, 13 and 14 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Off-Balance Sheet Arrangements

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the Consolidated Balance Sheets.

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Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company evaluates each client’s creditworthiness on a case-by-case basis.

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company had off-balance sheet loan commitments aggregating $2.17 billion at December 31, 2016 , an increase from $1.93 billion at December 31, 2015 . Standby letters of credit were $49.7 million at December 31, 2016 , an increase from $38.7 million at December 31, 2015 . In addition, commitments under commercial letters of credit used to facilitate customers’ trade transactions and other off-balance sheet liabilities amounted to $3.4 million and $5.0 million at December 31, 2016 and 2015 , respectively.

Contractual Obligations & Commitments

We are party to many contractual financial obligations, including repayment of borrowings, operating and equipment lease payments, and commitments to extend credit. The table below presents certain future financial obligations of the Company:  

		Payments due within time period at December 31, 2016
		0-12 Months				1-3 Years				4-5 Years				Due after Five Years				Total
		(in thousands)
Operating & equipment leases		$	8,891			$	15,539			$	11,652			$	13,474			$	49,556
Total deposits (1)		7,969,748				65,234				24,050				383				8,059,415
Federal Home Loan Bank advances (1)		—				1,000				—				5,000				6,000
Other borrowings (1)		55,822				25,000				—				—				80,822
Total		$	8,034,461			$	106,773			$	35,702			$	18,857			$	8,195,793

__________

(1) In the banking industry, interest-bearing obligations are principally used to fund interest-earning assets. As such, interest charges on contractual obligations were excluded from reported amounts, as the potential cash outflows would have corresponding cash inflows from interest-earning assets.

For additional information regarding future financial commitments, see Note 17 to our Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Liquidity and Sources of Funds

In general, our primary sources of funds are net income, loan repayments, maturities and principal payments on investment securities, customer deposits, advances from the FHLB, securities repurchase agreements and other borrowings. These funds are used to make loans, purchase investments, meet deposit withdrawals and maturing liabilities and cover operational expenses. Scheduled loan repayments and core deposits have proved to be a relatively stable source of funds while other deposit inflows and unscheduled loan prepayments are influenced by interest rate levels, competition and general economic conditions. We manage liquidity through monitoring sources and uses of funds on a daily basis and had unused credit lines with the FHLB and the FRB of $1.50 billion and $61.0 million , respectively, at December 31, 2016 , that are available to us as a supplemental funding source. The holding company’s sources of funds are dividends from its banking subsidiary which are used to fund dividends to shareholders and cover operating expenses.

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

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Capital

Our shareholders’ equity increased to $1.25 billion at December 31, 2016 , from $1.24 billion at December 31, 2015 . Shareholders’ equity was 13.16% and 13.88% of total assets at December 31, 2016 and 2015 .

Regulatory Capital. In July 2013, the federal bank regulators approved the New Capital Rules (as discussed in “Item 1. Business—Supervision and Regulation and —Regulatory Capital Requirements”), which implement the Basel III capital framework and various provisions of the Dodd-Frank Act. We and the Bank were required to comply with these rules as of January 1, 2015, subject to the phase-in of certain provisions. We believe that, as of December 31, 2016, we and the Bank would meet all capital adequacy requirements under the New Capital Rules on a fully phased-in basis as if all such requirements were then in effect.

FDIC regulations set forth the qualifications necessary for a bank to be classified as “well-capitalized,” primarily for assignment of FDIC insurance premium rates. Failure to qualify as “well-capitalized” can negatively impact a bank’s ability to expand and to engage in certain activities. The Company and the Bank qualified as “well-capitalized” at December 31, 2016 and 2015.

The following table sets forth the Company’s and the Bank’s capital ratios at December 31, 2016 and 2015 :

		Company						Columbia Bank						Requirements
		2016			2015			2016			2015			Adequately Capitalized			Well- Capitalized
Common Equity Tier 1 risk-based capital ratio		11.6450	%		11.94	%		11.5051	%		11.76	%		4.5	%		6.5	%
Tier 1 risk-based capital ratio		11.6646	%		11.95	%		11.5051	%		11.76	%		6	%		8	%
Total risk-based capital ratio		12.6347	%		12.94	%		12.4756	%		12.75	%		8	%		10	%
Leverage ratio		9.5526	%		10.03	%		9.4275	%		9.89	%		4	%		5	%
Capital conservation buffer		4.6347	%		N/A			4.4756	%		N/A			0.625	%		N/A

Stock Repurchase Program

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

Dividends

The following table sets forth the dividends paid per common share and the dividend payout ratio (dividends paid per common share divided by basic earnings per share):

		Years ended December 31,
		2016				2015				2014
Dividends paid per common share		$	1.53			$	1.34			$	0.94
Dividend payout ratio (1)		85		%		78		%		62		%

 ______________

(1) Dividends paid per common share as a percentage of earnings per diluted common share

For quarterly detail of dividends declared during 2016 and 2015 , including special dividends declared, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this report.

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

Applicable federal and Washington state regulations restrict capital distributions, including dividends, by the Company’s banking subsidiary. Such restrictions are tied to the institution’s capital levels after giving effect to distributions. Our ability to pay cash dividends is substantially dependent upon receipt of dividends from the Bank. In addition, the payment of cash dividends is subject to Federal regulatory requirements for capital levels and other restrictions. In this regard , current guidance from the Federal Reserve provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters.

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Reference “Item 6. Selected Financial Data” of this report for our return on average assets, return on average equity and average equity to average assets ratios for all reported periods.

Non-GAAP Financial Measures

In addition to capital ratios defined by banking regulators, the Company considers various measures when evaluating capital utilization and adequacy, including:

•	Tangible common equity to tangible assets, and

•	Tangible common equity to risk-weighted assets.

The Company believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of the Company’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations. Additionally, these measures present capital adequacy inclusive and exclusive of accumulated other comprehensive income. These calculations are intended to complement the capital ratios defined by banking regulators for both absolute and comparative purposes.

Because generally accepted accounting principles in the United States of America (“GAAP”) do not include capital ratio measures, the Company believes there are no comparable GAAP financial measures to these tangible common equity ratios. The following table reconciles the Company’s calculation of these measures to amounts reported under GAAP.

Despite the importance of these measures to the Company, there are no standardized definitions for them and, as a result, the Company’s calculations may not be comparable with other organizations. The Company encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

		December 31, 2016				December 31, 2015
		(dollars in thousands)
Shareholders’ equity		$	1,251,012			$	1,242,128
Goodwill		(382,762		)		(382,762		)
Other intangible assets, net		(17,631		)		(23,577		)
Preferred stock		(2,217		)		(2,217		)
Tangible common equity (a)		848,402				833,572
Total assets		9,509,607				8,951,697
Goodwill		(382,762		)		(382,762		)
Core deposit intangible		(17,631		)		(23,577		)
Tangible assets (b)		$	9,109,214			$	8,545,358
Risk-weighted assets, determined in accordance with prescribed regulatory requirements (c)		$	7,498,654			$	7,141,545
Ratios
Tangible common equity to tangible assets (a)/(b)		9.31		%		9.75	%
Tangible common equity to risk-weighted assets (a)/(c)		11.31		%		11.67		%

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

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

		Years ended December 31,
		2016				2015				2014
Operating net interest margin non-GAAP reconciliation:		(dollars in thousands)
Net interest income (tax equivalent) (1)		$	344,425			$	334,548			$	312,146
Adjustments to arrive at operating net interest income (tax equivalent):
Incremental accretion income on FDIC purchased credit impaired loans		(5,972		)		(9,096		)		(20,224		)
Incremental accretion income on other FDIC acquired loans (2)		—				(234		)		(484		)
Incremental accretion income on other acquired loans		(11,983		)		(17,862		)		(21,093		)
Premium amortization on acquired securities		7,738				10,217				7,123
Correction of immaterial error - securities premium amortization		—				—				(2,622		)
Interest reversals on nonaccrual loans		1,072				1,713				1,291
Operating net interest income (tax equivalent) (1)		$	335,280			$	319,286			$	276,137
Average interest earning assets		$	8,363,309			$	7,685,734			$	6,561,047
Net interest margin (tax equivalent) (1)		4.12		%		4.35		%		4.76		%
Operating net interest margin (tax equivalent) (1)		4.01		%		4.15		%		4.21		%

__________

(1) Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of  $10.8 million , $9.7 million and $8.1 million for the years ended December 31, 2016 , 2015 and 2014 , respectively.

(2) For 2016, incremental accretion income on other FDIC acquired loans is no longer considered significant and will no longer be tracked for this non-GAAP financial measure.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

We are exposed to interest rate risk, which is the risk that changes in prevailing interest rates will adversely affect assets, liabilities, capital, income and expenses at different times or in different amounts. Generally, there are four sources of interest rate risk as described below:

Repricing risk —Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities.

Basis risk —Basis risk is the risk of adverse consequence resulting from unequal changes in the spread between two or more rates for different instruments with the same maturity.

Yield curve risk —Yield curve risk is the risk of adverse consequence resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument.

Option risk —In banking, option risks are known as borrower options to prepay loans and depositor options to make deposits, withdrawals, and early redemptions. Option risk arises whenever bank products give customers the right, but not the obligation, to alter the quantity or the timing of cash flows.

An Asset/Liability Management Committee is responsible for developing, monitoring and reviewing asset/liability processes, interest rate risk exposures, strategies and tactics and reporting to the board of directors. It is the responsibility of the board of directors to establish policies and interest rate limits and approve these policies and interest rate limits annually. It is the responsibility of management to execute the approved policies, develop and implement risk management strategies and to report to the board of directors on a regular basis. We maintain an asset/liability management policy that provides guidelines for controlling exposure to interest rate risk. The policy guidelines direct management to assess the impact of changes in interest rates upon both earnings and capital. The guidelines establish limits for interest rate risk sensitivity.

Interest Rate Risk Sensitivity

A number of measures are used to monitor and manage interest rate risk, including income simulations, interest sensitivity (gap) analysis and economic value of equity sensitivity. 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. Key assumptions in the model include prepayment speeds on loans and investment securities, decay rates on non-maturity deposits, investment security, loan, deposit and borrowing volumes and pricing. These assumptions are inherently uncertain and, as a result, the net interest income projections should be viewed as an estimate of the net interest income sensitivity at the time of the analysis. 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.

Based on the results of the simulation model as of December 31, 2016 , we would expect decreases in net interest income of $10.0 million and $28.0 million in year one and year two, respectively, if interest rates gradually decrease from current rates by 100 basis points. We would expect an increase in net interest income of $7.5 million and $31.0 million in year one and year two, respectively, if interest rates gradually increase from current rates by 200 basis points.

The analysis of an institution’s interest rate gap (the difference between the repricing of interest-earning assets and interest-bearing liabilities during a given period of time) is one standard tool for the measurement of the exposure to interest rate risk. We believe that because interest rate gap analysis does not address all factors that can affect earnings performance, it should be used in conjunction with other methods of evaluating interest rate risk.

The table on the following page sets forth the estimated maturity or repricing, and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities at December 31, 2016 . The amounts in the table are derived from our internal data and are based upon regulatory reporting formats. Therefore, they may not be consistent with financial information appearing elsewhere herein that has been prepared in accordance with accounting principles generally accepted in the United States.

The estimates for net interest income sensitivity and interest rate gap could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawal of deposits and competition. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while other types may lag changes in market interest rates.

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Additionally, certain assets, such as adjustable-rate mortgages, have features that restrict changes in the interest rates of such assets both on a short-term basis and over the lives of such assets. Further, in the event of a change in market interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables. Finally, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of a substantial increase in market interest rates.

December 31, 2016		Estimated Maturity or Repricing
		0-3 months				4-12 months				Over 1 year through 5 years				Due after 5 years				Total
		(dollars in thousands)
Interest-Earning Assets
Interest-earning deposits		$	31,200			$	—			$	—			$	—			$	31,200
Loans, net of deferred fees		2,592,532				697,030				2,148,456				775,405				6,213,423
Loans held for sale		5,846				—				—				—				5,846
Investments		107,703				205,088				1,176,160				799,866				2,288,817
Total interest-earning assets		$	2,737,281			$	902,118			$	3,324,616			$	1,575,271			8,539,286
Allowance for loan and lease losses																		(70,043		)
Cash and due from banks																		193,038
Premises and equipment, net																		150,342
Other assets																		696,984
Total assets																		$	9,509,607
Interest-Bearing Liabilities
Interest-bearing non-maturity deposits		$	3,708,591			$	—			$	—			$	—			$	3,708,591
Time deposits		140,212				178,764				89,283				(1,930		)		406,329
Borrowings		55,822				—				26,000				5,493				87,315
Total interest-bearing liabilities		$	3,904,625			$	178,764			$	115,283			$	3,563			4,202,235
Other liabilities																		4,056,360
Total liabilities																		8,258,595
Shareholders’ equity																		1,251,012
Total liabilities and shareholders’ equity																		$	9,509,607
Interest-bearing liabilities as a percent of total interest-earning assets		45.73		%		2.09		%		1.35		%		0.04		%
Rate sensitivity gap		$	(1,167,344	)		$	723,354			$	3,209,333			$	1,571,708
Cumulative rate sensitivity gap		$	(1,167,344	)		$	(443,990	)		$	2,765,343			$	4,337,051
Rate sensitivity gap as a percentage of interest-earning assets		(13.67		)%		8.47		%		37.58		%		18.41		%
Cumulative rate sensitivity gap as a percentage of interest-earning assets		(13.67		)%		(5.20		)%		32.38		%		50.79		%

Impact of Inflation and Changing Prices

The impact of inflation on our operations is increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than the effect of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates.

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ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Columbia Banking System, Inc.

Tacoma, Washington

We have audited the accompanying Consolidated Balance Sheets of Columbia Banking System, Inc. and its subsidiaries (the “Company”) as of December 31, 2016 and 2015 , and the related Consolidated Statements of Income, Comprehensive Income, Changes in Shareholders’ Equity, and Cash Flows for each of the three years in the period ended December 31, 2016 . These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such Consolidated Financial Statements present fairly, in all material respects, the financial position of Columbia Banking System, Inc. and subsidiaries as of December 31, 2016 and 2015 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 , in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016 , based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Seattle, Washington

February 28, 2017

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COLUMBIA BANKING SYSTEM, INC.

CONSOLIDATED BALANCE SHEETS

							December 31, 2016				December 31, 2015
							(in thousands)
ASSETS
Cash and due from banks							$	193,038			$	166,929
Interest-earning deposits with banks							31,200				8,373
Total cash and cash equivalents							224,238				175,302
Securities available for sale at fair value (amortized cost of $2,299,037 and $2,157,610, respectively)							2,278,577				2,157,694
Federal Home Loan Bank stock at cost							10,240				12,722
Loans held for sale							5,846				4,509
Loans, net of unearned income of ($33,718) and ($42,373), respectively							6,213,423				5,815,027
Less: allowance for loan and lease losses							70,043				68,172
Loans, net							6,143,380				5,746,855
FDIC loss-sharing asset							3,535				6,568
Interest receivable							30,074				27,877
Premises and equipment, net							150,342				164,239
Other real estate owned							5,998				13,738
Goodwill							382,762				382,762
Other intangible assets, net							17,631				23,577
Other assets							256,984				235,854
Total assets							$	9,509,607			$	8,951,697
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing							$	3,944,495			$	3,507,358
Interest-bearing							4,114,920				3,931,471
Total deposits							8,059,415				7,438,829
Federal Home Loan Bank advances							6,493				68,531
Securities sold under agreements to repurchase							80,822				99,699
Other liabilities							111,865				102,510
Total liabilities							8,258,595				7,709,569
Commitments and contingent liabilities (Note 17)
Shareholders’ equity:
	December 31, 2016			December 31, 2015
Preferred stock (no par value)	(in thousands)
Authorized shares	2,000			2,000
Issued and outstanding	9			9			2,217				2,217
Common stock (no par value)
Authorized shares	115,000			115,000
Issued and outstanding	58,042			57,724			995,837				990,281
Retained earnings							271,957				255,925
Accumulated other comprehensive loss							(18,999		)		(6,295		)
Total shareholders’ equity							1,251,012				1,242,128
Total liabilities and shareholders’ equity							$	9,509,607			$	8,951,697

See accompanying Notes to Consolidated Financial Statements.

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COLUMBIA BANKING SYSTEM, INC.

CONSOLIDATED STATEMENTS OF INCOME

		Years ended December 31,
		2016				2015 (1)				2014 (1)
		(in thousands except per share)
Interest Income
Loans		$	291,465			$	286,166			$	268,279
Taxable securities		35,167				30,774				28,754
Tax-exempt securities		11,121				11,842				10,830
Deposits in banks		216				109				179
Total interest income		337,969				328,891				308,042
Interest Expense
Deposits		3,134				2,977				3,005
Federal Home Loan Bank advances		671				474				396
Other borrowings		545				553				593
Total interest expense		4,350				4,004				3,994
Net Interest Income		333,619				324,887				304,048
Provision for loan and lease losses		10,778				8,591				6,727
Net interest income after provision for loan and lease losses		322,841				316,296				297,321
Noninterest Income
Deposit account and treasury management fees (1)		28,500				28,451				25,722
Card revenue (1)		23,620				22,690				19,779
Financial services and trust revenue (1)		11,266				12,596				11,585
Loan revenue (1)		10,967				10,932				8,338
Merchant processing revenue		8,732				8,975				7,975
Bank owned life insurance		4,546				4,441				3,823
Investment securities gains, net		1,181				1,581				552
Change in FDIC loss-sharing asset		(2,585		)		(4,010		)		(19,989		)
Other (1)		1,855				5,817				1,965
Total noninterest income		88,082				91,473				59,750
Noninterest Expense
Compensation and employee benefits		150,282				149,410				130,864
Occupancy		33,734				34,818				32,300
Merchant processing expense		4,330				4,204				4,006
Advertising and promotion		4,598				4,713				3,964
Data processing		16,488				17,421				15,369
Legal and professional fees		7,889				9,608				11,389
Taxes, licenses and fees		5,185				5,395				4,552
Regulatory premiums		3,777				4,806				4,549
Net cost (benefit) of operation of other real estate owned		551				(1,629		)		(1,045		)
Amortization of intangibles		5,946				6,882				6,293
Other		28,362				30,521				27,045
Total noninterest expense		261,142				266,149				239,286
Income before income taxes		149,781				141,620				117,785
Income tax provision		44,915				42,793				36,211
Net Income		$	104,866			$	98,827			$	81,574
Earnings Per Common Share
Basic		$	1.81			$	1.71			$	1.53
Diluted		$	1.81			$	1.71			$	1.52
Weighted average number of common shares outstanding		57,184				57,019				52,618
Weighted average number of diluted common shares outstanding		57,193				57,032				53,183

__________

(1) Reclassified to conform to the current period’s presentation. Reclassifications consisted of disaggregating fee revenue previously presented in “Service charges and other fees” and certain revenue previously presented in “Other” into the presentation above. The Company made these reclassifications to provide additional information about its sources of noninterest income. There was no change to total noninterest income as previously reported as a result of these reclassifications.

See accompanying Notes to Consolidated Financial Statements.

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COLUMBIA BANKING SYSTEM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Years ended December 31,
		2016				2015				2014
		(in thousands)
Net income		$	104,866			$	98,827			$	81,574
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from securities:
Net unrealized holding gain (loss) from available for sale securities arising during the period, net of tax of $7,025, $3,455 and ($10,200)		(12,338		)		(6,069		)		17,922
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $429, $574 and $200		(752		)		(1,007		)		(352		)
Net unrealized gain (loss) from securities, net of reclassification adjustment		(13,090		)		(7,076		)		17,570
Pension plan liability adjustment:
Unrecognized net actuarial loss and plan amendments during the period, net of tax of $22, $2,878 and $0		(39		)		(5,054		)		—
Less: amortization of unrecognized net actuarial losses included in net periodic pension cost, net of tax of ($243), ($122) and ($54)		425				214				95
Pension plan liability adjustment, net		386				(4,840		)		95
Other comprehensive income (loss)		(12,704		)		(11,916		)		17,665
Comprehensive income		$	92,162			$	86,911			$	99,239

See accompanying Notes to Consolidated Financial Statements.

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COLUMBIA BANKING SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

		Preferred Stock							Common Stock
		Number of Shares			Amount				Number of Shares			Amount				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
		(in thousands, except per share amounts)
Balance at January 1, 2014		9			$	2,217			51,265			$	860,562			$	202,514			$	(12,044	)		$	1,053,249
Net income		—			—				—			—				81,574				—				81,574
Other comprehensive income		—			—				—			—				—				17,665				17,665
Issuance of common stock - acquisition related		—			—				4,208			116,907				—				—				116,907
Issuance of common stock - exercise of warrants		—			—				1,722			5,000				—				—				5,000
Issuance of common stock - stock option and other plans		—			—				41			929				—				—				929
Issuance of common stock - restricted stock awards, net of canceled awards		—			—				225			2,859				—				—				2,859
Activity in deferred compensation plan		—			—				—			(1		)		—				—				(1		)
Tax benefit associated with share-based compensation		—			—				—			205				—				—				205
Purchase and retirement of common stock		—			—				(24	)		(622		)		—				—				(622		)
Preferred dividends ($0.94 per common share equivalent)		—			—				—			—				(96		)		—				(96		)
Cash dividends paid on common stock ($0.94 per share)		—			—				—			—				(49,494		)		—				(49,494		)
Balance at December 31, 2014		9			$	2,217			57,437			$	985,839			$	234,498			$	5,621			$	1,228,175
Net income		—			—				—			—				98,827				—				98,827
Other comprehensive loss		—			—				—			—				—				(11,916		)		(11,916		)
Issuance of common stock - stock option and other plans		—			—				49			1,258				—				—				1,258
Issuance of common stock - restricted stock awards, net of canceled awards		—			—				270			4,090				—				—				4,090
Purchase and retirement of common stock		—			—				(32	)		(906		)		—				—				(906		)
Preferred dividends ($1.34 per common share equivalent)		—			—				—			—				(137		)		—				(137		)
Cash dividends paid on common stock ($1.34 per share)		—			—				—			—				(77,263		)		—				(77,263		)
Balance at December 31, 2015		9			$	2,217			57,724			$	990,281			$	255,925			$	(6,295	)		$	1,242,128
Net income		—			—				—			—				104,866				—				104,866
Other comprehensive loss		—			—				—			—				—				(12,704		)		(12,704		)
Issuance of common stock - stock option and other plans		—			—				50			1,349				—				—				1,349
Issuance of common stock - restricted stock awards, net of canceled awards		—			—				306			5,009				—				—				5,009
Activity in deferred compensation plan		—			—				—			(11		)		—				—				(11		)
Tax benefit associated with share-based compensation		—			—				—			334				—				—				334
Purchase and retirement of common stock		—			—				(38	)		(1,125		)		—				—				(1,125		)
Preferred dividends ($1.53 per common share equivalent)		—			—				—			—				(157		)		—				(157		)
Cash dividends paid on common stock ($1.53 per share)		—			—				—			—				(88,677		)		—				(88,677		)
Balance at December 31, 2016		9			$	2,217			58,042			$	995,837			$	271,957			$	(18,999	)		$	1,251,012

See accompanying Notes to Consolidated Financial Statements.

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COLUMBIA BANKING SYSTEM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Cash Flows From Operating Activities
Net income		$	104,866			$	98,827			$	81,574
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan and lease losses		10,778				8,591				6,727
Stock-based compensation expense		5,009				4,090				2,859
Depreciation, amortization and accretion		34,542				30,312				44,459
Investment securities gain, net		(1,181		)		(1,581		)		(552		)
Net realized loss on sale of premises and equipment, loans held for investment and other assets		157				573				564
Net realized (gain) loss on sale and valuation adjustments of other real estate owned		629				(2,152		)		(1,870		)
Net realized gain on sale of branches		—				—				(565		)
Originations of loans held for sale		(110,467		)		(75,689		)		(23,344		)
Proceeds from sales of loans held for sale		109,130				72,296				23,573
Deferred income tax expense		1,846				6,367				14,646
Net change in:
Interest receivable		(2,197		)		(75		)		(944		)
Interest payable		(93		)		(142		)		89
Other assets		(15,917		)		(5,419		)		(4,479		)
Other liabilities		8,745				(1,242		)		(5,119		)
Net cash provided by operating activities		145,847				134,756				137,618
Cash Flows From Investing Activities
Loans originated and acquired, net of principal collected		(402,146		)		(384,321		)		(440,376		)
Purchases of:
Securities available for sale		(569,825		)		(467,631		)		(363,693		)
Premises and equipment		(4,520		)		(7,581		)		(12,485		)
Federal Home Loan Bank Stock		(59,599		)		(16,760		)		—
Proceeds from:
FDIC reimbursement on loss-sharing asset		927				4,659				5,950
Sales of securities available for sale		124,142				95,375				63,292
Principal repayments and maturities of securities available for sale		284,218				283,206				180,648
Sales of premises and equipment and loans held for investment		9,643				15,074				2,840
Redemption of Federal Home Loan Bank Stock		62,081				37,403				1,288
Sales of other real estate and other personal property owned		8,158				19,387				28,559
Payments to FDIC related to loss-sharing asset		(1,632		)		(1,865		)		(3,451		)
Net cash paid in branch sale		—				—				(16,788		)
Net cash received in business combinations		—				—				32,255
Net cash used in investing activities		(548,553		)		(423,054		)		(521,961		)
Cash Flows From Financing Activities
Net increase in deposits		620,785				514,107				250,629
Net increase (decrease) in repurchase agreements		(18,877		)		(5,381		)		21,037
Proceeds from:
Exercise of stock options		1,349				1,258				929
Exercise of warrants		—				—				5,000
Federal Home Loan Bank advances		1,392,000				1,702,000				1,602,000
Federal Reserve Bank borrowings		10				1,010				800
Payments for:
Repayment of Federal Home Loan Bank advances		(1,454,000		)		(1,850,000		)		(1,422,000		)
Repayment of Federal Reserve Bank borrowings		(10		)		(1,010		)		(800		)
Preferred stock dividends		(157		)		(137		)		(96		)
Common stock dividends		(88,677		)		(77,263		)		(49,494		)
Repayment of other borrowings		—				(8,248		)		(14,636		)
Purchase and retirement of common stock		(1,125		)		(906		)		(622		)
Excess tax benefit from stock-based compensation		344				—				205
Net cash provided by financing activities		451,642				275,430				392,952
Increase (decrease) in cash and cash equivalents		48,936				(12,868		)		8,609
Cash and cash equivalents at beginning of period		175,302				188,170				179,561
Cash and cash equivalents at end of period		$	224,238			$	175,302			$	188,170

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COLUMBIA BANKING SYSTEM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Supplemental Information:
Cash paid during the year for:
Cash paid for interest		$	4,444			$	4,146			$	3,904
Cash paid for income tax		$	32,723			$	30,522			$	21,230
Non-cash investing and financing activities
Loans transferred to other real estate owned		$	1,047			$	8,688			$	10,200
Share-based consideration issued in business combinations		$	—			$	—			$	116,907

See accompanying Notes to Consolidated Financial Statements.

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COLUMBIA BANKING SYSTEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2016 , 2015 and 2014

1.	Summary of Significant Accounting Policies

Organization

Columbia Banking System, Inc. (the “Corporation”, “we”, “our”, “Columbia” or the “Company”) is the holding company for Columbia State Bank (“Columbia Bank” or the “Bank”) and Columbia Trust Company (“Columbia Trust”). The Bank provides a full range of financial services through 143 branch locations, including 73 in the State of Washington, 56 in Oregon and 14 in Idaho. Columbia Trust provides fiduciary, agency, trust and related services, and life insurance products. Because the Bank comprises substantially all of the business of the Corporation, references to the “Company” mean the Corporation, the Bank and Columbia Trust together. The Corporation is approved as a bank holding company pursuant to the Gramm-Leach-Bliley Act of 1999.

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and practices in the financial services industry. To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and income and expenses during the reporting period. Circumstances and events that differ significantly from those underlying our estimates and assumptions could cause actual financial results to differ from our estimates. The most significant estimates included in the financial statements relate to the allowance for loan and lease losses, business combinations, purchased credit impaired loans, Federal Deposit Insurance Corporation (“FDIC”) loss-sharing asset and goodwill impairment.

The Company has applied its accounting policies and estimation methods consistently in all periods presented in these financial statements (to the periods in which they applied).

Consolidation

The Consolidated Financial Statements of the Company include the accounts of the Corporation and its subsidiaries, including the Bank and Columbia Trust. Intercompany balances and transactions have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents include cash and due from banks, and interest bearing balances due from correspondent banks and the Federal Reserve Bank. Cash equivalents have a maturity of 90 days or less at the time of purchase.

Securities

Securities are classified based on management’s intention on the date of purchase. All securities are classified as available for sale and are presented at fair value. Unrealized gains or losses on securities available for sale are excluded from net income but are included as separate components of other comprehensive income, net of taxes. Purchase premiums or discounts on securities available for sale are amortized or accreted into income using the interest method over the terms of the individual securities. The Company performs a quarterly assessment to determine whether a decline in fair value below amortized cost is other-than-temporary. Amortized cost includes adjustments made to the cost of an investment for accretion, amortization, collection of cash and previous other-than temporary impairment recognized in earnings. Other-than-temporary impairment exists when it is probable that the Company will be unable to recover the entire amortized cost basis of the security.

In performing the quarterly assessment for debt securities, management considers whether or not the Company expects to recover the entire amortized cost basis of the security. In addition, management also considers whether it is more likely than not that it will not have to sell the security before recovery of its cost basis. If the Company intends to sell a security or it is more likely than not it will be required to sell a security prior to recovery of its cost basis, the entire amount of impairment is recognized in earnings. If the Company does not intend to sell the security or it is not more likely than not it will be required to sell the security prior to recovery of its cost basis, the credit loss component of impairment is recognized in earnings and impairment associated with non-credit factors, such as market liquidity, is recognized in “Other comprehensive income (loss), net of tax”. A credit loss is the difference between the cost basis of the security and the present value of cash flows expected to be collected, discounted at the security’s effective interest rate at the date of acquisition. The cost basis of an other-than-temporarily impaired security is written down by the amount of impairment recognized in earnings. The new cost basis is not adjusted for subsequent recoveries in fair value. However, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted as interest income. The total other-than-temporary impairment, if any, is presented in

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the Consolidated Statements of Income with a reduction for the amount of other-than-temporary impairment that is recognized in “Other Comprehensive Income”, if any.

Realized gains or losses on sales of securities available for sale are recorded using the specific identification method.

Federal Home Loan Bank Stock

FHLB stock is composed of two sub-classes: membership stock and activity based stock. Membership stock is stock we are required to purchase and hold as a condition of membership in the FHLB. The Company’s membership stock purchase requirement is measured as a percentage of our year-end assets, subject to a $10 million cap. Activity based stock is stock we are required to purchase and hold in order to obtain an advance or participate in FHLB mortgage programs. Class B stock may be redeemed, subject to certain limitations, on five years’ written notice to the FHLB. Our FHLB stock is carried at par value because the shares are issued, transferred, redeemed, and repurchased by the FHLB at a par value of $100. The FHLB stock is subject to recoverability testing per the Financial Services-Depository and Lending topic of the FASB Accounting Standards Codification (“ASC”).

Loans

Loans, excluding purchased credit impaired loans are generally carried at the unpaid principal balance, net of premiums, discounts and net deferred loan fees. Net deferred loan fees include nonrefundable loan origination fees less direct loan origination costs. Net deferred loan fees, premiums and discounts are amortized into interest income using either the interest method or straight-line method over the terms of the loans, adjusted for actual prepayments. The amortization is calculated using the interest method for all loans except revolving loans, for which the straight-line method is used. Interest income is accrued as earned. Fees related to lending activities other than the origination or purchase of loans are recognized as noninterest income during the period the related services are performed.

Nonaccrual loans —Loans are placed on nonaccrual status when a loan becomes contractually past due 90 days with respect to interest or principal unless the loan is both well secured and in the process of collection, or if full collection of interest or principal becomes uncertain. When a loan is placed on nonaccrual status, any accrued and unpaid interest receivable is reversed and the amortization of net deferred loan fees, premiums and discounts ceases. The interest payments received on nonaccrual loans are generally accounted for on the cost-recovery method whereby the interest payment is applied to the principal balances. Loans may be returned to accrual status when improvements in credit quality eliminate the doubt as to the full collectability of both interest and principal and a period of sustained performance has occurred.

Impaired loans —Loans are considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when a loan has been modified in a troubled debt restructuring. The assessment for impairment occurs when and while such loans are designated as classified per the Company’s internal risk rating system or when and while such loans are on nonaccrual. All nonaccrual loans greater than $500,000 and all troubled debt restructured loans are considered impaired and analyzed individually on a quarterly basis. Classified loans with an outstanding balance greater than $500,000 are evaluated for potential impairment on a quarterly basis.

Restructured Loans —A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include interest rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of six months to demonstrate that the borrower can meet the restructured terms. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

Purchased Credit Impaired Loans (“PCI Loans”) —Loans acquired with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . In addition, because of the significant discounts associated with certain of the acquired loan portfolios, the Company elected to account for those certain acquired loans under ASC 310-30.

In situations where such loans have similar risk characteristics, loans are aggregated into pools to estimate cash flows. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. Expected cash flows at the acquisition date in excess of the fair value of loans are considered to be accretable yield, which is recognized as interest income over the life of the loan pool using a level yield method if the timing and amount of the future cash flows of the pool is reasonably estimable. Subsequent to the acquisition date, any increases in cash flow over those expected at purchase date in excess of fair value are recorded as interest income prospectively. Any subsequent decreases in cash flow over those

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expected at purchase date due to credit deterioration are recognized by recording an allowance for losses on purchased credit impaired loans. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the removal of the loan from the loan pool at the carrying amount.

Unfunded loan commitments —Unfunded commitments are generally related to providing credit facilities to clients of the Bank and are not actively traded financial instruments. These unfunded commitments are disclosed as financial instruments with off-balance sheet risk in Note 17 in the Notes to Consolidated Financial Statements.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses (the “allowance”) is an accounting estimate of incurred credit losses in our loan portfolio at the balance sheet date. The 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.

Loans Collectively Evaluated for Impairment —This measure of estimated credit losses is based upon the loss experience over a historical base period adjusted for a loss emergence period. The loss emergence period is an estimate of the period that it takes, on average, for us to identify the amount of loss incurred for a loan that has suffered a loss-causing event. We then consider the effects of certain qualitative factors such as economic and business conditions, concentration of credit, nature and volume of portfolio, and problem loan trends to ensure our allowance reflects the inherent losses in the loan portfolio.

Loan and lease losses are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance.

Loans Individually Evaluated for Impairment —This measure of estimated credit losses begins if, based upon current information and events, we believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when a loan has been modified in a troubled debt restructuring. When a loan has been identified as impaired, the amount of impairment will be measured using discounted cash flows, except when it is determined that the remaining source of repayment for the loan is the operation or liquidation of the underlying collateral. In these cases, the current fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. As a final alternative, the observable market price of the debt may be used to assess impairment. Predominantly, the Company uses the fair value of collateral approach based upon a reliable valuation. When the measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by recording a charge-off to the allowance or by designating a specific reserve.

Purchased Credit Impaired Loans —The Company updates its cash flow projections for purchased credit impaired loans accounted for under ASC 310-30 on a quarterly basis. Assumptions utilized in this process include projections related to probability of default, loss severity, prepayment and recovery lag. Projections related to probability of default and prepayment are calculated utilizing a loan migration analysis. The loan migration analysis is a matrix of probability that is used to estimate the probability of a loan pool transitioning into a particular delinquency state 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.

Any decreases in expected cash flows after the acquisition date and subsequent measurement periods are recognized by recording a provision for loan losses. See “Purchased Credit Impaired Loans” for further discussion.

Unfunded Commitments and Letters of Credit —The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. The allowance for unfunded commitments is included in “Other liabilities” on the Consolidated Balance Sheets, with changes to the balance charged against noninterest expense.

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Premises and Equipment

Land, buildings, leasehold improvements and equipment are stated at cost less accumulated depreciation and amortization. Gains or losses on dispositions are reflected in current operations. Expenditures for improvements and major renewals are capitalized, and ordinary maintenance, repairs and small purchases are charged to “Occupancy” in the Consolidated Statements of Income. Depreciation and amortization are computed based on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of useful lives for the principal classes of assets are as follows:

Buildings and building improvements	5 to 39 years
Leasehold improvements	Term of lease or useful life, whichever is shorter
Furniture, fixtures and equipment	3 to 7 years
Vehicles	5 years
Computer software	3 to 5 years

Software

Capitalized software is stated at cost, less accumulated amortization. Amortization is computed on a straight-line basis and charged to expense over the estimated useful life of the software, which is generally three years. Capitalized software is included in “Premises and equipment, net” in the Consolidated Balance Sheets.

Other Real Estate Owned

Other real estate owned (“OREO”) is composed of real estate acquired by the Company through either foreclosure or deed in lieu of foreclosure in satisfaction of debt. At acquisition, OREO is recorded at fair value less estimated costs to sell. Any fair value adjustments at 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. The fair value of the OREO is based upon current appraisal. Losses that result from the ongoing periodic valuation of these properties are charged to the net cost of operation of OREO in the period in which they are identified. Improvements to the OREO are capitalized and holding costs are charged to the net cost of operation of OREO as incurred.

FDIC Loss-sharing Asset

The acquisition date fair value of the reimbursement the Company expected to receive from the FDIC under loss-sharing agreements was recorded in the FDIC loss-sharing asset on the Consolidated Balance Sheets. Subsequent to initial recognition, the FDIC loss-sharing asset is reviewed quarterly and adjusted for any changes in expected cash flows. These adjustments are measured on the same basis as the related covered assets. Any decrease in expected cash flows for the covered assets due to an increase in expected credit losses will increase the FDIC loss-sharing asset and any increase in expected future cash flows for the covered assets due to a decrease in expected credit losses will decrease the FDIC loss-sharing asset. Changes in the estimated cash flows on covered assets that are immediately recognized in income generally result in a similar immediate adjustment to the loss-sharing asset while changes in expected cash flows on covered assets that are accounted for as an adjustment to yield generally result in adjustments to the amortization or accretion rate for the loss-sharing asset. Increases and decreases to the FDIC loss-sharing asset are recorded as adjustments to noninterest income.

Goodwill and Intangibles

Net assets of companies acquired in purchase transactions are recorded at fair value at the date of acquisition. Identified intangibles are amortized on an accelerated basis over the period benefited. Goodwill is not amortized but is reviewed for potential impairment during the third quarter on an annual basis or, more frequently, if events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment for which discrete financial information is available and regularly reviewed by management. The Company consists of a single reporting unit. If the fair value of the reporting unit, including goodwill, is determined to be less than the carrying amount of the reporting unit, a further test is required to measure the amount of impairment. If an impairment loss exists, the carrying amount of goodwill is adjusted to a new cost basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited.

Intangible assets are evaluated for impairment if events and circumstances indicate a possible impairment. Such evaluation of other intangible assets is based on undiscounted cash flow projections. At December 31, 2016 , intangible assets included on the Consolidated Balance Sheets principally consists of a core deposit intangible amortized using an accelerated method with an original estimated life of 10 years .

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Income Taxes

The provision for income taxes includes current and deferred income tax expense on net income adjusted for temporary and permanent differences such as interest income on state and municipal securities and investments in affordable housing credits. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing temporary differences between the financial reporting and tax reporting basis of assets and liabilities using enacted tax laws and rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. On a quarterly basis, management evaluates deferred tax assets to determine if these tax benefits are expected to be realized in future periods. This determination is based on facts and circumstances, including the Company’s current and future tax outlook. To the extent a deferred tax asset is no longer considered “more likely than not” to be realized, a valuation allowance is established.

We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to unrecognized tax benefits in “Provision for income taxes” in the Consolidated Statements of Income.

Advertising

Advertising costs are generally expensed as incurred.

Earnings per Common Share

The Company’s capital structure includes convertible preferred shares, common shares, restricted common shares, common share options, and during portions of 2014 and 2013, warrants to purchase common shares. Restricted common shares participate in dividends declared on common shares at the same rate as common shares. Convertible preferred shares participate in dividends declared on common shares on an “as if converted” basis. Accordingly, the Company calculates earnings per common share (“EPS”) using the two-class method under the Earnings per Share topic of the FASB ASC. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common shareholders but does not require the presentation of basic and diluted EPS for securities other than common shares.

Under the two-class method, basic EPS is computed by dividing earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. Earnings allocated to common shareholders represents net income reduced by earnings allocated to participating securities. Participating securities include nonvested restricted stock awards and preferred stock. Diluted EPS is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if certain shares issuable upon exercise of options and warrants were included unless those additional shares would have been anti-dilutive. For the diluted EPS computation, the treasury stock method is applied and compared to the two-class method and whichever method results in a more dilutive impact is utilized to calculate diluted EPS.

Share-Based Payment

The Company accounts for stock options and stock awards in accordance with the Compensation—Stock Compensation topic of the FASB ASC. Authoritative guidance requires the Company to measure the cost of employee services received in exchange for an award of equity instruments, such as stock options or stock awards, based on the fair value of the award on the grant date. This cost must be recognized in the Consolidated Statements of Income over the vesting period of the award.

The Company issues restricted stock awards which generally vest over a four or five-year period during which time the holder receives dividends and has full voting rights. Restricted stock is valued at the closing price of the Company’s stock on the date of an award.

Derivatives and Hedging Activities

In accordance with the Derivatives and Hedging topic of the FASB ASC, the Company recognizes derivatives as assets or liabilities on the Consolidated Balance Sheets at their fair value. The Company periodically enters into interest rate contracts with customers and offsetting contracts with third parties. As these interest rate contracts are not designated as hedges under the Derivatives and Hedging topic of the FASB ASC, the changes in fair value of these instruments are recognized immediately in earnings.

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Accounting Pronouncements

During the year ended December 31, 2016 , the following Accounting Standards Updates were issued or became effective:

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Classification of Certain Cash Receipts and Cash Payments . The amendments in this ASU provide specific guidance on several statement of cash flow classification issues to reduce diversity in practice. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact that this guidance will have on its 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.

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 amendments in ASU 2016-09 are effective for the first interim or annual period beginning after December 15, 2016. Early adoption is permitted. The Company has determined the impact of this guidance will not be material to its Consolidated Financial Statements.

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. During 2016, the Company implemented a new lease administration application that allows the Company to readily measure future lease payment streams, which is an important component of the new lease accounting model. The Company is assessing the impact that this guidance will have on its Consolidated Financial Statements. See Note 17, “Commitments and Contingent Liabilities”, for more information regarding the minimum future payments related to our operating leases.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities . The amendments in ASU 2016-01 require all equity investments to be measured at fair value with changes in the fair value recognized through net income. The amendments in ASU 2016-01 also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments in ASU 2016-01 are effective for the first interim or annual period beginning after December 15, 2017. The Company is assessing the impact that this guidance will have on its Consolidated Financial Statements but does not expect the impact to be material.

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2. Business Combinations

Intermountain Community Bancorp

On November 1, 2014 , the Company completed its acquisition of Intermountain Community Bancorp (“Intermountain”) and its wholly-owned banking subsidiary Panhandle State Bank. The Company acquired 100% of the equity interests of Intermountain. The primary reason for the acquisition was to expand the Company's geographic footprint into the state of Idaho, consistent with its ongoing growth strategy.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the November 1, 2014 acquisition date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $38.8 million and a core deposit intangible of $10.9 million , or 1.75% of core deposits. The goodwill represents the excess purchase price over the fair value of the net assets acquired. The goodwill is not deductible for income tax purposes.

The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed:

		November 1, 2014
		(in thousands)
Purchase price as of November 1, 2014		$	131,935
Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Cash and cash equivalents		$	47,283
Investment securities		299,458
Federal Home Loan Bank stock		2,124
Acquired loans		502,595
Interest receivable		4,656
Premises and equipment		20,696
Other real estate owned		2,752
Core deposit intangible		10,900
Other assets		35,128
Deposits		(736,795		)
Other borrowings		(22,904		)
Securities sold under agreements to repurchase		(59,043		)
Other liabilities		(13,725		)
Total fair value of identifiable net assets		93,125
Goodwill		$	38,810

See Note 10, “Goodwill and Other Intangible Assets”, for further discussion of the accounting for goodwill and other intangible assets.

The operating results of the Company reported herein include the operating results produced by the acquired assets and assumed liabilities for the period November 1, 2014 to December 31, 2016 . Disclosure of the amount of Intermountain’s revenue and net income (excluding integration costs) included in Columbia’s Consolidated Statements of Income is impracticable due to the integration of the operations and accounting for this acquisition.

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For illustrative purposes only, the following table presents certain unaudited pro forma information for the year ended December 31, 2014. This unaudited estimated pro forma financial information was calculated as if Intermountain had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of Intermountain with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. In particular, no adjustments have been made to eliminate the impact of other-than-temporary impairment losses and losses recognized on the sale of securities that may not have been necessary had the investment securities been recorded at fair value as of the beginning of the year prior to the date of acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, Columbia expects to achieve further operating cost savings and other business synergies, including revenue growth as a result of the acquisition, which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented.

		Unaudited Pro Forma
		Year Ended December 31,
		2014
		(in thousands except per share)
Total revenues (net interest income plus noninterest income)		$	397,152
Net income		$	85,939
Earnings per share - basic		$	1.56
Earnings per share - diluted		$	1.55

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

		Year ended December 31,
		2016				2015				2014
		(in thousands)
Noninterest Expense
Compensation and employee benefits		$	35			$	3,828			$	2,077
Occupancy		2,383				2,357				44
Advertising and promotion		—				448				464
Data processing		18				2,005				—
Legal and professional fees		—				1,247				2,114
Other		—				960				197
Total impact of acquisition-related costs to noninterest expense		$	2,436			$	10,845			$	4,896

3.	Cash and Cash Equivalents

The Company is required to maintain an average reserve balance with the Federal Reserve Bank or maintain such reserve balance in the form of cash. The average required reserve balance for the years ended December 31, 2016 and 2015 was approximately $62.8 million and $61.6 million , respectively, and was met by holding cash and maintaining an average balance with the Federal Reserve Bank.

4.	Securities

At December 31, 2016 the Company’s securities portfolio primarily consisted of securities issued by the U.S. government, U.S. government agencies, U.S. government-sponsored enterprises and state and municipalities. All of the Company’s mortgage-backed securities and collateralized mortgage obligations are issued by U.S. government agencies and U.S. government-sponsored enterprises and are implicitly guaranteed by the U.S. government. The Company had no other issuances in its portfolio which exceeded ten percent of shareholders’ equity.

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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
December 31, 2016		(in thousands)
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
December 31, 2015
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations		$	1,296,955			$	4,525			$	(14,991	)		$	1,286,489
State and municipal securities		480,417				12,690				(938		)		492,169
U.S. government agency and government-sponsored enterprise securities		354,515				1,113				(1,846		)		353,782
U.S. government securities		20,439				—				(302		)		20,137
Other securities		5,284				24				(191		)		5,117
Total		$	2,157,610			$	18,352			$	(18,268	)		$	2,157,694

Proceeds from sales of securities available-for-sale were $124.1 million , $95.4 million and $63.3 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. The following table provides the gross realized gains and losses on the sales and calls of securities for the periods indicated:

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Gross realized gains		$	1,181			$	1,591			$	553
Gross realized losses		—				(10		)		(1		)
Net realized gains		$	1,181			$	1,581			$	552

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The scheduled contractual maturities of investment securities available for sale at December 31, 2016 are presented as follows:

		December 31, 2016
		Amortized Cost				Fair Value
		(in thousands)
Due within one year		$	38,596			$	38,717
Due after one year through five years		515,056				517,283
Due after five years through ten years		679,739				672,018
Due after ten years		1,060,362				1,045,476
Other securities with no stated maturity		5,284				5,083
Total investment securities available-for-sale		$	2,299,037			$	2,278,577

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:

		December 31, 2016				December 31, 2015
		(in thousands)
Washington and Oregon State to secure public deposits		$	232,714			$	341,079
Federal Reserve Bank to secure borrowings		33,825				48,714
Other securities pledged		132,350				143,606
Total securities pledged as collateral		$	398,889			$	533,399

The following tables show 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 December 31, 2016 and 2015 :

		Less than 12 Months								12 Months or More								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
December 31, 2016		(in thousands)
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	)
December 31, 2015
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations		$	664,509			$	(7,610	)		$	214,325			$	(7,381	)		$	878,834			$	(14,991	)
State and municipal securities		48,261				(358		)		31,383				(580		)		79,644				(938		)
U.S. government agency and government-sponsored enterprise securities		193,400				(1,128		)		40,034				(718		)		233,434				(1,846		)
U.S. government securities		10,343				(136		)		9,794				(166		)		20,137				(302		)
Other securities		2,300				(15		)		2,780				(176		)		5,080				(191		)
Total		$	918,813			$	(9,247	)		$	298,316			$	(9,021	)		$	1,217,129			$	(18,268	)

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At December 31, 2016 , there were 192 U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations securities in an unrealized loss position, of which 50 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 December 31, 2016 .

At December 31, 2016 , there were 180 state and municipal government securities in an unrealized loss position, of which 5 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 December 31, 2016 , 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 is investment grade and 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 December 31, 2016 .

At December 31, 2016 , 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 December 31, 2016 .

At December 31, 2016 , there was one U.S. government securities 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 December 31, 2016 .

At December 31, 2016 , there were two other securities in an unrealized loss position, of which one security, a mortgage-backed securities fund, 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 this investment to be other-than-temporarily impaired at December 31, 2016 as it has the intent and ability to hold the investment for sufficient time to allow for recovery in the market value.

5.	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.”

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

		December 31, 2016												December 31, 2015
		Loans, excluding PCI loans				PCI Loans				Total				Loans, excluding PCI loans				PCI Loans				Total
		(in thousands)
Commercial business		$	2,551,054			$	20,185			$	2,571,239			$	2,362,575			$	34,848			$	2,397,423
Real estate:
One-to-four family residential		170,331				17,862				188,193				176,295				23,938				200,233
Commercial and multifamily residential		2,719,830				89,231				2,809,061				2,491,736				99,389				2,591,125
Total real estate		2,890,161				107,093				2,997,254				2,668,031				123,327				2,791,358
Real estate construction:
One-to-four family residential		121,887				832				122,719				135,874				2,278				138,152
Commercial and multifamily residential		209,118				1,565				210,683				167,413				1,630				169,043
Total real estate construction		331,005				2,397				333,402				303,287				3,908				307,195
Consumer		329,261				15,985				345,246				342,601				18,823				361,424
Less: Net unearned income		(33,718		)		—				(33,718		)		(42,373		)		—				(42,373		)
Total loans, net of unearned income		6,067,763				145,660				6,213,423				5,634,121				180,906				5,815,027
Less: Allowance for loan and lease losses		(59,528		)		(10,515		)		(70,043		)		(54,446		)		(13,726		)		(68,172		)
Total loans, net		$	6,008,235			$	135,145			$	6,143,380			$	5,579,675			$	167,180			$	5,746,855
Loans held for sale		$	5,846			$	—			$	5,846			$	4,509			$	—			$	4,509

At December 31, 2016 and 2015 , 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.

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 and $10.0 million at December 31, 2016 and 2015 , respectively. During 2016 , advances on related party loans totaled $1.2 million and repayments on related party loans totaled $1.1 million .

At December 31, 2016 and 2015 , $2.29 billion and $2.22 billion of commercial and residential real estate loans were pledged as collateral on Federal Home Loan Bank advances. The Company has also pledged $54.2 million and $50.1 million of commercial loans to the Federal Reserve Bank for additional borrowing capacity at December 31, 2016 and 2015 , respectively.

Nonaccrual loans totaled $27.8 million and $21.5 million at December 31, 2016 and 2015 , respectively. The amount of interest income foregone as a result of these loans being placed on nonaccrual status totaled $1.9 million for 2016 , $1.3 million for 2015 and $2.2 million for 2014 . There were no loans 90 days past due and still accruing interest as of December 31, 2016 and December 31, 2015 . At December 31, 2016 and 2015 , there were $293 thousand and $2.9 million , respectively, of commitments of additional funds for loans accounted for on a nonaccrual basis.

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The following is an analysis of nonaccrual loans as of December 31, 2016 and 2015 :

		December 31, 2016								December 31, 2015
		Recorded Investment Nonaccrual Loans				Unpaid Principal Balance Nonaccrual Loans				Recorded Investment Nonaccrual Loans				Unpaid Principal Balance Nonaccrual Loans
		(in thousands)
Commercial business:
Secured		$	11,524			$	21,503			$	9,395			$	15,688
Unsecured		31				303				42				256
Real estate:
One-to-four family residential		568				1,302				820				1,866
Commercial and multifamily residential:
Commercial land		934				922				349				332
Income property		4,005				4,247				2,843				3,124
Owner occupied		6,248				9,030				6,321				8,943
Real estate construction:
One-to-four family residential:
Land and acquisition		14				102				362				385
Residential construction		549				549				566				679
Consumer		3,883				4,331				766				990
Total		$	27,756			$	42,289			$	21,464			$	32,263

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Loans, excluding purchased credit impaired loans

The following is an aging of the recorded investment of the loan portfolio as of December 31, 2016 and 2015 :

		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 and 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 and 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
		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, 2015		(in thousands)
Commercial business:
Secured		$	2,241,069			$	11,611			$	617			$	—			$	12,228			$	9,395			$	2,262,692
Unsecured		94,867				39				—				—				39				42				94,948
Real estate:
One-to-four family residential		170,913				1,637				66				—				1,703				820				173,436
Commercial and multifamily residential:
Commercial land		212,740				69				—				—				69				349				213,158
Income property		1,305,502				1,750				684				—				2,434				2,843				1,310,779
Owner occupied		939,396				599				—				—				599				6,321				946,316
Real estate construction:
One-to-four family residential:
Land and acquisition		14,388				—				—				—				—				362				14,750
Residential construction		119,809				—				—				—				—				566				120,375
Commercial and multifamily residential:
Income property		83,634				—				—				—				—				—				83,634
Owner occupied		81,671				—				—				—				—				—				81,671
Consumer		328,219				2,597				780				—				3,377				766				332,362
Total		$	5,592,208			$	18,302			$	2,147			$	—			$	20,449			$	21,464			$	5,634,121

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The following is an analysis of the impaired loans (see Note 1) as of December 31, 2016 and 2015 :

		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 and 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 and 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

 

		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, 2015		(in thousands)
Commercial business:
Secured		$	2,257,168			$	5,524			$	690			$	718			$	321			$	4,834			$	6,455
Unsecured		94,948				—				—				—				—				—				—
Real estate:
One-to-four family residential		172,150				1,286				314				339				314				972				1,397
Commercial and multifamily residential:
Commercial land		213,158				—				—				—				—				—				—
Income property		1,308,673				2,106				—				—				—				2,106				2,311
Owner occupied		940,261				6,055				—				—				—				6,055				8,528
Real estate construction:
One-to-four family residential
Land and acquisition		14,283				467				—				—				—				467				490
Residential construction		119,813				562				335				335				3				227				227
Commercial and multifamily residential:
Income property		83,634				—				—				—				—				—				—
Owner occupied		81,671				—				—				—				—				—				—
Consumer		332,282				80				15				15				15				65				139
Total		$	5,618,041			$	16,080			$	1,354			$	1,407			$	653			$	14,726			$	19,547

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The following table provides additional information on impaired loans for the years ended December 31, 2016 , 2015 and 2014 :

		Year Ended December 31, 2016								Year Ended December 31, 2015								Year Ended December 31, 2014
		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		$	9,368			$	79			$	7,987			$	84			$	7,345			$	36
Unsecured		—				—				—				—				19				1
Real estate:
One-to-four family residential		743				10				2,848				47				2,094				49
Commercial & multifamily residential
Commercial land		425				—				94				—				82				—
Income property		2,492				26				2,913				36				6,782				270
Owner occupied		5,084				—				7,052				26				9,472				956
Real estate construction:
One-to-four family residential
Land and acquisition		199				—				641				5				694				6
Residential construction		472				—				648				—				—				—
Consumer		2,710				122				189				4				147				9
Total		$	21,493			$	237			$	22,372			$	202			$	26,635			$	1,327

The following is an analysis of loans classified as troubled debt restructurings (“TDR”) for the years ended December 31, 2016 , 2015 and 2014 :

		Year Ended December 31, 2016											Year Ended December 31, 2015											Year Ended December 31, 2014
		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				Number of TDR Modifications			Pre-Modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
		(dollars in thousands)
Commercial business:
Secured		9			$	2,131			$	2,131			5			$	3,724			$	3,706			4			$	759			$	759
Real estate:
One-to-four family residential		3			203				203				1			30				30				2			494				494
Commercial and multifamily residential:
Income property		—			—				—				—			—				—				1			143				126
Owner occupied		1			250				250				—			—				—				1			1,496				1,496
Consumer		41			5,095				5,093				1			54				54				—			—				—
Total		54			$	7,679			$	7,677			7			$	3,808			$	3,790			8			$	2,892			$	2,875

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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 Company had $508 thousand of commitments to lend additional funds on loans classified as TDR as of December 31, 2016 , but no similar commitments at 2015 . 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 did not have any loans modified as TDR that defaulted within 12 months of being modified as TDR during the years ended December 31, 2016 , 2015 , and 2014 .

Purchased Credit Impaired Loans (“PCI Loans”)

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.

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. The transition matrix is a matrix of probability values that specifies the probability 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.

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The following is an analysis of our PCI loans, net of related allowance for losses and remaining valuation discounts as of December 31, 2016 and 2015 :

		December 31, 2016				December 31, 2015
		(in thousands)
Commercial business		$	21,606			$	38,784
Real estate:
One-to-four family residential		20,643				27,195
Commercial and multifamily residential		94,795				106,308
Total real estate		115,438				133,503
Real estate construction:
One-to-four family residential		832				2,326
Commercial and multifamily residential		1,726				1,834
Total real estate construction		2,558				4,160
Consumer		17,649				20,903
Subtotal of purchased credit impaired loans		157,251				197,350
Less:
Valuation discount resulting from acquisition accounting		11,591				16,444
Allowance for loan losses		10,515				13,726
PCI loans, net of valuation discounts and allowance for loan losses		$	135,145			$	167,180

The following table shows the changes in accretable yield for acquired loans for the years ended December 31, 2016 , 2015 , and 2014 :

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Balance at beginning of period		$	58,981			$	73,849			$	103,907
Accretion		(16,266		)		(21,919		)		(36,066		)
Disposals		(148		)		(1,681		)		(3,386		)
Reclassifications from nonaccretable difference		2,624				8,732				9,394
Balance at end of period		$	45,191			$	58,981			$	73,849

The Company did not acquire any loans accounted for under ASC 310-30 during 2016 or 2015 .

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

We record an 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 twelve month periods ended December 31, 2016 and December 31, 2015 .

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The following tables show a detailed analysis of the allowance for loans for the years ended December 31, 2016 , 2015 and 2014 :

		Beginning Balance				Charge-offs				Recoveries				Provision (Recovery)				Ending Balance				Specific Reserve				General Allocation
Year Ended December 31, 2016		(in thousands)
Commercial business:
Secured		$	32,321			$	(9,993	)		$	2,483			$	11,239			$	36,050			$	664			$	35,386
Unsecured		1,299				(75		)		162				(426		)		960				—				960
Real estate:
One-to-four family residential		916				(35		)		171				(453		)		599				12				587
Commercial and multifamily residential:
Commercial land		1,178				(26		)		2				643				1,797				—				1,797
Income property		6,616				—				966				(240		)		7,342				27				7,315
Owner occupied		5,550				(63		)		434				518				6,439				—				6,439
Real estate construction:
One-to-four family residential:
Land and acquisition		339				(88		)		57				8				316				1				315
Residential construction		733				—				234				(298		)		669				—				669
Commercial and multifamily residential:
Income property		388				—				109				(93		)		404				—				404
Owner occupied		1,006				—				—				186				1,192				—				1,192
Consumer		3,531				(1,238		)		933				308				3,534				57				3,477
Purchased credit impaired		13,726				(9,944		)		7,004				(271		)		10,515				—				10,515
Unallocated		569				—				—				(343		)		226				—				226
Total		$	68,172			$	(21,462	)		$	12,555			$	10,778			$	70,043			$	761			$	69,282

		Beginning Balance				Charge-offs				Recoveries				Provision (Recovery)				Ending Balance				Specific Reserve				General Allocation
Year Ended December 31, 2015		(in thousands)
Commercial business:
Secured		$	25,923			$	(7,486	)		$	2,069			$	11,815			$	32,321			$	321			$	32,000
Unsecured		927				(780		)		267				885				1,299				—				1,299
Real estate:
One-to-four family residential		2,281				(376		)		307				(1,296		)		916				314				602
Commercial and multifamily residential:
Commercial land		799				—				291				88				1,178				—				1,178
Income property		9,159				(390		)		3,568				(5,721		)		6,616				—				6,616
Owner occupied		5,007				(115		)		116				542				5,550				—				5,550
Real estate construction:
One-to-four family residential:
Land and acquisition		1,197				—				103				(961		)		339				—				339
Residential construction		1,860				—				90				(1,217		)		733				3				730
Commercial and multifamily residential:
Income property		622				—				8				(242		)		388				—				388
Owner occupied		434				—				—				572				1,006				—				1,006
Consumer		3,180				(2,066		)		931				1,486				3,531				15				3,516
Purchased credit impaired		16,336				(13,854		)		7,329				3,915				13,726				—				13,726
Unallocated		1,844				—				—				(1,275		)		569				—				569
Total		$	69,569			$	(25,067	)		$	15,079			$	8,591			$	68,172			$	653			$	67,519

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		Beginning Balance				Charge-offs				Recoveries				Provision (Recovery)				Ending Balance				Specific Reserve				General Allocation
Year ended December 31, 2014		(in thousands)
Commercial business:
Secured		$	31,027			$	(4,159	)		$	2,637			$	(3,582	)		$	25,923			$	25			$	25,898
Unsecured		696				(130		)		370				(9		)		927				2				925
Real estate:
One-to-four family residential		1,252				(230		)		159				1,100				2,281				120				2,161
Commercial and multifamily residential:
Commercial land		489				(29		)		70				269				799				—				799
Income property		9,234				(1,934		)		819				1,040				9,159				—				9,159
Owner occupied		3,605				(1,030		)		51				2,381				5,007				27				4,980
Real estate construction:
One-to-four family residential:
Land and acquisition		610				—				740				(153		)		1,197				67				1,130
Residential construction		822				—				1,190				(152		)		1,860				—				1,860
Commercial and multifamily residential:
Income property		285				—				—				337				622				—				622
Owner occupied		58				—				—				376				434				—				434
Consumer		2,547				(2,774		)		1,353				2,054				3,180				—				3,180
Purchased credit impaired		20,174				(14,436		)		7,721				2,877				16,336				—				16,336
Unallocated		1,655				—				—				189				1,844				—				1,844
Total		$	72,454			$	(24,722	)		$	15,110			$	6,727			$	69,569			$	241			$	69,328

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:

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Beginning balance		$	2,930			$	2,655			$	2,505
Net changes in the allowance for unfunded commitments and letters of credit		(225		)		275				150
Ending balance		$	2,705			$	2,930			$	2,655

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 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.

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The following is an analysis of the credit quality of our loan portfolio, excluding PCI loans as of December 31, 2016 and 2015 :

		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 losses																						59,528
Loans, excluding PCI loans, net																						$	6,008,235

		Pass				Special Mention				Substandard				Doubtful				Loss				Total
December 31, 2015		(in thousands)
Loans, excluding PCI loans
Commercial business:
Secured		$	2,146,729			$	59,746			$	56,217			$	—			$	—			$	2,262,692
Unsecured		93,347				278				1,323				—				—				94,948
Real estate:
One-to-four family residential		171,945				52				1,439				—				—				173,436
Commercial and multifamily residential:
Commercial land		207,768				4,966				424				—				—				213,158
Income property		1,296,043				5,889				8,847				—				—				1,310,779
Owner occupied		918,986				9,668				17,662				—				—				946,316
Real estate construction:
One-to-four family residential:
Land and acquisition		14,388				—				362				—				—				14,750
Residential construction		119,243				—				1,132				—				—				120,375
Commercial and multifamily residential:
Income property		83,634				—				—				—				—				83,634
Owner occupied		81,270				—				401				—				—				81,671
Consumer		328,286				—				4,076				—				—				332,362
Total		$	5,461,639			$	80,599			$	91,883			$	—			$	—			5,634,121
Less:
Allowance for loan losses																						54,446
Loans, excluding PCI loans, net																						$	5,579,675

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The following is an analysis of the credit quality of our PCI loan portfolio as of December 31, 2016 and 2015 :

		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
Residential construction		—				—				—				—				—				—
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

		Pass				Special Mention				Substandard				Doubtful				Loss				Total
December 31, 2015		(in thousands)
PCI loans:
Commercial business:
Secured		$	31,468			$	101			$	5,995			$	—			$	—			$	37,564
Unsecured		1,218				—				2				—				—				1,220
Real estate:
One-to-four family residential		25,018				—				2,177				—				—				27,195
Commercial and multifamily residential:
Commercial land		8,234				—				664				—				—				8,898
Income property		36,426				—				5,916				—				—				42,342
Owner occupied		53,071				261				1,736				—				—				55,068
Real estate construction:
One-to-four family residential:
Land and acquisition		1,086				—				479				—				—				1,565
Residential construction		427				—				334				—				—				761
Commercial and multifamily residential:
Income property		1,303				—				—				—				—				1,303
Owner occupied		531				—				—				—				—				531
Consumer		20,122				—				781				—				—				20,903
Total		$	178,904			$	362			$	18,084			$	—			$	—			197,350
Less:
Valuation discount resulting from acquisition accounting																						16,444
Allowance for loan losses																						13,726
PCI loans, net																						$	167,180

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7.	Other Real Estate Owned

The following table sets forth activity in OREO for the period:

		December 31, 2016				December 31, 2015
		(in thousands)
Balance, beginning of period		$	13,738			$	22,190
Transfers in		1,047				8,688
Valuation adjustments		(860		)		(1,986		)
Proceeds from sale of OREO property		(8,158		)		(19,292		)
Gain on sale of OREO, net		231				4,138
Balance, end of period		$	5,998			$	13,738

At December 31, 2016 , the carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession was $499 thousand and the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $622 thousand .

8. FDIC Loss-sharing Asset and Covered Assets

We are a party to eight loss-sharing agreements with the FDIC relating to our four FDIC-assisted acquisitions. Such agreements cover a substantial portion of losses incurred on acquired covered loans and OREO. The loss-sharing agreements relate to the 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 terms of the loss-sharing agreements, the FDIC will absorb 80% of losses and share in 80% of loss recoveries up to specified amounts. With respect to loss-sharing agreements for two acquisitions completed in 2010, after those specified amounts, the FDIC will absorb 95% of losses and share in 95% of loss recoveries. The loss-sharing provisions of the agreements for non-single family and single-family mortgage loans are in effect for five and ten years, respectively, and the loss recovery provisions are in effect for eight and ten years, respectively. The loss-sharing provisions for the Columbia River Bank and American Marine Bank non-single family covered assets were effective through the end of the first quarter of 2015. In addition, the loss-sharing provisions for the Summit Bank and First Heritage Bank non-single family covered assets expired at the end of the second quarter of 2016. Accordingly, further activity will be limited to recoveries through the first quarter of 2018 and second quarter of 2019, respectively, for assets covered by these loss-sharing agreements.

Ten years and forty-five days after the applicable acquisition dates, the Bank must pay to the FDIC a clawback in the event the losses from the acquisitions fail to reach stated levels. The amount of the clawback is determined by a formula specified in each individual loss-sharing agreement. As of December 31, 2016 and 2015 , the net present value of the Bank’s estimated clawback liability is $5.4 million and $5.2 million , respectively, which is included in “Other liabilities” on the Consolidated Balance Sheets.

At December 31, 2016 and 2015 , the FDIC loss-sharing asset is comprised of an FDIC indemnification asset of $2.7 million and $6.0 million , respectively, and an FDIC receivable of $794 thousand and $605 thousand , respectively. The indemnification represents the net present value of cash flows the Company expects to collect from the FDIC under the loss-sharing agreements and the FDIC receivable represents the reimbursable amounts from the FDIC that have not yet been received.

For PCI loans, the Company remeasures contractual and expected cash flows on a quarterly basis. When the quarterly remeasurement process results in a decrease in expected cash flows due to an increase in expected credit losses, impairment is recorded. As a result of this impairment, for loans covered by loss-sharing agreements with respect to which the loss-sharing provisions are still effective, the indemnification asset is increased to reflect anticipated future cash to be received from the FDIC. Consistent with the loss-sharing agreements between the Company and the FDIC, the amount of the increase to the indemnification asset is measured as 80% of the resulting impairment.

Alternatively, when the quarterly remeasurement results in an increase in expected future cash flows due to a decrease in expected credit losses, the nonaccretable difference decreases and the effective yield of the related loan portfolio is increased. As a result of the improved expected cash flows, for loans covered by loss-sharing agreements with respect to which the loss-sharing provisions are still effective, the indemnification asset would be reduced first by the amount of any impairment previously recorded and, second, by increased amortization over the remaining life of the related loss-sharing agreement.

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The following table shows a detailed analysis of the FDIC loss-sharing asset for the years ending December 31, 2016 and 2015 :

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

The following table presents information about the composition of the FDIC loss-sharing asset, the clawback liability, and the non-single family and the single family covered assets as of the date indicated:

		December 31, 2016
		Columbia River Bank				American Marine Bank				Summit Bank				First Heritage Bank				Total
		(in thousands)
FDIC loss-sharing asset		$	101			$	1,866			$	1,426			$	142			$	3,535
Clawback liability		$	3,433			$	1,269			$	—			$	731			$	5,433
Non-single family covered assets		$	57,017			$	9,059			$	5,066			$	12,037			$	83,179
Single family covered assets		$	6,121			$	18,517			$	4,420			$	1,448			$	30,506
Loss-sharing expiration dates:
Non-single family		Expired				Expired				Expired				Expired
Single family		First Quarter 2020				First Quarter 2020				Second Quarter 2021				Second Quarter 2021
Loss recovery expiration dates:
Non-single family		First Quarter 2018				First Quarter 2018				Second Quarter 2019				Second Quarter 2019
Single family		First Quarter 2020				First Quarter 2020				Second Quarter 2021				Second Quarter 2021
Clawback settlement dates		First Quarter 2020				First Quarter 2020				Third Quarter 2021				Third Quarter 2021

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9.	Premises and Equipment

Real and personal property and software, less accumulated depreciation and amortization, were as follows:

		December 31,
		2016				2015
		(in thousands)
Land		$	47,438			$	51,446
Buildings		101,196				102,808
Leasehold improvements		19,491				20,604
Furniture and equipment		26,709				28,662
Vehicles		536				587
Computer software		18,657				17,294
Total cost		214,027				221,401
Less accumulated depreciation and amortization		(63,685		)		(57,162		)
Total		$	150,342			$	164,239

Total depreciation and amortization expense was $11.8 million , $12.3 million , and $10.9 million , for the years ended December 31, 2016 , 2015 , and 2014 , respectively.

10.	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 and between annual tests in certain circumstances such as upon 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 Company performed an impairment assessment as of July 31, 2016 and concluded that there was no impairment. As of December 31, 2016 we determined there were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying amount.

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 period:

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Goodwill, beginning of period		$	382,762			$	382,537			$	343,952
Established through acquisitions and provisional period adjustments (1)		—				225				38,585
Total goodwill, end of period		382,762				382,762				382,537
Other intangible assets, net
Core deposit intangible:
Gross core deposit intangible balance, beginning of period		58,598				58,598				47,698
Accumulated amortization, beginning of period		(35,940		)		(29,058		)		(22,765		)
Core deposit intangible, net, beginning of period		22,658				29,540				24,933
Established through acquisitions		—				—				10,900
CDI current period amortization		(5,946		)		(6,882		)		(6,293		)
Total core deposit intangible, end of period		16,712				22,658				29,540
Intangible assets not subject to amortization		919				919				919
Other intangible assets, net at end of period		17,631				23,577				30,459
Total goodwill and intangible assets, end of period		$	400,393			$	406,339			$	412,996

__________

(1) See Note 2, Business Combinations, for additional information regarding the goodwill related to the acquisition of Intermountain on November 1, 2014.

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The following table provides the estimated future amortization expense of core deposit intangibles for the succeeding five years:

Years Ending December 31,		(in thousands)
2017		$	4,913
2018		3,855
2019		2,951
2020		2,048
2021		1,440

11.	Deposits

Year-end deposits are summarized in the following table:

		December 31,
		2016				2015 (1)
		(in thousands)
Core deposits:
Demand and other noninterest-bearing		$	3,944,495			$	3,507,358
Interest-bearing demand		985,293				925,909
Money market		1,791,283				1,788,552
Savings		723,667				657,016
Certificates of deposit, less than $250,000 (1)		304,830				359,878
Total core deposits		7,749,568				7,238,713
Certificates of deposit, $250,000 or more (1)		79,424				72,126
Certificates of deposit insured through CDARS®		22,039				26,901
Brokered money market accounts		208,348				100,854
Subtotal		8,059,379				7,438,594
Valuation adjustment resulting from acquisition accounting		36				235
Total deposits		$	8,059,415			$	7,438,829

_________

(1) Reclassified to conform to the current period’s presentation. The reclassification was limited to changing the threshold for certificates of deposit presented to the current FDIC insurance limit.

Overdrafts of $4.4 million and $1.8 million were reclassified as loan balances at December 31, 2016 and 2015 , respectively.

The following table shows the amount and maturity of time deposits:

Years Ending December 31,		(in thousands)
2017		$	316,626
2018		48,312
2019		16,922
2020		13,624
2021		10,426
Thereafter		383
Total		$	406,293

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12.	Federal Home Loan Bank and Federal Reserve Bank Borrowings

FEDERAL HOME LOAN BANK

The Company has entered into borrowing arrangements with the FHLB of Des Moines (“FHLB”) to borrow funds under a short-term floating rate fed funds overnight advance program and fixed-term loan agreements. All borrowings are secured by stock of the FHLB and a blanket pledge of qualifying loans receivable. At December 31, 2016 FHLB advances were scheduled to mature as follows:

		Federal Home Loan Bank Advances Fixed rate advances
		Weighted Average Rate			Amount
		(dollars in thousands)
Over 1 through 5 years		5.66	%		$	1,000
Due after 10 years		5.37	%		5,000
Total					6,000
Valuation adjustment from acquisition accounting					493
Total					$	6,493

The maximum, average outstanding and year-end balances and average interest rates on advances from the FHLB were as follows for the years ended December 31, 2016 , 2015 and 2014 :

		Years ended December 31,
		2016				2015				2014
		(dollars in thousands)
Balance at end of year		$	6,493			$	68,531			$	216,568
Average balance during the year		$	79,673			$	70,678			$	44,876
Maximum month-end balance during the year		$	250,515			$	242,556			$	216,568
Weighted average rate during the year		0.80		%		0.68		%		0.74		%
Weighted average rate at December 31		5.42		%		0.79		%		0.41		%

FHLB advances are collateralized by the following:

		December 31,
		2016				2015
		(in thousands)
Recorded value of blanket pledge on loans receivable		$	1,510,514			$	1,399,201
Total		$	1,510,514			$	1,399,201
FHLB borrowing capacity		$	1,502,284			$	1,328,971

FEDERAL RESERVE BANK

The Company is also eligible to borrow under the Federal Reserve Bank’s primary credit program, including the Term Auction Facility auctions. All borrowings are secured by certain pledged available for sale investment securities.

Although the Company has not had FRB borrowings in the last three years, the Company pledges securities and loans for borrowing capacity at the Federal Reserve Bank.

The following table shows amounts pledged to the Federal Reserve Bank:

		December 31,
		2016				2015
		(in thousands)
Fair value of investment securities		$	32,795			$	47,516
Recorded value of pledged commercial loans		28,212				37,912
Total		$	61,007			$	85,428
Federal Reserve Bank borrowing capacity		$	61,007			$	85,428

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13.	Securities Sold Under Agreements to Repurchase

Securities Sold Under Agreements to Repurchase - Term

The Company has entered into wholesale repurchase agreements with certain brokers. At December 31, 2016 and 2015 , the Company held $25.0 million in wholesale repurchase agreements with an interest rate of 1.88% . Securities available for sale with a carrying amount of $28.8 million at December 31, 2016 were pledged as collateral for the repurchase agreement borrowings. The broker holds the securities while the Company continues to receive the principal and interest payments from the securities. Upon maturity of the agreement in 2018, the pledged securities will be returned to the Company.

Securities Sold Under Agreements to Repurchase - Sweep

These sweep repurchase agreements are generally short-term agreements. These agreements are treated as financing transactions and the obligations to repurchase securities sold are reflected as a liability in the Consolidated Financial Statements. The dollar amount of securities underlying the agreements remains in the applicable asset account of the Consolidated Financial Statements. These agreements had a balance of $55.8 million and a weighted average interest rate of 0.11% at December 31, 2016 . All of these repurchase agreements in existence at December 31, 2016 mature on a daily basis. Securities available for sale with a carrying amount of $77.7 million at December 31, 2016 were pledged as collateral for the sweep repurchase agreement borrowings.

14. Other Borrowings

On November 1, 2014, with its acquisition of Intermountain, the Company assumed $16.5 million of trust preferred obligations. The Company redeemed $8.3 million of these obligations during 2014. The remaining $8.2 million of obligations bore interest at a rate of 3.03% , paid quarterly. On January 7, 2015, the Company redeemed the remaining $8.2 million trust preferred obligations.

15.	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 December 31, 2016 and 2015 was $309.3 million and $264.4 million , respectively. During 2016 and 2015 respective mark-to-market gains of $16 thousand and $11 thousand were recorded to “Other noninterest expense.” During 2014 there was a mark-to-market loss of $51 thousand recorded to “Other noninterest expense.”

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The following table presents the fair value and balance sheet classification of derivatives not designated as hedging instruments at December 31, 2016 and 2015 :

	Asset Derivatives												Liability Derivatives
	2016						2015						2016						2015
(in thousands)	Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value
Interest rate contracts	Other assets		$	9,012			Other assets		$	12,438			Other liabilities		$	9,036			Other liabilities		$	12,478

The Company is party to interest rate swap agreements 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
December 31, 2016	(in thousands)
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	)		$	—
December 31, 2015
Assets
Interest rate contracts	$	12,438			$	—			$	12,438			$	—			$	12,438
Liabilities
Interest rate contracts	$	12,478			$	—			$	12,478			$	(12,478	)		$	—
Repurchase agreements	$	99,699			$	—			$	99,699			$	(99,699	)		$	—

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
December 31, 2016		(in thousands)
Class of collateral pledged for repurchase agreements
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations		$	55,822			$	—			$	—			$	25,000			$	80,822
Gross amount of recognized liabilities for repurchase agreements																		80,822
Amounts related to agreements not included in offsetting disclosure																		$	—

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.

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16.	Employee Benefit Plans

401(k) Plan

The Company maintains defined contribution and profit sharing plans in conformity with the provisions of section 401(k) of the Internal Revenue Code. The Columbia Bank 401(k) and Profit Sharing Plan (the “401(k) Plan”), permits Columbia Bank employees who are at least 18 years of age to contribute up to 75% of their eligible compensation to the 401(k) Plan starting on the first day of the month following their hire date. On a per pay period basis the Company is required to match 50% of employee contributions up to 3% of each employee’s eligible compensation. The Company contributed $2.4 million during 2016 , $2.3 million during 2015 , and $2.0 million during 2014 , in matching funds to the 401(k) Plan. Additionally, as determined annually by the board of directors of the Company, the 401(k) Plan provides for a non-matching discretionary profit sharing contribution. The Company’s discretionary profit sharing contributions were $5.1 million during 2016 , $5.2 million during 2015 and $4.4 million during 2014 .

Employee Stock Purchase Plan

The Company maintains an “Employee Stock Purchase Plan” (the “ESP Plan”) in which substantially all employees of the Company are eligible to participate. The ESP Plan provides participants the opportunity to purchase common stock of the Company at a discounted price. Under the ESP Plan, participants can purchase common stock of the Company for 90% of the lowest price on either the first or last day in each of two six month look-back periods. The look-back periods are January 1st through June 30th and July 1st through December 31st of each calendar year. The 10% discount is recognized by the Company as compensation expense and does not have a material impact on net income or earnings per common share. Participants of the ESP Plan purchased 50,116 shares for $1.8 million in 2016 , 42,134 shares for $1.2 million in 2015 and 34,168 shares for $904 thousand in 2014 . At December 31, 2016 there were 449,494 shares available for purchase under the ESP Plan.

Supplemental Compensation Plan

The Company maintains supplemental compensation arrangements (“Unit Plans”) to provide benefits for certain employees. The Unit Plans generally vest over a 10 year period and provide a fixed annual benefit over the subsequent 10 year period. At December 31, 2016 and 2015 the liability associated with these plans was $4.8 million and $4.9 million , respectively. Expense associated with these plans for the years ended December 31, 2016 , 2015 and 2014 was $467 thousand , $859 thousand and $588 thousand , respectively.

Supplemental Executive Retirement Plan

The Company maintains a supplemental executive retirement plan (the “SERP”), a nonqualified deferred compensation plan that provides retirement benefits to certain highly compensated executives. The SERP is unsecured and unfunded and there are no program assets. The SERP projected benefit obligation, which represents the vested net present value of future payments to individuals under the plan is accrued over the estimated remaining term of employment of the participants and has been determined by actuarial valuation using “RP-2014 Adjusted to 2006 Total Dataset Mortality Table with Scale MP-2016 projected to 2027” for the mortality assumptions and discount rate of 4.09% for 2016 and 4.26% for 2015 . Additional assumptions and features of the plan are a normal retirement age of 65 and a 2% annual cost of living benefit adjustment. The projected benefit obligation is included in “Other liabilities” on the Consolidated Balance Sheets.

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The following table reconciles the accumulated liability for the projected benefit obligation:

		December 31,
		2016				2015
		(in thousands)
Balance at beginning of year		$	25,544			$	16,541
Change in actuarial loss		62				4,874
Plan amendments		—				2,617
Benefit expense		2,201				2,491
Benefit payments		(1,544		)		(979		)
Balance at end of year		$	26,263			$	25,544

The benefits expected to be paid in conjunction with the SERP are presented in the following table:

Years Ending December 31,		(in thousands)
2017		$	1,014
2018		1,510
2019		1,549
2020		2,569
2021		2,705
2022 through 2026		9,915
Total		$	19,262

17.	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. As of December 31, 2016 , minimum future rental payments, exclusive of taxes and other charges, of these leases were:

Years Ending December 31,		(in thousands)
2017		$	8,891
2018		8,184
2019		7,355
2020		6,514
2021		5,138
Thereafter		13,474
Total minimum payments		$	49,556

Total rental expense on buildings and equipment, net of rental income of $992 thousand , $1.1 million and $756 thousand , was $8.7 million , $7.4 million and $8.3 million , for the years ended December 31, 2016 , 2015 and 2014 , respectively.

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 December 31, 2016 , the deferred gain was $713 thousand and is included in “Other liabilities” on the Consolidated Balance Sheets.

Exit or disposal activities: As part of ongoing evaluations of facilities owned or leased by the Company for ongoing economic benefit, a decision was made to cease using one of our Idaho branch locations during the current year. As a result, in addition to recording a cease-use liability of $849 thousand in the current year, the Company also made a change in estimate for the useful lives of the fixed assets associated with this facility. The total expense related to the exit activity for the year ended December 31, 2016 was $883 thousand , which was recorded in the noninterest expense line item "Occupancy" in the Consolidated Statements of Income.

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.

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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. At December 31, 2016 and 2015 , the Company’s loan commitments amounted to $2.17 billion and $1.93 billion , respectively. Standby letters of credit were $49.7 million and $38.7 million at December 31, 2016 and 2015 , respectively. In addition, commitments under commercial letters of credit used to facilitate customers’ trade transactions and other off-balance sheet liabilities amounted to $3.4 million and $5.0 million at December 31, 2016 and 2015 , respectively.

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.

18.	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”). The Series B Preferred Stock is not subject to the operation of a sinking fund. The Series B Preferred Stock is not redeemable by the Company and is perpetual with no maturity. The holders of Series B Preferred Stock have no general voting rights. If the Company declares and pays a dividend to its common shareholders, it must declare and pay to its holders of Series B Preferred Stock, on the same date, a dividend in an amount per share of the Series B Preferred Stock that is intended to provide such holders dividends in the amount they would have received if shares of Series B Preferred Stock had been converted into common stock as of that date. The outstanding shares of Series B Preferred Stock are convertible into 102,363 shares of Company common stock.

Dividends. On January 28, 2016 , the Company declared a quarterly cash dividend of $0.18 per common share and common share equivalent for holders of preferred stock, and a special cash dividend of $0.20 per common share and common share equivalent for holders of preferred stock, both payable on February 24, 2016 to shareholders of record as of the close of business on February 10, 2016 .

On April 27, 2016 the Company declared a quarterly cash dividend of $0.19 per common share and common share equivalent for holders of preferred stock, and a special cash dividend of $0.18 per common share and common share equivalent for holders of preferred stock, both payable on May 25, 2016 to shareholders of record at the close of business on May 11, 2016 .

On July 28, 2016 the Company declared a quarterly cash dividend of $0.20 per common share and common share equivalent for holders of preferred stock, and a special cash dividend of $0.19 per common share and common share equivalent for holders of preferred stock, both payable on August 24, 2016 to shareholders of record at the close of business on August 10, 2016 .

On October 27, 2016 the Company declared a quarterly cash dividend of $0.20 per share and common share equivalent for holders of preferred stock, and a special cash dividend of $0.19 per common share and common share equivalent for holders of preferred stock, both payable on November 23, 2016 to shareholders of record at the close of business on November 9, 2016 .

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

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.

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19. Accumulated Other Comprehensive Loss

The following table shows changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2016 , 2015 and 2014 :

		Unrealized Gains and Losses on Available-for-Sale Securities (1)				Unrealized Gains and Losses on Pension Plan Liability (1)				Total (1)
Year Ended December 31, 2016		(in thousands)
Beginning balance		$	386			$	(6,681	)		$	(6,295	)
Other comprehensive loss before reclassifications		(12,338		)		(39		)		(12,377		)
Amounts reclassified from accumulated other comprehensive income (2)		(752		)		425				(327		)
Net current-period other comprehensive income (loss)		(13,090		)		386				(12,704		)
Ending balance		$	(12,704	)		$	(6,295	)		$	(18,999	)
Year Ended December 31, 2015
Beginning balance		$	7,462			$	(1,841	)		$	5,621
Other comprehensive loss before reclassifications		(6,069		)		(5,054		)		(11,123		)
Amounts reclassified from accumulated other comprehensive income (2)		(1,007		)		214				(793		)
Net current-period other comprehensive loss		(7,076		)		(4,840		)		(11,916		)
Ending balance		$	386			$	(6,681	)		$	(6,295	)
Year Ended December 31, 2014
Beginning balance		$	(10,108	)		$	(1,936	)		$	(12,044	)
Other comprehensive income before reclassifications		17,922				—				17,922
Amounts reclassified from accumulated other comprehensive income (2)		(352		)		95				(257		)
Net current-period other comprehensive income		17,570				95				17,665
Ending balance		$	7,462			$	(1,841	)		$	5,621

__________

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

(2) See following table for details about these reclassifications.

The following table shows details regarding the reclassifications from accumulated other comprehensive income for the years ended December 31, 2016 , 2015 and 2014 :

		Amount Reclassified from Accumulated Other Comprehensive Income												Affected line Item in the Consolidated Statement of Income
		Years Ended
		December 31, 2016				December 31, 2015				December 31, 2014
		(in thousands)
Unrealized gains and losses on available-for-sale securities		$	1,181			$	1,581			$	552			Investment securities gains, net
		1,181				1,581				552				Total before tax
		(429		)		(574		)		(200		)		Income tax provision
		$	752			$	1,007			$	352			Net of tax
Amortization of pension plan liability actuarial losses		$	(668	)		$	(336	)		$	(149	)		Compensation and employee benefits
		(668		)		(336		)		(149		)		Total before tax
		243				122				54				Income tax benefit
		$	(425	)		$	(214	)		$	(95	)		Net of tax

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20.	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 December 31, 2016 and 2015 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  at December 31, 2016				Fair Value Measurements at Reporting Date Using
						Level 1				Level 2				Level 3
		(in thousands)
Assets
Securities available for sale
U.S. government agency and sponsored enterprise mortgage-back securities and collateralized mortgage obligations		$	1,465,732			$	—			$	1,465,732			$	—
State and municipal 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			$	—

		Fair value  at December 31, 2015				Fair Value Measurements at Reporting Date Using
						Level 1				Level 2				Level 3
		(in thousands)
Assets
Securities available for sale
U.S. government agency and sponsored enterprise mortgage-back securities and collateralized mortgage obligations		$	1,286,489			$	—			$	1,286,489			$	—
State and municipal debt securities		492,169				—				492,169				—
U.S. government agency and government-sponsored enterprise securities		353,782				—				353,782				—
U.S. government securities		20,137				20,137				—				—
Other securities		5,117				—				5,117				—
Total securities available for sale		$	2,157,694			$	20,137			$	2,137,557			$	—
Other assets (Interest rate contracts)		$	12,438			$	—			$	12,438			$	—
Liabilities
Other liabilities (Interest rate contracts)		$	12,478			$	—			$	12,478			$	—

There were no transfers between Level 1 and Level 2 of the valuation hierarchy during the years ended December 31, 2016 and 2015 . 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 ALLL 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 ALLL, or in the event of a write-up without previous losses charged to the ALLL, 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 table sets forth the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the years ended December 31, 2016 and 2015 :

		Fair value  at December 31, 2016				Fair Value Measurements at Reporting Date Using												Losses During the Year Ended December 31, 2016
						Level 1				Level 2				Level 3
		(in thousands)
Impaired loans		$	3,787			$	—			$	—			$	3,787			$	5,413
OREO		4,388				—				—				4,388				332
		$	8,175			$	—			$	—			$	8,175			$	5,745

		Fair value  at December 31, 2015				Fair Value Measurements at Reporting Date Using												Losses During the Year Ended December 31, 2015
						Level 1				Level 2				Level 3
		(in thousands)
Impaired loans		$	758			$	—			$	—			$	758			$	653
OREO		4,524				—				—				4,524				949
		$	5,282			$	—			$	—			$	5,282			$	1,602

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 during 2016 and 2015 , along with the valuation techniques used, are shown in the following tables:

		Fair value  at December 31, 2016				Valuation Technique		Unobservable Input		Range (Weighted Average) (1)
		(dollars in thousands)
Impaired loans - collateral-dependent (3)		$	2,248			Fair Market Value of Collateral		Adjustment to Stated Value		N/A (2)
Impaired loans - other		$	1,539			Discounted Cash Flow		Discount Rate		4.50% - 6.50% (5.26%)
OREO		$	4,388			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 accounts receivable, inventory, equipment, and real property.

		Fair value  at December 31, 2015				Valuation Technique		Unobservable Input		Range (Weighted Average) (1)
		(dollars in thousands)
Impaired loans - real estate collateral		$	380			Fair Market Value of Collateral		Adjustment to Appraisal Value		N/A (2)
Impaired loans - other collateral (3)		$	378			Fair Market Value of Collateral		Adjustment to Stated Value		N/A (2)
OREO		$	4,524			Fair Market Value of Collateral		Adjustment to Appraisal Value		N/A (2)
(1) Discount applied to appraisal value, letter of intent to purchase, or stated value (in the case of equipment and life insurance).
(2) Quantitative disclosures are not provided because there were no adjustments made to the appraisal value during the current period.
(3) Other collateral consists of equipment and life insurance.

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.

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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 sales 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 December 31, 2016 or 2015 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 December 31, 2016 (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 contracts 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 for the periods indicated:

		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				—

		December 31, 2015
		Carrying Amount				Fair Value				Level 1				Level 2				Level 3
		(in thousands)
Assets
Cash and due from banks		$	166,929			$	166,929			$	166,929			$	—			$	—
Interest-earning deposits with banks		8,373				8,373				8,373				—				—
Securities available for sale		2,157,694				2,157,694				20,137				2,137,557				—
FHLB stock		12,722				12,722				—				12,722				—
Loans held for sale		4,509				4,509				—				4,509				—
Loans		5,746,855				5,752,423				—				—				5,752,423
FDIC loss-sharing asset		6,568				921				—				—				921
Interest rate contracts		12,438				12,438				—				12,438				—
Liabilities
Deposits		$	7,438,829			$	7,434,787			$	6,979,924			$	454,863			$	—
FHLB advances		68,531				69,176				—				69,176				—
Repurchase agreements		99,699				100,346				—				100,346				—
Interest rate contracts		12,478				12,478				—				12,478				—

21.	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.

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The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:

		Year Ended December 31,
		2016				2015				2014
		(in thousands except per share)
Basic EPS:
Net income		$	104,866			$	98,827			$	81,574
Less: Earnings allocated to participating securities
Preferred shares		185				175				157
Nonvested restricted shares		1,371				1,075				780
Earnings allocated to common shareholders		$	103,310			$	97,577			$	80,637
Weighted average common shares outstanding		57,184				57,019				52,618
Basic earnings per common share		$	1.81			$	1.71			$	1.53
Diluted EPS:
Earnings allocated to common shareholders (1)		$	103,310			$	97,577			$	80,640
Weighted average common shares outstanding		57,184				57,019				52,618
Dilutive effect of equity awards and warrants		9				13				565
Weighted average diluted common shares outstanding		57,193				57,032				53,183
Diluted earnings per common share		$	1.81			$	1.71			$	1.52
Potentially dilutive share options that were not included in the computation of diluted EPS because to do so would be anti-dilutive		19				37				64

___________

(1)	Earnings allocated to common shareholders for basic and diluted EPS may differ under the two-class method as a result of adding common stock equivalents for options and warrants to dilutive shares outstanding, which alters the ratio used to allocate earnings to common shareholders and participating securities for the purposes of calculating diluted EPS.

22.	Share-Based Payments

At December 31, 2016 , the Company had one equity compensation plan (the “Plan”), which is shareholder approved, that provides for the granting of share options and shares to eligible employees and directors up to 1,800,000 shares.

Share Awards: Restricted share awards provide for the immediate issuance of shares of Company common stock to the recipient, with such shares held in escrow until certain service conditions are met, generally four years of continual service. Recipients of restricted shares do not pay any cash consideration to the Company for the shares, have the right to vote all shares subject to such grant, and receive all dividends with respect to such shares, whether or not the shares have vested. The fair value of share awards is equal to the fair market value of the Company’s common stock on the date of grant.

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A summary of changes in the Company’s nonvested shares and related information for the years ended December 31, 2016 , 2015 and 2014 is presented below:

Nonvested Shares		Shares			Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2014		410,598			$	20.79
Granted		246,068			$	25.97
Vested		(108,371	)		$	21.45
Forfeited		(28,510	)		$	21.92
Nonvested at December 31, 2014		519,785			$	23.03
Granted		306,007			$	28.57
Vested		(131,775	)		$	21.55
Forfeited		(28,315	)		$	24.79
Nonvested at December 31, 2015		665,702			$	25.80
Granted		335,593			$	28.40
Vested		(153,235	)		$	23.80
Forfeited		(29,305	)		$	27.13
Nonvested at December 31, 2016		818,755			$	25.81

As of December 31, 2016 , there was $12.2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 3.2 years. The total fair value, as measured on the date of vesting, of shares vested during the years ended December 31, 2016 , 2015 , and 2014 was $3.6 million , $2.8 million , and $2.3 million , respectively.

Share Options: Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on three years of continual service and are exercisable for a five -year period after vesting. Option awards granted have a 10 -year maximum term.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The fair value of all options is amortized on a straight-line basis over the requisite service periods, which are generally the vesting periods. The expected life of options granted represents the period of time that they are expected to be outstanding. The expected life is determined based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules. Expected volatilities of our common stock are estimated at the date of grant based on the historical volatility of the stock. The volatility factor is based on historical stock prices over the most recent period commensurate with the estimated expected life of the award. The risk-free interest rate is based on the U.S. Treasury curve in effect at the time of the award. The expected dividend yield is based on dividend trends and the market value of the Company’s stock price at the time of the award.

A summary of option activity under the Plan as of December 31, 2016 , and changes during the year then ended is presented below:

Options		Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Balance at December 31, 2015		44,686			$	57.26
Forfeited		(1,323	)		$	41.56
Expired		(11,376	)		$	117.95
Exercised		(8,558	)		$	9.91
Balance at December 31, 2016		23,429			$	45.98			1.6		$	300
Vested or expected to vest at December 31, 2016		23,429			$	45.98			1.6		$	300
Total Exercisable at December 31, 2016		23,429			$	45.98			1.6		$	300

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The total intrinsic value of options exercised during the years ended December 31, 2016 , 2015 , and 2014 was $232 thousand , $85 thousand , and $138 thousand , respectively. There were no options granted during the years ended December 31, 2016 , 2015 , and 2014 . There were no options that vested during the years ended December 2016 , 2015 , and 2014 .

As of December 31, 2016 , outstanding stock options consist of the following:

Ranges of Exercise Prices		Number of Option Shares			Weighted Average Remaining Contractual Life		Weighted Average Exercise Price of Option Shares				Number of Exercisable Option Shares			Weighted Average Exercise Price of Exercisable Option Shares
$0.00 - $9.99		8,414			2.3		$	9.91			8,414			$	9.91
$10.00 - $19.99		221			3.5		$	11.29			221			$	11.29
$40.00 - $49.99		349			1.5		$	44.49			349			$	44.49
$50.00 - $136.93		14,445			1.1		$	67.55			14,445			$	67.55
		23,429			1.6		$	45.98			23,429			$	45.98

It is the Company’s policy to issue new shares for share option exercises and share awards. The Company expenses awards of share options and shares on a straight-line basis over the related vesting term of the award. For the years ended December 31, 2016 , 2015 and 2014 , the Company recognized pre-tax share-based compensation expense of $5.0 million , $4.1 million and $2.9 million , respectively.

23.	Income Tax

The components of income tax expense are as follows:

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Current tax expense		$	43,069			$	36,426			$	21,565
Deferred tax expense		1,846				6,367				14,646
Total		$	44,915			$	42,793			$	36,211

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Significant components of the Company’s deferred tax assets and liabilities are as follows:

		December 31,
		2016				2015 (1)
		(in thousands)
Deferred tax assets:
Allowance for loan and lease losses		$	26,638			$	26,024
Deferred compensation (1)		16,232				14,716
Stock options and restricted stock		1,922				1,423
OREO		111				813
Nonaccrual interest		320				69
Purchase accounting		2,613				9,457
Unrealized loss on investment securities (1)		7,492				—
Net operating losses and credit carryforwards		8,597				11,467
Depreciation		1,059				—
Other		851				180
Total deferred tax assets		65,835				64,149
Deferred tax liabilities:
Asset purchase tax basis difference		(9,037		)		(9,058		)
FHLB stock dividends		(1,232		)		(1,232		)
Deferred loan fees		(5,126		)		(5,202		)
Unrealized gain on investment securities (1)		—				(30		)
Depreciation		—				(3,730		)
Other		(155		)		—
Total deferred tax liabilities		(15,550		)		(19,252		)
Net deferred tax asset		$	50,285			$	44,897

__________

(1) Reclassified to conform to the current period’s presentation.

A reconciliation of the Company’s effective income tax rate with the federal statutory tax rate is as follows:

		Years Ended December 31,
		2016							2015							2014
		Amount				Percent			Amount				Percent			Amount				Percent
		(dollars in thousands)
Income tax based on statutory rate		$	52,424			35	%		$	49,567			35	%		$	41,225			35	%
Reduction resulting from:
Tax exempt instruments		(7,433		)		(5	)%		(6,761		)		(5	)%		(5,328		)		(5	)%
Life insurance proceeds		(1,680		)		(1	)%		(1,554		)		(1	)%		(1,352		)		(1	)%
Acquisition costs		—				—	%		—				—	%		448				—	%
Other, net		1,604				1	%		1,541				1	%		1,218				2	%
Income tax provision		$	44,915			30	%		$	42,793			30	%		$	36,211			31	%

As of December 31, 2016 and 2015 , we had no unrecognized tax benefits. Our policy is to recognize interest and penalties on unrecognized tax benefits in “Provision for income taxes” in the Consolidated Statements of Income. There were no amounts related to interest and penalties recognized for the years ended December 31, 2016 and 2015 . As a result of recent acquisitions, the Company has net operating loss carryforwards in the federal, Idaho and Oregon jurisdictions of $18.4 million , $27.6 million and $170 thousand , respectively, which begin to expire in 2024 and federal and Oregon credit carryforwards of $404 thousand and $560 thousand , respectively. Federal credit carryforwards are related to alternative minimum taxes and have no expiration while the Oregon credit carryforwards begin to expire in 2017. The amount of carryforwards that may be utilized annually is limited under Sections 382 and 383 as a result of changes in control. Management believes that these carryforwards will be used in the normal course of business, and as such, has not recorded a valuation allowance.

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24.	Regulatory Capital Requirements

The Company (on a consolidated basis) and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and its banking subsidiary’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiary must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Basel III capital requirements became effective on January 1, 2015. The new capital requirements, among other things (i) specify that Tier 1 capital consists of “Common Equity Tier 1,” or CET1, and “Additional Tier 1 capital” instruments meeting specified requirements, (ii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iii) expand the scope of the deductions/adjustments to capital as compared to existing regulations. Under the requirements that are now effective, the minimum capital ratios are (i) 4.5% CET1 to risk-weighted assets, (ii) 6% Tier 1 capital to risk-weighted assets, (iii) 8% total capital to risk-weighted assets and (iv) 4% Tier 1 capital to average total assets (Tier 1 leverage). The Company and the Bank have made the one-time election to opt-out of including accumulated other comprehensive income items in regulatory capital calculations.

The New Capital Rules also require a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios. In addition, the New Capital Rules provide for a countercyclical capital buffer applicable only to certain covered institutions. We do not expect the countercyclical capital buffer to be applicable to us or the Bank. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a three-year period (increasing by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019). When fully phased-in, the New Capital Rules will require us, and the Bank, to maintain such additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets. At December 31, 2016 , the capital conservation buffer for the Company and the Bank was 4.6347% and 4.4756% , respectively. As such, we believe that, as of December 31, 2016 , we and the Bank would meet all capital adequacy requirements under the New Capital Rules on a fully phased-in basis as if all such requirements were then in effect.

FDIC regulations set forth the qualifications necessary for a bank to be classified as “well-capitalized,” primarily for assignment of FDIC insurance premium rates. To qualify as “well-capitalized,” banks must have a CET1 risk-adjusted capital ratio of 6.5%, a Tier I risk-adjusted capital ratio of at least 8%, a total risk-adjusted capital ratio of at least 10% and a leverage ratio of at least 5%. Failure to qualify as “well-capitalized” can negatively impact a bank’s ability to expand and to engage in certain activities.

As of December 31, 2016 , the most recent notification from the Federal Deposit Insurance Corporation categorized Columbia Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well- capitalized, an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed Columbia Bank’s category.

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The Company and its banking subsidiary’s actual capital amounts and ratios as of December 31, 2016 and 2015 are presented in the following table:

		Actual							For Capital Adequacy Purposes							To Be Well Capitalized Under Prompt Corrective Action Provision
		Amount				Ratio			Amount				Ratio			Amount				Ratio
		(dollars in thousands)
As of December 31, 2016
CET1 Capital (to risk-weighted assets):
The Company		$	873,217			11.6450	%		$	337,439			4.5	%		N/A				N/A
Columbia Bank		$	862,381			11.5051	%		$	337,304			4.5	%		$	487,217			6.5	%
Tier 1 Capital (to risk-weighted assets):
The Company		$	874,688			11.6646	%		$	449,919			6.0	%		N/A				N/A
Columbia Bank		$	862,381			11.5051	%		$	449,739			6.0	%		$	599,652			8.0	%
Total Capital (to risk-weighted assets):
The Company		$	947,436			12.6347	%		$	599,892			8.0	%		N/A				N/A
Columbia Bank		$	935,129			12.4756	%		$	599,652			8.0	%		$	749,565			10.0	%
Tier 1 Capital Leverage (to average assets):
The Company		$	874,688			9.5526	%		$	366,263			4.0	%		N/A				N/A
Columbia Bank		$	862,381			9.4275	%		$	365,902			4.0	%		$	457,378			5.0	%
As of December 31, 2015
CET1 Capital (to risk-weighted assets):
The Company		852,731				11.94	%		321,370				4.5	%		N/A				N/A
Columbia Bank		839,127				11.76	%		321,168				4.5	%		463,909				6.5	%
Tier 1 Capital (to risk-weighted assets):
The Company		$	853,182			11.95	%		$	428,493			6.0	%		N/A				N/A
Columbia Bank		$	839,127			11.76	%		$	428,223			6.0	%		$	570,965			8.0	%
Total Capital (to risk-weighted assets):
The Company		$	924,284			12.94	%		$	571,324			8.0	%		N/A				N/A
Columbia Bank		$	910,229			12.75	%		$	570,965			8.0	%		$	713,706			10.0	%
Tier 1 Capital Leverage (to average assets):
The Company		$	853,182			10.03	%		$	340,420			4.0	%		N/A				N/A
Columbia Bank		$	839,127			9.89	%		$	339,405			4.0	%		$	424,256			5.0	%

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25.	Parent Company Financial Information

Condensed Balance Sheets—Parent Company Only

		December 31,
		2016				2015
		(in thousands)
Assets
Cash and due from banking subsidiary		$	1,718			$	3,429
Interest-earning deposits		729				560
Total cash and cash equivalents		2,447				3,989
Investment in banking subsidiary		1,238,712				1,228,070
Investment in other subsidiaries		4,978				5,567
Other assets		5,146				4,833
Total assets		$	1,251,283			$	1,242,459
Liabilities and Shareholders’ Equity
Other liabilities		$	271			$	331
Total liabilities		271				331
Shareholders’ equity		1,251,012				1,242,128
Total liabilities and shareholders’ equity		$	1,251,283			$	1,242,459

Condensed Statements of Income—Parent Company Only

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Income
Dividend from banking subsidiary		$	83,500			$	67,000			$	16,200
Interest-earning deposits		4				5				25
Other income		8				92				10
Total income		83,512				67,097				16,235
Expense
Compensation and employee benefits		543				618				530
Other borrowings		—				5				83
Other expense		1,608				1,368				1,433
Total expenses		2,151				1,991				2,046
Income before income tax benefit and equity in undistributed earnings of subsidiaries		81,361				65,106				14,189
Income tax benefit		(748		)		(663		)		(704		)
Income before equity in undistributed earnings of subsidiaries		82,109				65,769				14,893
Equity in undistributed earnings of subsidiaries		22,757				33,058				66,681
Net income		$	104,866			$	98,827			$	81,574

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Condensed Statements of Cash Flows—Parent Company Only

		Years Ended December 31,
		2016				2015				2014
		(in thousands)
Operating Activities
Net income		$	104,866			$	98,827			$	81,574
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(22,757		)		(33,058		)		(66,681		)
Stock-based compensation expense		5,009				4,090				2,859
Net changes in other assets and liabilities		(394		)		(3,170		)		(403		)
Net cash provided by operating activities		86,724				66,689				17,349
Investing Activities
Net cash acquired in business combinations		—				—				10,277
Net cash provided by investing activities		—				—				10,277
Financing Activities
Preferred stock dividends		(157		)		(137		)		(96		)
Common stock dividends		(88,677		)		(77,263		)		(49,494		)
Repayment of other borrowings		—				(8,248		)		(14,636		)
Exercise of warrants		—				—				5,000
Purchase and retirement of common stock		(1,125		)		(906		)		(622		)
Proceeds from exercise of stock options		1,349				1,258				929
Excess tax benefit associated with share-based compensation		344				—				205
Net cash used in financing activities		(88,266		)		(85,296		)		(58,714		)
Decrease in cash and cash equivalents		(1,542		)		(18,607		)		(31,088		)
Cash and cash equivalents at beginning of year		3,989				22,596				53,684
Cash and cash equivalents at end of year		$	2,447			$	3,989			$	22,596

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26.	Summary of Quarterly Financial Information (Unaudited)

Quarterly financial information for the years ended December 31, 2016 and 2015 is summarized as follows:

		Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Year Ended December 31,
		(in thousands, except per share amounts)
2016
Total interest income		$	86,734			$	86,758			$	83,303			$	81,174			$	337,969
Total interest expense		997				1,186				1,163				1,004				4,350
Net interest income		85,737				85,572				82,140				80,170				333,619
Provision for loan and lease losses		18				1,866				3,640				5,254				10,778
Noninterest income		22,330				23,166				21,940				20,646				88,082
Noninterest expense		65,014				67,264				63,790				65,074				261,142
Income before income taxes		43,035				39,608				36,650				30,488				149,781
Provision for income taxes		12,317				12,124				11,245				9,229				44,915
Net income		$	30,718			$	27,484			$	25,405			$	21,259			$	104,866
Per common share (1)
Earnings (basic)		$	0.53			$	0.47			$	0.44			$	0.37			$	1.81
Earnings (diluted)		$	0.53			$	0.47			$	0.44			$	0.37			$	1.81
2015
Total interest income		$	82,769			$	82,665			$	82,040			$	81,417			$	328,891
Total interest expense		950				971				1,030				1,053				4,004
Net interest income		81,819				81,694				81,010				80,364				324,887
Provision for loan and lease losses		2,349				2,831				2,202				1,209				8,591
Noninterest income		24,745				22,499				21,462				22,767				91,473
Noninterest expense		66,877				64,067				68,471				66,734				266,149
Income before income taxes		37,338				37,295				31,799				35,188				141,620
Provision for income taxes		10,598				11,515				9,853				10,827				42,793
Net income		$	26,740			$	25,780			$	21,946			$	24,361			$	98,827
Per common share (1)
Earnings (basic)		$	0.46			$	0.45			$	0.38			$	0.42			$	1.71
Earnings (diluted)		$	0.46			$	0.45			$	0.38			$	0.42			$	1.71

 __________

(1) Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year.

27.	Subsequent Events

On January 9, 2017 , we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Pacific Continental Corporation, an Oregon corporation whose wholly-owned banking subsidiary is Pacific Continental Bank. Per the terms of the Merger Agreement, Pacific Continental shareholders will have the right to receive, in respect of each share of common stock of Pacific Continental, a number of common shares of Columbia equal to the exchange ratio of 0.6430 , subject to any adjustments set forth in the Merger Agreement. The merger transaction is valued at approximately $644.1 million . Consummation of the merger is subject to customary closing conditions, including, among others, shareholder and regulatory approval. The Merger Agreement contains certain termination rights and provides that, upon the termination of the Merger Agreement under specified circumstances, Pacific Continental will be required to pay us a termination fee of $18.75 million .

On January 12, 2017, all outstanding shares of Series B Preferred Stock were converted to Company common stock.

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ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    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.

Internal Control Over Financial Reporting

Management’s Annual Report On Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control system has been designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of the Company’s published financial statements. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the Company’s transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the Company’s financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on the Company’s financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected.

Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2016 based on the control criteria established in a report entitled Internal Control-Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on such evaluation, management has concluded that the Company’s internal control over financial reporting is effective as of December 31, 2016 . There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting.

Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting, which appears in this annual report on Form 10-K.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Columbia Banking System, Inc.

Tacoma, Washington

We have audited the internal control over financial reporting of Columbia Banking System, Inc. and its subsidiaries (the “Company”) as of December 31, 2016 , based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because management’s assessment and our audit were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management’s assessment and our audit of the Company’s internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Federal Financial Institutions Examination Council Instructions for Consolidated Reports of Condition and Income for Schedules RC, RI, and RI-A. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have not examined and, accordingly, we do not express an opinion or any other form of assurance on management’s statement referring to compliance with laws and regulations.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Financial Statements as of and for the year ended December 31, 2016 of the Company and our report dated February 28, 2017 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Seattle, Washington

February 28, 2017

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ITEM 9B.    OTHER INFORMATION

None.

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