EX-99.1 2 a991colb4q2017earningsrele.htm PRESS RELEASE - EARNINGS AND DIVIDEND
Exhibit 99.1
FOR IMMEDIATE RELEASE
January 25, 2018
Columbia Banking System Announces Fourth Quarter and Full Year 2017 Results
and Quarterly Cash Dividend
Highlights

• | Fourth quarter net income of $15.7 million; diluted earnings per share of $0.23, which included $0.31 per share negative impact from deferred tax asset re-measurement and acquisition-related expenses

• | Record full year 2017 net income of $112.8 million; diluted earnings per share of $1.86

• | QTD net interest margin of 4.20%, unchanged from linked quarter and up 9 basis points from prior year period

• | Loan production for the quarter of $377.7 million and full year production of $1.20 billion

• | Completed merger with Pacific Continental Corporation

TACOMA, Washington, January 25, 2018 -- Hadley Robbins, President and Chief Executive Officer of Columbia Banking System and Columbia Bank (NASDAQ: COLB) (“Columbia”), said today upon the release of Columbia’s fourth quarter 2017 earnings, “2017 was a year of tremendous change for our organization. I’m proud of our bankers for the resiliency they showed while maintaining a client centric focus during our executive succession activities. With the completion of our merger with Pacific Continental Corporation, we are excited to welcome a new group of talented bankers and an exceptional customer base to Columbia.” Mr. Robbins continued, “While competitive pressures dampened loan growth, we had another solid year of production as our bankers grew relationships on both sides of the balance sheet. Our full year record earnings were helped, in part, by rising interest rates as evidenced by the 26 basis point expansion in our operating net interest margin during the year.”
1

Significant Influences on the Quarter Ended December 31, 2017
Pacific Continental Acquisition
On November 1, 2017, we completed our acquisition of Pacific Continental Corporation. The table below summarizes the amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed:

|  | November 1, 2017
|  | (in thousands)
Merger consideration |  |  | $ | 637,103 |
Identifiable net assets acquired, at fair value |  |  |
Assets acquired |  |  |
Cash and cash equivalents |  | $ | 81,190 |  |
Investment securities |  | 449,291 |  |
Federal Home Loan Bank stock |  | 7,084 |  |
Loans |  | 1,873,987 |  |
Interest receivable |  | 7,827 |  |
Premises and equipment |  | 27,343 |  |
Other real estate owned |  | 10,279 |  |
Core deposit intangible |  | 46,875 |  |
Other assets |  | 50,638 |  |
Total assets acquired |  |  | 2,554,514 |
Liabilities assumed |  |  |
Deposits |  | (2,118,982 | ) |
Federal Home Loan Bank advances |  | (101,127 | ) |
Subordinated debentures |  | (35,678 | ) |
Junior subordinated debentures |  | (14,434 | ) |
Securities sold under agreements to repurchase |  | (1,617 | ) |
Other liabilities |  | (28,653 | ) |
Total liabilities assumed |  |  | (2,300,491 | )
Total identifiable net assets acquired, at fair value |  |  | 254,023 |
Goodwill |  |  | $ | 383,080 |

In addition to the balance sheet impacts shown above, our reported net income for the current quarter was negatively impacted by $13.6 million in acquisition-related expenses stemming from the Pacific Continental transaction. Those charges impacted diluted earnings per share by approximately $0.13.
2

Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. Beginning in 2018, the Tax Cuts and Jobs Act reduces the federal tax rate for corporations from 35% to 21% and changes or limits certain deductions. As a result of the lower corporate tax rate, during the current quarter, we recorded a re-measurement charge of $12.2 million to reduce our deferred tax assets. This adjustment increased provision for income taxes and negatively impacted diluted earnings per share by approximately $0.18.
Our effective tax rate for the current quarter was 61.5%, compared to 31.0% and 28.6% for the linked and prior year periods, respectively. The increase in the effective tax rate during the quarter resulted from the re-measurement of deferred tax assets.
The effective tax rate for 2017 was 36.6%, compared to 30.0% in 2016. The increase in 2017 was, again, related to the re-measurement of deferred tax assets. For 2018, we expect our effective tax rate to be approximately 19%.
Balance Sheet
Total assets at December 31, 2017 were $12.72 billion, an increase of $2.90 billion from September 30, 2017. Loans were $8.36 billion, up $1.85 billion from September 30, 2017 due to the acquisition of Pacific Continental as well as strong loan originations of $377.7 million. Securities available for sale were $2.74 billion at December 31, 2017, an increase of $535.0 million, or 24% from $2.21 billion at September 30, 2017, again, primarily due to the Pacific Continental acquisition. Total deposits at December 31, 2017 were $10.53 billion, an increase of $2.19 billion from September 30, 2017 primarily due to the acquisition of Pacific Continental. Core deposits comprised 95% of total deposits and were $10.04 billion at December 31, 2017, an increase of $2.04 billion from September 30, 2017. The average cost of total deposits for the quarter was 0.08%, an increase of 3 basis points from the third quarter of 2017.
3

Income Statement
Net Interest Income
Net interest income for the fourth quarter of 2017 was $106.2 million, an increase of $17.3 million from the linked period and an increase of $20.5 million from the prior year period. The increase from both the linked and prior year periods was primarily due to income from earning assets acquired in the Pacific Continental transaction. The increase from the prior year period was partially offset by $1.5 million lower incremental accretion income from purchased loans. For additional information regarding net interest income, see the “Net Interest Margin” section and the “Average Balances and Rates” table.
Noninterest Income
Noninterest income was $23.6 million for the fourth quarter of 2017, a decrease of $13.5 million from the third quarter of 2017. The linked quarter decrease was principally due to the $14.0 million gain on the sale of the merchant card services portfolio recorded in the third quarter. Compared to the fourth quarter of 2016, noninterest income increased by $1.3 million principally due to a current quarter BOLI benefit of $1.2 million recognized in other noninterest income.
Noninterest Expense
Total noninterest expense for the fourth quarter of 2017 was $85.6 million, an increase of $18.1 million from the third quarter of 2017. The increase was primarily due to $13.6 million of acquisition-related expenses recorded in the current quarter compared to $1.2 million of such expenses in the linked quarter. The remaining increase was from additional, ongoing expenses resulting from the Pacific Continental acquisition. Compared to the fourth quarter of 2016, noninterest expense increased $20.6 million. This increase was also driven by higher acquisition-related expenses in the current quarter as well as additional, ongoing expenses resulting from the recent acquisition.
Net Interest Margin
Columbia’s net interest margin (tax equivalent) for the fourth quarter of 2017 was 4.20%, unchanged from the linked quarter and an increase of 9 basis points from the prior year period. The increase from the prior year quarter was due to higher yield on loans as well as higher loan volumes, partially offset by lower incremental accretion. Columbia’s operating net interest margin(tax equivalent)(1) was 4.25% for the fourth quarter of 2017, an increase of 10 basis points from the linked quarter and an increase of 26 basis points from the prior year period due to higher loan yields and volumes.
4

The following table shows the impact to interest income resulting from income accretion on acquired loan portfolios as well as the net interest margin and operating net interest margin:

|  | Three Months Ended |  | Twelve Months Ended
|  | December 31, |  | September 30, |  | June 30, |  | March 31, |  | December 31, |  | December 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2017 |  | 2017 |  | 2016 |  | 2017 |  | 2016
|  | (dollars in thousands)
Incremental accretion income due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |
FDIC purchased credit impaired loans |  | $ | 265 |  |  | $ | 972 |  |  | $ | 753 |  |  | $ | 2,117 |  |  | $ | 1,199 |  |  | $ | 4,107 |  |  | $ | 5,972 |
Other acquired loans |  | 2,482 |  |  | 1,903 |  |  | 2,356 |  |  | 1,948 |  |  | 3,087 |  |  | 8,689 |  |  | 11,983 |
Incremental accretion income |  | $ | 2,747 |  |  | $ | 2,875 |  |  | $ | 3,109 |  |  | $ | 4,065 |  |  | $ | 4,286 |  |  | $ | 12,796 |  |  | $ | 17,955 |
Net interest margin (tax equivalent) |  | 4.20 | % |  | 4.20 | % |  | 4.12 | % |  | 4.20 | % |  | 4.11 | % |  | 4.18 | % |  | 4.12 | %
Operating net interest margin (tax equivalent) (1) |  | 4.25 | % |  | 4.15 | % |  | 4.09 | % |  | 4.09 | % |  | 3.99 | % |  | 4.15 | % |  | 4.01 | %

__________
(1) Operating net interest margin (tax equivalent) is a non-GAAP financial measure. See the section titled “Non-GAAP Financial Measures” in this earnings release for the reconciliation of operating net interest margin (tax equivalent) to net interest margin.
Asset Quality
At December 31, 2017, nonperforming assets to total assets were 0.63% compared to 0.45% at September 30, 2017 and 0.35% at December 31, 2016. Total nonperforming assets increased $35.5 million from the linked quarter due to a $19.1 million increase attributable to the Pacific Continental acquisition with the remaining $16.4 million increase from non-acquired nonperforming assets.
The following table sets forth information regarding nonaccrual loans and total nonperforming assets:

|  | December 31, 2017 |  | September 30, 2017 |  | December 31, 2016
|  | (in thousands)
Nonaccrual loans: |  |  |  |  |  |
Commercial business |  | $ | 45,460 |  |  | $ | 25,213 |  |  | $ | 11,555 |
Real estate: |  |  |  |  |  |
One-to-four family residential |  | 785 |  |  | 816 |  |  | 568 |
Commercial and multifamily residential |  | 13,941 |  |  | 9,143 |  |  | 11,187 |
Total real estate |  | 14,726 |  |  | 9,959 |  |  | 11,755 |
Real estate construction: |  |  |  |  |  |
One-to-four family residential |  | 1,854 |  |  | 239 |  |  | 563 |
Total real estate construction |  | 1,854 |  |  | 239 |  |  | 563 |
Consumer |  | 4,149 |  |  | 4,906 |  |  | 3,883 |
Total nonaccrual loans |  | 66,189 |  |  | 40,317 |  |  | 27,756 |
Other real estate owned and other personal property owned |  | 13,298 |  |  | 3,682 |  |  | 5,998 |
Total nonperforming assets |  | $ | 79,487 |  |  | $ | 43,999 |  |  | $ | 33,754 |

5

The following table provides an analysis of the Company's allowance for loan and lease losses:

|  | Three Months Ended |  | Twelve Months Ended
|  | December 31, 2017 |  | September 30, 2017 |  | December 31, 2016 |  | December 31, 2017 |  | December 31, 2016
|  | (in thousands)
Beginning balance |  | $ | 71,616 |  |  | $ | 72,984 |  |  | $ | 70,264 |  |  | $ | 70,043 |  |  | $ | 68,172 |
Charge-offs: |  |  |  |  |  |  |  |  |  |
Commercial business |  | (1,524 | ) |  | (1,362 | ) |  | (1,195 | ) |  | (7,613 | ) |  | (10,068 | )
One-to-four family residential real estate |  | — |  |  | — |  |  | — |  |  | (460 | ) |  | (35 | )
Commercial and multifamily residential real estate |  | (287 | ) |  | — |  |  | (63 | ) |  | (287 | ) |  | (89 | )
One-to-four family residential real estate construction |  | — |  |  | — |  |  | (88 | ) |  | (14 | ) |  | (88 | )
Consumer |  | (318 | ) |  | (263 | ) |  | (255 | ) |  | (1,474 | ) |  | (1,238 | )
Purchased credit impaired |  | (1,440 | ) |  | (1,633 | ) |  | (2,118 | ) |  | (6,812 | ) |  | (9,944 | )
Total charge-offs |  | (3,569 | ) |  | (3,258 | ) |  | (3,719 | ) |  | (16,660 | ) |  | (21,462 | )
Recoveries: |  |  |  |  |  |  |  |  |  |
Commercial business |  | 839 |  |  | 688 |  |  | 377 |  |  | 4,836 |  |  | 2,646 |
One-to-four family residential real estate |  | 188 |  |  | 40 |  |  | 29 |  |  | 568 |  |  | 171 |
Commercial and multifamily residential real estate |  | 412 |  |  | 58 |  |  | 1,182 |  |  | 675 |  |  | 1,401 |
One-to-four family residential real estate construction |  | 71 |  |  | 20 |  |  | 11 |  |  | 178 |  |  | 291 |
Commercial and multifamily residential real estate construction |  | 1 |  |  | — |  |  | — |  |  | 1 |  |  | 109 |
Consumer |  | 311 |  |  | 343 |  |  | 168 |  |  | 1,187 |  |  | 933 |
Purchased credit impaired |  | 2,450 |  |  | 1,389 |  |  | 1,713 |  |  | 6,187 |  |  | 7,004 |
Total recoveries |  | 4,272 |  |  | 2,538 |  |  | 3,480 |  |  | 13,632 |  |  | 12,555 |
Net recoveries (charge-offs) |  | 703 |  |  | (720 | ) |  | (239 | ) |  | (3,028 | ) |  | (8,907 | )
Provision (recapture) for loan and lease losses |  | 3,327 |  |  | (648 | ) |  | 18 |  |  | 8,631 |  |  | 10,778 |
Ending balance |  | $ | 75,646 |  |  | $ | 71,616 |  |  | $ | 70,043 |  |  | $ | 75,646 |  |  | $ | 70,043 |

The allowance for loan losses to period end loans was 0.91% at December 31, 2017 compared to 1.10% at September 30, 2017. For the fourth quarter of 2017, Columbia recorded a net provision for loan and lease losses of $3.3 million compared to a net provision recovery of $648 thousand for the linked quarter and a net provision of $18 thousand for the comparable quarter last year. The net provision for loan and lease losses recorded during the current quarter consisted of $4.8 million of provision for loan losses for loans, excluding PCI loans (inclusive of a $1.9 million provision related to Pacific Continental), and a provision recovery of $1.5 million for PCI loans.
Andy McDonald, Columbia’s Executive Vice President and Chief Credit Officer, commented, “Our nonperforming assets ratio ticked-up to sixty three basis points at year-end 2017. The increase was situational rather than a shift in the portfolio and was primarily driven by one specific credit downgrade along with the addition of Pacific Continental’s activity, which accounted for 15 basis points of the total.”
6

Organizational Update
Mr. Robbins commented, “We are honored to again be recognized by Forbes in its annual list of America’s Best Banks. For 2018, we were ranked 11 th, our highest to date and up from 30 th in 2017. We also continue to give back to the communities we serve and call home. Our recently completed Warm Hearts Winter Drive raised over $220,000 and 6,500 winter clothing items for 58 homeless shelters across the Northwest.” Mr. Robbins continued, “The success of our Warm Hearts campaign would not have been possible without the tireless efforts of our employees and the generous donations and support we received from clients and community members.”
David Lawson, Columbia’s Executive Vice President and Chief Human Resources Officer, stated, “We recently announced that Lisa Dow has been appointed Executive Vice President and Chief Risk Officer. We are excited for Lisa to join our executive committee and look forward to leveraging her 35 years of banking experience well into the future.” Mr. Lawson continued, “The recent passage of tax reform legislation will allow us to improve the financial position for many of our nonexempt employees as well as enhance our community commitments. We are increasing our minimum wage to $15 per hour, investing additional funds to expand our training programs, and making a contribution to our foundation for employee directed giving.”
Cash Dividend Announcement
Columbia will pay a regular cash dividend of $0.22 per common share on February 21, 2018 to shareholders of record as of the close of business on February 7, 2018.
Conference Call Information
Columbia’s management will discuss the fourth quarter and full-year 2017 financial results on a conference call scheduled for Thursday, January 25, 2018 at 1:00 p.m. Pacific Time (4:00 p.m. ET). Interested parties may join the live-streamed event by using the site:
https://engage.vevent.com/rt/columbiabankingsystemincao~9288084
The conference call can also be accessed on Thursday, January 25, 2018 at 1:00 p.m. Pacific Time (4:00 p.m. ET) by calling 888-286-8956; Conference ID code #9288084.
A replay of the call can be accessed beginning Friday, January 26, 2018 using the site:
https://engage.vevent.com/rt/columbiabankingsystemincao~9288084
7

About Columbia
Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank with locations throughout Washington, Oregon and Idaho. For the eleventh consecutive year, the bank was named in 2017 as one of Puget Sound Business Journal's "Washington's Best Workplaces." Columbia ranked eleventh on the 2018 Forbes annual list of America’s Best Banks.
More information about Columbia can be found on its website at www.columbiabank.com.
Note Regarding Forward-Looking Statements
This news release includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include, but are not limited to, descriptions of Columbia’s management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “intend,” “should,” and “anticipate” or the negative of these words or words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risks and uncertainties, many of which are outside our control, that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in Columbia’s filings with the Securities and Exchange Commission, available at the SEC’s website at www.sec.gov and the Company’s website at www.columbiabank.com, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q, (as applicable), factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (1) local, national and international economic conditions may be less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates could significantly reduce net interest income and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (4) costs or difficulties related to the integration of acquisitions, including the acquisition of Pacific Continental, may be greater than expected; (5) competitive pressure among financial institutions may increase significantly; and (6) legislation or regulatory requirements or changes may adversely affect the businesses in which Columbia is engaged. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. The factors noted above and the risks and uncertainties described in our SEC filings should be considered when reading any forward-looking statements in this release.
8

Contacts: | Hadley S. Robbins,
| President and
| Chief Executive Officer
| Clint E. Stein,
| Executive Vice President and
| Chief Financial Officer
| Investor Relations
| InvestorRelations@columbiabank.com
| 253-305-1921

9

FINANCIAL STATISTICS |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  | Three Months Ended |  | Twelve Months Ended
Unaudited |  | December 31, |  | September 30, |  | December 31, |  | December 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2016 |  | 2017 |  | 2016
Earnings |  | (dollars in thousands except per share amounts)
Net interest income |  | $ | 106,224 |  |  | $ | 88,929 |  |  | $ | 85,737 |  |  | $ | 367,989 |  |  | $ | 333,619 |
Provision (recapture) for loan and lease losses |  | $ | 3,327 |  |  | $ | (648 | ) |  | $ | 18 |  |  | $ | 8,631 |  |  | $ | 10,778 |
Noninterest income |  | $ | 23,581 |  |  | $ | 37,067 |  |  | $ | 22,330 |  |  | $ | 109,642 |  |  | $ | 88,082 |
Noninterest expense |  | $ | 85,627 |  |  | $ | 67,537 |  |  | $ | 65,014 |  |  | $ | 291,017 |  |  | $ | 261,142 |
Acquisition-related expense (included in noninterest expense) |  | $ | 13,638 |  |  | $ | 1,171 |  |  | $ | 291 |  |  | $ | 17,196 |  |  | $ | 2,727 |
Net income |  | $ | 15,728 |  |  | $ | 40,769 |  |  | $ | 30,718 |  |  | $ | 112,828 |  |  | $ | 104,866 |
Per Common Share |  |  |  |  |  |  |  |  |  |
Earnings (basic) |  | $ | 0.23 |  |  | $ | 0.70 |  |  | $ | 0.53 |  |  | $ | 1.86 |  |  | $ | 1.81 |
Earnings (diluted) |  | $ | 0.23 |  |  | $ | 0.70 |  |  | $ | 0.53 |  |  | $ | 1.86 |  |  | $ | 1.81 |
Book value |  | $ | 26.70 |  |  | $ | 22.76 |  |  | $ | 21.52 |  |  | $ | 26.70 |  |  | $ | 21.52 |
Averages |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 11,751,049 |  |  | $ | 9,695,005 |  |  | $ | 9,568,214 |  |  | $ | 10,134,306 |  |  | $ | 9,311,621 |
Interest-earning assets |  | $ | 10,453,097 |  |  | $ | 8,750,561 |  |  | $ | 8,612,498 |  |  | $ | 9,098,276 |  |  | $ | 8,363,309 |
Loans |  | $ | 7,749,420 |  |  | $ | 6,441,537 |  |  | $ | 6,200,506 |  |  | $ | 6,682,259 |  |  | $ | 6,052,389 |
Securities, including Federal Home Loan Bank stock |  | $ | 2,539,321 |  |  | $ | 2,236,235 |  |  | $ | 2,314,521 |  |  | $ | 2,350,844 |  |  | $ | 2,269,121 |
Deposits |  | $ | 9,804,456 |  |  | $ | 8,187,337 |  |  | $ | 8,105,522 |  |  | $ | 8,482,350 |  |  | $ | 7,774,309 |
Interest-bearing deposits |  | $ | 5,033,980 |  |  | $ | 4,200,580 |  |  | $ | 4,151,695 |  |  | $ | 4,371,121 |  |  | $ | 4,070,401 |
Interest-bearing liabilities |  | $ | 5,127,100 |  |  | $ | 4,285,936 |  |  | $ | 4,222,820 |  |  | $ | 4,512,727 |  |  | $ | 4,227,096 |
Noninterest-bearing deposits |  | $ | 4,770,476 |  |  | $ | 3,986,757 |  |  | $ | 3,953,827 |  |  | $ | 4,111,229 |  |  | $ | 3,703,908 |
Shareholders' equity |  | $ | 1,754,745 |  |  | $ | 1,323,794 |  |  | $ | 1,274,388 |  |  | $ | 1,410,056 |  |  | $ | 1,269,801 |
Financial Ratios |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 0.54 | % |  | 1.68 | % |  | 1.28 | % |  | 1.11 | % |  | 1.13 | %
Return on average common equity |  | 3.59 | % |  | 12.32 | % |  | 9.65 | % |  | 8.00 | % |  | 8.26 | %
Average equity to average assets |  | 14.93 | % |  | 13.65 | % |  | 13.32 | % |  | 13.91 | % |  | 13.64 | %
Net interest margin (tax equivalent) |  | 4.20 | % |  | 4.20 | % |  | 4.11 | % |  | 4.18 | % |  | 4.12 | %
Efficiency ratio (tax equivalent) (1) |  | 63.93 | % |  | 52.09 | % |  | 58.35 | % |  | 59.07 | % |  | 60.04 | %
Operating efficiency ratio (tax equivalent) (2) |  | 52.24 | % |  | 56.47 | % |  | 58.10 | % |  | 56.06 | % |  | 59.21 | %
Noninterest expense ratio |  | 2.91 | % |  | 2.79 | % |  | 2.72 | % |  | 2.87 | % |  | 2.80 | %
Core noninterest expense ratio (2) |  | 2.45 | % |  | 2.73 | % |  | 2.68 | % |  | 2.67 | % |  | 2.77 | %
|  | December 31, |  | September 30, |  | December 31, |  |  |  |
Period end |  | 2017 |  | 2017 |  | 2016 |  |  |  |
Total assets |  | $ | 12,716,886 |  |  | $ | 9,814,578 |  |  | $ | 9,509,607 |  |  |  |  |
Loans, net of unearned income |  | $ | 8,358,657 |  |  | $ | 6,512,006 |  |  | $ | 6,213,423 |  |  |  |  |
Allowance for loan and lease losses |  | $ | 75,646 |  |  | $ | 71,616 |  |  | $ | 70,043 |  |  |  |  |
Securities, including Federal Home Loan Bank stock |  | $ | 2,753,271 |  |  | $ | 2,218,113 |  |  | $ | 2,288,817 |  |  |  |  |
Deposits |  | $ | 10,532,085 |  |  | $ | 8,341,717 |  |  | $ | 8,059,415 |  |  |  |  |
Core deposits |  | $ | 10,039,557 |  |  | $ | 7,999,499 |  |  | $ | 7,749,568 |  |  |  |  |
Shareholders' equity |  | $ | 1,949,922 |  |  | $ | 1,328,428 |  |  | $ | 1,251,012 |  |  |  |  |
Nonperforming assets |  |  |  |  |  |  |  |  |  |
Nonaccrual loans |  | $ | 66,189 |  |  | $ | 40,317 |  |  | $ | 27,756 |  |  |  |  |
Other real estate owned ("OREO") and other personal property owned ("OPPO") |  | 13,298 |  |  | 3,682 |  |  | 5,998 |  |  |  |  |
Total nonperforming assets |  | $ | 79,487 |  |  | $ | 43,999 |  |  | $ | 33,754 |  |  |  |  |
Nonperforming loans to period-end loans |  | 0.79 | % |  | 0.62 | % |  | 0.45 | % |  |  |  |
Nonperforming assets to period-end assets |  | 0.63 | % |  | 0.45 | % |  | 0.35 | % |  |  |  |
Allowance for loan and lease losses to period-end loans |  | 0.91 | % |  | 1.10 | % |  | 1.13 | % |  |  |  |
Net loan charge-offs (recoveries) |  | $ | (703 | ) | (3) | $ | 720 |  | (4) | $ | 239 |  | (5) |  |  |
(1) Noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income on a tax equivalent basis.
(2) The operating efficiency ratio (tax equivalent) and core noninterest expense ratio are non-GAAP financial measures. See section titled "Non-GAAP Financial Measures" on the last two pages of this earnings release for the reconciliations of the operating efficiency ratio (tax equivalent) to the efficiency ratio (tax equivalent) and the reconciliation of the noninterest expense ratio to the core noninterest expense ratio.
(3) For the three months ended December 31, 2017. |  |  |  |  |  |  |  |
(4) For the three months ended September 30, 2017. |  |  |  |  |  |  |  |
(5) For the three months ended December 31, 2016. |  |  |  |  |  |  |  |

10

QUARTERLY FINANCIAL STATISTICS |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  | Three Months Ended
Unaudited |  | December 31, |  | September 30, |  | June 30, |  | March 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2017 |  | 2017 |  | 2016
|  | (dollars in thousands except per share)
Earnings |  |
Net interest income |  | $ | 106,224 |  |  | $ | 88,929 |  |  | $ | 86,161 |  |  | $ | 86,675 |  |  | $ | 85,737 |
Provision (recapture) for loan and lease losses |  | $ | 3,327 |  |  | $ | (648 | ) |  | $ | 3,177 |  |  | $ | 2,775 |  |  | $ | 18 |
Noninterest income |  | $ | 23,581 |  |  | $ | 37,067 |  |  | $ | 24,135 |  |  | $ | 24,859 |  |  | $ | 22,330 |
Noninterest expense |  | $ | 85,627 |  |  | $ | 67,537 |  |  | $ | 68,867 |  |  | $ | 68,986 |  |  | $ | 65,014 |
Acquisition-related expense (included in noninterest expense) |  | $ | 13,638 |  |  | $ | 1,171 |  |  | $ | 1,023 |  |  | $ | 1,364 |  |  | $ | 291 |
Net income |  | $ | 15,728 |  |  | $ | 40,769 |  |  | $ | 27,132 |  |  | $ | 29,199 |  |  | $ | 30,718 |
Per Common Share |  |  |  |  |  |  |  |  |  |
Earnings (basic) |  | $ | 0.23 |  |  | $ | 0.70 |  |  | $ | 0.47 |  |  | $ | 0.50 |  |  | $ | 0.53 |
Earnings (diluted) |  | $ | 0.23 |  |  | $ | 0.70 |  |  | $ | 0.47 |  |  | $ | 0.50 |  |  | $ | 0.53 |
Book value |  | $ | 26.70 |  |  | $ | 22.76 |  |  | $ | 22.23 |  |  | $ | 21.86 |  |  | $ | 21.52 |
Averages |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 11,751,049 |  |  | $ | 9,695,005 |  |  | $ | 9,597,274 |  |  | $ | 9,473,698 |  |  | $ | 9,568,214 |
Interest-earning assets |  | $ | 10,453,097 |  |  | $ | 8,750,561 |  |  | $ | 8,651,735 |  |  | $ | 8,520,291 |  |  | $ | 8,612,498 |
Loans |  | $ | 7,749,420 |  |  | $ | 6,441,537 |  |  | $ | 6,325,462 |  |  | $ | 6,198,215 |  |  | $ | 6,200,506 |
Securities, including Federal Home Loan Bank stock |  | $ | 2,539,321 |  |  | $ | 2,236,235 |  |  | $ | 2,316,077 |  |  | $ | 2,310,490 |  |  | $ | 2,314,521 |
Deposits |  | $ | 9,804,456 |  |  | $ | 8,187,337 |  |  | $ | 7,965,868 |  |  | $ | 7,954,653 |  |  | $ | 8,105,522 |
Interest-bearing deposits |  | $ | 5,033,980 |  |  | $ | 4,200,580 |  |  | $ | 4,123,135 |  |  | $ | 4,118,604 |  |  | $ | 4,151,695 |
Interest-bearing liabilities |  | $ | 5,127,100 |  |  | $ | 4,285,936 |  |  | $ | 4,367,216 |  |  | $ | 4,263,660 |  |  | $ | 4,222,820 |
Noninterest-bearing deposits |  | $ | 4,770,476 |  |  | $ | 3,986,757 |  |  | $ | 3,842,733 |  |  | $ | 3,836,049 |  |  | $ | 3,953,827 |
Shareholders' equity |  | $ | 1,754,745 |  |  | $ | 1,323,794 |  |  | $ | 1,295,564 |  |  | $ | 1,261,652 |  |  | $ | 1,274,388 |
Financial Ratios |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 0.54 | % |  | 1.68 | % |  | 1.13 | % |  | 1.23 | % |  | 1.28 | %
Return on average common equity |  | 3.59 | % |  | 12.32 | % |  | 8.38 | % |  | 9.26 | % |  | 9.65 | %
Average equity to average assets |  | 14.93 | % |  | 13.65 | % |  | 13.50 | % |  | 13.32 | % |  | 13.32 | %
Net interest margin (tax equivalent) |  | 4.20 | % |  | 4.20 | % |  | 4.12 | % |  | 4.20 | % |  | 4.11 | %
Period end |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 12,716,886 |  |  | $ | 9,814,578 |  |  | $ | 9,685,110 |  |  | $ | 9,527,272 |  |  | $ | 9,509,607 |
Loans, net of unearned income |  | $ | 8,358,657 |  |  | $ | 6,512,006 |  |  | $ | 6,423,074 |  |  | $ | 6,228,136 |  |  | $ | 6,213,423 |
Allowance for loan and lease losses |  | $ | 75,646 |  |  | $ | 71,616 |  |  | $ | 72,984 |  |  | $ | 71,021 |  |  | $ | 70,043 |
Securities, including Federal Home Loan Bank stock |  | $ | 2,753,271 |  |  | $ | 2,218,113 |  |  | $ | 2,280,996 |  |  | $ | 2,341,959 |  |  | $ | 2,288,817 |
Deposits |  | $ | 10,532,085 |  |  | $ | 8,341,717 |  |  | $ | 8,072,464 |  |  | $ | 8,088,827 |  |  | $ | 8,059,415 |
Core deposits |  | $ | 10,039,557 |  |  | $ | 7,999,499 |  |  | $ | 7,721,766 |  |  | $ | 7,794,590 |  |  | $ | 7,749,568 |
Shareholders' equity |  | $ | 1,949,922 |  |  | $ | 1,328,428 |  |  | $ | 1,297,314 |  |  | $ | 1,275,343 |  |  | $ | 1,251,012 |
Nonperforming assets |  |  |  |  |  |  |  |  |  |
Nonaccrual loans |  | $ | 66,189 |  |  | $ | 40,317 |  |  | $ | 36,824 |  |  | $ | 25,547 |  |  | $ | 27,756 |
OREO and OPPO |  | 13,298 |  |  | 3,682 |  |  | 4,058 |  |  | 4,519 |  |  | 5,998 |
Total nonperforming assets |  | $ | 79,487 |  |  | $ | 43,999 |  |  | $ | 40,882 |  |  | $ | 30,066 |  |  | $ | 33,754 |
Nonperforming loans to period-end loans |  | 0.79 | % |  | 0.62 | % |  | 0.57 | % |  | 0.41 | % |  | 0.45 | %
Nonperforming assets to period-end assets |  | 0.63 | % |  | 0.45 | % |  | 0.42 | % |  | 0.32 | % |  | 0.35 | %
Allowance for loan and lease losses to period-end loans |  | 0.91 | % |  | 1.10 | % |  | 1.14 | % |  | 1.14 | % |  | 1.13 | %
Net loan charge-offs (recoveries) |  | $ | (703 | ) |  | $ | 720 |  |  | $ | 1,214 |  |  | $ | 1,797 |  |  | $ | 239 |

11

LOAN PORTFOLIO COMPOSITION |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  | December 31, |  | September 30, |  | June 30, |  | March 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2017 |  | 2017 |  | 2016
Loan Portfolio Composition - Dollars |  | (dollars in thousands)
Commercial business |  | $ | 3,377,324 |  |  | $ | 2,735,206 |  |  | $ | 2,704,468 |  |  | $ | 2,559,247 |  |  | $ | 2,551,054 |
Real estate: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 188,396 |  |  | 176,487 |  |  | 173,150 |  |  | 172,581 |  |  | 170,331 |
Commercial and multifamily residential |  | 3,825,739 |  |  | 2,825,794 |  |  | 2,787,560 |  |  | 2,783,433 |  |  | 2,719,830 |
Total real estate |  | 4,014,135 |  |  | 3,002,281 |  |  | 2,960,710 |  |  | 2,956,014 |  |  | 2,890,161 |
Real estate construction: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 200,518 |  |  | 145,419 |  |  | 139,956 |  |  | 115,219 |  |  | 121,887 |
Commercial and multifamily residential |  | 371,931 |  |  | 213,939 |  |  | 195,565 |  |  | 172,896 |  |  | 209,118 |
Total real estate construction |  | 572,449 |  |  | 359,358 |  |  | 335,521 |  |  | 288,115 |  |  | 331,005 |
Consumer |  | 334,190 |  |  | 323,913 |  |  | 323,187 |  |  | 318,069 |  |  | 329,261 |
Purchased credit impaired |  | 112,670 |  |  | 120,477 |  |  | 129,853 |  |  | 138,903 |  |  | 145,660 |
Subtotal loans |  | 8,410,768 |  |  | 6,541,235 |  |  | 6,453,739 |  |  | 6,260,348 |  |  | 6,247,141 |
Less: Net unearned income |  | (52,111 | ) |  | (29,229 | ) |  | (30,665 | ) |  | (32,212 | ) |  | (33,718 | )
Loans, net of unearned income |  | 8,358,657 |  |  | 6,512,006 |  |  | 6,423,074 |  |  | 6,228,136 |  |  | 6,213,423 |
Less: Allowance for loan and lease losses |  | (75,646 | ) |  | (71,616 | ) |  | (72,984 | ) |  | (71,021 | ) |  | (70,043 | )
Total loans, net |  | 8,283,011 |  |  | 6,440,390 |  |  | 6,350,090 |  |  | 6,157,115 |  |  | 6,143,380 |
Loans held for sale |  | $ | 5,766 |  |  | $ | 7,802 |  |  | $ | 6,918 |  |  | $ | 3,245 |  |  | $ | 5,846 |

|  | December 31, |  | September 30, |  | June 30, |  | March 31, |  | December 31,
Loan Portfolio Composition - Percentages |  | 2017 |  | 2017 |  | 2017 |  | 2017 |  | 2016
Commercial business |  | 40.4 | % |  | 42.0 | % |  | 42.1 | % |  | 41.1 | % |  | 41.1 | %
Real estate: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 2.3 | % |  | 2.7 | % |  | 2.7 | % |  | 2.8 | % |  | 2.7 | %
Commercial and multifamily residential |  | 45.8 | % |  | 43.3 | % |  | 43.5 | % |  | 44.7 | % |  | 43.7 | %
Total real estate |  | 48.1 | % |  | 46.0 | % |  | 46.2 | % |  | 47.5 | % |  | 46.4 | %
Real estate construction: |  |  |  |  |  |  |  |  |  |
One-to-four family residential |  | 2.4 | % |  | 2.2 | % |  | 2.2 | % |  | 1.8 | % |  | 2.0 | %
Commercial and multifamily residential |  | 4.4 | % |  | 3.3 | % |  | 3.0 | % |  | 2.8 | % |  | 3.4 | %
Total real estate construction |  | 6.8 | % |  | 5.5 | % |  | 5.2 | % |  | 4.6 | % |  | 5.4 | %
Consumer |  | 4.0 | % |  | 5.0 | % |  | 5.0 | % |  | 5.1 | % |  | 5.3 | %
Purchased credit impaired |  | 1.3 | % |  | 1.9 | % |  | 2.0 | % |  | 2.2 | % |  | 2.3 | %
Subtotal loans |  | 100.6 | % |  | 100.4 | % |  | 100.5 | % |  | 100.5 | % |  | 100.5 | %
Less: Net unearned income |  | (0.6 | )% |  | (0.4 | )% |  | (0.5 | )% |  | (0.5 | )% |  | (0.5 | )%
Loans, net of unearned income |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

12

DEPOSIT COMPOSITION |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |
|  | December 31, |  | September 30, |  | June 30, |  | March 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2017 |  | 2017 |  | 2016
Deposit Composition - Dollars |  | (dollars in thousands)
Core deposits: |  |  |  |  |  |  |  |  |  |
Demand and other non-interest bearing |  | $ | 5,081,901 |  |  | $ | 4,119,950 |  |  | $ | 3,905,652 |  |  | $ | 3,958,106 |  |  | $ | 3,944,495 |
Interest bearing demand |  | 1,265,212 |  |  | 1,009,378 |  |  | 988,532 |  |  | 985,954 |  |  | 985,293 |
Money market |  | 2,543,712 |  |  | 1,821,262 |  |  | 1,787,101 |  |  | 1,798,034 |  |  | 1,791,283 |
Savings |  | 861,941 |  |  | 772,858 |  |  | 756,825 |  |  | 759,002 |  |  | 723,667 |
Certificates of deposit, less than $250,000 |  | 286,791 |  |  | 276,051 |  |  | 283,656 |  |  | 293,494 |  |  | 304,830 |
Total core deposits |  | 10,039,557 |  |  | 7,999,499 |  |  | 7,721,766 |  |  | 7,794,590 |  |  | 7,749,568 |
Certificates of deposit, $250,000 or more |  | 100,399 |  |  | 84,105 |  |  | 81,861 |  |  | 74,460 |  |  | 79,424 |
Certificates of deposit insured by CDARS® |  | 25,374 |  |  | 20,690 |  |  | 19,276 |  |  | 20,994 |  |  | 22,039 |
Other brokered certificates of deposit |  | 78,481 |  |  | — |  |  | — |  |  | — |  |  | — |
Brokered money market accounts |  | 289,031 |  |  | 237,421 |  |  | 249,554 |  |  | 198,768 |  |  | 208,348 |
Subtotal |  | 10,532,842 |  |  | 8,341,715 |  |  | 8,072,457 |  |  | 8,088,812 |  |  | 8,059,379 |
Premium (discount) resulting from acquisition date fair value adjustment |  | (757 | ) |  | 2 |  |  | 7 |  |  | 15 |  |  | 36 |
Total deposits |  | $ | 10,532,085 |  |  | $ | 8,341,717 |  |  | $ | 8,072,464 |  |  | $ | 8,088,827 |  |  | $ | 8,059,415 |

|  | December 31, |  | September 30, |  | June 30, |  | March 31, |  | December 31,
Deposit Composition - Percentages |  | 2017 |  | 2017 |  | 2017 |  | 2017 |  | 2016
Core deposits: |  |  |  |  |  |  |  |  |  |
Demand and other non-interest bearing |  | 48.2 | % |  | 49.4 | % |  | 48.4 | % |  | 48.9 | % |  | 48.9 | %
Interest bearing demand |  | 12.0 | % |  | 12.1 | % |  | 12.2 | % |  | 12.2 | % |  | 12.2 | %
Money market |  | 24.2 | % |  | 21.8 | % |  | 22.1 | % |  | 22.2 | % |  | 22.2 | %
Savings |  | 8.2 | % |  | 9.3 | % |  | 9.4 | % |  | 9.4 | % |  | 9.0 | %
Certificates of deposit, less than $250,000 |  | 2.7 | % |  | 3.3 | % |  | 3.5 | % |  | 3.6 | % |  | 3.8 | %
Total core deposits |  | 95.3 | % |  | 95.9 | % |  | 95.6 | % |  | 96.3 | % |  | 96.1 | %
Certificates of deposit, $250,000 or more |  | 1.0 | % |  | 1.0 | % |  | 1.0 | % |  | 0.9 | % |  | 1.0 | %
Certificates of deposit insured by CDARS® |  | 0.2 | % |  | 0.2 | % |  | 0.2 | % |  | 0.3 | % |  | 0.3 | %
Other brokered certificates of deposit |  | 0.7 | % |  | — | % |  | — | % |  | — | % |  | — | %
Brokered money market accounts |  | 2.8 | % |  | 2.9 | % |  | 3.2 | % |  | 2.5 | % |  | 2.6 | %
Total |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

13

CONSOLIDATED STATEMENTS OF INCOME |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  | Three Months Ended |  | Twelve Months Ended
Unaudited |  | December 31, |  | September 30, |  | December 31, |  | December 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2016 |  | 2017 |  | 2016
|  | (in thousands except per share)
Interest Income |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 95,889 |  |  | $ | 78,641 |  |  | $ | 74,542 |  |  | $ | 324,229 |  |  | $ | 291,465 |
Taxable securities |  | 9,487 |  |  | 8,718 |  |  | 9,333 |  |  | 38,659 |  |  | 35,167 |
Tax-exempt securities |  | 2,920 |  |  | 2,718 |  |  | 2,724 |  |  | 11,045 |  |  | 11,121 |
Deposits in banks |  | 545 |  |  | 226 |  |  | 135 |  |  | 813 |  |  | 216 |
Total interest income |  | 108,841 |  |  | 90,303 |  |  | 86,734 |  |  | 374,746 |  |  | 337,969 |
Interest Expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 2,022 |  |  | 1,083 |  |  | 782 |  |  | 4,800 |  |  | 3,134 |
Federal Home Loan Bank advances |  | 99 |  |  | 163 |  |  | 77 |  |  | 1,078 |  |  | 671 |
Subordinated debentures |  | 304 |  |  | — |  |  | — |  |  | 304 |  |  | — |
Other borrowings |  | 192 |  |  | 128 |  |  | 138 |  |  | 575 |  |  | 545 |
Total interest expense |  | 2,617 |  |  | 1,374 |  |  | 997 |  |  | 6,757 |  |  | 4,350 |
Net Interest Income |  | 106,224 |  |  | 88,929 |  |  | 85,737 |  |  | 367,989 |  |  | 333,619 |
Provision (recapture) for loan and lease losses |  | 3,327 |  |  | (648 | ) |  | 18 |  |  | 8,631 |  |  | 10,778 |
Net interest income after provision (recapture) for loan and lease losses |  | 102,897 |  |  | 89,577 |  |  | 85,719 |  |  | 359,358 |  |  | 322,841 |
Noninterest Income |  |  |  |  |  |  |  |  |  |
Deposit account and treasury management fees |  | 8,013 |  |  | 7,685 |  |  | 7,196 |  |  | 30,381 |  |  | 28,500 |
Card revenue |  | 6,967 |  |  | 6,735 |  |  | 5,803 |  |  | 25,627 |  |  | 23,620 |
Financial services and trust revenue |  | 2,958 |  |  | 2,645 |  |  | 2,919 |  |  | 11,478 |  |  | 11,266 |
Loan revenue |  | 2,663 |  |  | 3,154 |  |  | 2,954 |  |  | 12,399 |  |  | 10,967 |
Merchant processing revenue |  | — |  |  | — |  |  | 2,006 |  |  | 4,283 |  |  | 8,732 |
Bank owned life insurance |  | 1,377 |  |  | 1,290 |  |  | 1,087 |  |  | 5,380 |  |  | 4,546 |
Investment securities gains (losses), net |  | (11 | ) |  | — |  |  | 7 |  |  | (11 | ) |  | 1,181 |
Change in FDIC loss-sharing asset |  | — |  |  | — |  |  | (388 | ) |  | (447 | ) |  | (2,585 | )
Gain on sale of merchant card services portfolio |  | — |  |  | 14,000 |  |  | — |  |  | 14,000 |  |  | — |
Other |  | 1,614 |  |  | 1,558 |  |  | 746 |  |  | 6,552 |  |  | 1,855 |
Total noninterest income |  | 23,581 |  |  | 37,067 |  |  | 22,330 |  |  | 109,642 |  |  | 88,082 |
Noninterest Expense |  |  |  |  |  |  |  |  |  |
Compensation and employee benefits |  | 50,473 |  |  | 39,983 |  |  | 38,196 |  |  | 169,674 |  |  | 150,282 |
Occupancy |  | 9,554 |  |  | 8,085 |  |  | 7,690 |  |  | 32,407 |  |  | 33,734 |
Merchant processing expense |  | — |  |  | — |  |  | 1,018 |  |  | 2,196 |  |  | 4,330 |
Advertising and promotion |  | 1,543 |  |  | 969 |  |  | 720 |  |  | 4,466 |  |  | 4,598 |
Data processing |  | 5,134 |  |  | 4,122 |  |  | 4,138 |  |  | 18,205 |  |  | 16,488 |
Legal and professional fees |  | 5,955 |  |  | 2,880 |  |  | 2,523 |  |  | 15,151 |  |  | 7,889 |
Taxes, licenses and fees |  | 1,279 |  |  | 1,505 |  |  | 1,106 |  |  | 4,773 |  |  | 5,185 |
Regulatory premiums |  | 884 |  |  | 782 |  |  | 792 |  |  | 3,183 |  |  | 3,777 |
Net cost of operation of other real estate owned |  | 46 |  |  | 271 |  |  | 612 |  |  | 468 |  |  | 551 |
Amortization of intangibles |  | 2,547 |  |  | 1,188 |  |  | 1,420 |  |  | 6,333 |  |  | 5,946 |
Other |  | 8,212 |  |  | 7,752 |  |  | 6,799 |  |  | 34,161 |  |  | 28,362 |
Total noninterest expense |  | 85,627 |  |  | 67,537 |  |  | 65,014 |  |  | 291,017 |  |  | 261,142 |
Income before income taxes |  | 40,851 |  |  | 59,107 |  |  | 43,035 |  |  | 177,983 |  |  | 149,781 |
Provision for income taxes |  | 25,123 |  |  | 18,338 |  |  | 12,317 |  |  | 65,155 |  |  | 44,915 |
Net Income |  | $ | 15,728 |  |  | $ | 40,769 |  |  | $ | 30,718 |  |  | $ | 112,828 |  |  | $ | 104,866 |
Earnings per common share |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.23 |  |  | $ | 0.70 |  |  | $ | 0.53 |  |  | $ | 1.86 |  |  | $ | 1.81 |
Diluted |  | $ | 0.23 |  |  | $ | 0.70 |  |  | $ | 0.53 |  |  | $ | 1.86 |  |  | $ | 1.81 |
Dividends paid per common share - regular |  | $ | 0.22 |  |  | $ | 0.22 |  |  | $ | 0.20 |  |  | $ | 0.88 |  |  | $ | 0.77 |
Dividends paid per common share - special |  | $ | — |  |  | $ | — |  |  | $ | 0.19 |  |  | $ | — |  |  | $ | 0.76 |
Dividends paid per common share - total |  | $ | 0.22 |  |  | $ | 0.22 |  |  | $ | 0.39 |  |  | $ | 0.88 |  |  | $ | 1.53 |
Weighted average number of common shares outstanding |  | 67,120 |  |  | 57,566 |  |  | 57,220 |  |  | 59,882 |  |  | 57,184 |
Weighted average number of diluted common shares outstanding |  | 67,125 |  |  | 57,571 |  |  | 57,229 |  |  | 59,888 |  |  | 57,193 |

14

CONSOLIDATED BALANCE SHEETS |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  | December 31, |  | September 30, |  | December 31,
|  |  |  |  |  |  | 2017 |  | 2017 |  | 2016
|  |  |  |  |  |  | (in thousands)
ASSETS |  |
Cash and due from banks |  |  |  |  |  |  | $ | 244,615 |  |  | $ | 186,116 |  |  | $ | 193,038 |
Interest-earning deposits with banks |  |  |  |  |  |  | 97,918 |  |  | 136,578 |  |  | 31,200 |
Total cash and cash equivalents |  |  |  |  |  |  | 342,533 |  |  | 322,694 |  |  | 224,238 |
Securities available for sale at fair value (amortized cost of $2,768,605, $2,215,335 and $2,299,037, respectively) |  | 2,742,831 |  |  | 2,207,873 |  |  | 2,278,577 |
Federal Home Loan Bank stock at cost |  | 10,440 |  |  | 10,240 |  |  | 10,240 |
Loans held for sale |  |  |  |  |  |  | 5,766 |  |  | 7,802 |  |  | 5,846 |
Loans, net of unearned income of ($52,111), ($29,229) and ($33,718), respectively |  | 8,358,657 |  |  | 6,512,006 |  |  | 6,213,423 |
Less: allowance for loan and lease losses |  |  |  |  |  | 75,646 |  |  | 71,616 |  |  | 70,043 |
Loans, net |  |  |  |  |  |  | 8,283,011 |  |  | 6,440,390 |  |  | 6,143,380 |
FDIC loss-sharing asset |  |  |  |  |  |  | — |  |  | — |  |  | 3,535 |
Interest receivable |  |  |  |  |  |  | 40,881 |  |  | 36,163 |  |  | 30,074 |
Premises and equipment, net |  |  |  |  |  |  | 169,490 |  |  | 143,351 |  |  | 150,342 |
Other real estate owned |  |  |  |  |  |  | 13,298 |  |  | 3,682 |  |  | 5,998 |
Goodwill |  |  |  |  |  |  | 765,842 |  |  | 382,762 |  |  | 382,762 |
Other intangible assets, net |  |  |  |  |  |  | 58,173 |  |  | 13,845 |  |  | 17,631 |
Other assets |  |  |  |  |  |  | 284,621 |  |  | 245,776 |  |  | 256,984 |
Total assets |  |  |  |  |  |  | $ | 12,716,886 |  |  | $ | 9,814,578 |  |  | $ | 9,509,607 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing |  |  |  |  |  |  | $ | 5,081,901 |  |  | $ | 4,119,950 |  |  | $ | 3,944,495 |
Interest-bearing |  |  |  |  |  |  | 5,450,184 |  |  | 4,221,767 |  |  | 4,114,920 |
Total deposits |  |  |  |  |  |  | 10,532,085 |  |  | 8,341,717 |  |  | 8,059,415 |
Federal Home Loan Bank advances |  |  |  |  |  |  | 11,579 |  |  | 6,465 |  |  | 6,493 |
Securities sold under agreements to repurchase |  | 79,059 |  |  | 40,933 |  |  | 80,822 |
Subordinated debentures |  |  |  |  |  |  | 35,647 |  |  | — |  |  | — |
Junior subordinated debentures |  |  |  |  |  |  | 8,248 |  |  | — |  |  | — |
Other liabilities |  |  |  |  |  |  | 100,346 |  |  | 97,035 |  |  | 111,865 |
Total liabilities |  |  |  |  |  |  | 10,766,964 |  |  | 8,486,150 |  |  | 8,258,595 |
Commitments and contingent liabilities |  |  |  |  |  |  |  |  |  |
| December 31, |  | September 30, |  | December 31, |  |  |  |  |  |
| 2017 |  | 2017 |  | 2016 |  |  |  |  |  |
Preferred stock (no par value) | (in thousands) |  |  |  |  |  |
Authorized shares | 2,000 |  |  | 2,000 |  |  | 2,000 |  |  |  |  |  |  |
Issued and outstanding | — |  |  | — |  |  | 9 |  |  | — |  |  | — |  |  | 2,217 |
Common stock (no par value) |  |  |  |  |  |  |  |  |  |  |
Authorized shares | 115,000 |  |  | 115,000 |  |  | 115,000 |  |  |  |  |  |  |
Issued and outstanding | 73,020 |  |  | 58,376 |  |  | 58,042 |  |  | 1,634,705 |  |  | 1,003,887 |  |  | 995,837 |
Retained earnings |  |  |  |  |  |  | 333,360 |  |  | 330,474 |  |  | 271,957 |
Accumulated other comprehensive loss |  |  |  |  |  | (18,143 | ) |  | (5,933 | ) |  | (18,999 | )
Total shareholders' equity |  |  |  |  |  |  | 1,949,922 |  |  | 1,328,428 |  |  | 1,251,012 |
Total liabilities and shareholders' equity |  |  |  |  |  | $ | 12,716,886 |  |  | $ | 9,814,578 |  |  | $ | 9,509,607 |

15

AVERAGE BALANCES AND RATES |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended |  | Three Months Ended
|  | December 31, 2017 |  | December 31, 2016
|  | Average Balances |  | Interest Earned / Paid |  | Average Rate |  | Average Balances |  | Interest Earned / Paid |  | Average Rate
|  | (dollars in thousands)
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Loans, net (1)(2) |  | $ | 7,749,420 |  |  | $ | 97,720 |  |  | 5.04 | % |  | $ | 6,200,506 |  |  | $ | 75,838 |  |  | 4.89 | %
Taxable securities |  | 2,035,788 |  |  | 9,487 |  |  | 1.86 | % |  | 1,853,788 |  |  | 9,333 |  |  | 2.01 | %
Tax exempt securities (2) |  | 503,533 |  |  | 4,492 |  |  | 3.57 | % |  | 460,733 |  |  | 4,191 |  |  | 3.64 | %
Interest-earning deposits with banks |  | 164,356 |  |  | 545 |  |  | 1.33 | % |  | 97,471 |  |  | 135 |  |  | 0.55 | %
Total interest-earning assets |  | 10,453,097 |  |  | $ | 112,244 |  |  | 4.30 | % |  | 8,612,498 |  |  | $ | 89,497 |  |  | 4.16 | %
Other earning assets |  | 202,246 |  |  |  |  |  |  | 162,591 |  |  |  |  |
Noninterest-earning assets |  | 1,095,706 |  |  |  |  |  |  | 793,125 |  |  |  |  |
Total assets |  | $ | 11,751,049 |  |  |  |  |  |  | $ | 9,568,214 |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit |  | $ | 457,285 |  |  | $ | 374 |  |  | 0.33 | % |  | $ | 410,372 |  |  | $ | 114 |  |  | 0.11 | %
Savings accounts |  | 835,952 |  |  | 39 |  |  | 0.02 | % |  | 720,453 |  |  | 18 |  |  | 0.01 | %
Interest-bearing demand |  | 1,168,496 |  |  | 376 |  |  | 0.13 | % |  | 969,104 |  |  | 154 |  |  | 0.06 | %
Money market accounts |  | 2,572,247 |  |  | 1,233 |  |  | 0.19 | % |  | 2,051,766 |  |  | 496 |  |  | 0.10 | %
Total interest-bearing deposits |  | 5,033,980 |  |  | 2,022 |  |  | 0.16 | % |  | 4,151,695 |  |  | 782 |  |  | 0.08 | %
Federal Home Loan Bank advances |  | 9,817 |  |  | 99 |  |  | 4.03 | % |  | 10,128 |  |  | 77 |  |  | 3.04 | %
Subordinated debentures |  | 23,427 |  |  | 304 |  |  | 5.19 | % |  | — |  |  | — |  |  | — | %
Other borrowings |  | 59,876 |  |  | 192 |  |  | 1.28 | % |  | 60,997 |  |  | 138 |  |  | 0.90 | %
Total interest-bearing liabilities |  | 5,127,100 |  |  | $ | 2,617 |  |  | 0.20 | % |  | 4,222,820 |  |  | $ | 997 |  |  | 0.09 | %
Noninterest-bearing deposits |  | 4,770,476 |  |  |  |  |  |  | 3,953,827 |  |  |  |  |
Other noninterest-bearing liabilities |  | 98,728 |  |  |  |  |  |  | 117,179 |  |  |  |  |
Shareholders’ equity |  | 1,754,745 |  |  |  |  |  |  | 1,274,388 |  |  |  |  |
Total liabilities & shareholders’ equity |  | $ | 11,751,049 |  |  |  |  |  |  | $ | 9,568,214 |  |  |  |  |
Net interest income (tax equivalent) |  | $ | 109,627 |  |  |  |  |  |  | $ | 88,500 |  |  |
Net interest margin (tax equivalent) |  | 4.20 | % |  |  |  |  |  | 4.11 | %

(1) | Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.9 million and $1.7 million for the three month periods ended December 31, 2017 and December 31, 2016, respectively. The incremental accretion on acquired loans was $2.7 million and $4.3 million for the three months ended December 31, 2017 and 2016, respectively.

(2) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.8 million and $1.3 million for the three months ended December 31, 2017 and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.6 million and $1.5 million for the three month periods ended December 31, 2017 and 2016, respectively.

16

AVERAGE BALANCES AND RATES |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended |  | Three Months Ended
|  | December 31, 2017 |  | September 30, 2017
|  | Average Balances |  | Interest Earned / Paid |  | Average Rate |  | Average Balances |  | Interest Earned / Paid |  | Average Rate
|  | (dollars in thousands)
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Loans, net (1)(2) |  | $ | 7,749,420 |  |  | $ | 97,720 |  |  | 5.04 | % |  | $ | 6,441,537 |  |  | $ | 80,136 |  |  | 4.98 | %
Taxable securities |  | 2,035,788 |  |  | 9,487 |  |  | 1.86 | % |  | 1,784,407 |  |  | 8,718 |  |  | 1.95 | %
Tax exempt securities (2) |  | 503,533 |  |  | 4,492 |  |  | 3.57 | % |  | 451,828 |  |  | 4,181 |  |  | 3.70 | %
Interest-earning deposits with banks |  | 164,356 |  |  | 545 |  |  | 1.33 | % |  | 72,789 |  |  | 226 |  |  | 1.24 | %
Total interest-earning assets |  | 10,453,097 |  |  | $ | 112,244 |  |  | 4.30 | % |  | 8,750,561 |  |  | $ | 93,261 |  |  | 4.26 | %
Other earning assets |  | 202,246 |  |  |  |  |  |  | 173,611 |  |  |  |  |
Noninterest-earning assets |  | 1,095,706 |  |  |  |  |  |  | 770,833 |  |  |  |  |
Total assets |  | $ | 11,751,049 |  |  |  |  |  |  | $ | 9,695,005 |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit |  | $ | 457,285 |  |  | $ | 374 |  |  | 0.33 | % |  | $ | 382,299 |  |  | $ | 92 |  |  | 0.10 | %
Savings accounts |  | 835,952 |  |  | 39 |  |  | 0.02 | % |  | 766,540 |  |  | 19 |  |  | 0.01 | %
Interest-bearing demand |  | 1,168,496 |  |  | 376 |  |  | 0.13 | % |  | 1,000,079 |  |  | 223 |  |  | 0.09 | %
Money market accounts |  | 2,572,247 |  |  | 1,233 |  |  | 0.19 | % |  | 2,051,662 |  |  | 749 |  |  | 0.15 | %
Total interest-bearing deposits |  | 5,033,980 |  |  | 2,022 |  |  | 0.16 | % |  | 4,200,580 |  |  | 1,083 |  |  | 0.10 | %
Federal Home Loan Bank advances |  | 9,817 |  |  | 99 |  |  | 4.03 | % |  | 33,687 |  |  | 163 |  |  | 1.94 | %
Subordinated debentures |  | 23,427 |  |  | 304 |  |  | 5.19 | % |  | — |  |  | — |  |  | — | %
Other borrowings |  | 59,876 |  |  | 192 |  |  | 1.28 | % |  | 51,669 |  |  | 128 |  |  | 0.99 | %
Total interest-bearing liabilities |  | 5,127,100 |  |  | $ | 2,617 |  |  | 0.20 | % |  | 4,285,936 |  |  | $ | 1,374 |  |  | 0.13 | %
Noninterest-bearing deposits |  | 4,770,476 |  |  |  |  |  |  | 3,986,757 |  |  |  |  |
Other noninterest-bearing liabilities |  | 98,728 |  |  |  |  |  |  | 98,518 |  |  |  |  |
Shareholders’ equity |  | 1,754,745 |  |  |  |  |  |  | 1,323,794 |  |  |  |  |
Total liabilities & shareholders’ equity |  | $ | 11,751,049 |  |  |  |  |  |  | $ | 9,695,005 |  |  |  |  |
Net interest income (tax equivalent) |  | $ | 109,627 |  |  |  |  |  |  | $ | 91,887 |  |  |
Net interest margin (tax equivalent) |  | 4.20 | % |  |  |  |  |  | 4.20 | %

(1) | Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $1.9 million and $1.8 million for the three month periods ended December 31, 2017 and September 30, 2017, respectively. The incremental accretion on acquired loans was $2.7 million and $2.9 million for the three months ended December 31, 2017 and September 30, 2017, respectively.

(2) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.8 million and $1.5 million for the three months ended December 31, 2017 and September 30, 2017, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.6 million and $1.5 million for the three month periods ended December 31, 2017 and September 30, 2017, respectively.

17

AVERAGE BALANCES AND RATES |  |  |  |  |  |  |  |  |  |
Columbia Banking System, Inc. |  |  |  |  |  |  |  |  |  |
Unaudited |  |  |  |  |  |  |  |  |  |  |  |
|  | Twelve Months Ended December 31, |  | Twelve Months Ended December 31,
|  | 2017 |  | 2016
|  | Average Balances |  | Interest Earned / Paid |  | Average Rate |  | Average Balances |  | Interest Earned / Paid |  | Average Rate
|  | (dollars in thousands)
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Loans, net (1)(2) |  | $ | 6,682,259 |  |  | $ | 330,400 |  |  | 4.94 | % |  | $ | 6,052,389 |  |  | $ | 296,283 |  |  | 4.90 | %
Taxable securities |  | 1,886,128 |  |  | 38,659 |  |  | 2.05 | % |  | 1,804,004 |  |  | 35,167 |  |  | 1.95 | %
Tax exempt securities (2) |  | 464,716 |  |  | 16,992 |  |  | 3.66 | % |  | 465,117 |  |  | 17,109 |  |  | 3.68 | %
Interest-earning deposits with banks |  | 65,173 |  |  | 813 |  |  | 1.25 | % |  | 41,799 |  |  | 216 |  |  | 0.52 | %
Total interest-earning assets |  | 9,098,276 |  |  | $ | 386,864 |  |  | 4.25 | % |  | 8,363,309 |  |  | $ | 348,775 |  |  | 4.17 | %
Other earning assets |  | 181,792 |  |  |  |  |  |  | 156,871 |  |  |  |  |
Noninterest-earning assets |  | 854,238 |  |  |  |  |  |  | 791,441 |  |  |  |  |
Total assets |  | $ | 10,134,306 |  |  |  |  |  |  | $ | 9,311,621 |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit |  | $ | 406,406 |  |  | $ | 656 |  |  | 0.16 | % |  | $ | 426,296 |  |  | $ | 522 |  |  | 0.12 | %
Savings accounts |  | 774,340 |  |  | 96 |  |  | 0.01 | % |  | 698,687 |  |  | 71 |  |  | 0.01 | %
Interest-bearing demand |  | 1,031,719 |  |  | 950 |  |  | 0.09 | % |  | 952,135 |  |  | 695 |  |  | 0.07 | %
Money market accounts |  | 2,158,656 |  |  | 3,098 |  |  | 0.14 | % |  | 1,993,283 |  |  | 1,846 |  |  | 0.09 | %
Total interest-bearing deposits |  | 4,371,121 |  |  | 4,800 |  |  | 0.11 | % |  | 4,070,401 |  |  | 3,134 |  |  | 0.08 | %
Federal Home Loan Bank advances |  | 79,788 |  |  | 1,078 |  |  | 1.35 | % |  | 79,673 |  |  | 671 |  |  | 0.84 | %
Subordinated debentures |  | 5,905 |  |  | 304 |  |  | 5.15 | % |  | — |  |  | — |  |  | — | %
Other borrowings |  | 55,913 |  |  | 575 |  |  | 1.03 | % |  | 77,022 |  |  | 545 |  |  | 0.71 | %
Total interest-bearing liabilities |  | 4,512,727 |  |  | $ | 6,757 |  |  | 0.15 | % |  | 4,227,096 |  |  | $ | 4,350 |  |  | 0.10 | %
Noninterest-bearing deposits |  | 4,111,229 |  |  |  |  |  |  | 3,703,908 |  |  |  |  |
Other noninterest-bearing liabilities |  | 100,294 |  |  |  |  |  |  | 110,816 |  |  |  |  |
Shareholders’ equity |  | 1,410,056 |  |  |  |  |  |  | 1,269,801 |  |  |  |  |
Total liabilities & shareholders’ equity |  | $ | 10,134,306 |  |  |  |  |  |  | $ | 9,311,621 |  |  |  |  |
Net interest income (tax equivalent) |  | $ | 380,107 |  |  |  |  |  |  | $ | 344,425 |  |  |
Net interest margin (tax equivalent) |  | 4.18 | % |  |  |  |  |  | 4.12 | %

(1) | Nonaccrual loans have been included in the table as loans carrying a zero yield. Amortized net deferred loan fees and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $7.1 million and $5.3 million for the twelve months ended December 31, 2017 and 2016, respectively. The incremental accretion on acquired loans was $12.8 million and $18.0 million for the twelve months ended December 31, 2017 and 2016, respectively.

(2) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $6.2 million and $4.8 million for the twelve months ended December 31, 2017 and 2016, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $5.9 million and $6.0 million for the twelve months ended December 31, 2017 and 2016, respectively.

18

Non-GAAP Financial Measures
The Company considers its operating net interest margin and operating efficiency ratios to be useful measurements as they more closely reflect the ongoing operating performance of the Company. Despite the usefulness of the operating net interest margin and operating efficiency ratio 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.
The following tables reconcile the Company’s calculation of the operating net interest margin and operating efficiency ratio:

|  | Three Months Ended |  | Twelve Months Ended
|  | December 31, |  | September 30, |  | December 31, |  | December 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2016 |  | 2017 |  | 2016
Operating net interest margin non-GAAP reconciliation: |  | (dollars in thousands)
Net interest income (tax equivalent) (1) |  | $ | 109,627 |  |  | $ | 91,887 |  |  | $ | 88,500 |  |  | $ | 380,107 |  |  | $ | 344,425 |
Adjustments to arrive at operating net interest income (tax equivalent): |  |  |  |  |  |  |  |  |  |
Incremental accretion income on FDIC purchased credit impaired loans |  | (265 | ) |  | (972 | ) |  | (1,199 | ) |  | (4,107 | ) |  | (5,972 | )
Incremental accretion income on other acquired loans |  | (2,482 | ) |  | (1,903 | ) |  | (3,087 | ) |  | (8,689 | ) |  | (11,983 | )
Premium amortization on acquired securities |  | 1,978 |  |  | 1,527 |  |  | 1,348 |  |  | 6,636 |  |  | 7,738 |
Correction of immaterial error - securities premium amortization |  | 1,771 |  |  | — |  |  | — |  |  | 1,771 |  |  | — |
Interest reversals on nonaccrual loans |  | 443 |  |  | 311 |  |  | 246 |  |  | 1,766 |  |  | 1,072 |
Operating net interest income (tax equivalent) (1) |  | $ | 111,072 |  |  | $ | 90,850 |  |  | $ | 85,808 |  |  | $ | 377,484 |  |  | $ | 335,280 |
Average interest earning assets |  | $ | 10,453,097 |  |  | $ | 8,750,561 |  |  | $ | 8,612,498 |  |  | $ | 9,098,276 |  |  | $ | 8,363,309 |
Net interest margin (tax equivalent) (1) |  | 4.20 | % |  | 4.20 | % |  | 4.11 | % |  | 4.18 | % |  | 4.12 | %
Operating net interest margin (tax equivalent) (1) |  | 4.25 | % |  | 4.15 | % |  | 3.99 | % |  | 4.15 | % |  | 4.01 | %

|  | Three Months Ended |  | Twelve Months Ended
|  | December 31, |  | September 30, |  | December 31, |  | December 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2016 |  | 2017 |  | 2016
Operating efficiency ratio non-GAAP reconciliation: |  | (dollars in thousands)
Noninterest expense (numerator A) |  | $ | 85,627 |  |  | $ | 67,537 |  |  | $ | 65,014 |  |  | $ | 291,017 |  |  | $ | 261,142 |
Adjustments to arrive at operating noninterest expense: |  |  |  |  |  |  |  |  |  |
Acquisition-related expenses |  | (13,638 | ) |  | (1,171 | ) |  | (291 | ) |  | (17,196 | ) |  | (2,727 | )
Net benefit (cost) of operation of OREO and OPPO |  | (46 | ) |  | (271 | ) |  | (612 | ) |  | (466 | ) |  | (544 | )
FDIC clawback liability recovery (expense) |  | — |  |  | — |  |  | 28 |  |  | 54 |  |  | (280 | )
Loss on asset disposals |  | (56 | ) |  | — |  |  | (7 | ) |  | (70 | ) |  | (205 | )
Termination of FDIC loss share agreements charge |  | — |  |  | — |  |  | — |  |  | (2,409 | ) |  | — |
State of Washington Business and Occupation ("B&O") taxes |  | (1,167 | ) |  | (1,394 | ) |  | (995 | ) |  | (4,326 | ) |  | (4,752 | )
Operating noninterest expense (numerator B) |  | $ | 70,720 |  |  | $ | 64,701 |  |  | $ | 63,137 |  |  | $ | 266,604 |  |  | $ | 252,634 |
Net interest income (tax equivalent) (1) |  | $ | 109,627 |  |  | $ | 91,887 |  |  | $ | 88,500 |  |  | $ | 380,107 |  |  | $ | 344,425 |
Noninterest income |  | 23,581 |  |  | 37,067 |  |  | 22,330 |  |  | 109,642 |  |  | 88,082 |
Bank owned life insurance tax equivalent adjustment |  | 741 |  |  | 695 |  |  | 586 |  |  | 2,897 |  |  | 2,448 |
Total revenue (tax equivalent) (denominator A) |  | $ | 133,949 |  |  | $ | 129,649 |  |  | $ | 111,416 |  |  | $ | 492,646 |  |  | $ | 434,955 |
Operating net interest income (tax equivalent) (1) |  | $ | 111,072 |  |  | $ | 90,850 |  |  | $ | 85,808 |  |  | $ | 377,484 |  |  | $ | 335,280 |
Adjustments to arrive at operating noninterest income (tax equivalent): |  |  |  |  |  |  |  |  |  |
Investment securities gains, net |  | 11 |  |  | — |  |  | (7 | ) |  | 11 |  |  | (1,181 | )
Gain on asset disposals |  | (34 | ) |  | (38 | ) |  | (52 | ) |  | (357 | ) |  | (124 | )
Mortgage loan repurchase liability adjustment |  | — |  |  | — |  |  | (391 | ) |  | (573 | ) |  | (391 | )
Change in FDIC loss-sharing asset |  | — |  |  | — |  |  | 388 |  |  | 447 |  |  | 2,585 |
Gain on sale of merchant card services portfolio |  | — |  |  | (14,000 | ) |  | — |  |  | (14,000 | ) |  | — |
Operating noninterest income (tax equivalent) |  | 24,299 |  |  | 23,724 |  |  | 22,854 |  |  | 98,067 |  |  | 91,419 |
Total operating revenue (tax equivalent) (denominator B) |  | $ | 135,371 |  |  | $ | 114,574 |  |  | $ | 108,662 |  |  | $ | 475,551 |  |  | $ | 426,699 |
Efficiency ratio (tax equivalent) (numerator A/denominator A) |  | 63.93 | % |  | 52.09 | % |  | 58.35 | % |  | 59.07 | % |  | 60.04 | %
Operating efficiency ratio (tax equivalent) (numerator B/denominator B) |  | 52.24 | % |  | 56.47 | % |  | 58.10 | % |  | 56.06 | % |  | 59.21 | %

__________
(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 $3.4 million, $3.0 million and $2.8 million for the three month periods ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively; and $12.1 million and $10.8 million for the twelve month periods ended December 31, 2017 and December 31, 2016, respectively.
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Non-GAAP Financial Measures - Continued
The Company also considers its core net interest expense ratio to be a useful measurement as it more closely reflects the ongoing operating performance of the Company. Despite the usefulness of the core net interest expense ratio to the Company, there is not a standardized definition for it, 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 core net interest expense ratio:

|  | Three Months Ended |  | Twelve Months Ended
|  | December 31, |  | September 30, |  | December 31, |  | December 31, |  | December 31,
|  | 2017 |  | 2017 |  | 2016 |  | 2017 |  | 2016
Core noninterest expense ratio non-GAAP reconciliation: |  | (dollars in thousands)
Noninterest expense (numerator A) |  | $ | 85,627 |  |  | $ | 67,537 |  |  | $ | 65,014 |  |  | $ | 291,017 |  |  | $ | 261,142 |
Adjustments to arrive at core noninterest expense: |  |  |  |  |  |  |  |  |  |
FDIC clawback liability recovery (expense) |  | — |  |  | — |  |  | 28 |  |  | 54 |  |  | (280 | )
Acquisition-related expenses |  | (13,638 | ) |  | (1,171 | ) |  | (291 | ) |  | (17,196 | ) |  | (2,727 | )
Net cost of operation of OREO and OPPO |  | (46 | ) |  | (271 | ) |  | (612 | ) |  | (466 | ) |  | (544 | )
Termination of FDIC loss share agreements charge |  | — |  |  | — |  |  | — |  |  | (2,409 | ) |  | — |
Core noninterest expense (numerator B) |  | $ | 71,943 |  |  | $ | 66,095 |  |  | $ | 64,139 |  |  | $ | 271,000 |  |  | $ | 257,591 |
Average assets (denominator) |  | $ | 11,751,049 |  |  | $ | 9,695,005 |  |  | $ | 9,568,214 |  |  | $ | 10,134,306 |  |  | $ | 9,311,621 |
Noninterest expense ratio (numerator A/denominator) |  | 2.91 | % |  | 2.79 | % |  | 2.72 | % |  | 2.87 | % |  | 2.80 | %
Core noninterest expense ratio (numerator B/denominator) |  | 2.45 | % |  | 2.73 | % |  | 2.68 | % |  | 2.67 | % |  | 2.77 | %

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