UNITED STATES

SECURITIES & EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~September~~March 3031, ~~2016~~2017.

¨☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to .

COMMISSION FILE NUMBER: 0-30106

PACIFIC CONTINENTAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

OREGON		93-1269184
(State or Other Jurisdiction ofIncorporation or Organization)		(I.R.S. EmployerIdentification No)
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No)
111 West 7th Avenue Eugene, Oregon		97401
(Address of principal executive offices)		(Zip Code)

(541) 686-8685

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer ¨☐ Accelerated filer x☒ Non-accelerated filer ¨☐ Smaller Reporting company ¨☐ Emerging growth company ☐

~~Indicate~~If an emerging growth company, indicate by check mark ~~whether~~if the registrant ishas aselected ~~shell~~not ~~company~~to ~~(as~~use ~~defined~~the inextended ~~Rule~~transition ~~12b-2~~period for ofcomplying ~~the~~with ~~Exchange Act). Yes ¨ No x~~any new or revised financial accounting standards provided pursuant to

~~The~~section ~~number~~13(a) of ~~shares~~the ofExchange ~~common~~Act ☐ ~~stock outstanding as of November 1, 2016 was 22,603,651.~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock outstanding as of April 28, 2017 was 22,667,111.

PACIFIC CONTINENTAL CORPORATION

FORM 10-Q

QUARTERLY REPORT

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
ITEM 1	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4742
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	7163
ITEM 4	Controls and Procedures	7163
PART II	OTHER INFORMATION	7264
ITEM 1	Legal Proceedings	7264
ITEM 1A	Risk Factors	7365
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	7666
ITEM 3	Defaults upon Senior Securities	7666
ITEM 4	Mine Safety Disclosures	7666
ITEM 5	Other Information	7666
ITEM 6	Exhibits	7666

PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements

Pacific Continental Corporation and Subsidiary

Consolidated Balance Sheets

(In thousands, except share amounts)

(Unaudited)

	September 30,2016			December 31,2015
	March 31,2017			December 31,2016
ASSETS
Cash and due from banks	$	3525,~~819~~836		$	2330,~~819~~154
Interest-bearing deposits with banks		7138,~~353~~265			1236,~~856~~959
Total cash and cash equivalents		~~107~~64,~~172~~101			3667,~~675~~113
Securities available-for-sale		~~482~~472,~~408~~166			~~366~~470,~~598~~996
Loans, net of deferred fees		1,~~806~~912,~~736~~608			1,~~404~~857,~~482~~767
Allowance for loan losses		(2022,~~531~~612	)		(1722,~~301~~454	)
Net loans		1,~~786~~889,~~205~~996			1,~~387~~835,~~181~~313
Interest receivable		56,~~957~~647			57,~~721~~107
Federal Home Loan Bank stock		410,~~643~~324			5,~~208~~423
Property and equipment, net of accumulated depreciation		19,~~656~~899			1820,~~014~~208
Goodwill and intangible assets		70,~~684~~115			4370,~~159~~382
Deferred tax asset		712,~~380~~444			512,~~670~~722
Other real estate owned		1311,~~066~~056			1112,~~747~~068
Bank-owned life insurance		3435,~~927~~388			2235,~~884~~165
Other assets		65,~~962~~169			64,~~621~~940
Total assets	$	2,~~539~~597,~~060~~305		$	12,~~909~~541,~~478~~437
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing demand	$	~~901~~832,~~290~~363		$	~~568~~858,~~688~~996
Savings and interest-bearing checking		1,~~082~~070,~~202~~383			~~889~~1,~~802~~110,224
Core time deposits		6564,~~860~~520			7565,~~452~~847
Total core deposits		21,~~049~~967,~~352~~266			12,~~533~~035,~~942~~067
Other deposits		113,~~281~~000			63113,~~151~~036
Total deposits		2,~~162~~080,~~633~~266			12,~~597~~148,~~093~~103
Repurchase agreements		1,107			71
Securities sold under agreements to repurchase		2,812			1,966
Federal Home Loan Bank borrowings		45182,~~500~~000			7765,~~500~~000
Subordinated debentures		34,~~072~~120			—34,096
Junior subordinated debentures		11,~~272~~350			811,~~248~~311
Accrued interest and other payables		87,~~005~~590			87,~~075~~206
Total liabilities		2,~~262~~318,~~589~~138			12,~~690~~267,~~987~~682
Shareholders’ equity
Common stock, shares authorized: 50,000,000; shares issued and outstanding: 22,603,421 at September 30, 2016, and 19,604,182 at December 31, 2015		205,120			156,099
Common stock, no par value, shares authorized: 50,000,000; shares issued andoutstanding: 22,665,926 at March 31, 2017, and 22,611,535 at December 31, 2016		206,505			205,584
Retained earnings		6674,~~112~~543			5970,~~693~~486
Accumulated other comprehensive income		5,239			2,699
Accumulated other comprehensive (loss)		(1,881	)		(2,315	)
		276,471			218,491
		279,167			273,755
Total liabilities and shareholders’ equity	$	2,~~539~~597,~~060~~305		$	12,~~909~~541,~~478~~437

See accompanying notes.

Pacific Continental Corporation and Subsidiary

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(Unaudited)

Three months endedSeptember 30,

Nine months endedSeptember 30,

Three months ended March 31,

2016

2015

2016

2015

2017

2016

Interest and dividend income

Loans

2023,~~145~~419

17,~~240~~714

~~55,810~~

~~48,020~~

Taxable securities

12,~~995~~287

1,~~713~~717

~~5,551~~

~~4,825~~

Tax-exempt securities

~~482~~506

~~490~~477

~~1,435~~

~~1,491~~

Interest-bearing deposits with banks

4088

745

~~104~~

22,662

19,450

62,900

54,359

26,300

19,953

Interest expense

Deposits

~~984~~1,197

~~854~~897

~~2,678~~

~~2,509~~

Federal Home Loan Bank borrowings

~~286~~255

~~227~~189

~~758~~

~~694~~

Subordinated debentures

~~553~~570

—

~~553~~

—

Junior subordinated debentures

6697

5756

~~179~~

~~169~~

Federal funds purchased

1,891

1,142

4,174

3,382

2,120

1,144

Net interest income

2024,~~771~~180

18,~~308~~809

~~58,726~~

~~50,977~~

Provision for loan losses

~~1,380~~900

~~625~~245

~~3,575~~

~~1,175~~

Net interest income after provision for loan losses

1923,~~391~~280

1718,~~683~~564

~~55,151~~

~~49,802~~

Noninterest income

Service charges on deposit accounts

~~717~~694

~~703~~693

~~2,099~~

~~1,939~~

Bankcard income

~~314~~300

~~276~~290

~~899~~

~~687~~

Bank-owned life insurance income

~~172~~222

~~156~~146

~~463~~

~~435~~

Net gain on sale of investment securities

—

~~143~~237

~~309~~

~~336~~

Impairment losses on investment securities (OTTI)

(21

)

—(17

)

~~(19~~

)

~~(13~~

)

Other noninterest income

~~718~~936

~~436~~458

~~1,726~~

~~1,234~~

1,919

1,714

5,477

4,618

2,151

1,807

Noninterest expense

Salaries and employee benefits

79,~~520~~455

67,~~822~~559

~~23,084~~

~~20,223~~

Property and equipment

1,~~202~~328

1,~~148~~115

~~3,404~~

~~3,221~~

Data processing

~~924~~1,021

~~838~~864

~~2,682~~

~~2,343~~

Legal and professional services

~~569~~681

~~496~~611

~~2,321~~

~~1,386~~

Business development

~~460~~474

~~369~~516

~~1,492~~

~~1,134~~

FDIC insurance assessment

~~273~~349

~~283~~288

~~848~~

~~769~~

Other real estate (income) expense, net

122

(32

)

303

Other real estate expense, net

118

Merger related expense

~~1,767~~933

—

~~3,745~~

~~1,836~~

Other noninterest expense

1,~~039~~105

1,~~104~~044

~~3,222~~

~~2,971~~

13,825

11,182

40,766

34,186

15,464

12,007

Income before provision for income taxes

79,~~485~~967

8,~~215~~364

~~19,862~~

~~20,234~~

Provision for income taxes

23,~~634~~417

2,~~890~~905

~~6,946~~

~~7,012~~

Net income

46,~~851~~550

5,~~325~~459

~~12,916~~

~~13,222~~

Earnings per share

Basic

0.2429

0.2728

~~0.65~~

~~0.69~~

Diluted

0.2329

0.2728

~~0.64~~

~~0.68~~

Weighted average shares outstanding

Basic

2022,~~511~~653,~~392~~895

19,~~591~~607,~~666~~106

~~19,940,709~~

~~19,133,682~~

Common stock equivalents attributable to stock-based awards

~~165~~312,~~572~~017

~~225~~175,~~104~~176

~~154,813~~

~~224,308~~

Diluted

2022,~~676~~965,~~964~~912

19,~~816~~782,~~770~~282

~~20,095,522~~

~~19,357,990~~

See accompanying notes.

Pacific Continental Corporation and Subsidiary

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three months ended						Nine months ended
	Three months ended March 31,
	September 30,						September 30,
	2017			2016
	2016			2015			2016			2015
Net income	$	6,550		$	5,459
Net income	$	4,851		$	5,325		$	12,916		$	13,222
Other comprehensive income:
Other comprehensive income:
Available-for-sale securities:
Available-for-sale securities:
Unrealized gain arising during the period		802			4,469
Unrealized (loss) gain arising during the period		(1,929	)		2,133			5,397			1,943
Reclassification adjustment for gains realized in net income		—			(237	)
Reclassification adjustment for gains realized in net income		—			(143	)		(309	)		(336	)
Other than temporary impairment		1			17
Other than temporary impairment		2			—			19			13
Income tax effects		(313	)		(1,657	)
Income tax effects		751			(776	)		(1,991	)		(632	)
Derivative agreements—cash flow hedge
Derivative agreements—cash flow hedge
Unrealized loss arising during the period		(14	)		(182	)
Unrealized gain (loss) gain arising during the period		160			(154	)		(944	)		(212	)
Reclassification adjustment for gains realized in net income		(77	)		—
Income tax effects		~~(62~~35	)		6071			~~368~~			83
Total other comprehensive (loss) income , net of tax		(1,078	)		1,120			2,540			859
Total other comprehensive income, net of tax		434			2,481
Total comprehensive income	$	36,~~773~~984		$	67,~~445~~940		$	~~15,456~~		$	~~14,081~~

See accompanying notes.

Pacific Continental Corporation and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except share, and per share amounts)

(Unaudited)

	Numberof Shares		CommonStock			RetainedEarnings			AccumulatedOtherComprehensiveIncome (loss)			Total
Balance, December 31, 2014		17,717,676	$	131,375		$	48,984		$	3,802		$	184,161
Net income							18,751						18,751
Other comprehensive loss, net of tax										(1,103	)		(1,103	)
Comprehensive income													17,648
Stock issuance and related tax benefit		108,404		95									95
Stock issued through acquisition		1,778,102		23,578									23,578
Share-based compensation expense				1,700									1,700
Vested employee RSUs and SARs surrendered to cover tax consequences				(649	)								(649	)
Cash dividends ($0.42 per share)							(8,042	)					(8,042	)
Balance, December 31, 2015		19,604,182	$	156,099		$	59,693		$	2,699		$	218,491
Net income							1219,~~916~~776						1219,~~916~~776
Other comprehensive income, net of tax										2,540			2,540
Other comprehensive loss, net of tax										(5,014	)		(5,014	)
Comprehensive income													1514,~~456~~762
Stock issuance and related tax benefit		~~145~~153,~~877~~991		~~661~~734									~~661~~734
Stock issued through acquisition		2,853,362		47,794									47,794
Share-based compensation expense				1,~~427~~853									1,~~427~~853
Vested employee RSUs and SARs surrendered to cover tax consequences				(~~861~~896	)								(~~861~~896	)
Cash dividends ($0.33 per share)							(6,497	)					(6,497	)
Cash dividends ($0.44 per share)							(8,983	)					(8,983	)
Balance, September 30, 2016		22,603,421	$	205,120		$	66,112		$	5,239		$	276,471
Balance, December 31, 2016		22,611,535	$	205,584		$	70,486		$	(2,315	)	$	273,755
Net income							6,550						6,550
Other comprehensive income, net of tax										434			434
Comprehensive income													6,984
Stock issuance		54,391		599									599
Share-based compensation expense				397									397
Vested employee RSUs and SARs surrendered to cover tax consequences				(75	)								(75	)
Cash dividends ($0.11 per share)							(2,493	)					(2,493	)
Balance, March 31, 2017		22,665,926	$	206,505		$	74,543		$	(1,881	)	$	279,167

See accompanying notes.

Pacific Continental Corporation and Subsidiary

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine months ended
	Three months ended
	September 30,
	March 31,
	2016			2015
	2017			2016
Cash flows from operating activities:
Net income	$	126,~~916~~550		$	135,~~222~~459
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization, net of accretion		41,~~919~~980			51,~~476~~741
Deferred income taxes		3—			—3
Bank-owned life insurance income		(~~469~~223	)		(~~435~~146	)
Share-based compensation		~~1,427~~547			~~1,178~~384
Provision for loan losses		~~3,575~~900			~~1,175~~245
Gain on sale of investment securities		~~(309~~—	)		(~~336~~237	)
Valuation adjustment on foreclosed assets		162			125
Gain on sale of foreclosed assets		(3	)		—
Gain on sale of foreclosed assets		(302	)		12
Other than temporary impairment on investment securities		1			17
Other than temporary impairment on investment securities		19			13
Change in:
Interest receivable		~~698~~460			(~~368~~282	)
Deferred loan fees		~~381~~20			~~249~~40
Accrued interest payable and other liabilities		~~(1,991~~297	)		(1,~~321~~514	)
Income tax receivable		—			69
Other assets		(320	)		(468	)
Other assets		(1,073	)		1,376
Net cash provided by operating activities		10,209			5,242
Net cash provided by operating activities		19,956			20,435
Cash flows from investing activities:
Proceeds from maturities and sales of available-for-sale investment securities		~~135~~12,~~319~~825			7523,~~718~~241
Purchase of available-for-sale investment securities		(~~160~~14,~~943~~479	)		(8736,~~025~~859	)
Net loan principal originations		(~~133~~55,~~405~~603	)		(~~107~~25,~~951~~242	)
Proceeds from sale of foreclosed assets		1,~~371~~015			~~2,350~~—
Net purchase of property and equipment		(~~2,196~~118	)		(~~739~~1,261	)
Redemption of Federal Home Loan Bank stock		1,097			3,878
(Purchase) Redemption of Federal Home Loan Bank stock		(4,901	)		1,697
Cash consideration received (paid), net of cash acquired in merger		43,855			(3,249	)
Net cash used by investing activities		(61,261	)		(38,424	)
Net cash used by investing activities		(114,902	)		(117,018	)
Cash flows from financing activities:
Change in deposits		~~169~~(67,~~032~~837	)		8799,~~894~~495
Change in repurchase agreements		~~1,036~~846			~~209~~407
Change in federal funds purchased and Federal Home Loan Bank short-term borrowings		~~(44~~117,~~500~~000	)		25(47,~~500~~000	)
FHLB term advances originated		12,500			—
Proceeds from stock options exercised		599			210
Proceeds from stock options exercised		620			13
Excess tax benefit from stock options exercised		—			19
Excess tax benefit from stock options exercised		41			—
Dividends paid		(2,493	)		(2,156	)
Redemption of Capital Pacific Bell State Bank Debt		—			(3,344	)
Vested employee RSUs and SARs surrendered to cover tax consequences		(75	)		(9	)
Proceeds from subordinated debenture issuance		34,072			—
Net cash provided by financing activities		48,040			50,966
Dividends paid		(6,497	)		(5,886	)
Net change in cash and cash equivalents		(3,012	)		17,784
Vested employee RSUs and SARs surrendered to cover tax consequences		(861	)		(599	)
Cash and cash equivalents, beginning of period		67,113			36,675
Net cash provided by financing activities		165,443			103,787
Cash and cash equivalents, end of period	$	64,101		$	54,459
Net change in cash and cash equivalents		70,497			7,204
Cash and cash equivalents, beginning of period		36,675			25,787
Cash and cash equivalents, end of period	$	107,172		$	32,991
Supplemental information:
Noncash investing and financing activities:
Transfer of loans to other real estate owned	$	958		$	967
Change in fair value of securities, net of deferred income taxes	$	490		$	2,592
Change in fair value of securities, net of deferred income taxes	$	3,116		$	988
Change in fair value of cash flow hedge, net of deferred income taxes	$	(56	)	$	(111	)
Change in fair value of cash flow hedge, net of deferred income taxes	$	(576	)	$	(129	)
Acquisitions:
Assets acquired	$	450,040		$	257,924
Liabilities assumed	$	402,246		$	232,698
Cash paid during the period for:
Income taxes	$	~~7,667~~3		$	41,~~878~~312
Interest	$	31,~~653~~601		$	31,~~429~~268

See accompanying notes.

Pacific Continental Corporation and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

A complete set of Notes to Consolidated Financial Statements is a part of the Company’s ~~2015~~2016 Form 10-K ~~filed March 14~~, ~~2016~~as amended. The notes below are included due to material changes in the consolidated financial statements or to provide the reader with additional information not otherwise available. In preparing these consolidated financial statements, the Company has evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements. All dollar amounts in the following notes are expressed in thousands, except share and per share amounts or where otherwise indicated.

Certain amounts contained in the prior period consolidated financial statements have been reclassified where appropriate to conform to the financial statement presentation used in the current period. These reclassifications had no effect on previously reported net income, earnings per share or retained earnings.

NOTE 1 - BASIS OF PRESENTATION

The accompanying interim consolidated financial statements include the accounts of Pacific Continental Corporation (the “Company”), a bank holding company, and its wholly owned subsidiary, Pacific Continental Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, PCB Services Corporation and PCB Loan Services Corporation (both of which are presently inactive). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles in the United States of America for interim financial information. The consolidated financial statements include all adjustments and normal accruals, which the Company considers necessary for a fair presentation of the results of operations for such interim periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the balance sheets and income and expenses for the periods. Areas including allowance for loan losses, goodwill and intangibles and other real estate owned are particularly susceptible to change, and actual results could differ from those estimates.

The balance sheet data as of December 31, ~~2015~~2016, was derived from audited consolidated financial statements, but does not include all disclosures contained in the Company’s ~~2015~~2016 Form 10-K. The interim consolidated financial statements should be read in conjunction with the December 31, ~~2015~~2016, consolidated financial statements, including the notes thereto, included in the Company’s ~~2015~~2016 Form 10-K.

NOTE 2 – ~~BUSINESS~~SECURITIES ~~COMBINATIONS~~AVAILABLE-FOR-SALE

OnThe ~~September 6,~~amortized ~~2016,~~cost ~~the~~and ~~Company~~estimated ~~completed~~fair ~~its~~values ~~acquisition~~ of ~~all~~securities ~~of the common stock of Foundation Bancorp, Inc. (Foundation Bancorp) and its wholly~~available-~~owned~~for-sale ~~subsidiary,~~at ~~Foundation~~March ~~Bank~~31, ~~of Bellevue~~2017, ~~Washington~~were ~~(the~~as ~~“Merger”).~~follows: ~~The acquisition of Foundation Bank reflects the Company’s overall banking expansion strategy, and expanded the combined Bank’s presence in the greater Puget Sound market.~~

The transaction has been accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their estimated fair values as of the acquisition dates, however some valuations related to some other real estate owned properties are pending and could cause goodwill to change. The application of the acquisition method resulted in the recognition of preliminary goodwill of $21,407 which is all attributable to the value of Foundation Bank’s lending and deposit gathering banking activities. None of the goodwill is deductible for income tax purposes as the Merger was accounted for as a tax-free exchange.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Percentage of Portfolio
Unrealized Loss Positions
Private-label mortgage-backed securities	$	256	$	—	$	(2	)	$	254		0.05	%
Mortgage-backed securities		225,037		—		(5,260	)		219,777		46.55	%
SBA pools		24,973		—		(408	)		24,565		5.20	%
Obligations of U.S. government agencies		6,995		—		(39	)		6,956		1.47	%
Obligations of states and political subdivisions		36,496		—		(949	)		35,547		7.53	%

	$	293,757	$	—	$	(6,658	)	$	287,099		60.80	%

Unrealized Gain Positions
Obligations of U.S. government agencies	$	18,285	$	391	$	—		$	18,676		3.96	%
Obligations of states and political subdivisions		73,427		2,225		—			75,652		16.02	%
Private-label mortgage-backed securities		1,376		157		—			1,533		0.32	%
Mortgage-backed securities		71,974		693		—			72,667		15.39	%
SBA variable rate pools		16,429		110		—			16,539		3.50	%

	$	181,491	$	3,576	$	—		$	185,067		39.20	%

	$	475,248	$	3,576	$	(6,658	)	$	472,166		100.00	%

AAt ~~summary~~March 31, 2017, the Bank held 480 investment securities, of which 176 were in unrealized loss positions. Unrealized losses existed on certain securities classified as obligations of U.S. government agencies, private-label mortgage-backed securities, mortgage-backed securities, SBA pools and obligations of states and political subdivisions. The unrealized losses on all securities are deemed to be temporary, as these securities retain strong credit ratings, continue to perform adequately, and are backed by various government sponsored enterprises. These decreases in fair value are associated with the ~~net~~changes ~~assets~~in ~~acquired~~market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the ~~estimated~~underlying ~~fair~~credit of the issuers or the underlying collateral. The decline in value ~~adjustments~~of these securities has resulted from 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 ~~Foundation~~amortized ~~Bancorp~~cost ~~are~~basis, ~~presented~~which ~~below:~~may be upon maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2017.

	September 6, 2016
Cost basis net assets	$	90,993
Less:
Cash payment to shareholders		(19,337	)
Stock issued		(47,794	)
Fair value adjustments:
Loans, net		(11,257	)
Core deposit intangible		5,762
Junior subordinated debentures		3,173
Deferred tax asset adjustment		(2,948	)
Securities		1,541
Other		1,274
Goodwill	$	21,407

Pursuant to the terms of the merger agreement, former Foundation Bancorp shareholders received either $12.50 per share in cash or 0.7911 shares of Pacific Continental common stock for each share of Foundation Bancorp common stock, or a combination of 30.0% in the form of cash and 70.0% in the form of Pacific Continental common stock. Pursuant to the merger agreement, the maximum aggregate cash component of the merger consideration was $19,337 and the aggregate stock component of the merger consideration was 2,853,361 shares of Pacific Continental common stock, the value of which was calculated based on a closing stock price of $16.75 per share. The cash election was oversubscribed; therefore shareholders electing all cash received $8.72 in cash and 0.23915 shares of Pacific Continental common stock for each share of Foundation Bancorp common stock. Former Foundation Bancorp shareholders making a valid mixed election received $3.75 in cash and 0.55377 shares of Pacific Continental common stock for each share of Foundation Bancorp common stock.

The operations of Foundation Bank are included in the operating results beginning September 6, 2016. Foundation Bank’s results of operations prior to the acquisition are not included in the operating results. Revenue information for Foundation Bank related revenue and expense cannot be practically separated from Pacific Continental, therefore proforma revenue disclosures have not been included. Merger-related expense of $1,767 were recorded during the quarter ended September 30, 2016, and were $3,745 for the nine months ended September 30, 2016 and are included within the merger-related expense line item on the Consolidated Statements of Income.

The ~~statement~~following oftable ~~assets~~presents ~~acquired~~a ~~and~~summary ~~liabilities~~of ~~assumed~~securities atin ~~their~~a ~~fair~~continuous ~~values~~unrealized ~~are~~loss ~~presented~~position ~~below as of the~~at ~~transaction~~March ~~closing~~31, ~~date~~2017:

FOUNDATION BANCORP, INC.


	Securities in Continuous Unrealized Loss Position for Less Than 12 Months		Gross Unrealized Loss on Securities in Loss Position for Less Than 12 Months			Securities in Continuous Unrealized Loss Position for 12 Months or Longer		Gross Unrealized Loss on Securities in Loss Position for 12 Months or Longer
Obligations of U.S. government agencies	$	6,956	$	(39	)	$	—	$	—
Obligations of states and political subdivisions		35,547		(949	)		—		—
Private-label mortgage-backed securities		25		—			229		(2	)
Mortgage-backed securities		215,472		(5,169	)		4,305		(91	)
SBA variable rate pools		20,615		(371	)		3,950		(37	)

	$	278,615	$	(6,528	)	$	8,484	$	(130	)

~~Opening~~On ~~balance~~a ~~sheet~~monthly basis, management reviews all private-label mortgage-backed securities for the presence of other than temporary impairment (“OTTI”) and recorded $1 and $17 of OTTI during the three months ended March 31, 2017 and 2016, respectively. Management’s evaluation included the use of independently-generated third-party credit surveillance reports that analyze the loans underlying each security. These reports include estimates of default rates and severities, life collateral loss rates and static voluntary prepayment assumptions to generate estimated cash flows at the individual security level. Additionally, management considered factors such as downgraded credit ratings, severity and duration of the impairments, the stability of the issuers and any discounts paid when the securities were purchased. Management has considered all available information related to the collectability of the impaired investment securities and believes that the estimated credit loss is appropriate.

(Following is a tabular roll-forward of the aggregate amount of credit-related OTTI at the beginning and end of the periods presented along with the amounts recognized in ~~thousands)~~earnings during the three months ended March 31, 2017, and 2016:

unaudited


	Three months ended March 31,
	2017		2016
Balance, beginning of period:	$	270	$	249
Additions:
Initial OTTI credit loss		1		17

Balance, end of period:	$	271	$	266

	September 6,2016
ASSETS
Cash and due from banks, net of consideration paid	$	43,855
Securities available-for-sale		88,331
Gross loans		281,790
Fair value adjustments
Credit quality-related		(8,884	)
Interest rate-related		(2,373	)
Net Loans		270,533
Interest receivable		934
Federal Home Loan Bank stock		532
Property and equipment		408
Goodwill		21,407
Core deposit intangible		5,762
Deferred tax asset		3,894
Other real estate owned		1,592
Bank-owned life insurance		11,574
Other asset		1,218
Total Assets	$	450,040
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	396,509
Other liabilities		2,724
Junior subordinated debentures		3,013
Total liabilities		402,246
Common stock issued to Foundation Bancorp shareholders		47,794
Total liabilities and shareholders’ equity	$	450,040

At March 31, 2017, nine of the Company’s private-label mortgage-backed securities, with aggregate amortized cost of $1,243 were classified as substandard as their underlying credit was considered impaired. At December 31, 2016, nine securities with an aggregate amortized cost of $1,338 were classified as substandard.

~~Acquired~~At ~~loans~~March at31, ~~the~~2017, ~~acquisition date~~ and asDecember ~~of September 30~~31, 2016, ~~are~~the ~~presented~~projected ~~below:~~average life of the securities portfolio was 4.8 years and 4.2 years, respectively.

	September 6,2016			September 30,2016
Contractually required principal payments	$	281,790		$	277,683
Purchase adjustment for credit and interest rate		(11,257	)		(10,748	)
Balance of acquired loans	$	270,533		$	266,935

Purchased credit impaired loans accounted for under ASC 310-30 acquired through the acquisition have a contractually required payments receivable on the acquisition date of $21,575.

The ~~acquisition~~amortized ofcost ~~Foundation Bancorp~~ and itestimated ~~wholly-owned~~fair ~~subsidiary~~values ~~Foundation~~of ~~Bank~~securities isavailable-for-sale ~~not~~at ~~considered significant~~December ~~to the Company’s consolidated financial statements and~~31, ~~therefore~~ 2016, ~~pro~~were ~~forma~~as ~~financial~~follows: ~~information is not presented.~~


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Percentage of Portfolio
Unrealized Loss Positions
Obligations of U.S. government agencies	$	3,995	$	—	$	(49	)	$	3,946		0.84	%
Obligations of states and political subdivisions		41,016		—		(1,279	)		39,737		8.44	%
Private-label mortgage-backed securities		241		—		(23	)		218		0.05	%
Mortgage-backed securities		221,835		—		(5,362	)		216,473		45.96	%
SBA variable rate pools		26,758		—		(493	)		26,265		5.58	%

	$	293,845	$	—	$	(7,206	)	$	286,639		60.86	%

Unrealized Gain Positions
Obligations of U.S. government agencies	$	21,290	$	384	$	—		$	21,674		4.60	%
Obligations of states and political subdivisions		69,148		1,854		—			71,002		15.07	%
Private-label mortgage-backed securities		1,566		153		—			1,719		0.36	%
Mortgage-backed securities		72,752		811		—			73,563		15.62	%
SBA variable rate pools		16,281		118		—			16,399		3.48	%

	$	181,037	$	3,320	$	—		$	184,357		39.14	%

	$	474,882	$	3,320	$	(7,206	)	$	470,996		100.00	%

At December 31, 2016, the Bank held 485 investment securities, of which 179 were in unrealized loss positions. The following table presents a summary of securities in a continuous unrealized loss position at December 31, 2016:


	Securities in Continuous Unrealized Loss Position for Less Than 12 Months		Gross Unrealized Loss on Securities in Loss Position for Less Than 12 Months			Securities in Continuous Unrealized Loss Position for 12 Months or Longer		Gross Unrealized Loss on Securities in Loss Position for 12 Months or Longer
Obligations of U.S. government agencies	$	3,946	$	(49	)	$	—	$	—
Obligations of states and political subdivisions		39,737		(1,279	)		—		—
Private-label mortgage-backed securities		—		—			218		(23	)
Mortgage-backed securities		211,721		(5,266	)		4,752		(96	)
SBA variable rate pools		22,076		(458	)		4,189		(35	)

	$	277,480	$	(7,052	)	$	9,159	$	(154	)

~~NOTE~~The 3amortized –cost ~~SECURITIES~~and ~~AVAILABLE~~estimated fair value of securities at March 31, 2017, by maturity, are shown below. Obligations of U.S. government agencies, states and political subdivisions and corporate securities are shown by contractual maturity. Mortgage-~~FOR-SALE~~backed securities and SBA variable pools are shown by projected average life.

The amortized cost and estimated fair values of securities available-for-sale at September 30, 2016, were as follows:


	March 31, 2017
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	10,021	$	10,041
Due after one year through 5 years		228,487		228,436
Due after 5 years through 10 years		194,987		192,897
Due after 10 years		41,753		40,792

	$	475,248	$	472,166

			Gross		Gross			Estimated		Percentage
	Amortized		Unrealized		Unrealized			Fair		of
	Cost		Gains		Losses			Value		Portfolio
Unrealized Loss Positions
Private-label mortgage-backed securities		249		—		(24	)		225		0	%
Mortgage-backed securities		83,009		—		(328	)		82,681		17	%
SBA pools		19,261		—		(95	)		19,166		4	%
Obligations of states and political subdivisions		13,236		—		(60	)		13,176		3	%
Corporate securities		899		—		(13	)		886		0	%
	$	116,654	$	—	$	(520	)	$	116,134		24	%
Unrealized Gain Positions
Obligations of U.S. government agencies	$	25,290	$	1,262	$	—		$	26,552		6	%
Obligations of states and political subdivisions		97,705		4,629		—			102,334		21	%
Private-label mortgage-backed securities		1,728		157		—			1,885		0	%
Mortgage-backed securities		206,376		3,678		—			210,054		44	%
SBA pools		25,205		245		—			25,449		5	%
	$	356,304	$	9,971	$	—		$	366,274		76	%
	$	472,958	$	9,971	$	(520	)	$	482,408		100	%

During the quarter ended March 31, 2017, there were no investment securities sold.

AtDuring ~~September 30, 2016,~~ the ~~Bank~~quarter ~~held~~ended ~~484~~March ~~investment securities~~31, ~~of which 61 were in unrealized loss positions. Unrealized losses existed on certain securities classified as obligations of US government agencies~~2016, ~~private-label~~six ~~mortgage-backed~~investment securities, ~~mortgage-backed~~were ~~securities,~~sold ~~SBA~~resulting ~~pools~~in ~~obligations~~proceeds of ~~states and political subdivisions~~$8, ~~and corporate securities~~970. The ~~unrealized~~sales ~~losses~~generated ona ~~all~~gross ~~securities are deemed to be temporary, as these securities retain strong credit ratings, continue to perform adequately, and are backed by various government sponsored enterprises. These decreases~~gain ~~in fair value are associated with the changes in market interest rates or the widening~~ of ~~market~~$240 ~~spreads~~and ~~subsequent~~a togross ~~the~~loss ~~initial purchase~~ of ~~the securities~~$3, ~~and~~totaling ~~not~~a ~~due~~net togain ~~concerns regarding the underlying credit~~ of ~~the issuers or the underlying collateral~~$237. The decline in value of these securities has resulted from 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 September 30, 2016.

The following table presents investment securities which were pledged to secure public deposits and repurchase agreements as permitted or required by law:


	March 31, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Pledged to secure public deposits	$	23,240	$	23,787	$	25,257	$	25,683
Pledged to secure repurchase agreements		4,810		4,761		3,579		3,573

	$	28,050	$	28,548	$	28,836	$	29,256

At March 31, 2017, and December 31, 2016, there was an outstanding balance for repurchase agreements of $2,812 and $1,966, respectively.

~~The~~NOTE ~~following~~3 ~~table~~- ~~presents~~LOANS, aALLOWANCE ~~summary~~FOR ofLOAN ~~securities~~LOSSES, inAND aCREDIT ~~continuous~~QUALITY ~~unrealized~~INDICATORS ~~loss position at September 30, 2016:~~

	Securities inContinuousUnrealizedLossPosition forLess Than12 Months		GrossUnrealized Losson Securitiesin LossPosition forLess Than12 Months			Securities inContinuousUnrealizedLossPosition for12 Monthsor Longer		GrossUnrealized Losson Securitiesin LossPosition for12 Monthsor Longer
Private-label mortgage-backed securities	$	—	$	—		$	225	$	(24	)
Mortgage-backed securities		79,207		(282	)		3,474		(46	)
SBA pools		15,240		(72	)		3,926		(23	)
Obligations of states and political subdivisions		13,176		(60	)		—		—
Corporate securities		—		—			886		(13	)
	$	107,623	$	(414	)	$	8,511	$	(106	)

On a monthly basis, management reviews all private-label mortgage-backed securities for the presence of other than temporary impairment (“OTTI”) and recorded $2 and $0 during the three months ended September 30, 2016 and 2015, respectively. Management’s evaluation included the use of independently-generated third-party credit surveillance reports that analyze the loans underlying each security. These reports include estimates of default rates and severities, life collateral loss rates and static voluntary prepayment assumptions to generate estimated cash flows at the individual security level. Additionally, management considered factors such as downgraded credit ratings, severity and duration of the impairments, the stability of the issuers and any discounts paid when the securities were purchased. Management has considered all available information related to the collectability of the impaired investment securities and believes that the estimated credit loss is appropriate.

Following is a tabular roll-forward of the aggregate amount of credit-related OTTI at the beginning and end of the periods presented along with the amounts recognized in earnings during the three and nine months ended September 30, 2016, and 2015:

	Three months ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
Balance, beginning of period:	$	266	$	241	$	249	$	227
Additions:
Initial OTTI credit loss		2		—		19		14
Balance, end of period:	$	268	$	241	$	268	$	241

At September 30, 2016, ten of the Company’s private-label mortgage-backed securities, with an amortized cost of $1,440, were classified as substandard as their underlying credit was considered impaired. At December 31, 2015, six securities with an amortized cost of $1,506 were classified as substandard.

At September 30, 2016, and December 31, 2015, the projected average life of the securities portfolio was 4.72 years and 4.21 years, respectively.

The amortized cost and estimated fair values of securities available-for-sale at December 31, 2015, were as follows:

	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses			EstimatedFair Value		PercentageofPortfolio
Unrealized Loss Positions
Obligations of U.S. government agencies	$	14,491	$	—	$	(119	)	$	14,372		3.92	%
Obligations of states and political subdivisions		13,438		—		(149	)		13,289		3.62	%
Private-label mortgage-backed securities		663		—		(33	)		630		0.17	%
Mortgage-backed securities		95,040		—		(856	)		94,184		25.69	%
SBA pools		17,225		—		(101	)		17,124		4.67	%
Corporate securities		899		—		(5	)		893		0.25	%
	$	141,756	$	—	$	(1,263	)	$	140,492		38.32	%
Unrealized Gain Positions
Obligations of U.S. government agencies	$	29,669	$	582	$	—		$	30,251		8.25	%
Obligations of states and political subdivisions		80,119		3,743		—			83,862		22.88	%
Private-label mortgage-backed securities		2,028		131		—			2,159		0.59	%
Mortgage-backed securities		90,126		1,060		—			91,186		24.87	%
SBA pools		18,560		88		—			18,648		5.09	%
	$	220,502	$	5,604	$	—		$	226,106		61.68	%
	$	362,258	$	5,604	$	(1,263	)	$	366,598		100.00	%

At December 31, 2015, the Bank held 432 investment securities, of which 92 were in unrealized loss positions. The following table presents a summary of securities in a continuous unrealized loss position at December 31, 2015:

	Securities inContinuousUnrealizedLossPosition forLess Than12 Months		GrossUnrealized Losson Securitiesin LossPosition forLess Than12 Months			Securities inContinuousUnrealizedLossPosition for12 Monthsor Longer		GrossUnrealized Losson Securitiesin LossPosition for12 Monthsor Longer
Obligations of U.S. government agencies	$	14,372	$	(119	)	$	—	$	—
Obligations of states and political subdivisions		12,761		(145	)		528		(4	)
Private-label mortgage-backed securities		240		(4	)		390		(29	)
Mortgage-backed securities		87,896		(711	)		6,288		(145	)
SBA pools		13,539		(78	)		3,585		(23	)
Corporate securities		893		(5	)		—		—
	$	129,701	$	(1,062	)	$	10,791	$	(201	)

The amortized cost and estimated fair value of securities at September 30, 2016, by maturity, are shown below. Obligations of U.S. government agencies, states and political subdivisions and corporate securities are shown by contractual maturity. Mortgage-backed securities and SBA variable pools are shown by projected average life.

	September 30, 2016
	AmortizedCost		EstimatedFairValue
Due in one year or less	$	8,466	$	8,523
Due after one year through 5 years		240,116		243,481
Due after 5 years through 10 years		180,377		185,187
Due after 10 years		43,999		45,217
	$	472,958	$	482,408

During the quarter ended September 30, 2016, 30 investment securities were sold resulting in proceeds of $54,426. The sales generated no gain or loss as they related to sales of securities acquired from Foundation Bank, which were sold at their acquisition date fair value. During the nine months ended September 30, 2016, 60 investment securities were sold resulting in proceeds of $98,309. The sales generated a gross gain of $552 and a gross loss of $243, totaling a net gain of $309. The specific identification method was used to determine the cost of the securities sold.

During the quarter ended September 30, 2015, 19 investment securities were sold resulting in proceeds of $21,069. The sales generated a gross gain of $143 and a gross loss of $0, totaling a net gain of $143. During the nine months ended September 30, 2015, 41 investment securities were sold resulting in proceeds of $35,216. The sales generated a gross gain of $585 and a gross loss of $249, totaling a net gain of $336. The specific identification method was used to determine the cost of the securities sold.

The following table presents investment securities which were pledged to secure public deposits and repurchase agreements as permitted or required by law:

	September 30, 2016				December 31, 2015
	AmortizedCost		EstimatedFairValue		AmortizedCost		EstimatedFairValue
Pledged to secure public deposits	$	24,435	$	26,677	$	27,938	$	29,052
Pledged to secure repurchase agreements		1,637		1,714		3,985		4,111
	$	26,072	$	28,391	$	31,923	$	33,163

At September 30, 2016, and December 31, 2015, there was an outstanding balance for repurchase agreements of $1,107, and $71, respectively.

NOTE 4 - LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY INDICATORS

Loans are stated at the amount of unpaid principal net of loan premiums or discounts for purchased loans, net of deferred loan origination fees, discounts associated with retained portions of loans sold, and an allowance for loan losses. Interest on loans is calculated using the simple-interest method on daily balances of the principal amount outstanding. Loan origination fees, net of origination costs and discounts, are amortized over the lives of the loans as adjustments to yield.

Major classifications of period-end loans are as follows:

	September 30,			% of Gross			December 31,			% of Gross
	March 31,			% of Gross			December 31,			% of Gross
	2016			Loans			2015			Loans
	2017			Loans			2016			Loans
Real estate loans
Multi-family residential	$	7980,~~126~~333			4.3720	%	$	6674,~~445~~340			4.7300	%
Residential 1-4 family		61,~~498~~516			3.4021	%		5361,~~776~~548			3.8231	%
Owner-occupied commercial		~~425~~468,~~879~~296			2324.5546	%		~~364~~461,~~742~~557			2524.9482	%
Nonowner-occupied commercial		~~431~~462,~~119~~555			2324.8416	%		~~300~~451,~~774~~893			2124.3930	%
Total permanent real estate loans		~~997~~1,~~622~~072,700			5556.1603	%		~~785~~1,~~737~~049,338			5556.8843	%
Construction loans
Multi-family residential		2429,~~567~~473			1.3654	%		722,~~027~~252			01.5020	%
Residential 1-4 family		4248,~~130~~449			2.3353	%		3043,~~856~~532			2.1934	%
Commercial real estate		7890,~~369~~389			4.3372	%		4276,~~680~~301			34.0410	%
Commercial bare land and acquisition & development		1910,~~050~~398			10.0554	%		2015,~~537~~081			10.4681	%
Residential bare land and acquisition & development		89,~~852~~682			0.4951	%		710,~~268~~645			0.5257	%
Total construction real estate loans		~~172~~188,~~968~~391			9.5684	%		~~108~~167,~~368~~811			79.7102	%
Total real estate loans		1,~~170~~261,~~590~~091			6465.7287	%		~~894~~1,~~105~~217,149			6365.5945	%
Commercial loans		~~630~~640,~~091~~520			3433.8445	%		~~501~~630,~~976~~491			3533.7089	%
Consumer loans		3,~~201~~000			0.1816	%		32,~~351~~922			0.2416	%
Other loans		410,~~764~~037			0.2652	%		69,~~580~~225			0.4750	%
Gross loans		1,~~808~~914,~~646~~648			100.00	%		1,~~406~~859,~~012~~787			100.00	%
Deferred loan origination fees		(12,~~910~~040	)					(12,~~530~~020	)
		1,806,736						1,404,482
		1,912,608						1,857,767
Allowance for loan losses		(2022,~~531~~612	)					(1722,~~301~~454	)
Total loans, net of allowance forloan losses and net deferredfees	$	1,~~786~~889,~~205~~996					$	1,~~387~~835,~~181~~313

At ~~September 30~~March 31, ~~2016~~2017, outstanding loans to dental professionals totaled $~~370~~382,~~135~~867 and represented 20.4600% of total outstanding loan principal balances compared to dental professional loans of $~~340~~377,~~162~~478, or 2420.1930% of total outstanding loan principal balance at December 31, ~~2015~~2016. Additional information about the Company’s dental portfolio can be found in Note 4 5to theses consolidated financial statements. There are no other industry concentrations in excess of 10% of the total loan portfolio. However, as of ~~September 30~~March 31, ~~2016~~2017, 6465.7287% of the Company’s loan portfolio was collateralized by real estate and is, therefore, susceptible to changes in local market conditions. While appropriate action is taken to manage identified concentration risks, management believes that the loan portfolio is well diversified by geographic location and among industry groups.

1613

Purchased Credit Impaired Loans

The following table represents the contractually required principal balance of purchased credit impaired loans and the carrying balance at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

	September 30,			December 31,
	March 31,			December 31,
	2016			2015
	2017			2016
Contractually required principal payments for purchase credit impaired loans	$	27,668		$	11,528
Contractually required principal payments for purchased credit impaired loans	$	21,053		$	22,941
Accretable yield		(1,~~696~~359	)		(1,~~070~~453	)
Nonaccretable yield		(~~919~~669	)		(~~378~~809	)
Balance of purchased credit impaired loans	$	2519,~~053~~025		$	1020,~~080~~679

The following tables summarize the changes in the accretable yield for purchased credit impaired loans for the periods ended ~~September 30~~March 31, ~~2016~~2017 and ~~2015~~2016:

	Three months ended September 30,
	Three months ended March 31,
	2016												2015
	2017									2016
	Century			CapitalPacific			Foundation			Total			Century			CapitalPacific			Total
	CapitalPacific			Foundation			Total			Century			CapitalPacific			Total
Balance, beginning of period	$	—765		$	~~860~~688		$	—1,453		$	~~860~~40		$	961,030		$	1,~~364~~070		$	~~1,460~~
Additions		—			—			~~908~~—			~~908~~—			—			—			—
Accretion to interest income		—(38	)		(4956	)		(2294	)		(7129	)		(2891	)		(~~114~~120	)		~~(142~~	)
Balance, end of period	$	—727		$	~~811~~632		$	~~886~~1,359		$	~~1,697~~11		$	68939		$	~~1,250~~950		$	~~1,318~~
	Nine months ended September 30,
	2016												2015
	Century			CapitalPacific			Foundation			Total			Century			CapitalPacific			Total
Balance, beginning of period	$	39		$	1,031		$	—		$	1,070		$	151		$	—		$	151
Additions		—			—			908			908			—			1,569			1,569
Accretion to interest income		(39	)		(220	)		(22	)		(281	)		(83	)		(319	)		(402	)
Balance, end of period	$	—		$	811		$	886		$	1,697		$	68		$	1,250		$	1,318

1714

Allowance for Loan Losses

The allowance for loan losses is established as an amount that management considers adequate to absorb possible losses on existing loans within the portfolio. The allowance consists of general, specific and unallocated components. The general component is based upon all loans collectively evaluated for impairment. The specific component is based upon all loans individually evaluated for impairment. The unallocated component represents credit losses inherent in the loan portfolio that may not have been contemplated in the general risk factors or the specific allowance analysis. Loans are charged against the allowance when management believes the collection of principal and interest is unlikely.

The Company performs regular credit reviews of the loan portfolio to determine the credit quality and adherence to underwriting standards. When loans are originated, they are assigned a risk rating that is reassessed periodically during the term of the loan through the credit review process. The Company’s internal risk rating methodology assigns risk ratings ranging from one to ten, where a higher rating represents higher risk. The ten-point risk rating categories are a primary factor in determining an appropriate amount for the allowance for loan losses.

Estimated credit losses reflect consideration of all significant factors that affect the collectability of the loan portfolio. The historical loss rate for each group of loans with similar risk characteristics is determined based on the Company’s own loss experience in that group. Historical loss experience and recent trends in losses provide a reasonable starting point for analysis,; however, they do not by themselves form a sufficient basis to determine the appropriate level for the allowance for loan losses. Qualitative or environmental factors that are likely to cause estimated credit losses to differ from historical losses are also considered, including but not limited to:

•

Changes in international, regional and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments,

•

Changes in the nature and volume of the portfolio and in the terms of loans,

•

Changes in the volume and severity of past due loans, the volume of nonaccrual loans and the volume and severity of adversely classified or graded loans,

•

Changes in the quality of the institution’s loan review system,

•

Changes in the value of underlying collateral for collateral-dependent loans,

•

The existence and effect of any concentrations of credit, and changes in the level of such concentrations,

•

The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio,

•

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses, and

•

Changes in the current and future U.S. political environment, including debt ceiling negotiations, government shutdown and healthcare reform that may affect national, regional and local economic conditions, taxation, or disruption of national or global financial markets.

The adequacy of the allowance for loan losses and the reserve for unfunded commitments is determined using a consistent, systematic methodology and is monitored regularly based on management’s evaluation of numerous factors. For each portfolio segment, these factors include:

•

The quality of the current loan portfolio,

•

The trend in the migration of the loan portfolio’s risk ratings,

•

The velocity of migration of losses and potential losses,

•

Current economic conditions,

•

Loan concentrations,

•

Loan growth rates,

•

Past-due and nonperforming trends,

•

Evaluation of specific loss estimates for all significant problem loans,

•

Recovery experience, and

•

Peer comparison loss rates.

1815

A summary of the activity in the allowance for loan losses by major loan classification follows:

	For the three months ended September 30, 2016
	For the three months ended March 31, 2017
	Commercialand Other			Real Estate			Construction		Consumer			Unallocated			Total
Beginning balance	$	78,~~391~~614		$	910,~~137~~872		$	1,~~341~~781	$	4641		$	1,~~212~~146		$	1922,~~127~~454
Charge-offs		(43641	)		—(150	)		—		(1—	)		—			(44791	)
Recoveries		5736			912			1		1—			—			6849
Provision (reclassification)		~~896~~(292	)		~~339~~565			~~312~~269		(41	)		~~(163~~359	)		~~1,380~~900
Ending balance	$	87,~~301~~717		$	911,~~485~~299		$	12,~~654~~051	$	4240		$	1,~~049~~505		$	2022,~~531~~612
	For the nine months ended September 30, 2016
	Commercialand Other			Real Estate			Construction		Consumer			Unallocated			Total
Beginning balance	$	6,349		$	8,297		$	1,258	$	46		$	1,351		$	17,301
Charge-offs		(708	)		—			—		(4	)		—			(712	)
Recoveries		159			44			162		2			—			367
Provision (reclassification)		2,501			1,144			234		(2	)		(302	)		3,575
Ending balance	$	8,301		$	9,485		$	1,654	$	42		$	1,049		$	20,531

At ~~September 30~~March 31, ~~2016~~2017, the allowance for loan losses on dental loans was $4,~~798~~171, compared to $4,~~022~~713 at December 31, ~~2015~~ 2016. See Note 54 for additional information on the dental loan portfolio.

1916

The following table presents the allowance and recorded investment in loans by major loan classification at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

	Balances as of September 30, 2016
	Balances as of March 31, 2017
	Commercialand Other		Real Estate		Construction		Consumer		Unallocated		Total
Ending allowance: collectively evaluated for impairment	$	7,~~567~~709	$	911,~~481~~298	$	12,~~654~~051	$	4240	$	1,~~049~~505	$	1922,~~793~~603
Ending allowance: individually evaluated for impairment		~~734~~8		41		—		—		—		~~738~~9
Ending allowance: loans acquired with deteriorated credit quality		—		—		—		—		—		—
Total ending allowance	$	87,~~301~~717	$	911,~~485~~299	$	12,~~654~~051	$	4240	$	1,~~049~~505	$	2022,~~531~~612
Ending loan balance: collectively evaluated for impairment	$	~~620~~641,~~997~~689	$	~~978~~1,~~030~~052,250	$	~~170~~188,~~816~~391	$	3,~~201~~000	$	—	$	1,~~773~~885,~~044~~330
Ending loan balance: individually evaluated for impairment		42,~~463~~793		37,~~934~~500		~~2,152~~—		—		—		10,~~549~~293
Ending loan balance: loans acquired with deteriorated credit quality		96,~~395~~075		1512,~~658~~950		—		—		—		2519,~~053~~025
Total ending loan balance	$	~~634~~650,~~855~~557	$	~~997~~1,~~622~~072,700	$	~~172~~188,~~968~~391	$	3,~~201~~000	$	—	$	1,~~808~~914,~~646~~648
	Balances as of December 31, 2015
	Balances as of December 31, 2016
	Commercialand Other		Real Estate		Construction		Consumer		Unallocated		Total
Ending allowance: collectively evaluated for impairment	$	67,~~303~~881	$	810,~~267~~869	$	1,~~159~~781	$	4641	$	1,~~351~~146	$	1721,~~126~~718
Ending allowance: individually evaluated for impairment		46733		303		99—		—		—		~~175~~736
Ending allowance: loans acquired with deteriorated credit quality		—		—		—		—		—		—
Total ending allowance	$	68,~~349~~614	$	810,~~297~~872	$	1,~~258~~781	$	4641	$	1,~~351~~146	$	1722,~~301~~454
Ending loan balance: collectively evaluated for impairment	$	~~504~~628,~~261~~773	$	~~771~~1,~~543~~027,354	$	~~107~~167,~~977~~491	$	32,~~351~~922	$	—	$	1,~~387~~826,~~132~~540
Ending loan balance: individually evaluated for impairment		24,~~627~~396		57,~~782~~852		~~391~~320		—		—		812,~~800~~568
Ending loan balance: loans acquired with deteriorated credit quality		16,~~668~~547		814,~~412~~132		—		—		—		1020,~~080~~679
Total ending loan balance	$	~~508~~639,~~556~~716	$	~~785~~1,~~737~~049,338	$	~~108~~167,~~368~~811	$	32,~~351~~922	$	—	$	1,~~406~~859,~~012~~787

The ~~September 30~~March 31, ~~2016~~2017, ending allowance includes $~~738~~9 in specific allowance for $10,~~549~~293 of impaired loans ($9,~~551~~ 377 net of government guarantees). At December 31, ~~2015~~2016, the Company had $812,~~800~~568 of impaired loans ($710,~~527~~567 net of government guarantees) with a specific allowance of $~~175~~736 assigned.

Management believes that the allowance for loan losses was adequate as of ~~September 30~~March 31, ~~2016~~2017. However, future loan losses may exceed the levels provided for in the allowance for loan losses and could possibly result in additional charges to the provision for loan losses.

2017

Credit Quality Indicators

The Company uses the following loan grades, which are also often used by regulators when assessing the credit quality of a loan portfolio.

Pass – Credit exposure in this category ~~range~~ranges between the highest credit quality to average credit quality. Primary repayment sources generate satisfactory debt service coverage under normal conditions. Cash flow from recurring sources is expected to continue to produce adequate debt service capacity. There are many levels of credit quality contained in the Pass definition, but none of the loans contained in this category rise to the level of Special Mention. This category includes loans with an internal risk rating of 1-6.

Special Mention – A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The Bank strictly and carefully employs the FDIC definition in assessing assets that may apply to this category. It is apparent that, in many cases, asset weaknesses relevant to this definition either (1) better fit a definition of a “well-defined weakness,” or (2) in management’s experience, ultimately migrate to worse risk grade categories, such as Substandard and Doubtful. Consequently, management elects to downgrade most potential Special Mention credits to Substandard or Doubtful, and therefore adopts a conservative risk grade process in the use of the Special Mention risk grade. This category includes loans with an internal risk rating of 7.

Substandard – A Substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified Substandard. This category includes loans with an internal risk rating of 8.

Doubtful – An asset classified as Doubtful has all the weaknesses inherent in one classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This category includes loans with an internal risk rating of 9.

Management strives to consistently apply these definitions when allocating its loans by loan grade. The loan portfolio is continuously monitored for changes in credit quality and management takes appropriate action to update the loan risk ratings accordingly. Management has not changed the Company’s policy towards its use of credit quality indicators during the periods reported.

2118

The following tables present the Company’s loan portfolio information by loan type and credit grade at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

Credit Quality Indicators

As of ~~September 30~~March 31, ~~2016~~2017

	Loan Grade
	Pass			Special Mention			Substandard			Doubtful			Totals
Real estate loans
Multi-family residential	$	7980,~~126~~333		$	—		$	—		$	—		$	7980,~~126~~333
Residential 1-4 family		5759,~~629~~881			—			31,~~869~~635			—			61,~~498~~516
Owner-occupied commercial		~~413~~450,~~835~~629			—			1217,~~044~~667			—			~~425~~468,~~879~~296
Nonowner-occupied commercial		~~424~~456,~~397~~054			—			6,~~722~~501			—			~~431~~462,~~119~~555
Total real estate loans		~~974~~1,~~987~~046,897			—			2225,~~635~~803			—			~~997~~1,~~622~~072,700
Construction
Multi-family residential		2429,~~567~~473			—			—			—			2429,~~567~~473
Residential 1-4 family		4248,~~130~~449			—			—			—			4248,~~130~~449
Commercial real estate		7890,~~369~~389			—			—			—			7890,~~369~~389
Commercial bare land and acquisition & development		1910,~~050~~398			—			—			—			1910,~~050~~398
Residential bare land and acquisition & development		69,~~630~~069			—			~~2,222~~613			—			89,~~852~~682
Total construction loans		~~170~~187,~~746~~778			—			~~2,222~~613			—			~~172~~188,~~968~~391
Commercial and other		~~613~~635,~~144~~775			—			2014,~~050~~782			~~1,661~~—			~~634~~650,~~855~~557
Consumer		3,~~201~~000			—			—			—			3,~~201~~000
Totals	$	1,~~762~~873,~~078~~450		$	—		$	4441,~~907~~198		$	~~1,661~~—		$	1,~~808~~914,~~646~~648
Percentage of portfolio		97.4385	%		0.00	%		2.4815	%		0.0900	%		100.00	%
Credit Quality Indicators
As of December 31, 2015
As of December 31, 2016
	Loan Grade
	Pass			Special Mention			Substandard			Doubtful			Totals
Real estate loans
Multi-family residential	$	6674,~~208~~340		$	—		$	~~237~~—		$	—		$	6674,~~445~~340
Residential 1-4 family		4958,~~077~~286			—			43,~~699~~262			—			5361,~~776~~548
Owner-occupied commercial		~~353~~443,~~249~~737			—			1117,~~493~~820			—			~~364~~461,~~742~~557
Nonowner-occupied commercial		~~296~~445,~~528~~283			—			46,~~246~~610			—			~~300~~451,~~774~~893
Total real estate loans		~~765~~1,~~062~~021,646			—			2027,~~675~~692			—			~~785~~1,~~737~~049,338
Construction
Multi-family residential		722,~~027~~252			—			—			—			722,~~027~~252
Residential 1-4 family		3043,~~803~~532			—			53—			—			3043,~~856~~532
Commercial real estate		4276,~~580~~301			—			~~100~~—			—			4276,~~680~~301
Commercial bare land and acquisition & development		2015,~~265~~081			—			~~272~~—			—			2015,~~537~~081
Residential bare land and acquisition & development		49,~~969~~852			—			~~2,299~~793			—			710,~~268~~645
Total construction loans		~~105~~167,~~644~~018			—			~~2,724~~793			—			~~108~~167,~~368~~811
Commercial and other		~~494~~621,~~267~~165			—			1416,~~289~~890			—1,661			~~508~~639,~~556~~716
Consumer		32,~~350~~922			—			1—			—			32,~~351~~922
Totals	$	1,~~368~~812,~~323~~751		$	—		$	3745,~~689~~375		$	—1,661		$	1,~~406~~859,~~012~~787
Percentage of portfolio		97.3247	%		0.00	%		2.6844	%		0.0009	%		100.00	%

At ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016, the Company had $3474,~~370,~~ and $~~360~~1,026, respectively, in ~~unfunded~~ unfunded commitments on its classified loans, which amounts are included in the calculation of our classified asset ratio.

2219

Past Due and Nonaccrual Loans

The Company uses the terms “past due” and “delinquent” interchangeably. Amortizing loans are considered past due or delinquent based upon the number of contractually required payments not made. Delinquency status for all contractually matured loans, commercial and commercial real estate loans with non-monthly amortization, and all other extensions of credit is determined based upon the number of calendar months past due.

The following tables present an aging analysis of past due and nonaccrual loans at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

Age Analysis of Loans Receivable

As of ~~September 30~~March 31, ~~2016~~2017

	30-59 DaysPast DueStill Accruing			60-89 DaysPast DueStill Accruing			GreaterThan 90 daysPast DueStill Accruing			Nonaccrual			Total PastDue andNonaccrual			TotalCurrent			Total LoansReceivable
Real estate loans
Multi-family residential	$	—		$	—		$	—		$	—		$	—		$	7980,~~126~~333		$	7980,~~126~~333
Residential 1-4 family		2359			—			—			~~162~~153			~~185~~212			5860,~~634~~254			5860,~~819~~466
Owner-occupied commercial		—			—			—			—			—			~~416~~459,~~118~~535			~~416~~459,~~118~~535
Nonowner-occupied commercial		—536			—			—			~~663~~575			~~663~~1,111			~~427~~458,~~238~~311			~~427~~459,~~901~~422
Total real estate loans		23595			—			—			~~825~~728			~~848~~1,323			~~981~~1,~~116~~058,433			~~981~~1,~~964~~059,756
Construction
Multi-family residential		—			—			—			—			—			2429,~~567~~473			2429,~~567~~473
Residential 1-4 family		—			—			—			—			—			4248,~~130~~449			4248,~~130~~449
Commercial real estate		—			—			—			—			—			7890,~~369~~389			7890,~~369~~389
Commercial bare land and acquisition & development		—			—			—			—			—			1910,~~050~~398			1910,~~050~~398
Residential bare land and acquisition & development		—			—			—			—			—			89,~~852~~682			89,~~852~~682
Total construction loans		—			—			—			—			—			~~172~~188,~~968~~391			~~172~~188,~~968~~391
Commercial and other		~~149~~585			—			—			21,~~847~~684			2,~~996~~269			~~622~~642,~~464~~207			~~625~~644,~~460~~476
Consumer		—3			—			—			—			—3			32,~~201~~997			3,~~201~~000
Total	$	~~172~~1,183		$	—		$	—		$	32,~~672~~412		$	3,~~844~~595		$	1,~~779~~892,~~749~~028		$	1,~~783~~895,~~593~~623
Percentage of portfolio		0.01	%		0.00	%		0.00	%		0.21	%		0.22	%		99.78	%		100.00	%
Age Analysis of Loans Receivable As of December 31, 2016
	30-59 DaysPast DueStill Accruing			60-89 DaysPast DueStill Accruing			GreaterThan 90 daysPast DueStill Accruing			Nonaccrual			Total PastDue andNonaccrual			TotalCurrent			Total LoansReceivable
Real estate loans
Multi-family residential	$	—		$	—		$	—		$	—		$	—		$	74,340		$	74,340
Residential 1-4 family		—			—			—			158			158			59,241			59,399
Owner-occupied commercial		—			—			—			—			—			452,748			452,748
Nonowner-occupied commercial		—			—			—			601			601			448,118			448,719
Total real estate loans		—			—			—			759			759			1,034,447			1,035,206
Construction
Multi-family residential		—			—			—			—			—			22,252			22,252
Residential 1-4 family		—			—			—			—			—			43,532			43,532
Commercial real estate		—			—			—			—			—			76,301			76,301
Commercial bare land and acquisition & development		—			—			—			—			—			15,081			15,081
Residential bare land and acquisition & development		—			—			—			—			—			10,645			10,645
Total construction loans		—			—			—			—			—			167,811			167,811
Commercial and other		363			366			—			2,794			3,523			629,646			633,169
Consumer		—			—			—			—			—			2,922			2,922
Total	$	363		$	366		$	—		$	3,553		$	4,282		$	1,834,826		$	1,839,108

~~Age~~20 ~~Analysis of Loans Receivable~~

As of December 31, 2015

	30-59 DaysPast DueStill Accruing			60-89 DaysPast DueStill Accruing			GreaterThan 90 daysPast DueStill Accruing			Nonaccrual			Total PastDue andNonaccrual			TotalCurrent			Total LoansReceivable
Real estate loans
Multi-family residential	$	—		$	—		$	—		$	—		$	—		$	66,445		$	66,445
Residential 1-4 family		—			—			—			374			374			51,578			51,952
Owner-occupied commercial		—			—			—			—			—			359,065			359,065
Nonowner-occupied commercial		—			—			—			750			750			299,486			300,236
Total real estate loans		—			—			—			1,124			1,124			776,574			777,698
Construction
Multi-family residential		—			—			—			—			—			7,027			7,027
Residential 1-4 family		480			—			—			53			533			30,323			30,856
Commercial real estate		—			—			—			—			—			42,580			42,580
Commercial bare land and acquisition & development		—			—			—			—			—			20,265			20,265
Residential bare land and acquisition & development		—			—			—			—			—			7,268			7,268
Total construction loans		480			—			—			53			533			107,463			107,996
Commercial and other		—			—			—			1,495			1,495			505,392			506,887
Consumer		1			3			—			—			4			3,347			3,351
Total	$	481		$	3		$	—		$	2,672		$	3,156		$	1,392,776		$	1,395,932
Percentage of portfolio		0.03	%		0.00	%		0.00	%		0.19	%		0.23	%		99.77	%		100.00	%

Impaired Loans

Regular credit reviews of the portfolio are performed to identify loans that are considered potentially impaired. Potentially impaired loans are referred to the Asset-Liability Committee “(ALCO”) for review and are included in the specific calculation of allowance for loan losses. A loan is considered impaired when, based on current information and events, the Company is unlikely to to collect all principal and interest due according to the terms of the loan agreement. When the amount of the impairment represents a confirmed loss, it is charged off against the allowance for loan losses. Impaired loans are often reported net of government guarantees to the extent that the guarantees are expected to be collected. Impaired loans generally include all loans classified as nonaccrual and troubled debt restructurings.

Accrual of interest is discontinued on impaired loans when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of principal or interest is doubtful. Accrued, but uncollected, interest is generally reversed when loans are placed on nonaccrual status. Interest income is subsequently recognized only to the extent cash payments are received satisfying all delinquent principal and interest amounts, and the prospects for future payments in accordance with the loan agreement appear relatively certain. In accordance with GAAP, payments received on nonaccrual loans are applied to the principal balance and no interest income is recognized. Interest income may be recognized on impaired loans that are not on nonaccrual status.

2421

The following tables display an analysis of the Company’s impaired loans at ~~September 30,~~ ~~2016~~March 31, 2017, and December 31, ~~2015~~2016:

Impaired Loan Analysis

As of ~~September 30~~March 31, ~~2016~~2017

	RecordedInvestmentWith No SpecificAllowanceValuation		RecordedInvestmentWith SpecificAllowanceValuation		TotalRecordedInvestment		UnpaidPrincipalBalance		AverageRecordedInvestment		RelatedSpecificAllowanceValuation
Real estate
Multi-family residential	$	—	$	—	$	—	$	—	$	—	$	—
Residential 1-4 family		~~461~~153		~~303~~298		~~764~~451		~~785~~472		~~606~~646		31
Owner-occupied commercial		~~104~~4,103		~~874~~855		~~978~~4,958		~~978~~4,958		14,~~192~~963		1—
Nonowner-occupied commercial		2,~~192~~091		—		2,~~192~~091		2,~~254~~153		2,~~249~~100		—
Total real estate loans		26,~~757~~347		1,~~177~~153		37,~~934~~500		47,~~017~~583		47,~~047~~709		41
Construction
Multi-family residential		—		—		—		—		—		—
Residential 1-4 family		—		—		—		—		50—		—
Commercial real estate		—		—		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—		—		—
Residential bare land and acquisition & development		~~2,152~~—		—		~~2,152~~—		~~2,151~~—		~~1,764~~—		—
Total construction loans		~~2,152~~—		—		~~2,152~~—		~~2,151~~—		~~1,814~~—		—
Commercial and other		2,~~305~~281		~~2,158~~512		42,~~463~~793		43,~~834~~274		3,~~215~~692		~~734~~8
Consumer		—		—		—		—		—		—
Total impaired loans	$	78,~~214~~628	$	31,~~335~~665	$	10,~~549~~293	$	1110,~~002~~857	$	911,~~076~~401	$	~~738~~9

Impaired Loan Analysis

As of December 31, ~~2015~~2016

	RecordedInvestmentWith No SpecificAllowanceValuation		RecordedInvestmentWith SpecificAllowanceValuation		TotalRecordedInvestment		UnpaidPrincipalBalance		AverageRecordedInvestment		RelatedSpecificAllowanceValuation
Real estate
Multi-family residential	$	—	$	—	$	—	$	—	$	—	$	—
Residential 1-4 family		~~374~~454		~~308~~300		~~682~~754		~~911~~775		~~766~~644		51
Owner-occupied commercial		24,~~788~~106		—865		24,~~788~~971		24,~~788~~971		1,~~177~~804		—2
Nonowner-occupied commercial		2,~~287~~127		25—		2,~~312~~127		2,~~374~~189		2,~~395~~228		25—
Total real estate loans		56,~~449~~687		~~333~~1,165		57,~~782~~852		67,~~073~~935		4,~~338~~676		303
Construction
Multi-family residential		—		—		—		—		—		—
Residential 1-4 family		53—		—		53—		72—		3237		—
Commercial real estate		—		—		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—		—		—
Residential bare land and acquisition & development		—320		~~338~~—		~~338~~320		~~338~~320		~~347~~1,556		99—
Total construction loans		53320		~~338~~—		~~391~~320		~~410~~320		~~379~~1,593		99—
Commercial and other		2,~~091~~255		~~536~~2,141		24,~~627~~396		34,~~018~~767		23,~~404~~518		46733
Consumer		—		—		—		—		—		—
Total impaired loans	$	79,~~593~~262	$	13,~~207~~306	$	812,~~800~~568	$	913,~~501~~022	$	79,~~121~~787	$	~~175~~736

~~The~~22 impaired balances reported above are not adjusted for government guarantees of $998, and $1,273 at September 30, 2016 and December 31, 2015, respectively. The recorded investment in impaired loans, net of government guarantees, totaled $9,551 and $7,527 at September 30, 2016, and December 31, 2015, respectively.

The impaired balances reported above are not adjusted for government guarantees of $916, and $2,001 at March 31, 2017 and December 31, 2016, respectively. The recorded investment in impaired loans, net of government guarantees, totaled $9,377 and $10,567 at March 31, 2017, and December 31, 2016, respectively.

Troubled Debt Restructurings

In the normal course of business, the Company may modify the terms of certain loans, attempting to protect as much of its investment as possible. Management evaluates the circumstances surrounding each modification to determine whether it is a troubled debt restructuring (“TDR”). TDRs exist when 1) the restructuring constitutes a concession, and 2) the debtor is experiencing financial difficulties.

The following table displays the Company’s TDRs by class at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~ 2016:

	Troubled Debt Restructurings as of
	September 30, 2016				December 31, 2015
	March 31, 2017				December 31, 2016
	Number ofContracts		Post-ModificationOutstanding RecordedInvestment		Number ofContracts		Post-ModificationOutstanding RecordedInvestment
Real estate
Multifamily residential		—	$	—		—	$	—
Residential 1-4 family		4		~~764~~501		64		~~682~~754
Owner-occupied commercial		34		15,~~421~~418		34		25,~~788~~447
Non owner-occupied commercial		6		2,~~192~~091		76		2,~~312~~127
Total real estate loans		1314		48,~~377~~010		1614		58,~~782~~328
Construction
Multifamily residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		2—		~~1,827~~—		—		—
Total construction loans		2—		~~1,827~~—		—		—
Commercial and other		1415		2,~~883~~352		1116		2,~~170~~901
Consumer		—		—		—		—
Total		29	$	910,~~087~~362		2730	$	711,~~952~~229

The recorded investment in TDRs on nonaccrual status totaled $2,~~228~~210, and $12,~~807~~250 at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016, respectively. The Company’s policy is that loans placed on nonaccrual will typically remain on nonaccrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Company’s policy generally refers to a minimum of six months of payment performance as sufficient to warrant a return to accrual status.

For the ~~nine~~three months ended ~~September 30~~March 31, ~~2016~~2017, the Company restructured 9one ~~loans~~loan into ~~TDRs~~a TDR for which impairment was previously measured under the Company’s general loan loss allowance methodology.

The types of modifications offered can generally be described in the following categories:

•

Rate Modification - A modification in which the interest rate is modified.

•

Term Modification - A modification in which the maturity date, timing of payments, or frequency of payments is changed.

•

Interest-only Modification - A modification in which the loan is converted to interest-only payments for a period of time.

•

Combination Modification - Any other type of modification, including the use of multiple types of modifications.

2623

Below is a table of the newly restructured loans identified in the ~~nine~~three months ended ~~September 30~~ March 31, 2017 and 2016.

	Troubled Debt Restructurings Identified During
	the nine months ended September 30, 2016
	the three months ended March 31, 2017
	RateModification		TermModification		Interest-onlyModification		CombinationModification
Real estate
Multi-family residential	$	—	$	—	$	—	$	—
Residential 1-4 family		—		—		—		~~299~~50
Owner-occupied commercial		—		—		~~444~~—		—
Nonowner-occupied commercial		—		—		—		—
Total real estate loans		—		—		~~444~~—		~~299~~50
Construction
Multi-family residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		—		—		—		~~1,827~~—
Total construction loans		—		—		—		~~1,827~~—
Commercial and other		—		—		~~363~~		~~673~~
Consumer		—		—
Total	$	—	$	—	$	—	$	50
	Troubled Debt Restructurings Identified During
	the three months ended March 31, 2016
	RateModification		TermModification		Interest-onlyModification		CombinationModification
Real estate
Multi-family residential	$	—	$	—	$	—	$	—
Residential 1-4 family		—		—		—		—
Owner-occupied commercial		—		—		—		—
Nonowner-occupied commercial		—		—		—		—
Total real estate loans		—		—		—		—
Construction
Multi-family residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		—		—		—		1,838
Total construction loans		—		—		—		1,838
Commercial and other		—		—		397		701
Consumer		—		—		—		—
Total	$	—	$	—	$	~~807~~397	$	2,~~799~~539

~~Subsequent~~24 to a loan being classified as a TDR, a borrower may become unwilling or unable to abide by the terms of the modified agreement. In such cases of default, the Company takes appropriate action to recover principal and interest payments including the use of foreclosure proceedings. The following table represents loans receivable modified as TDRs that subsequently defaulted within the first twelve months of restructure during the period.

	Troubled Debt Restructurings
	that Subsequently Defaulted During
	the nine months ended September 30,
	2016				2015
	Number ofContracts		RecordedInvestment		Number ofContracts		RecordedInvestment
Real estate
Multi-family residential		—	$	—		—	$	—
Residential 1-4 family		—		—		—		—
Owner-occupied commercial		1		444		—		—
Nonowner-occupied commercial		—		—		—		—
Total real estate loans		1		444		—		—
Construction
Multi-family residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		—		—		—		—
Total construction loans		—		—		—		—
Commercial and other		—		—		—		—
Consumer		—		—		—		—
Total	$	1	$	444	$	—	$	—

Subsequent to a loan being classified as a TDR, a borrower may become unwilling or unable to abide by the terms of the modified agreement. In such cases of default, the Company takes appropriate action to recover principal and interest payments including the use of foreclosure proceedings. There were no TDRs that subsequently defaulted within the first twelve months of restructure during the periods ended March 31, 2017 and 2016.

NoAt ~~TDRs~~March ~~subsequently~~31, ~~defaulted~~2017 ~~during~~and December 31, 2016, the ~~three~~Company ~~months~~had ~~ended~~no ~~September 30,~~commitments ~~2016~~to ~~and~~lend ~~2015~~additional funds on loans restructured as TDRs.

AtNOTE ~~September 30,~~4 ~~2016~~– ~~and~~DENTAL ~~December 31,~~LOAN ~~2015,~~PORTFOLIO ~~the Company had no commitments to lend additional funds on loans restructured as TDRs.~~

28Dental lending is not operated as a business segment, and dental loans are made in the normal course of commercial lending activities throughout the Company. However, to assist in understanding the concentrations and risks associated with the Company’s loan portfolio, the following Note has been included to provide additional information relating to the Company’s dental loan portfolio. At March 31, 2017 and December 31, 2016, loans to dental professionals totaled $382,867, and $377,478, respectively, and represented 20.00%, and 20.30% in principal amount of total outstanding loans, respectively. As of March 31, 2017 and December 31, 2016, dental loans were supported by government guarantees totaling $5,127 and $5,641, respectively. These guarantees represented 1.34%, and 1.49% in principal amount of the outstanding dental loan balances as of such respective dates. The Company defines a “dental loan” as a loan to dental professionals for the purpose of practice expansion, acquisition or other purpose supported by the cash flows of a dental practice.

NOTE 5 – DENTAL LOAN PORTFOLIO

Dental lending is not operated as a business segment, and dental loans are made in the normal course of commercial lending activities throughout the Company. However, to assist in understanding the concentrations and risks associated with the Company’s loan portfolio, the following Note has been included to provide additional information relating to the Company’s dental loan portfolio. At September 30, 2016 and December 31, 2015, loans to dental professionals totaled $370,135, and $340,162, respectively, and represented 20.46%, and 24.19% in principal amount of total outstanding loans, respectively. As of September 30, 2016 and December 31, 2015, dental loans were supported by government guarantees totaling $6,852 and $9,027, respectively. These guarantees represented 1.85%, and 2.65% in principal amount of the outstanding dental loan balances as of such respective dates. The Company defines a “dental loan” as a loan to dental professionals for the purpose of practice expansion, acquisition or other purpose supported by the cash flows of a dental practice.

Loan Classification

Major classifications of dental loans at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016, were as follows:

	September 30,2016		December 31,2015
	March 31,2017		December 31,2016
Real estate secured loans:
Owner-occupied commercial	$	5962,~~323~~511	$	5663,~~145~~793
Other dental real estate loans		~~893~~1,124		~~2,198~~806
Total permanent real estate loans		6063,~~216~~635		5864,~~343~~599
Dental construction loans		35,~~149~~937		4,~~334~~109
Total real estate loans		6369,~~365~~572		6268,~~677~~708
Commercial loans		~~306~~313,~~770~~295		~~277~~308,~~485~~770
Gross loans	$	~~370~~382,~~135~~867	$	~~340~~377,~~162~~478

Market Area

The Bank’s principal “market area” is within the States of Oregon and Washington west of the Cascade Mountain Range. This area is serviced by branch locations in Eugene, Portland and the Puget Sound. The Company also makes national dental loans throughout the United States, and currently has dental loans in 4346 states. National loan relationships are maintained and serviced by by Bank personnel primarily located in Portland.

The following table summarizes the Company’s dental lending by borrower location:

	September 30,2016		December 31,2015
	March 31,2017		December 31,2016
Local	$	150,~~898~~572	$	~~145~~150,~~817~~268
National		~~219~~232,~~237~~295		~~194~~227,~~345~~210
Total	$	~~370~~382,~~135~~867	$	~~340~~377,~~162~~478

2925

Allowance

The allowance for loan losses identified for the dental loan portfolio is established as an amount that management considers adequate to absorb possible losses on existing loans within the dental portfolio. The allowance related to the dental loan portfolio consists of general and specific components. The general component is based upon all dental loans collectively evaluated for impairment, including qualitative conditions associated with: loan type, out-of-market location, start-up financing, practice acquisition financing, and specialty practice financing. The specific component is based upon dental loans individually evaluated for impairment.

	Three months endedSeptember 30,						Nine months endedSeptember 30,
	Three months endedMarch 31,
	2016			2015			2016			2015
	2017			2016
Balance, beginning of period	$	4,~~151~~713		$	4,~~080~~022		$	~~4,022~~		$	~~4,141~~
Reclassification		~~601~~91			~~189~~(150	)		~~704~~			~~158~~
Charge-offs		(9641	)		~~(36~~—	)		(9	)		~~(78~~	)
Recoveries		558			912			81			21
Balance, end of period	$	4,~~798~~171		$	43,~~242~~884		$	~~4,798~~		$	~~4,242~~

Credit Quality

Please refer to Note 43 for additional information on the definitions of the credit quality indicators.

The following tables present the Company’s dental loan portfolio by market and credit grade at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~ 2016:

As of ~~September 30~~March 31, ~~2016~~2017

	Loan Grade
	Pass		Special Mention		Substandard		Doubtful		Totals
Local	$	~~148~~149,~~834~~161	$	—	$	21,~~064~~411	$	—	$	150,~~898~~572
National		~~216~~230,~~464~~708		—		1,~~112~~587		~~1,661~~—		~~219~~232,~~237~~295
Total	$	~~365~~379,~~298~~869	$	—	$	32,~~176~~998	$	~~1,661~~—	$	~~370~~382,~~135~~867
As of December 31, 2015
As of December 31, 2016
	Loan Grade
	Pass		Special Mention		Substandard		Doubtful		Totals
Local	$	~~143~~148,~~541~~805	$	—	$	21,~~276~~463	$	—	$	~~145~~150,~~817~~268
National		~~191~~224,~~574~~493		—		21,~~771~~056		—1,661		~~194~~227,~~345~~210
Total	$	~~335~~373,~~115~~298	$	—	$	52,~~047~~519	$	—1,661	$	~~340~~377,~~162~~478

3026

Past Due and Nonaccrual Loans

Please refer to Note 43 for additional information on the definitions of “past due.”

The following tables present an aged analysis of the dental loan portfolio by market, including nonaccrual loans, as of ~~September~~March 3031, ~~2016 and~~2017 and December 31, ~~2015~~2016:

As of ~~September 30~~March 31, ~~2016~~2017

	30-59 DaysPast DueStill Accruing		60-89 DaysPast DueStill Accruing		GreaterThan 90 DaysPast Due StillAccruing		Nonaccrual		Total PastDue andNonaccrual		TotalCurrent		Total LoansReceivable
Local	$	—585	$	—	$	—	$	~~465~~393	$	~~465~~978	$	~~150~~149,~~433~~594	$	150,~~898~~572
National		—		—		—		~~1,661~~591		~~1,661~~591		~~217~~231,~~576~~704		~~219~~232,~~237~~295
Total	$	—585	$	—	$	—	$	~~2,126~~984	$	21,~~126~~569	$	~~368~~381,~~009~~298	$	~~370~~382,~~135~~867
As of December 31, 2015
As of December 31, 2016
	30-59 DaysPast Due StillAccruing		60-89 DaysPast Due StillAccruing		GreaterThan 90 DaysPast Due StillAccruing		Nonaccrual		Total PastDue andNonaccrual		TotalCurrent		Total LoansReceivable
Local	$	—	$	—	$	—	$	~~513~~407	$	~~513~~407	$	~~145~~149,~~304~~861	$	~~145~~150,~~817~~268
National		—263		—366		—		—1,660		—2,289		~~194~~224,~~345~~921		~~194~~227,~~345~~210
Total	$	—263	$	—366	$	—	$	~~513~~2,067	$	~~513~~2,696	$	~~339~~374,~~649~~782	$	~~340~~377,~~162~~478

3127

NOTE 5 – SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE

The Company sells certain securities under agreements to repurchase with its customers. The agreements transacted with its customers are utilized as an overnight investment product. The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying these agreements are included in investment securities in the consolidated balance sheets. The Company has no control over the market value of the securities, which fluctuates due to market conditions. However, the Company is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Company manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase. All securities sold under agreements to repurchase had a daily maturity date. See Note 2 in the Notes to Consolidated Financial Statements included in this Form 10-Q for additional information regarding the securities sold under agreements to repurchase.

The following table presents information regarding securities sold under agreements to repurchase at March 31, 2017 and December 31, 2016:


	March 31,			December 31,
	2017			2016

Balance at end of period	$	2,812		$	1,966
Average balance outstanding for the period		1,831			702
Maximum amount outstanding at any month end during the period		2,812			2,017
Weighted average interest rate for the period		0.08	%		0.06	%
Weighted average interest rate at period end		0.08	%		0.08	%

NOTE 6 – FEDERAL FUNDS AND OVERNIGHT FUNDS PURCHASED

The Company had unsecured federal funds borrowing lines with various correspondent banks totaling $~~129~~154,000 at ~~both~~March ~~September 30~~31, ~~2016~~2017, and $154,000 at December 31, ~~2015~~2016. The terms of the lines are subject to change with interest payable at the then stated rate. At ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016, there were no borrowings outstanding on these lines.

The Company also had a secured overnight borrowing line available from the Federal Reserve Bank that totaled $8183,~~915~~634 and $7680,~~912~~784 at ~~September 30,~~ ~~2016~~March 31, 2017 and December 31, ~~2015~~2016, respectively. The Federal Reserve Bank borrowing line is secured through the pledging of $~~144~~142,~~242~~801 and $~~140~~143,~~801~~679 at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016, respectively, of commercial loans under the Company’s Borrower-In-Custody program. At ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016, there were no outstanding borrowings on this line. The terms of the lines are subject to change with interest payable at the then stated rate.

NOTE 7 – FEDERAL HOME LOAN BANK BORROWINGS

The Company has a borrowing limit with the Federal Home Loan Bank of Des Moines (“FHLB”) equal to 35% of total assets, subject to the value of discounted collateral pledged and stock holdings.

At ~~September 30~~March 31, ~~2016~~2017, the maximum borrowing line was $~~888~~909,~~671~~057; however, the FHLB borrowing line was limited by the discounted value of collateral pledged. At ~~September 30~~March 31, ~~2016~~2017, the Company had pledged $~~827~~893,~~300~~924 in real estate loans to the FHLB that had a discounted collateral value of $~~602~~651,~~715~~132. There was $45182,~~500 borrowed~~000 borrowed on this line at ~~September 30~~March 31, ~~2016~~2017.

At December 31, ~~2015~~2016, the maximum borrowing line was $~~657~~889,~~086~~503; however, the FHLB borrowing line was limited by the discounted value of collateral pledged. At December 31, ~~2015~~2016, the Company had pledged $~~666~~867,~~297~~596 in real estate loans to the FHLB that had a discounted collateral value of $~~414~~632,~~044~~202. There was $7765,~~500~~000 borrowed on this line at December 31, ~~2015~~2016.

~~Below~~28 ~~is a summary of outstanding FHLB borrowings by maturity.~~

	CurrentRates			September 30,2016
Cash management advance		NA		$	15,000
2016		0.57-1.86	%		22,500
2017		2.28	%		3,000
2018		1.55	%		3,000
2019		—			—
2020		—			—
Thereafter		3.85	%		2,000
				$	45,500

Below is a summary of outstanding FHLB borrowings by maturity.


	Current Rates			March 31, 2017
Cash management advance		NA		$	177,000
2017		0	%		—
2018		1.55	%		3,000
2019		0	%		—
2020		0	%		—
2021		0	%		—
Thereafter		3.85	%		2,000

				$	182,000

NOTE 8 – BORROWED FUNDS

Subordinated Debentures

In June 2016, the Company issued $35,000 in aggregate principal amount of fixed-to-floating rate subordinated debentures (the “Notes”) in a public offering. The Notes are callable at par after five years, have a stated maturity of September 30, 2026 and bear interest at a fixed annual rate of 5.875% per year, from and including June 27, 2016, but excluding September 30, 2021. From and including September 30, 2021 to the maturity date or early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 471.5 basis points.

The Notes are included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

Junior Subordinated Debentures

In November 2005, the Company completed the private placement of $8,000 in aggregate liquidation amount of trust preferred securities (the “TPS”), through its subsidiary, Pacific Continental Capital Trust I. The interest rate on the TPS was 6.265% until January 2011, after which it was converted to a floating rate of three-month LIBOR plus 135 basis points. The TPS mature in 2035, but are callable by the Company at par any time after January 7, 2011. The Company issued $8,248 of junior subordinated debentures (the “Debentures”) to the trust in exchange for ownership of all of the common security of ~~the~~ the trust and the proceeds of the preferred securities sold by the trust. In accordance with current accounting guidance, the trust is not consolidated in the Company’s financial statements, but rather the ~~Foundation~~ Debentures are shown as a liability. The interest rate on the Debentures was 6.265% until January 2011, after which it was converted to a floating rate of three-month LIBOR plus 135 basis points. The Debentures have the same prepayment provisions as the TPS.

On September 6, 2016, the Company completed the acquisition of Foundation Bancorp., Inc. At that time, the Company assumed ownership of Foundation Statutory Trust I, which had previously issued $6,000 in aggregate liquidation amount of trust preferred securities. The interest rate on ~~the~~ these trust preferred securities is a floating rate of three-month LIBOR plus 173 basis points. ~~The~~ The Company also acquired $6,148 of junior subordinated debentures (the “Foundation Debentures”) issued to the trust in exchange for ownership of all of the common security of the trust and the proceeds of the preferred securities sold by the trust. In accordance with current accounting guidance, the trust is not consolidated in the Company’s financial statements, but rather the Foundation Debentures are shown as a liability, and acquired at an acquisition date fair value of $3,013.

The Debentures and the Foundation Debentures are included in the Company’s Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

NOTE 9 – SHARE-BASED COMPENSATION

The Company’s 2006 Stock Option and Equity Compensation Plan (the “2006 SOEC Plan”) authorizes the award of up to 1,550,000 shares in stock-based awards. The awards granted under this plan are service-based and are subject to vesting. The Compensation Committee of the Board of Directors may impose any terms or conditions on the vesting of an award that it determines to be appropriate. Awards granted generally vest over four years and have a maximum life of ten years. Awards may be granted at exercise prices of not less than 100.00% of the fair market value of the Company’s common stock at the grant date.

Pursuant to the 2006 SOEC Plan, incentive stock options (“ISOs”), nonqualified stock options, restricted stock, restricted stock units (“RSUs”), or stock appreciation rights (“SARs”) may be awarded to attract and retain the best available personnel to the Corporation and its subsidiary. SARs may be settled in common stock or cash as determined at the date of issuance. Liability-based awards (including all cash-settled SARs) have no impact on the number of shares available to be issued within the plan. Additionally, non-qualified option awards and restricted stock awards may be granted to directors under the terms of this plan.

33The following table identifies the compensation expense recorded and tax benefits received by the Company on its share-based compensation plans for the three months ended March 31, 2017, and 2016:


	Three months ended March 31,
	2017				2016
	Compensation Expense		Tax Benefit		Compensation Expense		Tax Benefit
Equity-based awards:
Employee RSUs	$	397	$	151	$	384	$	146
Liability-based awards:
Employee cash SARs		150		57		—		—

	$	547	$	208	$	384	$	146

The following table identifies ~~the~~stock ~~compensation~~options, ~~expense~~employee ~~recorded~~stock SARs, and ~~tax~~employee ~~benefits~~cash ~~received by the~~SARs ~~Company~~exercised onduring ~~its share-based compensation plans for~~ the three ~~and nine~~ months ended ~~September 30,~~March ~~2016~~31, 2017 and ~~2015~~2016:

	Three months ended September 30,
	Three months ended
	2016				2015
	March 31, 2017
	CompensationExpense		Tax Benefit		CompensationExpense/(Income)			Tax Benefit(Expense)
	NumberExercised		WeightedAverageExercisePrice		IntrinsicValue			NumberofSharesIssued			Net CashPaymenttoEmployees
Equity-based awards:
Stock options		80,531	$	16.49	$	619			85,900			NA
Employee RSUs	$	397	$	151	$	372		$	141
Employee stock SARs		38,707	$	16.55		350			8,126			NA
Liability-based awards:
Employee cash SARs		27,341	$	16.53		NA			NA		$	143
Employee cash SARs		—		—		(100	)		(38	)
		146,579			$	969			94,026		$	143
	$	397	$	151	$	272		$	103
	Three months ended
	Nine months ended September 30,
	March 31, 2016
	2016				2015
	NumberExercised		WeightedAverageExercisePrice		IntrinsicValue			NumberofSharesIssued			Net CashPaymenttoEmployees
	CompensationExpense		Tax Benefit		CompensationExpense/(Income)			Tax Benefit(Expense)
Stock options		16,475	$	12.73	$	54			16,475			NA
Equity-based awards:
Employee stock SARs		6,265	$	11.86		4			995			NA
Director restricted stock	$	240	$	91	$	248		$	94
Employee cash SARs		3,822	$	13.43		NA			NA		$	9
Employee RSUs		1,187		451		1,080			410
		26,562			$	58			17,470		$	9
Liability-based awards:
Employee cash SARs		—		—		(150	)		(57	)
	$	1,427	$	542	$	1,178		$	447

34At March 31, 2017, the Company had estimated unrecognized compensation expense of approximately $2,621 for unvested RSUs. This amount is based on a historical forfeiture rate of 13.00% for all RSUs granted to employees. The weighted-average period of time the unrecognized compensation expense will be recognized for the unvested RSUs was approximately 2.49 years as of March 31, 2017.

The following table identifies stock options, employee stock SARs, and employee cash SARs exercised during the three and nine months ended September 30, 2016 and 2015:

	Three months ended
	September 30, 2016
	NumberExercised		WeightedAverageExercisePrice		IntrinsicValue		NumberofSharesIssued		Net CashPaymenttoEmployees
Stock options		30,074	$	16.54	$	9		9,832		NA
Employee stock SARs		41,237	$	15.83	$	5		1,768		NA
Employee cash SARs		27,521	$	15.95		NA		NA	$	45
		98,832			$	14		11,600	$	45
	Nine months ended
	September 30, 2016
	NumberExercised		WeightedAverageExercisePrice		IntrinsicValue		NumberofSharesIssued		Net CashPaymenttoEmployees
Stock options		65,034	$	13.86	$	117		44,792		NA
Employee stock SARs		79,806	$	14.54	$	26		6,634		NA
Employee cash SARs		47,644	$	15.11		NA		NA	$	73
		192,484			$	143		51,426	$	73
	Three months ended
	September 30, 2015
	NumberExercised		WeightedAverageExercisePrice		IntrinsicValue		NumberofSharesIssued		Net CashPaymenttoEmployees
Stock options		—	$	—	$	—		—		NA
Employee stock SARs		2,204	$	11.61	$	2		171		NA
Employee cash SARs		1,271	$	12.07		NA		NA	$	1
		3,475				2		171		1
	Nine months ended
	September 30, 2015
	NumberExercised		WeightedAverageExercisePrice		IntrinsicValue		NumberofSharesIssued		Net CashPaymenttoEmployees
Stock options		1,102	$	12.25	$	2		1,102		NA
Employee stock SARs		3,417	$	11.57	$	4		265		NA
Employee cash SARs		1,479	$	12.07		NA		NA	$	1
		5,998				6		1,367		1

At September 30, 2016, the Company had estimated unrecognized compensation expense of approximately $3,811 for unvested RSUs. This amount is based on a historical forfeiture rate of 13.00% for all RSUs granted to employees. The weighted-average period of time the unrecognized compensation expense will be recognized for the unvested RSUs was approximately 2.75 years as of September 30, 2016.

NOTE 10 – DERIVATIVE INSTRUMENTS

The Bank ~~purchases~~maintains ~~derivative~~two ~~instruments~~interest asrate aswaps ~~way~~with commercial banking customers tied to ~~help~~loans ~~mitigate~~on ~~interest~~the ~~rate~~consolidated ~~risk~~balance sheet. ~~During~~Those ~~the~~interest rate ~~first~~swaps ~~quarter~~are ~~2013,~~simultaneously ~~the~~hedged ~~Company~~by ~~entered~~offsetting ~~into an~~the interest rate ~~swap~~swaps ~~agreement~~that the Bank executes with ana $8third party,~~000~~ ~~notional~~such ~~amount~~that tothe ~~convert~~Bank minimizes its ~~variable-~~net interest rate ~~Debentures~~risk ~~debt~~exposure. ~~into~~As aof ~~fixed~~March 31, ~~rate~~2017 ~~for~~and aDecember 31, ~~term~~2016, ofthe ~~seven~~Bank had ~~years~~non-hedge atdesignated ainterest rate swaps with an aggregate notional amount of ~~2.73%. The~~approximately ~~derivative~~$8,479 isand ~~designated~~$8,540, asrespectively, arelated ~~cash~~to ~~flow~~this ~~hedge~~program. The ~~cash~~Bank ~~flow~~does ~~hedge meets~~not ~~the~~require ~~definition~~separately ofpledged ~~highly~~collateral to ~~effective~~secure ~~and~~its ~~the~~interest ~~Company~~rate ~~expects~~swaps ~~the~~with ~~hedge~~customers. toHowever, beit ~~highly~~does ~~effective~~make ~~throughout~~a ~~the~~practice ~~remaining term~~ of cross-collateralizing the ~~swap.~~interest ~~The~~rate ~~fair~~swaps ~~value~~with ofcollateral on the ~~derivative~~underlying ~~instrument~~loan. atThe ~~September 30,~~Bank ~~2016,~~has ~~was~~minimum ancollateral ~~$82~~posting ~~unrealized~~thresholds ~~loss,~~with ~~which~~certain isof its ~~recorded~~derivative incounterparties, ~~accrued~~and ~~interest~~has ~~and~~posted ~~other~~collateral ~~payables~~totaling on$250 ~~the~~consisting ~~consolidated~~of ~~balance~~cash ~~sheet.~~held ~~The~~on ~~Company~~deposit ~~pledged~~for ~~$400~~the ~~under~~benefit ~~collateral~~of ~~arrangements~~the tocounterparty ~~satisfy~~against ~~collateral~~its ~~requirements~~obligations ~~associated~~under ~~with~~these ~~the~~agreements ~~interest~~as ~~rate~~of ~~swap~~March 31, ~~contract~~2017 and December 31, 2016.

The Bank ~~maintains~~entered ~~two~~into ~~interest~~a ~~rate~~swap ~~swaps~~ with ~~commercial~~a ~~banking~~third ~~customers~~party ~~tied~~ to ~~loans~~serve onas ~~the~~a ~~consolidated~~hedge ~~balance~~to ~~sheet.~~an ~~Those~~equal ~~interest rate~~amount ~~swaps~~of ~~are~~fixed ~~simultaneously hedged by offsetting the interest~~ rate ~~swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure~~loans. As of ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016, the Bank had ~~non-hedge~~ one swap designated ~~interest~~a ~~rate~~hedging ~~swaps~~instrument with ana ~~aggregate~~ notional amount of ~~approximately~~ $81,~~600~~483 and $81,~~774,~~492 respectively, ~~related~~hedging toa ~~this~~10-year ~~program.~~fixed ~~The~~rate ~~Bank~~note ~~does~~bearing ~~not~~interest ~~require~~at ~~separately~~5.71% ~~pledged~~and ~~collateral~~maturing August to2023. ~~secure~~The ~~its~~notional ~~interest~~amount ~~rate~~does ~~swaps~~not ~~with customers.~~represent ~~However,~~direct itcredit ~~does~~exposure. ~~make~~Direct acredit ~~practice~~exposure ofis ~~cross-collateralizing~~limited to the ~~interest~~net ~~rate~~difference ~~swaps~~between ~~with~~the ~~collateral~~calculated onamount ~~the~~to ~~underlying~~be ~~loan~~received and paid. ~~The~~As the Bank has ~~minimum~~designated ~~collateral~~the ~~posting~~swap ~~thresholds~~a ~~with~~fair ~~certain~~value ~~of its derivative counterparties~~hedge, ~~and has posted~~the ~~collateral~~underlying ~~totaling~~hedged ~~$250~~loan ~~consisting~~is ofcarried ~~cash~~at ~~held~~fair value on ~~deposit for~~ the ~~benefit~~consolidated ofbalance ~~the~~sheet ~~counterparty~~and ~~against~~included ~~its~~in ~~obligations~~loans, ~~under~~net ~~these agreements as~~ of ~~September 30,~~deferred ~~2016 and December 31, 2015~~fees.

~~The Bank entered into a swap with a third party to serve as a hedge to an equal amount of fixed rate loans. As of September 30, 2016 and December~~ 31, 2015, the Bank had one swap designated a hedging instrument with a notional amount of $1,500 and $1,525 respective, hedging a 10-year fixed rate note bearing interest at 5.71% and maturing August 2023. The notional amount does not represent direct credit exposure. Direct credit exposure is limited to the net difference between the calculated amount to be received and paid. As the Bank has designated the swap a fair value hedge, the underlying hedged loan is carried at fair value on the consolidated balance sheet and included in loans, net of deferred fees.

During third quarter 2016, the Bank entered into forward-starting interest rate swaps, to convert certain existing and future short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of rising interest rates, specifically LIBOR rates, which are a benchmark for the short term borrowings. The hedging program qualifies as a cash flow hedge under FASB ASC 815, which provides for matching of the recognition of gains and losses of the interest rate swaps and the hedged items. The hedged item is the LIBOR portion of the series of existing or future short-term fixed rate borrowings over the term of the interest rate swap. The change in the fair value of the interest rate swaps is recorded in other comprehensive income. The Bank had notional amounts of $26,500 subject to interest rate swaps to hedge anticipated future borrowings as of September 30, 2016. The unrealized loss, gross of the related tax benefit, on these interest rate swaps as of September 30, 2016 was $475. The Company pledged cash totaling $1,250 under collateral arrangements to satisfy collateral requirements associated with the interest rate swap contract.

The following tables present quantitative information pertaining to the commercial loan related interest rate swaps as of September 30, 2016 and December 31, 2015:

	September 30, 2016						December 31, 2015
	Hedge-Designated			Not-Hedge-Designated			Hedge-Designated			Not-Hedge-Designated
Notional amount	$	1,500		$	8,600		$	1,525		$	8,774
Weighted average pay rate		5.71	%		4.85	%		5.71	%		4.85	%
Weighted average receive rate		3.52	%		3.61	%		3.20	%		3.28	%
Weighted average maturity in years		6.9			5.7			7.6			6.5

The following ~~table~~tables ~~presents~~present ~~the~~quantitative ~~fair~~information ~~values~~pertaining ofto ~~derivative~~the ~~instruments~~commercial ~~and~~loan ~~their locations in the~~related ~~consolidated~~interest ~~balance~~rate ~~sheets~~swaps as of ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016:

			Asset Derivatives								Liability Derivatives
	March 31, 2017								December 31, 2016
Derivative	Balance sheet location		September 30,2016				December 31,2015				September 30,2016				December 31,2015
	Hedge-Designated				Not-Hedge-Designated				Hedge-Designated				Not-Hedge-Designated
Cash flow hedge—trust preferred	Other assets or other payables		$	—			$	82			$	82			$	—
Notional amount	$	1,483			$	8,479			$	1,492			$	8,540
Cash flow hedge—long term borrowing	Other assets or other payables			—				—				780				—
Weighted average pay rate		5.71	%			4.85	%			5.71	%			4.85	%
Interest rate swap designated as hedging instrument	Other assets or other payables			114				66				147				93
Weighted average receive rate		3.91	%			3.86	%			3.54	%			3.63	%
Interest rate swap not designated as hedging instrument	Other assets or other payables			162				24				162				24
Weighted average maturity in years		6.40				5.20				6.65				5.45
			$	276			$	172			$	1,171			$	117

The following table presents the ~~income~~fair ~~statement~~values ~~impact~~ of ~~the~~ derivative instruments ~~for~~and ~~the~~their ~~three~~locations ~~and~~in ~~nine~~the consolidated ~~months~~balance ~~ended~~sheets ~~September~~as of March 3031, ~~2016~~2017 and ~~2015~~December 31, 2016:

			Three months ended								Nine months ended
					Asset Derivatives								Liability Derivatives
	Income statement location		September 30,								September 30,
Derivative	Balance sheet location				March 31,2017				December 31,2016				March 31,2017				December 31,2016
Derivative			2016				2015				2016				2015
Cash flow hedge—trust preferred		Other assets or other payables			$	—			$	91			$	—			$	—
Interest rate swap designated as hedging instrument	~~Other noninterest income~~	Other assets or other payables	$	(2	)	38	$	~~(10~~	)	45	$	(6	)	58	$	(9	)	67
			$	(2	)		$	(10	)		$	(6	)		$	(9	)
Interest rate swap not designated as hedging instrument		Other assets or other payables				30				14				30				14
					$	68			$	150			$	88			$	81

3732

The following table presents the income statement impact of the derivative instruments for the three months ended March 31, 2017 and 2016:


		Three months ended
	Income statement	March 31,
Derivative	location	2017		2016
Interest rate swap designated as hedging instrument	Other noninterest income	$	2	$	5

		$	2	$	5

NOTE 11 – FAIR VALUE

The following disclosures about fair value of financial instruments are made in accordance with provisions of ASC 825 “Financial Instruments.” The use of different assumptions and estimation methods could have a significant effect on fair value amounts. Accordingly, the estimates of fair value herein are not necessarily indicative of the amounts that might be realized in a current market exchange.

The following table presents the estimated fair values of the financial instruments at ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

September 30, 2016

December 31, 2015

March 31, 2017

December 31, 2016

CarryingAmount

Fair Value

CarryingAmount

Fair Value

Financial assets:

Cash and cash equivalents

~~107~~64,~~173~~101

3667,~~675~~113

Securities available-for-sale

~~482~~472,~~408~~166

~~366~~470,~~598~~996

Loans, net of deferred fees

1,~~806~~912,~~736~~608

1,~~796~~886,~~152~~083

1,~~404~~857,~~482~~767

1,~~389~~837,~~562~~673

Interest receivable

5,957

5,721

Accrued interest receivable

6,647

7,017

Federal Home Loan Bank stock

410,~~643~~324

5,~~208~~423

Bank-owned life insurance

3435,~~927~~388

2235,~~884~~165

Interest rate swaps

~~275~~68

~~172~~150

Financial liabilities:

Deposits

2,~~162~~080,~~633~~266

2,~~162~~079,~~127~~260

12,~~597~~148,~~093~~103

12,~~597~~147,~~280~~056

Federal Home Loan Bank borrowings

45182,~~500~~000

45182,~~613~~021

7765,~~500~~000

7765,~~651~~043

Subordinated debenture

34,~~072~~120

—34,096

—32,140

Junior subordinated debentures

11,~~272~~350

67,~~706~~239

811,~~248~~311

26,~~741~~972

Interest payable

711

138

Accrued interest payable

695

176

Interest rate swaps

~~1,171~~88

~~117~~81

Cash and cash equivalents – The carrying amount approximates fair value.

Securities available-for-sale – Fair value is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans – For variable rate loans that reprice frequently and have no significant change in credit risk, fair value is based on carrying values. Fair value of fixed rate loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable, and consider credit risk. The Company uses an independent third-party to establish the fair value of loans.

Federal Home Loan Bank stock – The carrying amount represents the fair value and value at which FHLB of Des Moines would redeem the stock.

Interest receivable and payable – The carrying amounts of accrued interest receivable and payable approximate their fair value.

Bank-owned life insurance – The carrying amount is based on cash surrender value which approximates fair value.

Interest rate swaps – Fair value is based on quoted market prices.

Deposits – Fair value of demand, interest bearing demand and savings deposits is the amount payable on demand at the reporting date. Fair value of time deposits is estimated using the interest rates currently offered for deposits of similar remaining maturities. The Company uses an independent third-party to establish the fair value of time deposits.

Federal Home Loan Bank borrowings – Fair value of FHLB borrowings is estimated by discounting future cash flows at rates currently available for debt with similar terms and remaining maturities.

Subordinated debentures – Fair value of subordinated debentures is estimated by discounting future cash flows at rates currently available for debt with similar credit risk, terms and remaining maturities.

Junior subordinated debentures – Fair value of junior subordinated debentures is estimated by discounting future cash flows at rates currently available for debt with similar credit risk, terms and remaining maturities.

Off-balance sheet financial instruments – The carrying amount and fair value are based on fees charged for similar commitments and are not material.

The Company also adheres to the FASB guidance with regards to ASC 820, “Fair Value Measures.” This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The statement requires fair value measurement disclosure of all assets and liabilities that are carried at fair value on either a recurring or nonrecurring basis. The Company determines fair value 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 used are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

•

Level 1 – Quoted prices for identical instruments in active markets.

•

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

•

Level 3 – Unobservable inputs are used to measure fair value to the extent that observable inputs are not available. The Company’s own data used to develop unobservable inputs is adjusted for market consideration when reasonably available.

Financial instruments, measured at fair value, are broken down in the tables below by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period.

3934

The following table presents information about the level in the fair value hierarchy for the Company’s assets and liabilities not measured and carried at fair value as of ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

	CarryingAmount		Fair Value at ~~September~~March 3031, ~~2016~~2017
			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	~~107~~64,~~173~~101	$	~~107~~64,~~173~~101	$	—	$	—
Loans, net of deferred fees		1,~~806~~912,~~736~~608		—		—		1,~~796~~886,~~152~~083
Interest receivable		5,957		5,957		—		—
Accrued interest receivable		6,647		6,647		—		—
Federal Home Loan Bank stock		410,~~643~~324		410,~~643~~324		—		—
Interest rate swaps		275		275		—		—
Financial liabilities:
Deposits	$	2,~~162~~080,~~633~~266	$	1,~~983~~902,~~492~~746	$	~~178~~177,~~635~~520	$	—
Federal Home Loan Bank borrowings		45182,~~500~~000		—		45182,~~613~~021		—
Subordinated debentures		34,~~072~~120		—		34,~~072~~120		—
Junior subordinated debentures		11,~~272~~350		—		67,~~706~~239		—
Interest payable		711		711		—		—
Accrued interest payable		695		695		—		—
Interest rate swaps		1,171		1,171		—		—
	CarryingAmount		Fair Value at December 31, 2016
	CarryingAmount		Fair Value at December 31, 2015
			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	3667,~~675~~113	$	3667,~~675~~113	$	—	$	—
Loans		1,~~404~~857,~~482~~767		—		—		1,~~389~~837,~~562~~673
Interest receivable		5,721		5,721		—		—
Accrued interest receivable		7,017		7,017		—		—
Federal Home Loan Bank stock		5,~~208~~423		5,~~208~~423		—		—
Interest rate swaps		172		172		—		—
Bank-owned life insurance		35,165		35,165		—		—
Financial liabilities:
Deposits	$	12,~~597~~148,~~093~~103	$	1,~~458~~969,~~490~~220	$	~~138~~177,~~790~~836	$	—
Federal Home Loan Bank borrowings		7765,~~500~~000		—		7765,~~651~~043		—
Junior subordinated debentures		8,248		—		2,741		—
Subordinated debentures		34,096		—		32,140		—
Accrued interest payable		138		138		—		—
Junior subordinated debentures		11,311		—		6,972		—
Interest rate swaps		117		117		—		—
Accrued interest payable		176		176		—		—

4035

The tables below show assets and liabilities measured at fair value on a recurring basis as of ~~September 30~~March 31, ~~2016~~2017 and December 31, ~~2015~~2016:

	CarryingValue		Fair Value at ~~September~~March 3031, ~~2016~~2017
			Level 1		Level 2		Level 3
Financial Assets
Available-for-sale securities
Obligations of U.S. government agencies	$	2625,~~552~~632	$	—	$	2625,~~552~~632	$	—
Obligations of states and political subdivisions		~~115~~111,~~509~~199		—		~~115~~111,~~509~~199		—
Agency mortgage-backed securities		292,~~735~~444		—		292,~~735~~444		—
Private-label mortgage-backed securities		21,~~110~~787		—		~~656~~472		1,~~454~~315
SBA pools		44,616		—		44,616		—
SBA variable rate pools		41,104		—		41,104		—
Corporate securities		886		—		886		—
Interest rate swaps		68		68		—		—
Interest rate swaps		275		275		—		—
Total assets measured on a recurring basis	$	472,234	$	68	$	470,851	$	1,315
Total assets measured on a recurring basis	$	482,683	$	275	$	480,954	$	1,454
Financial Liabilities
Interest rate swap liabilities measured on a recurring basis	$	~~1,171~~88	$	~~1,171~~88	$	—	$	—
	CarryingValue		Fair Value at December 31, ~~2015~~2016
			Level 1		Level 2		Level 3
Available-for-sale securities
Obligations of U.S. government agencies	$	4425,~~623~~620	$	—	$	4425,~~623~~620	$	—
Obligations of states and political subdivisions		97110,~~151~~739		—		97110,~~151~~739		—
Agency mortgage-backed securities		~~185~~290,~~370~~036		—		~~185~~290,~~370~~036		—
Private-label mortgage-backed securities		21,~~790~~937		—		~~1,204~~569		1,~~586~~368
SBA pools		35,771		—		35,771		—
SBA variable rate pools		42,664		—		42,664		—
Corporate securities		893		—		893		—
Interest rate swaps		150		150		—		—
Interest rate swaps		172		172		—		—
Total assets measured on a recurring basis	$	471,146	$	150	$	469,628	$	1,368
Total assets measured on a recurring basis	$	366,770	$	172	$	365,012	$	1,586
Financial Liabilities
Interest rate swap liabilities measured on a recurring basis	$	~~117~~81	$	~~117~~81	$	—	$	—

No transfers to or from Levels 1 and 2 occurred on assets and liabilities measured at fair value on a recurring basis during the ~~nine~~three months ended ~~September 30,~~March ~~2016~~31, 2017 or during the year ended December 31, ~~2015~~2016.

4136

The following is a description of the inputs and valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis. Fair value for all classes of available-for-sale securities and derivative instruments are estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, prepayments, defaults, cumulative loss projections and cash flows. There have been no significant changes in the valuation techniques during the periods reported.

The following table provides a reconciliation of private-label mortgage-backed securities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2016~~2017 and ~~2015~~2016:

	Three months endedSeptember 30,						Nine months endedSeptember 30,
	Three months endedMarch 31,
	2016			2015			2016			2015
	2017			2016
Beginning balance	$	1,~~399~~368		$	1,~~782~~586		$	~~1,586~~		$	~~1,568~~
Transfers into level 3		70—			—			70			~~300~~
Transfers out of Level 3		—			—			—			—
Total gains or losses
Included in earnings		(21	)		—			~~(14~~	)		~~(13~~	)
Included in other comprehensive income		6426			(213	)		45			65
Paydowns		(7778	)		(8578	)		~~(233~~	)		~~(225~~	)
Purchases, issuances, sales and settlements
Purchases		—			—			—			—
Issuances		—			—			—			—
Sales		—			—			—			—
Settlements		—			—			—			—
Ending balance	$	1,~~454~~315		$	1,~~695~~521		$	~~1,454~~		$	~~1,695~~

Fair value for all classes of available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on quoted prices for similar instruments or model-derived valuations whose inputs are observable or whose significant value drivers are observable. In instances where quoted prices for identical or similar instruments and observable inputs are not available, unobservable inputs, including the Company’s own data, are used.

The Company utilizes FTN Financial as an independent third-party asset pricing service to estimate fair value on all of its available-for-sale securities. The inputs used to value all securities include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research, market indicators, and industry and economic trends. Additional inputs specific to each asset type are as follows:

•

Obligations of U.S. government agencies – TRACE reported trades.

•

Obligations of states and political subdivisions – MSRB reported trades, material event notices, and Municipal Market Data (MMD) benchmark yields.

•

Private-label mortgage-backed securities – new issue data, monthly payment information, and collateral performance (whole loan collateral).

•

Mortgage-backed securities – TBA prices and monthly payment information.

•

SBA variable pools – TBA prices and monthly payment information.

• Corporate securities – TRACE reported trades.

Inputs may be prioritized differently on any given day for any security and not all inputs listed are available for use in the evaluation process on any given day for each security evaluation.

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The valuation methodology used by asset type includes:

•

Obligations of U.S. government agencies – security characteristics, defined sector break-down, benchmark yields, applied base spread, yield to maturity (bullet structures), corporate action adjustment, and evaluations based on T+3 settlement.

•

Obligations of states and political subdivisions – security characteristics, benchmark yields, applied base spread, yield to worst or market convention, ratings updates, prepayment schedules (housing bonds), material event notice adjustments, and evaluations based on T+3 settlement.

•

Private-label mortgage-backed securities – security characteristics, prepayment speeds, cash flows, TBA, Treasury and swap curves, IO/PO strips or floating indexes, applied base spread, spread adjustments, yield to worst or market convention, ratings updates (whole-loan collateral), and evaluations based on T+0 settlement.

•

Mortgage-backed securities – security characteristics, TBA, Treasury, or floating index benchmarks, spread to TBA levels, prepayment speeds, applied spreads, and evaluations based on T+0 settlement.

•

SBA pools – security characteristics, TBA, Treasury, or floating index benchmarks, spread to TBA levels, prepayment speeds, applied spreads, and evaluations based on T+0 settlement.

• Corporate securities – security characteristics, defined sector break-down, benchmark yields, applied based spread, yield to maturity (bullet structures), corporate action adjustment, and evaluations based on T+3 settlement.

The third-party pricing service follows multiple review processes to assess the available market, credit and deal-level information to support its valuation estimates. If sufficient objectively verifiable information is not available to support a security’s valuation, an alternate independent evaluation source will be used.

The Company’s securities portfolio was valued through its independent third-party pricing service using evaluated pricing models and quoted prices based on market data. For further assurance, the Company’s estimate of fair value was compared to an additional independent third-party estimate at June 30, 2016, and the Company obtained key inputs for a sample of securities across sectors and evaluated those inputs for reasonableness. This analysis was performed at the individual security level and no material variances were noted.

There have been no significant changes in the valuation techniques during the periods reported.

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The tables below show assets measured at fair value on a nonrecurring basis as of ~~September 30,~~ ~~2016~~March 31, 2017 and December 31, ~~2015~~2016:

	CarryingValue		Fair Value
September 30, 2016			Level 1		Level 2		Level 3
March 31, 2017			Level 1		Level 2		Level 3
Other real estate owned		9,966		—		—		9,966
Loans measured for impairment (net of government guarantees and specific reserve)	$	486	$	—	$	—	$	486
Total	$	9,966	$	—	$	—	$	9,966
	CarryingValue		Fair Value
December 31, 2015			Level 1		Level 2		Level 3
December 31, 2016			Level 1		Level 2		Level 3
Loans measured for impairment (net of government guarantees and specific reserves)	$	53	$	—	$	—	$	53
Other real estate owned	$	10,936	$	—	$	—	$	10,936
Other real estate owned		10,147		—		—		10,147
Total	$	10,200	$	—	$	—	$	10,200

The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a nonrecurring basis.

Loans measured for impairment (net of government guarantees and specific reserves) include the estimated fair value of collateral-dependent loans, less collectible government guarantees, as well as certain noncollateral-dependent loans measured for impairment with an allocated specific reserve. When a collateral-dependent loan is identified as impaired, the value of the loan is measured using the current fair value of the collateral less selling costs. The fair value of collateral is generally estimated by obtaining external appraisals which are usually updated every 6 to 12 months based on the nature of the impaired loans. Certain noncollateral-dependent loans measured for impairment with an allocated specific reserve are valued based upon the estimated net realizable value of the loan. If the estimated fair value of the impaired loan, less collectible government guarantees, is less than the recorded investment in the loan, impairment is recognized as a charge-off through the allowance for loan losses. The carrying value of the loan is adjusted to the estimated fair value. The carrying value of loans fully charged off is zero.

Other real estate owned represents real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at the lower of the carrying amount of the loan or fair value less costs to sell, which becomes the property’s new basis. Any write downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, management periodically orders appraisals or performs valuations to ensure that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Appraisals are generally updated every 6 to 12 months on other real estate owned. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on other real estate owned for fair value adjustments based on the fair value of the real estate.

There have been no significant changes in the valuation techniques during the periods reported.

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NOTE 12 – REGULATORY MATTERS

The Company and the Bank are subject to the regulations of certain federal and state agencies and receive periodic examinations by those regulatory authorities. In addition, they are subject to various regulatory capital requirements administered by 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Total capital, Tier 1 capital, common equity Tier 1 to risk-weighted assets and, Tier 1 capital to leverage assets. Management believes that, as of ~~September 30~~March 31, ~~2016~~2017, the Company and the Bank met all capital adequacy requirements to which they were subject.

As of ~~September 30~~March 31, ~~2016~~2017, and according to Federal Reserve and FDIC guidelines, the Bank was considered to be well-capitalized. To be categorized as well-capitalized, the Bank must maintain minimum Total capital, Tier 1 capital, common equity Tier 1 to risk-weighted assets and, Tier 1 capital to leverage assets ratios as set forth in the following table.

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	Actual					For CapitalAdequacy Purposes					To Be WellCapitalized UnderPrompt CorrectiveAction Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2016:
As of March 31, 2017:
Total capital (to risk weighted assets)
Bank:	$	~~256~~274,~~454~~050		1112.9030	%	$	~~172~~178,~~432~~316		8.00	%	$	~~215~~222,~~540~~895		10.00	%
Company:	$	~~270~~282,~~622~~477		12.5567	%		NA					NA
Tier 1 capital (to risk weighted assets)
Bank:	$	~~235~~250,~~375~~990		1011.9226	%	$	~~129~~133,~~324~~737		6.00	%	$	~~172~~178,~~432~~316		8.00	%
Company:	$	~~215~~225,~~471~~297		910.9911	%		NA					NA
Common Equity Tier 1 (to risk weighted assets)
Bank:	$	~~235~~250,~~375~~990		1011.9226	%	$	96100,~~993~~303		4.50	%	$	~~140~~144,~~101~~882		6.50	%
Company:	$	~~203~~212,~~359~~061		9.4351	%		NA					NA
Tier 1 capital (to leverage assets)
Bank:	$	~~235~~250,~~375~~990		1110.2601	%	$	83100,~~578~~266		4.00	%	$	~~107~~111,~~770~~448		5.00	%
Company:	$	~~215~~225,~~471~~297		108.3399	%		NA					NA
As of December 31, 2015:
As of December 31, 2016:
Total capital (to risk weighted assets)
Bank:	$	~~200~~267,~~236~~416		12.5219	%	$	~~127~~175,~~990~~555		8.00	%	$	~~159~~219,~~988~~444		10.00	%
Company:	$	~~201~~278,~~261~~444		12.5869	%		NA					NA
Tier 1 capital (to risk weighted assets)
Bank:	$	~~182~~244,~~575~~414		11.4114	%	$	95131,~~993~~666		6.00	%	$	~~127~~175,~~990~~555		8.00	%
Company:	$	~~183~~221,~~600~~346		1110.4708	%		NA					NA
Common Equity Tier 1 (to risk weighted assets)
Bank:	$	~~182~~244,~~575~~414		11.4114	%	$	7198,~~995~~750		4.50	%	$	~~103~~142,~~992~~638		6.50	%
Company:	$	~~175~~208,~~600~~873		109.9752	%		NA					NA
Tier 1 capital (to leverage assets)
Bank:	$	~~182~~244,~~575~~414		9.8896	%	$	7398,~~939~~181		4.00	%	$	92122,~~422~~726		5.00	%
Company:	$	~~183~~221,~~600~~346		9.9301	%		NA					NA

4641

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the consolidated financial statements and the notes included in this report. Please refer also to our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in the Company’s ~~2015~~2016 Form 10-K. All dollar amounts, except share and per share data, are expressed in thousands of dollars.

In addition to historical information, this report contains 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, statements regarding projected results, the expected interest rate environment and its impact on our business, loan yields and expected prepayments, the adequacy of the allowance for loan losses, net interest margin, expectations regarding nonperforming assets, loan growth, earning asset mix, expected cash flows from the securities portfolio and merger related expense, expectations regarding the Company’s securities portfolio, the structure and volatility of the securities portfolio and the purchase and sale of securities, their value and yields, growth in core deposits and cost, capital levels, liquidity and dividends, expectations regarding certain large depositor relationships and the expected loss of certain large temporary deposits, the outcome of legal proceedings, loan rates and expectations regarding the impact and compression of the net interest margin, the impact of recent accounting pronouncements, management’s plans, objectives, expectations and intentions that are not historical facts, and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “projects,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations in the forward-looking statements, including those set forth in this report, and our other reports filed with the SEC:

•

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

•

The local housing or real estate market could decline.

•

The risks presented by an economic recession, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations, and loan portfolio delinquency rates.

•

Our concentration in loans to dental professionals exposes us to the risks affecting dental practices in general.

•

Interest rate changes could significantly reduce net interest income and negatively affect funding sources.

•

Projected business increases following any future or pending strategic expansion or opening of new branches could be lower than expected.

•

Competition among financial institutions could increase significantly.

•

The goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings.

•

The reputation of the financial services industry could deteriorate, which could adversely affect our ability to access markets for funding and to acquire and retain customers.

•

The efficiencies we may expect to receive from any investments in personnel, acquisitions, and infrastructure may not be realized.

•

The level of nonperforming assets and charge-offs or changes in the estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements may increase.

•

Changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, executive compensation, and insurance) could have a material adverse effect on our business, financial condition and results of operations.

•

Acts of war or terrorism, or natural disasters, may adversely impact our business.

•

The timely development and acceptance of new banking products and services and perceived overall value of these products and services by users may adversely impact our ability to increase market share and control expenses.

•

Changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters, may impact the results of our operations.

4742

•

The costs and effects of legal, regulatory and compliance developments, including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews, may adversely impact our ability to increase market share and control expenses, or may result in substantial uninsured liabilities, which could adversely affect our business, prospects, results of operations and financial condition.

•

The pending acquisition of the Company by Columbia Banking Systems, Inc. may not achieve the anticipated benefits and cost savings, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected, and regulatory approvals may not be received, make take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

•

Our success at managing the risks involved in the foregoing items will have a significant impact on our results of operations and future prospects.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Part I, Item 1A “Risk Factors” in the Company’s ~~2015~~2016 Form 10-K and Part II, Item 1A, “Risk Factors” in this report and elsewhere in this report or in our other reports with the SEC, and include risks and uncertainties described or referred to in Part I, Item 1 “Business” under the captions “Competition” and “Supervision and Regulation” in the Company’s ~~2015~~2016 Form 10-K and Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Please take into account that forward-looking statements speak only as of the date of this report. The Company does not undertake any obligation to publicly correct or update any forward-looking statement whether as a result of new information, future events or otherwise.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the “FASB.” The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in this report are to the “FASB Accounting Standards Codification,” sometimes referred to as the “Codification” or “ASC.”

The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in the Company’s ~~2015~~2016 Form 10-K. Management believes that the following policies and those disclosed in the Notes to Consolidated Financial Statements in the Company’s ~~2015~~2016 Form 10-K should be considered critical under the SEC definition:

Nonaccrual Loans

Accrual of interest is discontinued on contractually delinquent loans when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of principal or interest is doubtful. At a minimum, loans that are past due as to maturity or payment of principal or interest by 90 days or more are placed on nonaccrual status, unless such loans are well-secured and in the process of collection. Interest income is subsequently recognized only to the extent cash payments are received satisfying all delinquent principal and interest amounts, and the prospects for future payments in accordance with the loan agreement appear relatively certain. In accordance with GAAP, payments received on nonaccrual loans are applied to the principal balance and no interest income is recognized.

Allowance for Loan Losses and Reserve for Unfunded Commitments

The allowance for loan losses on outstanding loans is classified as a contra-asset account offsetting outstanding loans, and the allowance for unfunded commitments is classified as an “other” liability on the balance sheet. The allowance for loan losses is established through a provision for loan losses charged against earnings. The balances of the allowance for loan losses for outstanding loans and unfunded commitments are maintained at an amount management believes will be adequate to absorb known and inherent losses in the loan portfolio and commitments to loan funds. The appropriate balance of the allowance for loan losses is determined by applying loss factors to the credit exposure from outstanding loans and unfunded loan commitments. Estimated loss factors are based on subjective measurements including management’s assessment of the internal risk classifications, changes in the nature of the loan portfolios, industry concentrations, and the impact of current local, regional, and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are reasonably possible and may have a material impact on the Company’s consolidated financial statements, results of operations or liquidity.

4843

Troubled Debt Restructurings

In the normal course of business, the Company may modify the terms of certain loans, attempting to protect as much of its investment as possible. ~~Management~~ Management evaluates the circumstances surrounding each modification to determine whether it is a troubled debt restructuring (“TDR”). TDRs exist when 1) the restructuring constitutes a concession, and 2) the debtor is experiencing ~~financial~~ financial difficulties. Additional information regarding the Company’s TDRs can be found in Note 43 of the Notes to Consolidated Financial Statements in Item 1 of Part I of this report.

Goodwill and Intangible Assets

At ~~September 30,~~ ~~2016~~March 31, 2017, the Company had $70,~~684~~115 in goodwill and other intangible assets. In accordance with financial accounting standards, assets with indefinite lives are periodically tested for impairment. Management performs an impairment analysis of its goodwill and intangible assets with indefinite lives at least annually and has determined that there was no impairment as of December 31, ~~2015~~2016, the date the most recent analysis was performed.

Share-based Compensation

In accordance with FASB ASC 718, “Stock Compensation,” we recognize expense in the income statement for the grant-date fair value of stock options and other equity-based forms of compensation issued to employees over the employees’ requisite service period (generally the vesting period). The requisite service period may be subject to performance conditions. The fair value of each grant is estimated as of the grant date using the Black-Scholes option-pricing model. Management assumptions utilized at the time of grant impact the fair value of the option calculated under the Black-Scholes methodology, and ultimately, the expense that will be recognized over the expected service period. Additional information is included in Note 9 of the Notes to Consolidated Financial Statements in Item 1 of Part I of this report.

Fair Value Measurements

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820, “Fair Value Measurements,” establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data. In general, fair values determined by Level 1 inputs utilize quoted prices for identical assets or liabilities traded in active markets that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Additional information regarding the Company’s fair value measurements can be found in Note 11 of the Notes to Consolidated Financial Statements in Item 1 of Part I of this report.

Recent Accounting Pronouncements

In ~~May~~February ~~2014~~2015, the FASB issued ASU No. ~~2014~~ 2015-0902, ~~Revenue~~Consolidation ~~from Contracts with Customers~~ (Topic ~~606~~810),: ~~with~~Amendments anto ~~original~~the ~~effective~~Consolidation ~~date for annual reporting periods beginning after December 15~~Analysis, ~~2016.~~which ~~The core principle of this Topic~~ is ~~that an entity~~ ~~recognizes~~intended ~~revenue~~ to ~~depict~~improve ~~the~~targeted ~~transfer~~areas of ~~promised~~consolidation ~~goods~~guidance orfor ~~services~~legal toentities ~~customers~~such inas anlimited ~~amount~~partnerships, ~~that~~limited ~~reflects~~liability ~~the~~corporations, ~~consideration~~and tosecuritization ~~which~~structures ~~the~~(collateralized ~~entity~~debt ~~expects~~obligations, tocollateralized beloan ~~entitled in exchange for those goods or services. In general~~obligations, ~~the new guidance~~and ~~requires~~mortgage-backed ~~companies~~security totransactions). ~~use~~The ~~more~~ASU ~~judgment~~focuses ~~and~~on ~~make~~simplifying ~~more~~the ~~estimates~~consolidation ~~than~~evaluation ~~under~~for ~~current~~reporting ~~guidance,~~organizations ~~including~~that ~~identifying~~are ~~performance~~required ~~obligations~~to inevaluate ~~the~~whether ~~contract,~~they ~~estimating~~should ~~the~~consolidate ~~amount~~certain oflegal ~~variable~~entities ~~consideration~~by toreducing ~~include in~~ the ~~transaction~~number ~~price and~~of ~~allocating~~consolidation ~~the~~models ~~transaction~~from ~~price~~four to ~~each~~two, ~~separate~~among ~~performance~~other ~~obligation~~changes. InThe ~~August 2015, the FASB issued~~ ASU ~~No. 2015-14,~~was ~~Revenue from Contracts with Customers (Topic 606), which deferred the~~ effective ~~date~~for ~~of ASU 2014-09 to annual~~ periods beginning after December 15, ~~2017~~2015. ~~The~~Adoption ~~adoption~~ of this ASU ~~No. 2014-09~~did is not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

4944

In ~~August~~April ~~2014~~2015, the FASB issued ASU No. ~~2014~~ 2015-1403, ~~Classification~~Interest of– ~~Certain~~Imputation ~~Government-Guaranteed~~of ~~Mortgage Loans~~Interest ~~upon~~(Subtopic ~~Foreclosure. ASU 2014~~835-~~14 requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met (1~~30) ~~the loan has a government guarantee that is not~~: ~~separable~~Simplifying ~~from~~ the ~~loan~~Presentation ~~before~~of ~~foreclosure;~~Debt ~~(2) at~~Issuance ~~the~~Costs. ~~time~~The ofamendments ~~foreclosure,~~in ~~the~~this ~~creditor~~ASU ~~has~~require ~~the~~that ~~intent~~debt toissuance ~~convey~~costs ~~the~~related ~~real estate property~~ to ~~the guarantor and make~~ a ~~claim~~recognized ondebt ~~the~~liability ~~guarantee,~~be ~~and~~presented ~~the~~in ~~creditor has~~ the ~~ability~~balance tosheet ~~recover~~as ~~under that~~a ~~claim;~~direct ~~and~~deduction ~~(3) at~~from the ~~time~~carrying ~~of foreclosure, any~~ amount of ~~the claim~~ that isdebt liability, ~~determined~~consistent onwith ~~the~~debt ~~basis of the fair value of the real estate is fixed~~discounts. ~~Upon~~The ~~foreclosure,~~recognition ~~the~~and ~~separate~~measurement ~~other~~guidance ~~receivable~~for ~~should~~debt beissuance ~~measured~~costs ~~based~~are onnot ~~the~~affected. ~~amount~~ASU ofNo. ~~the loan~~2015-03 ~~balance~~was ~~(principal~~effective ~~and~~for ~~interest)~~financial ~~expected~~statements toissued befor ~~recovered~~fiscal ~~from~~years ~~the~~beginning ~~guarantor.~~after ~~The~~December ~~new~~15, ~~standard is effective for fiscal years~~2015, and interim periods within those fiscal years,. ~~beginning~~ASU ~~after~~No. ~~December 15,~~2015-03 ~~2016.~~should ~~Early~~be ~~adoption~~applied ison ~~permitted~~a retrospective basis. The adoption of ASU No. ~~2014~~ 2015-1403 isdid not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The new standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of ASU ~~No.~~ 2015-16 isdid not ~~expected~~ to have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. This ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. In addition, the amendment requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This ASU also eliminates the requirement for public business entities 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. The amendment also requires a reporting organization 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 (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for certain provisions. The ~~Company~~adoption of ASU No. 2016-01 is ~~currently~~not ~~evaluating~~expected ~~the~~to ~~impact~~have ofa ~~this~~material ~~ASU~~impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The FASB isissued ~~issuing~~ this Update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those ~~fiscal~~ fiscal years. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.; however, the Company estimates a new lease asset and related lease liability to be small due to the minimal lease locations currently occupied by the Bank.

In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815); Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met. ASU 2016-05 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of ASU 2015-16 did not have a material impact on the Company’s consolidated financial statements.

5045

~~itself~~In March 2016, ~~require~~the ~~designation~~FASB ofissued ~~that~~ASU ~~hedging~~No. ~~relationship~~2016-06, ~~provided~~Derivatives and Hedging (Topic 815); Contingent Put and Call Options in Debt Instruments. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that ~~all~~can ~~other~~accelerate ~~hedge~~the ~~accounting~~payment ~~criteria~~of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (~~including~~put) ~~those~~options solely in ~~paragraphs~~accordance ~~815-20-35-14~~with ~~through~~the 35four-18step decision sequence. The amendments in this Update clarify what steps are required when assessing whether the economic characteristics and risks of call (put) ~~continue~~options are clearly and closely related to bethe ~~met~~economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. ~~ASU~~Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The amendments are an improvement to GAAP because they eliminate diversity in practice in assessing embedded contingent call (put) options in debt instruments. ASU 2016-0506 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The ~~Company~~adoption isof ~~currently~~ASU ~~evaluating~~2015-16 ~~the~~did ~~impact~~not ofhave ~~this~~a ~~ASU~~material impact on the Company’s consolidated financial statements.

In March 2016~~-06~~, the FASB issued ASU No. 2016-0607, ~~Derivatives~~Investments – Equity Method and ~~Hedging~~Joint Ventures (Topic ~~815~~323); ~~Contingent~~Simplifying ~~Put~~the ~~and~~Transition ~~Call~~to ~~Options~~the inEquity Method ~~Debt~~of ~~Instruments~~Accounting. The amendments in this Update ~~clarify~~eliminate the ~~requirements~~requirement that when an investment qualifies for ~~assessing~~use ~~whether~~of ~~contingent~~the ~~call~~equity ~~(put)~~method ~~options~~as ~~that~~a ~~can~~result ~~accelerate~~of an increase in the ~~payment~~level of ~~principal~~ownership oninterest ~~debt~~or ~~instruments~~degree ~~are~~of ~~clearly~~influence, ~~and~~an ~~closely~~investor ~~related~~must adjust tothe ~~their~~investment, ~~debt~~results ~~hosts.~~of Anoperations, ~~entity~~and ~~performing~~retained ~~the assessment~~earnings ~~under~~retroactively ~~the~~on ~~amendments~~a instep-by-step ~~this~~basis ~~Update~~as isif ~~required~~the toequity ~~assess~~method ~~the~~had ~~embedded~~been ~~call~~in ~~(put)~~effect ~~options~~during ~~solely~~all inprevious ~~accordance~~periods ~~with~~that the ~~four-step~~investment ~~decision~~had ~~sequence~~been held. The amendments inrequire ~~this~~that ~~Update~~the equity ~~clarify~~method ~~what~~investor ~~steps~~add ~~are~~the ~~required~~cost ~~when~~of ~~assessing~~acquiring ~~whether~~the additional interest in the ~~economic~~ ~~characteristics~~investee ~~and~~to ~~risks~~the current basis of ~~call~~the ~~(put)~~investor’s ~~options~~previously ~~are~~held ~~clearly~~interest and ~~closely~~adopt ~~related to~~ the ~~economic~~equity ~~characteristics~~method ~~and~~of ~~risks~~accounting as of ~~their~~the ~~debt~~date ~~hosts,~~the ~~which~~investment isbecomes ~~one~~qualified for ofequity ~~the~~method ~~criteria~~accounting. Therefore, upon qualifying for ~~bifurcating~~the anequity ~~embedded~~method ~~derivative.~~of ~~Consequently~~accounting, ~~when~~no aretroactive ~~call (put)~~adjustment ~~option~~of isthe ~~contingently~~investment ~~exercisable,~~is anrequired. ~~entity~~The ~~does~~amendments ~~not~~in ~~have~~this toUpdate ~~assess~~require ~~whether~~that ~~the~~an ~~event~~entity that ~~triggers~~has ~~the~~an ~~ability~~available-for-sale toequity security ~~exercise~~that abecomes ~~call~~qualified ~~(put)~~for ~~option~~the isequity ~~related~~method toof ~~interest~~accounting ~~rates~~recognize orthrough ~~credit~~earnings ~~risks.~~the ~~The~~unrealized ~~amendments~~holding ~~are~~gain anor ~~improvement~~loss toin ~~GAAP~~accumulated ~~because they~~other ~~eliminate~~comprehensive ~~diversity~~income inat ~~practice~~the indate ~~assessing~~the ~~embedded~~investment ~~contingent~~becomes ~~call~~qualified ~~(put)~~for ~~options~~use inof ~~debt~~the ~~instruments.~~equity method. ASU 2016-0607 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The ~~Company~~ isadoption ~~currently~~of ~~evaluating~~ASU ~~the~~2015-16 ~~impact~~did ofnot ~~this~~have ~~ASU~~a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No . 2016-0708, ~~Investments~~Revenue –from ~~Equity~~Contracts ~~Method~~with ~~and~~Customers ~~Joint Ventures~~ (Topic ~~323~~606); ~~Simplifying~~Principal ~~the~~Versus ~~Transition~~Agent toConsiderations (Reporting ~~the~~Revenue ~~Equity~~Gross ~~method~~Versus ~~of accounting~~Net). The ~~amendments~~core inprinciple ~~this~~of ~~Update~~the ~~eliminate~~guidance ~~the~~in ~~requirement~~Topic ~~that~~606 ~~when~~is that an ~~investment~~entity ~~qualifies~~should ~~for~~recognize ~~use~~revenue ofto depict the ~~equity~~ ~~method~~transfer asof apromised ~~result~~goods ofor anservices ~~increase~~to customers in an amount that reflects the ~~level~~consideration ofto ~~ownership~~which the ~~interest~~entity expects to be entitled in exchange for those goods or ~~degree~~services. ofThe ~~influence,~~amendments anin ~~investor~~this ~~must~~Update ~~adjust~~do not change the ~~investment,~~core ~~results~~principle of ~~operations,~~the ~~and~~guidance. ~~retained~~The ~~earnings~~amendments ~~retroactively~~clarify onthe aimplementation ~~step-by-step~~guidance ~~basis~~on asprincipal ifversus ~~the~~agent ~~equity method~~considerations. ~~had~~When ~~been~~another inparty ~~effect~~is ~~during~~involved ~~all~~in ~~previous~~providing ~~periods~~goods ~~that~~or ~~the~~services ~~investment~~to ~~had~~a ~~been~~customer, ~~held.~~an ~~The~~entity ~~amendments~~is ~~require~~required ~~that~~to determine whether the ~~equity~~nature ~~method~~of ~~investor~~its ~~add~~promise is to provide the ~~cost~~specified ofgood ~~acquiring~~or ~~the~~service ~~additional~~itself ~~interest~~(that inis, the ~~investee~~entity is a principal) or to ~~the~~arrange for ~~current~~that ~~basis~~good ofor ~~the~~service ~~investor’s previously~~to ~~held~~be ~~interest~~provided ~~and~~by ~~adopt~~the other party (that is, the ~~equity~~entity ~~method~~is ofan ~~accounting~~agent). asWhen of(or ~~the~~as) ~~date~~an ~~the~~entity ~~investment~~that ~~becomes~~is ~~qualified~~a ~~for~~principal ~~equity~~satisfies ~~method~~a ~~accounting.~~performance ~~Therefore~~obligation, ~~upon~~the ~~qualifying~~entity ~~for~~recognizes revenue in the ~~equity~~gross ~~method~~amount of ~~accounting,~~consideration noto ~~retroactive~~which it ~~adjustment~~expects ofto be entitled in exchange for the ~~investment~~ isspecified ~~required.~~good ~~The~~or ~~amendments~~service intransferred ~~this~~to ~~Update~~the ~~require~~customer. ~~that~~When (or as) an entity that ~~has~~is an ~~available-for-sale~~agent ~~equity~~satisfies ~~security~~a ~~that~~performance ~~becomes~~obligation, ~~qualified~~the ~~for~~entity ~~the~~recognizes ~~equity~~revenue ~~method~~in the amount of ~~accounting~~any ~~recognize~~fee ~~through~~or ~~earnings~~commission ~~the~~to which ~~unrealized~~it ~~holding~~expects ~~gain~~to orbe ~~loss~~entitled in ~~accumulated~~ ~~other~~exchange ~~comprehensive~~for ~~income~~arranging atfor the ~~date~~specified ~~the~~good ~~investment~~or ~~becomes~~service ~~qualified~~to ~~for~~be ~~use~~provided ofby the ~~equity~~other ~~method~~party. ASU 2016-0708 is effective for fiscal years beginning after December 15, ~~2016~~2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU but does not expect the ASU to have a material impact on the Company’s consolidated financial statements.; however, it is not expected to have a material impact.

In March 2016, the FASB issued ASU No. 2016-0809, ~~Revenue~~Compensation ~~from~~– ~~Contracts~~Stock ~~with~~Compensation ~~Customers~~ (Topic ~~606~~718); ~~Principal~~Improvements ~~versus~~to ~~agent~~Employee ~~considerations~~Share-based ~~(reporting~~Payment ~~revenue gross versus net)~~Accounting. The ~~core~~areas ~~principle~~for ofsimplification ~~the guidance~~ in ~~Topic~~this ~~606~~Update isinvolve ~~that~~several anaspects ~~entity~~of ~~should recognize revenue to depict~~ the ~~transfer~~accounting offor ~~promised~~share-based ~~goods~~payment ortransactions, ~~services~~including ~~to customers in an amount that reflects~~ the ~~consideration~~income totax ~~which~~consequences, ~~the~~classification ~~entity~~of ~~expects~~awards toas beeither ~~entitled~~equity ~~in exchange for those goods~~ or ~~services.~~liabilities, ~~The~~and ~~amendments~~classification inon ~~this Update do not change~~ the ~~core~~ ~~principle~~statement of ~~the~~cash ~~guidance~~flows. ~~The~~Some ~~amendments~~of ~~clarify~~ the ~~implementation~~specific ~~guidance~~changes onassociated ~~principal~~with ~~versus~~the ~~agent~~Update ~~considerations.~~include ~~When~~all ~~another~~excess ~~party~~tax isbenefits ~~involved~~and intax ~~providing~~deficiencies ~~goods~~(including ortax ~~services~~benefits ~~to a customer, an entity is required to determine whether the nature~~ of ~~its~~dividends ~~promise~~on isshare-based topayment ~~provide the specified good or service itself (that is, the entity is a principal~~awards) orbeing torecognized ~~arrange~~as ~~for~~income ~~that~~tax ~~good~~expense or benefit ~~service~~in ~~to be provided by~~ the ~~other~~income ~~party~~statement. ~~(that~~The ~~is,~~tax ~~the~~effects ~~entity~~of isexercised ~~an agent). When (~~or ~~as)~~vested anawards ~~entity~~should ~~that~~be ~~is a~~treated ~~principal~~as ~~satisfies~~discrete aitems ~~performance~~in ~~obligation,~~ the ~~entity~~reporting ~~recognizes~~period ~~revenue~~ in ~~the~~which ~~gross~~they ~~amount~~occur. ofAn ~~consideration~~entity toalso ~~which~~should itrecognize ~~expects~~excess totax bebenefits ~~entitled~~regardless inof ~~exchange~~whether ~~for~~ the ~~specified~~benefit reduces ~~good~~taxes orpayable ~~service~~in ~~transferred to~~ the ~~customer~~current period. ~~When~~An ~~(or~~entity ~~as)~~can make an entity ~~that~~-wide isaccounting anpolicy ~~agent~~election ~~satisfies~~to aeither ~~performance~~estimate ~~obligation,~~ the ~~entity~~number ~~recognizes revenue in the amount~~ of ~~any~~awards ~~fee~~that orare ~~commission~~expected to ~~which~~vest it(current ~~expects~~GAAP) toor beaccount ~~entitled in exchange~~ for ~~arranging~~forfeitures ~~for~~when ~~the~~they ~~specified good or service to be provided by the other party~~occur. ASU 2016-0809 is effective for fiscal years beginning after December 15, ~~2017~~2016, including interim periods within those fiscal years. The ~~Company~~adoption isof ~~currently~~ASU ~~evaluating~~2016-09 ~~the~~did ~~impact~~not ofhave ~~this~~a ~~ASU~~material impact on the Company’s consolidated financial statements.

In46 March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718); Improvements to employee share-based payment accounting. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the specific changes associated with the update include all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) being recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The core principle of the guidance in this ~~update~~Update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for fiscal years beginning after December 15, 2017, including interim ~~periods~~ periods within those fiscal years. The Company isdoes ~~currently~~not ~~evaluating~~expect the ~~impact~~ASU ofto ~~this~~have ~~ASU~~a material impact on the Company’s consolidated financial statements.

In ~~June~~ June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements and implementation could have the potential to materially affect the provision for loan losses in the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payment. The main purpose of this ~~update~~Update is to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements, but anticipates anthat ~~immaterial~~the Update will not have a material impact. on the Company’s consolidated financial statements.

52In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323). This ASU amends the codification of SEC staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC guidance that specifically relates to our consolidated financial statements was from the September 2016 meeting, where the SEC staff expressed their expectations about the extent of disclosures registrants should make about the effects of the new FASB guidance as well as any amendments issued prior to adoption, on revenue (ASU 2014-09), leases (ASU 2016-02) and credit losses on financial instruments (ASU 2016-13) in accordance with SAB topic 11.M. Registrants are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in the future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, then additional qualitative disclosures should be considered. The ASU incorporates these SEC staff views into ASC 250 and adds reference to that guidance in the transition paragraphs of each of the three new standards. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements.

Financial Highlights

	For the three months ended									~~For the nine months ended~~
	September 30,									September 30,
	March 31,
	2016			2015			$ Change			2016			2015			$ Change
	2017			2016			$ Change
Net interest income	$	2024,~~771~~180		$	18,~~308~~809		$	25,~~463~~371		$	~~58,726~~		$	~~50,977~~		$	~~7,749~~
Noninteret income		12,~~919~~151			1,~~714~~807			~~205~~344			~~5,477~~			~~4,618~~			~~859~~
Operating revenue (1)		2226,~~690~~331			20,~~022~~616			25,~~668~~715			~~64,203~~			~~55,595~~			~~8,608~~
Provision for loan losses		~~1,380~~900			~~625~~245			~~755~~655			~~3,575~~			~~1,175~~			~~2,400~~
Noninterest expense		1315,~~825~~464			1112,~~182~~007			23,~~643~~457			~~40,766~~			~~34,186~~			~~6,580~~
Provision for income taxes		23,~~634~~417			2,~~890~~905			~~(256~~512	)		~~6,946~~			~~7,012~~			~~(66~~	)
Net income	$	46,~~851~~550		$	5,~~325~~459		$	~~(474~~1,091	)	$	~~12,916~~		$	~~13,222~~		$	~~(306~~	)
Earnings per share
Basic	$	0.2429		$	0.2728		$	(0.0301	)	$	~~0.65~~		$	~~0.69~~		$	~~(0.04~~	)
Diluted	$	0.2329		$	0.2728		$	(0.0401	)	$	~~0.64~~		$	~~0.68~~		$	~~(0.04~~	)
Assets, period-end	$	2,~~539~~597,~~060~~305		$	1,~~878~~965,~~283~~705		$	~~660~~631,~~777~~600
Gross loans, period-end	$	1,~~808~~914,~~646~~648		$	1,~~357~~431,~~045~~303		$	~~451~~483,~~601~~345
Core deposits, period end (2)	$	21,~~049~~967,~~352~~266		$	1,~~465~~633,~~547~~941		$	~~583~~333,~~805~~325
Deposits, period-end	$	2,~~162~~080,~~633~~266		$	1,~~524~~696,~~954~~588		$	~~637~~383,~~679~~678
Return on average assets (3)		01.8903	%		1.1412	%					~~0.85~~	%		~~1.01~~	%
Return on average equity (3)		89.0563	%		9.9192	%					~~7.55~~	%		~~8.60~~	%
Return on average tangible equity (3) (4)		1012.1493	%		12.4235	%					~~9.43~~	%		~~10.62~~	%

⁽¹⁾	Operating revenue is defined as net interest income plus noninterest income.

(2) Defined by the Company as demand, interest checking, money market, savings, and local nonpublic time deposits, including local nonpublic time deposits in excess of $~~100~~250.

⁽³⁾	Amounts annualized.

(4) Tangible equity excludes goodwill and core deposit intangibles related to acquisitions, see ~~non~~“Reconciliation of Non-GAAP ~~disclosure~~Financial Information” below.

OnDuring ~~September 6,~~the ~~2016~~first quarter 2017, the Company ~~completed~~earned ~~the~~$6,550, ~~acquisition~~or of$0.29 ~~Foundation~~per ~~Bank.~~diluted ~~Subsequent~~share, compared to ~~the~~$5,459, ~~end~~or of$0.28 ~~the~~per ~~reporting~~diluted ~~period~~share, ~~during~~in ~~October~~first quarter 2016. The increase in net income is attributable to an increase in operating revenues, primarily net interest income, which was partially offset by an increase in the provision for loan losses and higher noninterest expense. First quarter 2017 results ~~Company~~included ~~successfully~~the ~~converted~~impact of acquisition expenses for Columbia Banking System, Inc.’s pending acquisition of the ~~Foundation~~Company, ~~Bank~~which ~~core~~is ~~systems~~expected to close during mid-year 2017. In third quarter 2016, the Company’s ~~core~~acquired ~~operating~~Foundation ~~system~~Bancorp, Inc. Aof Bellevue, ~~summary~~Washington, ofand that, combined with organic loan growth, were the ~~assets~~primary ~~and~~drivers ~~liabilities~~of ~~acquired~~increased ~~through~~operating ~~this~~revenues ~~transaction~~and isnoninterest ~~provided~~expense in ~~Note~~first 2quarter of2017 ~~the~~when ~~Notes~~compared to ~~Consolidated~~first ~~Financial~~quarter 2016. The increase in the provision for ~~Statements~~loan losses in ~~Item 1~~first ofquarter ~~Part~~2017 Iover offirst ~~this~~quarter ~~report.~~2016 was primarily due to growth in outstanding loans as credit quality remained strong during the period.

~~The~~During ~~Company~~first ~~earned~~quarter $42017,~~851,~~ orthe ~~$0.23~~Company ~~per~~continued ~~diluted~~to ~~share,~~experience organic growth in ~~third~~outstanding ~~quarter~~loans. ~~2016,~~Outstanding ~~compared~~gross toloans $5at March 31,~~325~~ 2017, orwere $~~0.27~~1,914,648, ~~per~~up ~~diluted~~$54,861 ~~share~~over December 31, in2016, ~~third~~outstanding loans. Annualized first quarter ~~2015~~loan growth was 11.96% ~~Included~~and represented an expansion in ~~third~~core ~~quarter~~lending ~~income~~segments, ~~was~~including real estate loans and commercial loans. Outstanding core deposits at March 31, 2017, were $1,~~767~~967,266, which represented a decrease of ~~merger~~$67,801, ~~related~~over ~~expense~~core ~~associated~~deposits ~~with~~at December 31, 2016. The reduction was partially due to a decrease in our large depositor totals, and partially due to the ~~acquisition~~normal seasonal deposit fluctuations, which ~~lowered~~stay ~~third~~typically ~~quarter~~result ~~2016~~in ~~net~~a ~~income~~flat byor $1declining first half of the year,~~149,~~ orwith ~~approximately~~growth ~~$0.06~~in ~~per~~deposits ~~share.~~typically being experienced in the second half of the year.

~~The~~48 Company recognized provision for loan losses of $1,380 in the third quarter 2016, representing an increase of $755 over third quarter 2015. The Company also saw net interest income grow $2,463 to $20,771 in the third quarter 2016, up from $18,308 in the third quarter 2015. Income growth was primarily attributable to growth in the loan portfolio associated with the acquired loans and organic loan growth experienced during the quarter.

During the third quarter 2016, the Company continued to experience growth in outstanding loans. Outstanding loans at September 30, 2016, were $1,808,646, up $402,634 over December 31, 2015, outstanding loans. Included in the growth was $270,533 in net loans acquired through the Foundation Bank acquisition. Excluding the acquired loans, the Company grew organic loans $132,101 since the prior year end, representing an annualized growth rate of 12.55% and expansion in all core lending segments, including construction loans, real estate loans and commercial loans.

Outstanding core deposits at September 30, 2016, were $2,049,352, which represented growth of $515,410, since December 31, 2015. Included in the growth was $396,509 of deposits acquired through the Foundation Bank acquisition. Excluding acquired deposits, the Company experienced organic deposit growth of $118,901 since the prior year end, representing an annualized growth rate of 10.35%. Included in period end core deposits was a large temporary deposit of approximately $60,000, which was deposited toward the end of the quarter in conjunction with the sale of a client. The funds are temporary in nature and are expected to leave prior to the end of 2016.

Reconciliation of Non-GAAP financial information

Management utilizes certain non-GAAP financial measures to monitor the Company’s performance. While we believe the presentation of non-GAAP financial measures provides additional insight into our operating performance, readers of this report are urged to review the GAAP results as presented in the Financial Statements in Item 1 of Part I of this report.

The Company presents a computation of tangible equity along with tangible book value and return on average tangible equity. The Company defines tangible equity as total shareholders’ equity before goodwill and core deposit intangible assets. Tangible book value is calculated as tangible equity divided by total shares outstanding. Return on average tangible equity is calculated as net income divided by average tangible equity. We believe that tangible equity and certain tangible equity ratios are meaningful measures of capital adequacy which may be used when making period-to-period and company-to-company comparisons. Tangible equity and tangible equity ratios are considered to be non-GAAP financial measures and should be viewed in conjunction with total shareholders’ equity, book value and return on average equity. The following table presents a reconciliation of total shareholders’ equity to tangible equity.

	September 30,			June 30,			September 30,
	March 31,			December 31,			March 31,
	2016			2016			2015
	2017			2016			2016
Total shareholders’ equity	$	~~276~~279,~~471~~167		$	~~226~~273,~~426~~755		$	~~216~~224,~~676~~879
Subtract:
Goodwill		(61,~~436~~401	)		(4061,~~027~~401	)		(3940,~~075~~027	)
Core deposit intangible assets		(98,~~248~~714	)		(38,~~657~~981	)		(43,~~027~~781	)
Tangible shareholders’ equity (non-GAAP)	$	~~205~~209,~~787~~052		$	~~182~~203,~~742~~373		$	~~173~~181,~~574~~071
Book value per share	$	12.2332		$	1112.4811		$	11.0646
Tangible book value per share (non-GAAP)	$	9.1022		$	98.2699		$	89.8623
Year-to-date return on average equity		79.5563	%		78.2823	%		89.6092	%
Year-to-date return on average tangible equity(non-GAAP)		912.4393	%		910.0550	%		1012.6235	%

~~The~~49 Company presents a computation of core net interest margin and adjusted net interest income, which exclude prepayment penalties on loans, prepayment penalties on brokered deposits, and accretion of fair value marks, for third quarter 2016, second quarter 2016, and third quarter 2015. Core net interest margin and adjusted net interest income are considered non-GAAP financial measures and should be viewed in conjunction with the consolidated statement of income and average balance analysis of net interest income. The following table presents a reconciliation of net interest margin to core net interest margin.

Reconciliation of Adjusted Net Interest Income to Net Interest Income

	Three months ended
	September 30,			June 30,			September 30,
	March 31,			March 31,
	2016			2016			2015
	2017			2016
Tax equivalent net interest income (1)	$	2124,~~354~~862		$	19,~~665~~324		$	~~18,745~~
Subtract
Century Bank accretion		68—			1638			84
Capital Pacific Bank accretion		~~300~~152			~~140~~371			~~532~~
Foundation Bank accretion		~~509~~1,123			—			—
Prepayment penalties on loans		~~276~~39			~~166~~84			33
Prepayment penalties on brokered deposits		—			—(61	)		~~(54~~	)
Total adjustments		1,~~153~~314			~~322~~432			~~595~~
Adjusted net interest income (non-GAAP)	$	2023,~~201~~548		$	1918,~~343~~892		$	~~18,150~~
Average earnings assets	$	2,~~014~~382,~~889~~824		$	1,~~852~~820,~~130~~554		$	~~1,726,201~~
Net interest margin		4.2223	%		4.27	%		~~4.31~~	%
Core net interest margin (non-GAAP)		34.9901	%		4.2017	%		~~4.17~~	%

(1) Tax-exempt income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of $~~582,~~682 ~~$518,~~ and $~~264~~515 for the three months ended ~~September~~March 3031, ~~2016~~2017, ~~June 30, 2016,~~ and ~~September~~March 3031, ~~2015~~2016, respectively.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the primary source of the Company’s revenue. Net interest income is the difference between interest income derived from earning assets, principally loans, and interest expense associated with interest-bearing liabilities, principally deposits. The volume and mix of earning assets and funding sources, market rates of interest, demand for loans, and the availability of deposits affect net interest income.

Net interest margin as a percentage of average earning assets for ~~third~~first quarter ~~2016~~2017 was 4.2223%, ~~representing~~a ~~reductions~~decrease of 54 basis points ~~and~~from 9the ~~basis~~first ~~points~~quarter 2016. The ~~from~~decrease ~~second~~in ~~quarter~~the ~~2016~~net ~~and~~interest ~~third~~margin was primarily due to an increase in the costs of interest bearing liabilities, which increased to 0.60% in first quarter ~~2015~~2017, ~~respectively~~compared to 0.41% ~~The~~in ~~linked-~~first quarter ~~margin~~2016. The ~~contracted~~increase was primarily due to the interest ~~higher~~on ~~cost~~the ofsubordinated ~~interest~~debenture ~~bearing~~note, ~~wholesale~~which ~~funding~~the Bank entered into in June 2016, ~~reflecting~~and the increased ~~interest~~costs ~~expense~~of onthe junior subordinated debentures, including the junior subordinated debentures ~~issued~~ atacquired in the ~~end~~Foundation ofBancorp, ~~June~~Inc. acquisition, which closed in September 2016. See ~~During~~“Subordinated ~~third~~Debentures” and “Junior Subordinated Debentures” for additional information. The increase in debenture costs was partially offset by a reduction of FHLB borrowing costs, which decreased to 0.94% in first quarter 2017 from 1.56% in first quarter 2016,. The ~~accretion~~reduction in rate was primarily tied to longer term advances which matured during the end of ~~loan~~2016 ~~fair~~and ~~value~~beginning ~~discounts~~of 2017 which were moved into overnight borrowings. The Company experienced a slight increase in yield on earnings assets of 7 basis points, primarily tied to an increase in credit and interest rate accretion on purchased loans and other nonrecurring items, ~~was~~which totaled $1,~~153~~314 and added 22 23 basis points to the net interest margin, compared to loan fair value accretion and other nonrecurring items of $~~322~~432 in ~~second~~first quarter 2016 that added 710 basis points to the net interest margin in that prior period. ~~The~~In ~~increase~~addition, innew ~~accretion~~loans ~~income~~were booked isat ~~primarily~~rates ~~attributable~~below the current portfolio yield, and are expected to place downward pressure on the ~~acquisition~~net ofinterest ~~Foundation~~margin. However, ~~Bank~~the Company anticipates additional loan growth, which ~~was~~will ~~completed~~grow onnet ~~September 6,~~interest ~~2016.~~income while the margin is reduced.

~~The~~50 Company also saw a reduction in yields on the taxable portion of the loan portfolio, as new loans were being booked at rates below the current portfolio yield, which are expected to continue to place downward pressure on the net interest margin.

The ~~decrease~~following intable ~~the~~presents ~~year-over-year~~condensed ~~net~~balance ~~interest~~sheet ~~margin~~information, oftogether 9with ~~basis~~interest ~~point~~income ~~was~~and ~~primarily~~yields ~~due to a reduction in~~on ~~nonrecurring~~average interest ~~items~~earning assets, ~~primarily accretion income booked on the acquired loan portfolios~~ and ~~the increase in~~ interest expense onand ~~the~~rates ~~Notes.~~on ~~Prior~~interest-bearing toliabilities, ~~issuance~~for of the ~~Notes in the second~~ quarter, ~~the~~ended ~~core~~March ~~net interest margin~~31, ~~which removes the effect of fair value accretion and nonrecurring items~~2017, ~~remained~~compared ~~relatively stable due~~ to ~~a continued shift in earning asset mix as higher yielding loans represented a larger proportion of total earning assets versus~~ the ~~lower~~quarter ~~yielding~~ended ~~securities portfolio.~~March ~~With the increase in the additional interest expense on the Notes~~31, ~~the~~2016: core margin is expected to experience some margin compression in future quarters. Core net interest margin is considered to be a non-GAAP financial measure. See “Reconciliation of non-GAAP financial information” above.

The following table presents condensed balance sheet information, together with interest income and yields on average interest earning assets, and interest expense and rates on interest-bearing liabilities, for the quarter ended September 30, 2016, compared to the quarter ended September 30, 2015:

Table I

Average Balance Analysis of Net Interest Income

(dollars in thousands)

	Three months endedSeptember 30, 2016								Three months endedSeptember 30, 2015
	Three months endedMarch 31, 2017								Three months endedMarch 31, 2016
	AverageBalance		InterestIncome or(Expense)			AverageYields orRates			AverageBalance		InterestIncome or(Expense)			AverageYields orRates
Interest earning assets
Federal funds sold and interest-bearing deposits	$	2841,~~811~~077	$	4088			0.5587	%	$	1234,~~793~~380	$	745			0.2253	%
Federal Home Loan Bank stock		67,~~975~~243		4632			21.6279	%		54,~~348~~058		1128			02.8278	%
Securities available-for-sale:
Taxable		~~346~~392,~~658~~667		12,~~949~~255			2.2433	%		~~316~~307,~~412~~122		1,~~702~~689			2.1321	%
Tax-exempt(1)		7477,~~427~~197		~~742~~778			34.9609	%		7271,~~026~~879		~~754~~733			4.1510	%
Loans, net of deferred fees and allowance(2)
Taxable		1,~~502~~780,~~108~~501		1922,~~545~~658			5.1816	%		1,~~286~~355,~~716~~536		1617,~~920~~235			5.2211	%
Tax-exempt(3)		5584,~~910~~139		~~923~~1,169			65.5764	%		3247,~~906~~579		~~494~~738			56.9624	%
Total interest-earning assets		2,014,889		23,245			4.59	%		1,726,201		19,888			4.57	%
Total interest earning assets		2,382,824		26,981			4.59	%		1,820,554		20,468			4.52	%
Non earning assets
Cash and due from banks		28,~~300~~899								2225,~~395~~012
Property and equipment		1920,~~380~~114								1718,~~810~~459
Goodwill and intangible assets		4970,~~517~~254								43,~~168~~611
Interest receivable and other assets		5168,~~901~~241								4948,~~844~~776
Total nonearning assets		149,098								133,217
Total non earning assets		187,508								135,858
Total assets	$	2,~~163~~570,~~987~~332							$	1,~~859~~956,~~418~~412
Interest-bearing liabilities
Money market and NOW accounts	$	~~825~~1,~~800~~014,936	$	(~~553~~680	)		-0.27	%	$	~~794~~847,~~266~~784	$	(~~508~~546	)		-0.2526	%
Savings deposits		7572,~~344~~127		(2396	)		-0.1254	%		6167,~~309~~487		(1820	)		-0.12	%
Time deposits - core (4)		5965,~~830~~050		(59	)		-0.3937	%		8873,~~641~~605		(8066	)		-0.36	%
Total interest-bearing core deposits		~~960~~1,~~974~~152,113		(~~635~~835	)		-0.2629	%		~~944~~988,~~216~~876		(~~606~~632	)		-0.2526	%
Time deposits - noncore		107,753		(349	)		-1.29	%		62,481		(249	)		-1.58	%
Time deposits - non-core		113,007		(362	)		-1.30	%		63,683		(265	)		-1.67	%
Interest-bearing repurchase agreements		~~780~~1,831		—			0.00	%		—44		—			0.00	%
Federal funds purchased		~~909~~267		(21	)		-01.8852	%		~~2,392~~657		(42	)		-01.6622	%
FHLB borrowings		~~117~~110,~~277~~394		(~~286~~255	)		-0.9794	%		8248,~~571~~665		(~~227~~189	)		-1.0956	%
Subordinated debenture		34,~~079~~107		(~~553~~570	)		-6.4678	%		—		—			0.00	%
Junior subordinated debenture		911,~~034~~329		(6697	)		-23.9147	%		8,248		(5756	)		-2.7473	%
Total interest-bearing wholesale funding		~~269~~270,~~832~~935		(1,~~256~~285	)		-1.8592	%		~~155~~121,~~692~~297		(~~537~~512	)		-1.3770	%
Total interest-bearing liabilities		1,~~230~~423,~~806~~048		(12,~~891~~120	)		-0.6160	%		1,~~099~~110,~~908~~173		(1,~~143~~144	)		-0.41	%
Noninterest-bearing liabilities
Demand deposits		~~687~~864,~~803~~486								~~538~~617,~~768~~672
Interest payable and other		57,~~594~~026								7,~~512~~142
Total noninterest liabilities		~~693~~871,~~397~~512								~~546~~624,~~280~~814
Total liabilities		12,~~924~~294,~~203~~560								1,~~646~~734,~~188~~987
Shareholders’ equity		~~239~~275,~~784~~772								~~213~~221,~~230~~425
Total liabilities and shareholders’ equity	$	2,~~163~~570,~~987~~332							$	1,~~859~~956,~~418~~412
Net interest income			$	2124,~~354~~861							$	1819,~~745~~324
Net interest margin(1)				4.2223	%							4.3127	%

(1) Tax-exempt securities income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $~~260~~273 and $~~264~~256 for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively. Net interest margin was positively impacted by 5 and 6 basis points for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively.

(2) Interest income includes recognized loan origination fees of $~~340~~318 and $~~231~~205 for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively.

(3) Tax-exempt loan income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $~~323~~408 and $~~173~~259 for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively. Net interest margin was positively impacted by 67 and 46 basis points for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively.

(4) Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $~~100~~250.

5751

Table I shows that earning asset yields in ~~third~~first quarter ~~2016~~2017 were 4.59%, ~~down~~up 27 basis points from the 4.5752% recorded in ~~third~~first quarter ~~2015~~2016. The ~~Bank~~Company experienced aan ~~decrease~~increase in yield on the taxable loan portfolio of 45 basis points when compared to the prior period. New loans continued to be booked at rates lower than the average portfolio rate, which continued to slowly reduce the overall portfolio yield; however, an increase in accretion income attributable to the acquired loan portfolios partially offseting that decline. The increase in the yield on ~~the taxable portion of the~~ securities ~~portfolio~~ reflected more recent purchases, which were longer in ~~nature~~maturity, ~~resulting~~while instill anremaining ~~increase~~within inthe ~~yield.~~Company’s internal policy limits.

The cost of interest-bearing liabilities increased by 2019 basis points from 0.41% in ~~third~~first quarter ~~2015~~2016 compared to 0.6160% in ~~third~~first quarter ~~2016~~2017. The increase in the cost of interest-bearing liabilities was primarily due to the issuance of the ~~Debentures~~Notes in the second quarter 2016, which have a stated coupon rate of 5.875%. The rates paid on interest-bearing core deposits increased by 13 basis ~~point~~points, due to a change in the depositor composition of the core deposits.

5852

The following table sets forth a summary of changes in net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three months ended ~~September 30~~March 31, ~~2016~~2017, compared to the three months ended ~~September~~March 3031, ~~2015~~2016.

Table II

Analysis of Changes in Interest Income and Interest Expense

(dollars in thousands)

	Three months endedSeptember 30, 2016compared to September 30, 2015Increase (decrease) due to
	Three months endedMarch 31, 2017Compared to three months ended March 31, 2016Increase (decrease) due to
	Volume			Rate			~~Net~~Days			Net
Interest earned on:
Federal funds sold and interest-bearing deposits	$	9		$	2435		$	33(1	)	$	43
Federal Home Loan Bank stock		322			32(18	)		35—			4
Securities available-for-sale:
Taxable		~~157~~467			90114			~~247~~(15	)		566
Tax-exempt(1)		2354			(352	)		(127	)		45
Loans, net of deferred fees and allowance
Taxable		25,~~779~~358			~~(154~~209	)		~~2,625~~(144	)		5,423
Tax-exempt(2)		~~342~~562			86(126	)		~~428~~(5	)		431
Total interest-earning assets		3,313			43			3,356
Total interest earning assets		6,472			212			(171	)		6,513
Interest paid on:
Money market and NOW accounts		19107			2632			45(5	)		134
Savings deposits		41			175			5—			76
Time deposits - core (3)		(268	)		51			~~(21~~—	)		(7	)
Total interest-bearing core deposits		(3100	)		32108			29(5	)		203
Time deposits - noncore		~~179~~204			(79105	)		~~100~~(1	)		98
Federal funds purchased		(21	)		—			(2—	)		(1	)
FHLB and FRB borrowings		95			(36	)		59
FHLB borrowings		238			(172	)		—			66
Subordinated debenture		(2—	)		~~555~~575			~~553~~(5	)		570
Junior subordinated debenture		521			421			9(1	)		41
Total interest-bearing wholesale funding		~~834~~462			~~(115~~319	)		~~719~~(7	)		774
Total interest-bearing liabilities		~~831~~562			~~(83~~427	)		~~748~~(12	)		977
Net interest income(1)	$	25,~~482~~910		$	~~126~~(215	)	$	~~2,608~~(159	)	$	5,536

(2) Tax-exempt loan income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $~~323~~408 and $~~173~~259 for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively. Net interest margin was positively impacted by 67 and 46 basis points for the three months ended ~~September~~March 3031, ~~2016~~2017, and ~~September~~March 3031, ~~2015~~2016, respectively.

(3) Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $~~100~~250.

~~The~~53 third quarter 2016 rate/volume analysis shows that net interest income increased by $2,608 over third quarter 2015. Interest income increased $3,356, while interest expense increased $748. The increase in interest income was primarily due to higher volumes, which generated an additional $3,313 in interest income, which was partially offset by a decline in interest income of $43 due to lower rates.

~~Table~~The ~~III~~first quarter 2017 rate/volume analysis shows that net interest income increased by $5,536 over first quarter 2016. Interest income increased $6,513, while interest expense increased $976. The increase in interest income was primarily due to higher volumes, which generated an additional $6,472 in interest income.

~~Average~~The ~~Balance~~increase ~~Analysis~~in interest expense in first quarter 2017, when compared to first quarter 2016, was primarily due to an increase in the volume of ~~Net~~core deposits. Higher ~~Interest~~volumes ~~Income~~of interest-bearing core deposits increased interest expense.

(dollars in thousands)

	Nine months endedSeptember 30, 2016								Nine months endedSeptember 30, 2015
	AverageBalance		InterestIncome or(Expense)			AverageYields orRates			AverageBalance		InterestIncome or(Expense)			AverageYields orRates
Interest earning assets
Federal funds sold and interest-bearing deposits	$	26,539	$	104			0.52	%	$	12,916	$	23			0.24	%
Federal Home Loan Bank stock		6,016		94			2.09	%		8,060		18			0.30	%
Securities available-for-sale:
Taxable		322,679		5,456			2.26	%		304,945		4,807			2.11	%
Tax-exempt(1)		72,703		2,208			4.06	%		73,057		2,294			4.20	%
Loans, net of deferred fees and allowance(2)
Taxable		1,418,191		54,244			5.11	%		1,191,869		47,250			5.30	%
Tax-exempt(3)		50,831		2,411			6.34	%		27,249		1,185			5.81	%
Total interest earning assets		1,896,959		64,516			4.54	%		1,618,096		55,577			4.59	%
Non earning assets
Cash and due from banks		25,809								22,094
Property and equipment		18,970								17,823
Goodwill and intangible assets		45,641								39,217
Interest receivable and other assets		49,548								48,387
Total non earning assets		139,968								127,521
Total assets	$	2,036,927							$	1,745,617
Interest-bearing liabilities
Money market and NOW accounts	$	820,173	$	(1,615	)		-0.26	%	$	731,198	$	(1,440	)		-0.26	%
Savings deposits		70,843		(65	)		-0.12	%		58,816		(55	)		-0.13	%
Time deposits - core (4)		66,022		(182	)		-0.37	%		79,535		(235	)		-0.40	%
Total interest-bearing core deposits		957,038		(1,862	)		-0.26	%		869,549		(1,730	)		-0.27	%
Time deposits - non-core		80,092		(816	)		-1.36	%		72,903		(779	)		-1.43	%
Interest-bearing repurchase agreements		493		—			0.00	%		—		—			0.00	%
Federal funds purchased		872		(6	)		-0.92	%		1,839		(10	)		-0.73	%
FHLB borrowings		95,356		(758	)		-1.06	%		84,924		(694	)		-1.09	%
Subordinated debenture		11,940		(553	)		-6.19	%		—		—			0.00	%
Junior subordinated debenture		8,512		(179	)		-2.81	%		8,248		(169	)		-2.74	%
Total interest-bearing wholesale funding		197,265		(2,312	)		-1.57	%		167,914		(1,652	)		-1.32	%
Total interest-bearing liabilities		1,154,303		(4,174	)		-0.48	%		1,037,463		(3,382	)		-0.44	%
Noninterest-bearing liabilities
Demand deposits		647,967								495,965
Interest payable and other		6,065								6,585
Total noninterest liabilities		654,032								502,550
Total liabilities		1,808,335								1,540,013
Shareholders’ equity		228,592								205,604
Total liabilities and shareholders’ equity	$	2,036,927							$	1,745,617
Net interest income			$	60,342										$	52,195
Net interest margin(1)				4.25	%										4.31	%

(1) Tax-exempt securities income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $773 and $803 for the YTD period ended September 30, 2016, and September 30, 2015, respectively. Net interest margin was positively impacted by 5 and 7 basis points for the YTD period ended September 30, 2016, and September 30, 2015, respectively.

(2) Interest income includes recognized loan origination fees of $776 and $478 for the YTD period ended September 30, 2016, and September 30, 2015, respectively.

(3) Tax-exempt loan income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $844 and $415 for the YTD period ended September 30, 2016, and September 30, 2015, respectively. Net interest margin was positively impacted by 6 and 3 basis points for the YTD period ended September 30, 2016, and September 30, 2015, respectively.

(4) Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $100 .

Table IV

Analysis of Changes in Interest Income and Interest Expense

(dollars in thousands)

	Nine months endedSeptember 30, 2016Compared to nine months ended September 30, 2015Increase (decrease) due to
	Volume			Rate			Days		Net
Interest earned on:
Federal funds sold and interest-bearing deposits	$	24		$	57		$	—	$	81
Federal Home Loan Bank stock		(5	)		80			1		76
Securities available-for-sale:
Taxable		280			364			5		649
Tax-exempt(1)		(11	)		(77	)		2		(86	)
Loans, net of deferred fees and allowance
Taxable		8,980			(2,028	)		42		6,994
Tax-exempt(2)		1,026			198			2		1,226
Total interest earning assets		10,294			(1,406	)		52		8,940
Interest paid on:
Money market and NOW accounts		175			(2	)		2		175
Savings deposits		11			(1	)		—		10
Time deposits - core (3)		(40	)		(13	)		—		(53	)
Total interest-bearing core deposits		146			(16	)		2		132
Time deposits - noncore		77			(41	)		2		38
Federal funds purchased		(5	)		1			—		(4	)
FHLB borrowings		85			(22	)		1		64
Subordinated debenture		—			552			1		553
Junior subordinated debenture		5			4			1		10
Total interest-bearing wholesale funding		162			494			5		661
Total interest-bearing liabilities		308			478			7		793
Net interest income(1)	$	9,986		$	(1,884	)	$	45	$	8,147

(1) Tax-exempt securities income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $773 and $803 for the YTD period ended September 30, 2016, and September 30, 2015, respectively. Net interest margin was positively impacted by 5 and 7 basis points for the YTD period ended September 30, 2016, and September 30, 2015, respectively.

(2) Tax-exempt loan income has been adjusted to a tax-equivalent basis at a 35% tax rate. The amount of such adjustment was an addition to recorded income of approximately $844 and $415 for the YTD period ended September 30, 2016, and September 30, 2015, respectively. Net interest margin was positively impacted by 6 and 3 basis points for the YTD period ended September 30, 2016, and September 30, 2015, respectively.

(3) Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $100.

Loan Loss Provision and Allowance

Below is a summary of the Company’s allowance for loan losses for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2016~~2017, and ~~2015~~2016:

	Three months endedSeptember 30,						Nine months endedSeptember 30,
	Three months ended
	2016			2015			2016			2015
	March 31,
Balance, beginning of period	$	19,127		$	16,013		$	17,301		$	15,637
	2017			2016
Provision charged to income		1,380			625			3,575			1,175
Balance, beginning of period	$	22,454		$	17,301
Loans charged against allowance		(44	)		(104	)		(712	)		(631	)
Provision charged to income		900			245
Recoveries credited to allowance		68			78			367			431
Loans charged against allowance		(791	)		—
Balance, end of period	$	20,531		$	16,612		$	20,531		$	16,612
Recoveries credited to allowance		49			50
Balance, end of period	$	22,612		$	17,596

The Company recorded $~~1,380~~900 in provision for loan losses during the ~~third~~first quarter ~~2016~~2017, which was primarily attributable to growth in the loan portfolio ~~and~~experienced during the ~~downgrade of a dental loan relationship totaling $1,661~~quarter. The Company’s classified assets at ~~September 30~~March 31, ~~2016~~2017, were 2320.8017% of regulatory capital, compared to 23.0351% and 2520.1496% of regulatory capital at December 31, ~~2015~~2016 and ~~September 30,~~March ~~2015~~31, ~~respectively. Classified assets totaled $56,166, at September 30,~~ 2016, ~~up $13,337 from June 30, 2016. The increase was primarily attributable to the acquisition of Foundation Bank, which~~ ~~as of September 30, 2016, added $19,233 to the classified assets totals~~respectively.

For the ~~nine~~three months ended ~~September 30~~March 31, ~~2016~~2017, the Company recorded net loan charge offs of $~~369,~~742 ~~or annualized 0.05% of average outstanding loans,~~ compared to net ~~charge~~loan ~~offs~~recoveries of $~~200,~~50 ~~or 0.03% of average loans,~~ for the same period in ~~2015. The allowance for loan losses for outstanding loans at September 30,~~ 2016~~, was $20,531, or 1~~.~~14%~~ of outstanding loans, compared to 1.23% and 1.23% of outstanding loans at December 31, 2015, and September 30, 2015, respectively. The decrease in the allowance as a percentage of total loans was primarily attributable to loans acquired through acquisition, which were booked net of their credit related fair value adjustment and were only included in the allowance for loan losses to the extent their credit impairment exceeded the remaining credit related fair value discount. As these loans mature or are refinanced into the non-acquired loan portfolio, they are included in the allowance for loan losses, therefore increasing the allowance as a percentage of total loans. At September 30, 2016, the Company had a total of $9,999 of credit related fair value adjustment assigned to acquired loans. The balance of these acquired loans totaled $439,178, before the credit and interest rate fair value adjustments. When acquired loans with an assigned credit fair value mark are excluded from outstanding loans, the allowance for loan losses of $20,531 as a percentage of organic loans outstanding was 1.48% as of September 30, 2016. The allowance as a percentage of nonperforming loans, net of government guarantees, was 210.23% at September 30, 2016, compared to 636.30% and 744.60% at December 31, 2015, and September 30, 2015, respectively.

AtThe ~~September 30~~allowance for loan losses for outstanding loans at March 31, ~~2016~~2017, was $922,~~551~~612, or 1.18% of outstanding loans, ~~(net~~compared to 1.21% and 1.23% of ~~government~~outstanding ~~guarantees)~~loans ~~were~~at ~~classified~~December as31, ~~impaired.~~2016, Aand ~~specific~~March 31, 2016, respectively. The allowance as a percentage of ~~$738~~outstanding (loans also included loans acquired through merger transactions, which were booked net of their credit related fair value adjustment and were only included in the ~~ending~~ allowance atfor ~~September~~loan losses to the extent their credit impairment exceeded the remaining credit related fair value discount. 30At March 31, ~~2016)~~2017, ~~was~~the Company had a total of $7,101 of credit related fair value adjustment assigned to acquired loans. The balance of these acquired loans totaled $335,908, before the credit and interest rate fair value adjustments. When ~~That~~acquired ~~compares~~loans towith ~~impaired~~an assigned credit fair value mark are excluded from outstanding loans, the allowance for loan losses of $722,~~527~~612 (as a percentage of organic loans outstanding was 1.42% as of March 31, 2017. The allowance as a percentage of nonperforming loans, net of government guarantees), ~~and~~was a298.86% ~~specific~~at March ~~allowance~~31, ~~assigned~~2017, ofcompared ~~$175~~to 236.88% and 666.01% at December 31, 2016, and March 31, ~~2015.~~2016, respectively.

~~Total~~At ~~nonperforming~~March ~~assets~~31, ~~net of government guarantees~~2017, ~~were~~ $229,~~832,~~377 ~~or 0.90%~~ of ~~total~~loans ~~assets,~~(net ~~at September 30, 2016, up $8,366 from December 31,~~of ~~2015,~~government ~~primarily~~guarantees) ~~due~~were toclassified ~~the~~as ~~acquisition of Foundation Bank~~impaired. ~~At September~~ ~~30,~~A ~~2016,~~specific ~~nonperforming~~allowance ~~assets consisted~~ of $9~~,766~~ (included in ~~nonaccrual~~the ~~loans~~ending ~~(net~~allowance ofat ~~government~~March ~~guarantees)~~31, no2017) ~~loans~~was ~~were~~assigned 90to ~~days~~these ~~past~~loans. That ~~due~~compares ~~and~~to ~~still~~impaired ~~accruing~~loans ~~interest~~of $10,567 and ~~there was~~a ~~$13,066~~specific allowance assigned of ~~other~~$736 ~~real~~at ~~estate~~December ~~owned~~31, 2016.

62Total nonperforming assets, net of government guarantees, were $18,622, or 0.73% of total assets, at March 31, 2017, down $2,925 from December 31, 2016, as the Company continued to resolve problem loans and negotiated the sale of an OREO property during the quarter. At March 31, 2017, nonperforming assets consisted of $7,566 in nonaccrual loans (net of government guarantees), no loans were 90 days past due and still accruing interest, and there was $11,056 of OREO.

The following table shows a summary of nonaccrual loans, loans past due 90 days or more, including purchased credit impaired loans that are on nonaccrual status or past due 90 days or more, and other real estate owned for the periods covered in this report:

Nonperforming Assets and Asset Quality Ratios

	September 30,2016			December 31,2015			September 30,2015
	March 31,			December 31,			March 31,
	2017			2016			2016
NONPERFORMING ASSETS
Nonaccrual loans
Real estate loans
Multi-family residential	$	—		$	—		$	—
Residential 1-4 family		~~1,465~~521			~~733~~1,294			~~569~~710
Owner-occupied commercial		1,~~634~~563			21,~~369~~605			2,~~371~~309
Nonowner-occupied commercial		3,~~475~~279			~~790~~3,374			~~829~~761
Total permanent real estate loans		65,~~574~~363			36,~~892~~273			3,~~769~~780
Construction loans
Multi-family residential		—			—			—
Residential 1-4 family		—			53—			53
Commercial real estate		—			—			—
Commercial bare land and acquisition & development		—			—			—
Residential bare land and acquisition & development		—			—			—
Total construction real estate loans		—			53—			53
Total real estate loans		65,~~574~~363			36,~~945~~273			3,~~822~~833
Commercial loans		54,~~619~~494			15,~~564~~560			~~983~~1,529
Total nonaccrual loans		129,~~193~~857			511,~~509~~833			45,~~805~~362
90-days past due and accruing interest		—			—			—
Total nonperforming loans		129,~~193~~857			511,~~509~~833			45,~~805~~362
Nonperforming loans guaranteed by government		(2,~~427~~291	)		(2,~~790~~354	)		(2,~~574~~720	)
Net nonperforming loans		97,~~766~~566			29,~~719~~479			2,~~231~~642
Other real estate owned		1311,~~066~~056			1112,~~747~~068			11,~~854~~747
Total nonperforming assets, net of guaranteed loans	$	2218,~~832~~622		$	1421,~~466~~547		$	14,~~085~~389
ASSET QUALITY RATIOS
Allowance for loan losses as a percentage of total loans outstanding		1.1418	%		1.2321	%		1.23	%
Allowance for loan losses as a percentage of total nonperforming loans, net of government guarantees		~~210~~298.2386	%		~~636~~236.3088	%		~~744~~666.6001	%
Net loan charge offs (recovery) as a percentage of average loans, annualized		0.0316	%		-0.0201	%		-0.0001	%
Net nonperforming loans as a percentage of total loans		0.5440	%		0.1951	%		0.1618	%
Nonperforming assets as a percentage of total assets		0.9072	%		0.7685	%		0.7573	%
Consolidated classified asset ratio(1)		2320.8017	%		23.0351	%		2520.1496	%

⁽¹⁾

Consolidated classified asset ratio is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse (net of government guarantees), adversely classified securities, and other real estate owned, divided by total consolidated Tier 1 capital plus the allowance for loan losses.

Other real estate owned at March ~~September 30~~31, ~~2016~~2017, consisted of ~~ten~~six properties. One of the properties, a commercial land development project valued at $9,839, comprised 7588.3099% of the total ~~other~~Other real estate owned category. The Company has been actively marketing this property; however, the location and nature of the commercial land development property make it susceptible to possible future valuation write-downs as it is appraised on an annual basis., or as facts or circumstances change.

6355

Noninterest Income

	Noninterest Income Summary
	Three months ended									~~Nine months ended~~
	September 30,			September 30,			Change			September 30,			September 30,			Change
	March 31,			March 31,			Change
	2016			2015			$			2016			2015			$
	2017			2016			$
Service charges on deposit accounts	$	~~717~~694		$	~~703~~693		$	141		$	~~2,099~~		$	~~1,939~~		$	~~160~~
Bankcard income		~~314~~300			~~276~~290			3810			~~899~~			~~687~~			~~212~~
Bank-owned life insurance income		~~172~~222			~~156~~146			1676			~~463~~			~~435~~			28
Net gain on sale of investment securities		—			~~143~~237			(~~143~~237	)		~~309~~			~~336~~			~~(27~~	)
Impairment losses on investment securities (OTTI)		(21	)		—(17	)		(216	)		~~(19~~	)		~~(13~~	)		(6	)
Other noninterest income		~~718~~936			~~436~~458			~~282~~478			~~1,726~~			~~1,234~~			~~492~~
	$	12,~~919~~151		$	1,~~714~~807		$	~~205~~344		$	~~5,477~~		$	~~4,618~~		$	~~859~~

For the three months ended ~~September 30~~March 31, ~~2016~~2017, noninterest income was $12,~~919~~151, up $~~205~~344 or 19.04% from the same period last year. The increase in ~~the quarter to date~~ noninterest income through ~~September 30,~~in ~~2016~~first quarter 2017, when compared to the same period last year, was primarily due to a ~~one-time~~reduction ~~payment~~in gains on sales of securities, which accounted for $~~160~~237 ~~from~~of the ~~SBA~~year ~~for~~over ~~reimbursement~~year reduction. In ofaddition, ~~legal~~the ~~and~~Bank ~~collection~~experienced ~~fees~~an ~~incurred~~increase ~~by Capital~~in ~~Pacific~~other ~~Bank~~noninterest income of $478, ~~prior~~primarily attributable to ~~that~~recoveries ~~acquisition.~~on acquired loans.

Noninterest Expense

Noninterest Expense Summary

Three months ended

~~Nine months ended~~

September 30,

Change

September 30,

Change

March 31,

Change

2016

2015

2016

2015

2017

2016

Salaries and employee benefits

79,~~520~~455

67,~~822~~559

~~698~~1,896

~~23,084~~

~~20,223~~

~~2,861~~

Property and equipment

1,~~202~~328

1,~~148~~115

54213

~~3,404~~

~~3,221~~

~~183~~

Data processing

~~924~~1,021

~~838~~864

86157

~~2,682~~

~~2,343~~

~~339~~

Legal and professional services

~~569~~681

~~496~~611

7370

~~2,321~~

~~1,386~~

~~935~~

Business development

~~460~~474

~~369~~516

91(42

)

~~1,492~~

~~1,134~~

~~358~~

FDIC insurance assessment

~~273~~349

~~283~~288

~~(10~~61

)

~~848~~

~~769~~

Other real estate (income) expense

122

(51

)

(32

)

303

(335

)

Other real estate expense, net

118

108

Merger related expense

~~1,767~~933

—

~~1,767~~933

~~3,745~~

~~1,836~~

~~1,909~~

Other noninterest expense

1,~~039~~105

1,~~104~~044

~~(65~~61

)

~~3,222~~

~~2,971~~

~~251~~

1315,~~825~~464

1112,~~182~~007

23,~~643~~457

~~40,766~~

~~34,186~~

~~6,580~~

For the three months ended ~~September 30~~March 31, ~~2016~~2017, noninterest expense was $1315,~~825~~464, ~~representing~~ an increase of $23,~~643~~457 or 23 28.6479% over the prior year. ~~Included~~Merger inexpense ~~the~~related ~~current~~to ~~period~~Columbia ~~total~~Bancorp isInc.’s ~~merger~~pending ~~expense~~acquisition ~~related~~of to the ~~acquisition~~Company ofaccounted ~~Foundation~~for ~~Bank,~~an ~~totaling~~increase in noninterest expense of $~~1,767~~933. ~~Excluding~~The ~~merger~~largest ~~related~~increase ~~expenses,~~in ~~non-interest~~noninterest expense ~~increased~~in ~~$876,~~the orfirst ~~7.83%.~~quarter ~~After~~2017, ~~merger~~when ~~related expense,~~compared to the same ~~next~~period ~~largest~~last ~~increase~~year, ~~was~~came ~~related~~from toan increase in salaries and employee benefits expense, ~~which~~of ~~increased~~ $~~698~~1,896 or 1025.2308%. The increase was partially due to ~~the~~employees ~~full~~acquired ~~year~~through the acquisition of ~~salary~~Foundation ~~expense~~Bancorp, ~~from~~Inc. who became employees of the Bank ~~Capital~~following ~~Pacific~~the ~~acquisition,~~closing ~~which~~of ~~closed~~that transaction in ~~March~~third ~~2015, salary~~quarter ~~expense~~2016. ~~related~~In toaddition, the ~~retained~~Bank ~~Foundation~~saw ~~Bank~~an ~~employees,~~increase ~~which~~in ~~was~~equity ~~included~~based incompensation ~~Pacific~~as ~~Continental’s~~the ~~salary~~liability ~~expense~~based ~~beginning~~awards ~~September 7,~~required ~~2016,~~additional ~~and~~accrual ~~overall~~based ~~performance~~on ~~increases.~~the increase in the Bank’s stock price during the quarter.

In56 fourth quarter 2016, the Company anticipates additional merger related expenses due to the core systems conversion and associated retention bonuses and severance payments not occurring until October 2016.

BALANCE SHEET

Loans

A summary of outstanding loans by market at March ~~September 30~~31, ~~2016~~2017, ~~June 30,~~ ~~2016,~~ December 31, ~~2015~~2016, and ~~September 30~~March 31, ~~2015~~2016, follows:

Period Ended

September 30,

June 30,

December 31,

September 30,

March 31,

December 31,

March 31,

2016

2015

2017

2016

Eugene market gross loans, period-end

~~404~~457,~~858~~069

~~396~~442,~~260~~556

~~379~~372,~~048~~137

~~368,666~~

Portland market gross loans, period-end

~~728~~781,~~749~~859

~~697~~747,~~664~~037

~~667~~684,~~995~~025

~~647,527~~

Puget Sound market gross loans, period-end

~~423~~400,~~581~~283

~~141~~405,~~788~~843

~~142~~144,~~104~~524

~~137,830~~

National healthcare gross loans, period-end

~~251~~275,~~458~~437

~~250~~264,~~391~~351

~~216~~230,~~865~~617

~~203,022~~

Total gross loans, period-end

1,~~808~~914,~~646~~648

1,~~486~~859,~~103~~787

1,~~406~~431,~~012~~303

~~1,357,045~~

The Bank recorded loan growth of $~~322~~54,~~543~~861 during the ~~third~~first quarter ~~2016~~2017, ~~which~~with ~~included~~growth ~~loans~~occurring ~~acquired~~ in three of the ~~Foundation~~four ~~Bank~~primary ~~acquisition~~markets. ofLoan ~~$270,533,~~growth ~~which~~was ~~are~~particularly ~~reflected~~strong in the ~~Puget~~Portland ~~Sound~~and ~~Market~~national ~~totals.~~healthcare markets. Portland lending accelerated in ~~third~~first quarter ~~2016~~2017, increasing $3134,~~085~~822 from ~~June 30~~December 31, 2016. The Company’s overall loan growth during the ~~third~~ first quarter ~~2016~~ 2017 occurred across several loan types, including owner-occupied commercial real estate,; non-owner occupied commercial real estate,; and commercial and industrial loans.

Outstanding loans to dental professionals, which are comprised of both local and national loans, at ~~September 30~~March 31, ~~2016~~2017, totaled $~~370~~382,~~135~~867, or 20.460% of the loan portfolio, compared to $~~340~~377,~~162~~478, or 2420.1930% of the loan portfolio, at December 31, ~~2015~~2016. The Company’s national dental loans increased by $245,~~892~~085 from December 31, ~~2015~~2016 and were represented in 4346 states by the end of the ~~third~~ ~~quarter~~first ~~2016~~quarter. In addition to national growth, the Company saw growth in the local dental market, with the portfolio growing $~~5,081~~304 from year-end ~~2015~~2016, which was primarily due to a slowdown of prepayments and an increase in production in the Company’s Portland Market ~~market~~ local lending. At ~~September 30~~March 31, ~~2016~~2017, $65,~~852~~127, or 1.8534% of the outstanding dental loans, were supported by government guarantees. Loans to dental professionals include loans for such purposes as starting up a practice, acquisition of a practice, equipment financing, ~~financing~~ owner-occupied facilities, and working capital. National dental loans are limited only to acquisition of a seasoned practice by experienced dental professionals, practice refinances and owner-occupied real estate loans. Additional data on the Company’s dental loan portfolio and the credit quality of this portfolio can be found in Note 54 of the Notes to Consolidated Financial Statements in this report.

In addition to loan growth in the dental industry, growth was also experienced in the non-dental healthcare field, which includes loans to physicians, veterinarians, optometrists, and medical specialists. This portfolio grew by $12,483 over year-end 2016 to $154,489 as of March 31, 2017. The Company saw expansion in veterinary practice acquisition financing and nursing/residential care facility owner-occupied real estate financing.

All loans to related parties were made in the ordinary course of business and on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the Company.

Detailed credit quality data on the entire loan portfolio can be found in Note 43 of the Notes to Consolidated Financial Statements in this report.

Securities

At ~~September 30~~March 31, ~~2016~~2017, the balance of ~~securities~~ securities available-for-sale was $~~482~~472,~~408~~166, up $~~115~~1,~~810~~170 over December 31, ~~2015~~2016. At ~~The~~March ~~growth in the portfolio was partially attributable to securities acquired in the Foundation Bank acquisition of $88~~31,~~331.~~ ~~At September 30~~2017, ~~2016,~~ the portfolio had an unrealized pre-tax ~~gain~~loss of $93,~~450~~082, compared to an unrealized pre-tax ~~gain~~loss of $43,~~341~~886, at December 31, ~~2015~~2016. The average life and duration of the portfolio at ~~September 30~~March 31, 2017, and December 31, 2016, was 4.78 years and 4.32 years, respectively. At ~~September 30~~ March 31, ~~2016~~2017, $28,~~391~~548 of the securities portfolio was pledged as collateral for public deposits in Oregon and Washington and for repurchase agreements.

~~During~~The ~~the~~Company ~~third~~continued ~~quarter~~to ~~2016,~~structure the ~~Company~~portfolio ~~sold~~to ~~approximately~~provide ~~$55,000~~consistent incash ~~securities~~flow ~~acquired from Foundation Bank,~~ and ~~replaced~~reduce the ~~securities~~market ~~with~~value ~~new purchases.~~volatility ~~This transaction had minimal impact on the average life~~ of the portfolio, ~~however,~~in ~~the~~a ~~sold~~rising ~~securities~~rate ~~had~~environment ain ~~weighted~~light ~~average yield~~ of ~~approximately~~the ~~1.64%~~Company’s ~~and~~current ~~were~~liability ~~replaced~~sensitive ~~with securities yielding 1~~position.~~98%.~~ The ~~Company~~portfolio ~~expects~~is structured to ~~benefit from the increased yield in future quarters.~~

6557

~~The Company continued to structure the portfolio to provide consistent cash flow and reduce the market value~~ ~~volatility of the portfolio in a rising rate environment in light of the Company’s current liability sensitive position. The portfolio is structured to~~ generate sufficient cash flow to allow reinvestment at higher rates should interest rates move up or to fund loan growth in future periods. In a stable rate environment, approximately $5654,~~395~~121 in cash flow from the securities portfolio is anticipated over the next twelve months. Going forward, purchases will be dependent upon core deposit growth, loan growth, and the Company’s interest rate risk position~~, with the Company targeting securities between 19% and 20% of total assets~~.

At ~~September 30~~ March 31, ~~2016~~2017, $21,~~110~~787, or 0.4438% of the total securities portfolio, was composed of private-label mortgage-backed securities. Management ~~previously~~ booked OTTI on this portion of the portfolio totaling $~~266,~~270 ~~with~~on $2a ofcumulative ~~additional~~basis. ~~OTTI booked~~During infirst ~~third~~ quarter ~~2016.~~2017, Onmanagement abooked ~~monthly~~an ~~basis,~~additional $1 in OTTI on securities. Management reviews monthly all available information, including current and projected default rates and current and projected loss severities, related to the collectability of its potentially impaired investment securities to determine if an additional OTTI is required. Recognition of additional OTTI on the private-label mortgage-backed portion of the portfolio is possible in future quarters depending upon economic conditions, default rates on home mortgages, loss severities on foreclosed homes, unemployment levels, and home values.

In management’s opinion, the remaining securities in the portfolio in an unrealized loss position were considered only temporarily impaired at ~~the~~ quarter ~~ended September 30, 2016~~-end. At ~~September 30~~March 31, ~~2016~~2017, the Company had no intent, nor was it more likely than not that it would be required, to sell its impaired securities before their recovery. The impairment was due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. The decline in value of these securities resulted from current economic conditions. Although yields on these securities may be below market rates during the period, no loss of principal ~~was~~ is expected at ~~September 30~~March 31, ~~2016~~2017.

Goodwill and Intangible Assets

At ~~September 30~~March 31, ~~2016~~2017, the Company had the following goodwill and core deposit intangibles (“CDI”) associated with prior bank acquisitions:

	September 30, 2016
	March 31, 2017
	FoundationBank		Capital PacificBank		CenturyBank		NorthwestBusiness Bank		Total
Goodwill	$	21,~~407~~374	$	17,145	$	851	$	22,031	$	61,~~434~~401
CDI		52,~~716~~946		35,~~132~~426		~~402~~342		—		98,~~250~~714
	$	2724,~~123~~320	$	2022,~~277~~571	$	1,~~253~~193	$	22,031	$	70,~~684~~115

The Company periodically tests goodwill for impairment. Management performs an impairment analysis of the intangible assets with indefinite lives at least annually, but more frequently if an impairment triggering event is deemed to have occurred. The last impairment test was performed at December 31, ~~2015~~2016, at which time no impairment was determined to exist.

The ~~CDI~~core ~~for~~deposit ~~Foundation~~intangible ~~Bank~~for ~~was~~each ~~determined to have an expected life~~ of 10Foundation ~~years,~~Bank and ~~is being amortized over that period using a straight-line method and will be fully amortized in August 2026. The CDI for~~ Capital Pacific Bank ~~was~~were determined to have an expected life of ten years, ~~and~~ is being amortized over that period using the straight-line method and will be fully amortized in August 2026 and February 2025., respectively. The ~~CDI~~ core deposit intangible for Century Bank was determined to have an expected life of seven years, ~~and~~ is being amortized over that period using the straight-line method and will be fully amortized in January 2020.

6658

Deposits

Core deposits, which are defined by the Company as demand, interest checking, money market, savings, and nonpublic local time deposits, including nonpublic local time deposits in excess of $~~100~~250, were $21,~~049~~967,~~352~~266 and represented 94.7657% of total deposits at ~~September 30~~March 31, ~~2016~~2017. ~~During~~On ~~the~~a ~~third~~linked quarter ~~the~~basis, ~~Company experienced growth in~~ core deposits ofdeclined $~~541~~67,~~333~~801. The ~~increase,~~decline was partially attributable to ~~the~~a ~~Foundation~~reduction ~~Bank~~in ~~acquisition~~our oflarge depositor ~~$396~~totals,~~509~~ and the ~~remaining~~remainder ~~increase~~ was ~~due~~attributable to ~~organic~~normal seasonal deposit fluctuations, which typically result in a flat or declining first half of the year, with growth in deposits typically being experienced in the second half of the year. A key component of core deposits is noninterest-bearing demand deposits, which totaled $~~144~~832,~~924~~363 and represented 42.31% of core deposits at March 31, 2017. The weighted average cost of core deposits, when factoring in non-interest bearing core deposits, for the first quarter 2017 was 0.15%.

A ~~key~~summary ~~component~~ of outstanding core deposits isand ~~noninterest-bearing~~average ~~demand~~core deposits, ~~which~~by ~~totaled~~market ~~$901,290~~ and ~~represented~~wholesale ~~43.98%~~funding classified ofas non-core deposits at ~~September 30~~March 31, ~~2016.~~2017, ~~The~~December ~~weighted~~31, ~~average cost of core deposits~~2016, ~~when~~and ~~factoring~~March ~~in non-interest bearing core deposits~~31, ~~for the third quarter~~ 2016, ~~was~~follows: ~~0.15%.~~

A summary of outstanding core deposits and average core deposits by market and wholesale funding classified as non-core deposits at September 30, 2016, June 30, 2016, and September 30, 2015, follows:


	Period Ended
	March 31,		December 31,		March 31,
	2017		2016		2016
Eugene market core deposits, period-end⁽¹⁾	$	770,468	$	815,674	$	790,435
Portland market core deposits, period-end⁽¹⁾		625,676		630,806		649,089
Puget Sound market core deposits, period-end⁽¹⁾		571,122		588,587		194,417

Total core deposits, period-end⁽¹⁾		1,967,266		2,035,067		1,633,941
Non-core deposits, period-end		113,000		113,036		62,647

Total deposits, period-end	$	2,080,266	$	2,148,103	$	1,696,588


	Three Months Ended
	March 31, 2017		December 31, 2016		March 31, 2016
Eugene market core deposits, average⁽¹⁾	$	806,369	$	770,123	$	799,583
Portland market core deposits, average⁽¹⁾		630,962		644,037		615,929
Puget Sound market core deposits, average⁽¹⁾		579,268		590,865		191,036

Total core deposits, average⁽¹⁾		2,016,599		2,005,025		1,606,548
Non-core deposits, average		113,007		114,091		63,683

Total deposits, average	$	2,129,606	$	2,119,116	$	1,670,231

	Period Ended
	September 30,		June 30,		September 30,
	2016		2016		2015
Eugene market core deposits, period-end(1)	$	785,053	$	712,061	$	747,298
Portland market core deposits, period-end(1)		671,747		590,880		549,113
Puget Sound market core deposits, period-end(1)		592,552		205,078		169,136
Total core deposits, period-end(1)		2,049,352		1,508,019		1,465,547
Non-core deposits, period-end		113,281		92,113		59,407
Total deposits, period-end	$	2,162,633	$	1,600,132	$	1,524,954
	Three Months Ended
	September 30,2016		June 30,2016		September 30,2015
Eugene market core deposits, average(1)	$	721,271	$	738,435	$	776,755
Portland market core deposits, average(1)		631,440		624,490		537,911
Puget Sound market core deposits, average(1)		296,066		196,281		168,318
Total core deposits, average(1)		1,648,777		1,559,206		1,482,984
Non-core deposits, average				68,536		62,481
Total deposits, average	$	1,648,777	$	1,627,742	$	1,545,465

⁽¹⁾	Core deposits include all demand, savings, money market, interest checking accounts, plus all nonpublic local time deposits including local time deposits in excess of $250.

~~(1)~~59 ~~Core deposits include all demand, savings, money market, interest checking accounts, plus all nonpublic local time deposits including local time deposits in excess of $100.~~

Other Deposits

The Company uses public and brokered deposits to provide short-term and long-term funding sources. The Company defines short-term as having a contractual maturity of less than one year. The Company uses brokered deposits to help mitigate interest rate risk in a rising rate environment.

Below is a schedule detailing public and brokered deposits by type, including weighted average rate and weighted average maturity.

Non-Core Deposit Summary

	September 30, 2016							September 30, 2015
	March 31, 2017							March 31, 2016
	Balance		Weightedaverage rate			Weightedaveragematurity		Balance		Weightedaverage rate			Weightedaveragematurity
	(dollars in thousands)							(dollars in thousands)
<3 Months	$	30,~~375~~439		01.7900	%		57 Days	$	2630,~~474~~300		0.2654	%		3741 Days
3-6 Months		—1,454		—0.99	%		—180 Days		—9		—0.05	%		—149 Days
6-12 Months		13,~~744~~227		0.87	%		~~335~~271 Days		~~309~~226		0.3541	%		~~204~~244 Days
>12 Months		8177,~~162~~880		1.2729	%		3.4201 Years		32,~~624~~112		1.9365	%		54.5878 Years
	$	113,~~281~~000						$	5962,~~407~~647

Borrowings

The Company has both secured and unsecured borrowing lines with the FHLB, FRB and various correspondent banks. The Federal Reserve and correspondent borrowings are generally short-term, with a maturity of less than 30 days. The FHLB borrowings can be either short-term or long-term in nature. See Note 7 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this report for a full maturity and interest rate schedule for the FHLB borrowings.

At ~~September 30~~March 31, ~~2016~~2017, the Company held $410,~~653~~324 of stock in the FHLB of Des Moines~~, which included $532 in FHLB stock acquired through the Foundation Bank acquisition~~. The FHLB stock is broken into two classes: membership and activity. The membership class is based on asset size and the ~~holder~~Company is required to be a member of the FHLB. The amount of membership stock held at ~~September 30~~March 31, ~~2016~~2017 was $23,~~823~~044 and is updated in ~~the~~ first quarter of each year. The activity stock outstanding at ~~September 30~~March 31, ~~2016~~2017 totaled $17,~~820~~280; however, it is subject to fluctuation on a daily basis based on outstanding borrowings. At ~~September 30~~March 31, ~~2016~~2017, membership stock paid dividends at 0.5075% annually and activity stock paid dividends at 3.50% annually. Both classes of FHLB stock are ~~listed~~included in the asset section of the Company’s balance sheet.

Subordinated Debentures

In June 2016, the Company issued $35,000 in aggregate principal amount of fixed-to-floating rate subordinated debentures (the “Notes”). The Notes have a fixed annual rate for a five-year period at 5.875%. After five years, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 471.5 basis points. The Notes are included in Tier 2 capital under current regulatory guidelines and interpretations.

Junior Subordinated Debentures

On September 6, 2016, the Company completed the acquisition of Foundation Bancorp., Inc.. At that time, the Company assumed $6,148 of junior subordinated debentures (the “Foundation Debentures”), with a fair value on acquisition date of $3,013. The interest rate on the Foundation Debentures is a floating rate of three-month LIBOR plus 173 basis points. The $6,000 of the Foundation Debentures qualifies as Tier 1 capital under regulatory capital guidelines.

68The Company had an additional $8,248 in junior subordinated debentures at March 31, 2017, which were issued in conjunction with the 2005 acquisition of Northwest Business Bank. These debentures had an interest rate of 6.265% that was fixed until January 2011, after which the rate changed to three-month LIBOR plus 135 basis points. On April 22, 2013, the Company entered into a cash flow hedge on $8,000 of the TPS, swapping the variable interest rate for a fixed rate of 2.73% for

~~The Company had $8,248 in Debentures outstanding at September 30, 2016, which were issued in conjunction~~ ~~with~~approximately ~~the~~seven ~~2005 acquisition of Northwest Business Bank~~years. ~~The~~In ~~Debentures had an interest rate of 6.265% that was fixed until~~ January ~~2011~~2017, ~~after which~~ the ~~rate~~Company ~~changed~~terminated ~~to three-month LIBOR plus 135 basis points. On April 22, 2013,~~ the ~~Bank entered into a~~ cash flow hedge onassociated ~~$8,000~~with of the ~~TPS,~~swap ~~swapping~~and ~~the~~recognized ~~variable interest rate for~~ a ~~fixed~~gain ~~rate~~ of ~~2.73% for approximately seven years. At September 30, 2016, the fair value of the interest rate swap on the Company’s Debentures was (~~$~~82)~~77. The $8,000 of ~~junior~~the Northwest Business Bank junior subordinated debentures qualifies as Tier 1 capital under regulatory capital guidelines.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law which, among other things, limits the ability of certain bank holding companies to treat trust preferred security debt issuances, such as the Company’s junior subordinated debentures, as Tier 1 capital. Under final rules adopted by the Federal Reserve and the other U.S. Federal banking agencies, our trust preferred securities will remain as Tier 1 capital since total assets of the Company are less than $15 billion. Additional information regarding these final capital rules is included in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources” of this report , Part I, Item 1, “Business-Supervision and Regulation – Capital Adequacy” of our 2016 Form 10-K, and in Part II, Item 1A “Risk Factors” of our ~~2015~~2016 Form 10-K under the heading “We operate in a highly regulated environment and the effects of recent and pending federal legislation or of changes in, or supervisory enforcement of, banking or other laws and regulations could adversely affect us.”

Additional information regarding the terms of the cash flow hedge is included in Note 10 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this report.

Capital Resources

Capital is the shareholders’ investment in the Company. Capital grows through the retention of earnings and the issuance of new stock or other equity securities whether through stock offerings or through the exercise of equity awards. Capital formation allows the Company to grow assets and provides flexibility in times of adversity. Shareholders’ equity at ~~September 30~~March 31, ~~2016~~2017, was $~~276~~279,~~471~~167, up $575,~~980~~412 from December 31, ~~2015~~2016. The increase in shareholders’ equity was primarily due to ~~stock issued~~a ~~through~~reduction ~~the Foundation Bank acquisition of $47,794,~~ in ~~addition to an increase in~~ the unrealized ~~gain~~loss on the investment portion combined with retention of a portion of income earned during ~~2016~~first quarter 2017.

The Federal Reserve and the FDIC have in place guidelines for risk-based capital requirements applicable to U.S. bank holding companies and banks. In ~~June~~July ~~2016~~2013, the ~~Company~~Federal ~~issued~~Reserve ~~$35~~Board and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations and to conform this framework to the Basel Committee’s current international regulatory capital accord (Basel III). These rules were effective January 1,~~000~~ 2015 and replaced the federal banking agencies’ general risk-based capital rules, advanced approaches rule, market-risk rule, and leverage rules, in ~~aggregate~~accordance ~~principal~~with ~~amount~~certain oftransition ~~fixed~~provisions. The rules establish more restrictive capital definitions, create additional categories and higher risk-toweightings for certain asset classes and off-~~floating~~balance ~~rate~~sheet ~~subordinated~~exposures, ~~debentures~~higher (leverage ratios and capital conservation buffers that will be added to the ~~“Notes”)~~minimum capital requirements and must be met for banking organizations to avoid being subject to certain limitations on dividends and discretionary bonus payments to executive officers. The ~~Notes~~rules also implement higher minimum capital requirements, include a new common equity Tier 1 ~~are~~capital ~~included~~requirement, and establish criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. ~~under~~When ~~current~~fully ~~regulatory~~phased ~~guidelines~~in, the final rules will provide for increased minimum capital ratios as follows: (a) a common equity Tier 1 capital ratio of 4.50%; (b) a Tier 1 capital ratio of 6.00% (which is an increase from 4.00%); (c) a total capital ratio of 8.00%; and ~~interpretations~~(d) a Tier 1 leverage ratio to average consolidated assets of 4.00%. InThe ~~third~~new ~~quarter~~rules ~~2016~~permit depository institution holding companies with less than $15 billion in total consolidated assets as of December 31, 2009, such as the Company, ~~made~~to include trust preferred securities in Tier 1 capital. Under the new rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital ~~investment~~conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements (equal to 2.50% of total risk-weighted assets). The phase-in of the ~~Bank~~capital ~~totaling~~conservation ~~$20~~buffer began January 1,~~000~~ 2016, ~~which~~and ~~qualifies~~will be completed by January 1, 2019. The new rules also provide for various adjustments and deductions to the definitions of regulatory capital that phase in from January 1, 2014, to December 31, 2017. The new rules made it optional for banks and bank holding companies to include accumulated other comprehensive income in their calculations of Tier 1 capital. The Company’s accumulated other comprehensive income consists primarily of the unrealized gain or loss on the securities portfolio as a result of marking securities available-for-sale to market. The Company opted to exclude accumulated other comprehensive income from its calculation of Tier 1 capital. Overall, ~~under~~the ~~current~~new ~~regulatory~~rules ~~guidelines~~did not materially impact the Company’s reported capital ratios. The ~~and~~Company ~~interpretations~~will continue to evaluate the impact of the rules as they are phased in over the next few years.

The Federal Reserve and the FDIC have in place guidelines for risk-based capital requirements applicable to U.S. bank holding companies and banks. In July 2013, the Federal Reserve Board and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations and to conform this framework to the Basel CommitteeCompany’s current international regulatory capital accord (Basel III). These rules were effective January 1, 2015 and replaced the federal banking agencies’ general risk-based capital rules, advanced approaches rule, market-risk rule, and leverage rules, in accordance with certain transition provisions. The rules establish more restrictive capital definitions, create additional categories and higher risk-weightings for certain asset classes and off-balance sheet exposures, higher leverage ratios and a capital conservation buffer that will be added to the minimum capital requirements and must be met for banking organizations to avoid being subject to certain limitations on dividends and discretionary bonus payments to executive officers. The rules also implement higher minimum capital requirements, include a new common equity Tier 1 capital ~~requirement, and establish criteria that instruments must meet in order to be~~ ~~considered common equity Tier 1 capital~~ratio, ~~additional~~ Tier 1 ~~capital,~~risk orbased ~~Tier 2~~ capital. ~~When fully phased in~~ratio, ~~the~~total ~~final~~risk ~~rules~~based ~~will provide for increased minimum~~ capital ~~ratios as follows: (a) a common equity Tier 1 capital~~ ratio, ofand ~~4.50%; (b) a~~ Tier 1 ~~capital~~leverage ~~ratio of 6.00% (an increase from 4.00%); (c) a total~~ capital ratio ofwere 89.0051%;, ~~and (d) a Tier 1 leverage ratio to average consolidated assets of 4~~10.0011%~~. The new rules permit depository institution holding companies with less than $15 billion in total consolidated assets as of December 31~~, ~~2009, such as the Company, to include trust preferred securities in Tier 1 capital~~12.67% ~~Under the new rules, in order to avoid limitations on capital distributions, including dividend payments~~ and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements (equal to 28.5099% ~~of total risk-weighted assets). The phase-in of the capital conservation buffer began January 1~~, ~~2016~~respectively, ~~and~~at ~~will~~March ~~be completed by January 1, 2019. The new rules also provide for various adjustments and deductions to the definitions of regulatory capital that will phase in from January 1, 2014, to December~~ 31, 2017. The new rules made it optional for banks and bank holding companies to include accumulated other comprehensive income in their calculations of Tier 1 capital. The Company’s accumulated other comprehensive income consists primarily of the unrealized gain or loss on the securities portfolio as a result of marking securities available-for-sale to market. The Company opted to exclude accumulated other comprehensive income from its calculation of Tier 1 capital. Overall, ~~the~~with ~~new~~all ~~rules did not materially impact the Company’s reported~~ capital ratios. ~~The~~for ~~Company will continue to evaluate~~ the ~~impact of the rules as they are~~ ~~phased in over the next few years.~~

6961

~~The~~ Company’s ~~common~~above ~~equity~~the ~~Tier~~minimum 1regulatory ~~capital~~designations ~~ratio, Tier 1 risk based capital ratio, total risk based capital ratio,~~ and ~~Tier 1 leverage capital ratio were 9.43%, 9.99%, 12.55% and 10.33%, respectively, at September 30, 2016, with all capital ratios for~~ the Company’s ~~above~~internal ~~the~~capital ~~minimum~~policy ~~regulatory designations~~thresholds. For additional information regarding the Company’s regulatory capital levels, see Note 12 in Notes to Consolidated Financial Statements in Part I, Item I of this report.

The Company has regularly paid cash dividends on a quarterly basis, typically in February, May, August and November of each year. The Board of Directors considers the dividend amount quarterly and takes a broad perspective in its dividend deliberations including a review of recent operating performance, capital levels, and concentrations of loans as a percentage of capital, and growth projections. The Board also considers dividend payout ratios, dividend yield, and other financial metrics in setting the quarterly dividend. There can be no assurance that dividends will be paid in the future.

On ~~July 20~~January 26, ~~2016~~2017, the Board of Directors approved a regular ~~third~~first quarter cash dividend of $0.11 that was paid on ~~August 18~~February 23, ~~2016~~2017. Subsequent to the end of the ~~third~~first quarter ~~2016~~2017, on ~~October~~ April 18, ~~2016~~2017, the Board of Directors ~~declared~~approved a regular quarterly cash dividend ofto $0.11 per share payable to shareholders on ~~November 23~~May 25, ~~2016~~2017.

OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS

In the normal course of business, the Company commits to extensions of credit and issues letters of credit. The Company uses the same credit policies in making commitments to lend funds and conditional obligations as it does for other credit products. In the event of nonperformance by the customer, the Company’s exposure to credit loss is represented by the contractual amount of the instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established by the contract. Since some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At ~~September 30~~March 31, ~~2016~~2017, the Company had $~~408~~401,~~639~~870 in commitments to extend credit, up from $~~256~~352,~~156~~361 at December 31, ~~2015~~2016.

Letters of credit written are conditional commitments issued by the Company to guarantee performance of a customer to a third party. The credit risk involved is essentially the same as that involved in extending loan facilities to customers. At ~~September 30~~March 31, ~~2016~~2017, the Company had $12,~~393~~810 in letters of credit and financial guarantees outstanding.

LIQUIDITY AND CASH FLOWS

Liquidity is the term used to define the Company’s ability to meet its financial commitments. The Company maintains sufficient liquidity to ensure funds are available for both lending needs and the withdrawal of deposit funds. The Company derives liquidity through core deposit growth, maturity of investment securities, and loan payments. Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $~~100~~250. Additional ~~liquidity~~ liquidity and funding sources are provided through the sale of loans, sales of securities, access to national CD markets, and both secured and unsecured borrowings. The Company uses a number of measurements to monitor its liquidity position on a daily, weekly, and monthly basis, which includes its ability to meet both short-term and long-term obligations, and requires the Company to maintain a certain amount of liquidity on the asset side of its balance sheet. The Company also prepares ~~projections~~ projections of its liquidity position. In addition, the Company ~~has~~prepares a Liquidity ~~Funding~~Contingency ~~Policy~~Plan ~~(“LFP”)~~at ~~that~~least ~~is reviewed and approved~~ semi-annually bythat ~~the~~is ~~Company’s~~strategic ~~Asset~~in nature and ~~Liability~~forward-looking ~~Committee~~to ~~and~~test the ~~Board~~ability of ~~Directors. Included in~~ the ~~LFP~~Company isto fund a liquidity shortfall arising ~~contingency~~from ~~funding~~various ~~plan~~escalating ~~based~~events. onThe ~~both~~Liquidity aContingency ~~short-term~~Plan ~~and~~is ~~long-term~~presented ~~cash~~and ~~flow~~reviewed ~~analysis,~~by ~~which~~the ~~are~~Company’s ~~reviewed~~Asset ~~periodically~~and byLiability ~~ALCO~~Committee.

Core deposits at ~~September 30~~ March 31, ~~2016~~2017, were $21,~~049~~967,~~352~~266 and represented 94.7657% of total deposits. Core deposits at ~~September 30~~March 31, ~~2016~~2017, were updown $~~515~~67,~~410~~801 ~~from~~over December 31, ~~2015~~2016. The ~~During the same time period, the~~ Company experienced an increase in outstanding loans of $~~402~~54,~~634.~~861 ~~The~~and a decrease ~~liability~~in core deposits during the same time period. Organic loan growth was ~~partially~~primarily ~~offset~~through byadditional aFHLB ~~decrease~~advances due to the reduction in ~~FHLB~~core ~~borrowing~~deposits. It is anticipated that core deposit growth and cash flows from the securities portfolio ~~and~~will ~~additional~~provide ~~non-core~~sufficient funding ~~sources~~for ~~will~~any ~~provide~~potential anloan ~~additional~~growth ~~portion~~experienced ~~of the~~through ~~funding during~~ the ~~remainder~~close of ~~2016,~~the aspending ~~loans are expected to continue to increase~~acquisition. The securities portfolio represented 1918.0018% of total assets at ~~September 30~~March 31, ~~2016~~2017. At ~~September 30,~~March ~~2016~~31, 2017, $28,~~391~~548 of the securities portfolio was pledged to support public deposits and repurchase agreements, leaving $~~454~~443,~~017~~618 of the securities portfolio unencumbered and available-for-sale. In addition, at ~~September 30~~March 31, ~~2016~~2017, the Company had $2622,~~619~~642 of government guaranteed loans that could be sold in the secondary market to support the Company’s liquidity position.

7062

Due to its strategic focus to market to specific segments, the Company has been successful in developing deposit relationships with several large clients, which are generally defined as deposit relationships of $2,000 or more, which are closely monitored by management. The loss of any such deposit relationship or other large deposit relationships could cause an adverse effect on short-term liquidity. The Company uses a 10-point risk-rating system to evaluate each of its large depositors in order to assist management in its daily monitoring of the volatility of this portion of its core deposit base. The risk-rating system attempts to determine the stability of the deposits of each large depositor, evaluating, among other things, the length of time the depositor has been with the Company and the likelihood of loss of individual large depositor relationships. Risk ratings on large depositors are reviewed at least quarterly and adjusted if necessary. Company management maintain close relationships and hold regular meetings with its large depositors to assist in management of these relationships.

~~During~~At ~~the~~March ~~quarter~~31, 2017, the Company ~~experienced~~had ansecured ~~increase~~borrowing inlines ~~core~~with ~~deposits,~~the ~~attributed~~FHLB toof ~~the~~Des ~~Foundation~~Moines ~~Bank~~and ~~acquisition~~the FRB, ~~and~~along ~~growth~~with inunsecured ~~the~~borrowing lines ~~organic~~with ~~core~~various ~~deposit~~correspondent ~~base.~~banks, Attotaling ~~September 30~~$888,766. ~~2016,~~The inCompany’s ~~addition~~secured tolines with the ~~temporary~~FHLB ~~deposit~~and FRB were limited by the amount of ~~$60,000~~collateral ~~mentioned~~pledged. ~~previously~~At March 31, 2017, the ~~Bank~~Company had ~~approximately~~pledged $66651,~~000~~132 in ~~additional~~discounted ~~risk~~collateral ~~rated~~value 10in commercial ~~deposits~~real estate loans, ~~the~~first ~~highest~~and ~~risk~~second ~~rating. Currently,~~lien ~~the Company~~single-family ~~anticipates~~residential ~~that~~loans, ~~these~~multi-family ~~funds~~loans, ~~will~~and ~~leave~~securities to the ~~Bank~~FHLB. ~~by December 31~~Additionally, ~~2016. The~~certain ~~Company~~commercial ~~continues~~and tocommercial ~~review~~real ~~and~~estate ~~implement~~loans ~~its~~with ~~funding~~a ~~strategy~~discounted value of $83,634 were pledged to the ~~offset~~FRB ~~deposit~~under ~~reductions~~the Company’s Borrower-In-Custody program. The Company’s ~~currently~~unsecured ~~maintains~~correspondent ~~sufficient~~bank ~~short-term liquidity~~lines tototaled ~~cover~~$154,000. ~~any~~At ~~potential~~March ~~volatility~~31, in2017, the ~~large~~Company ~~depositor~~had ~~base. However~~$182,000 ~~there~~in ~~can~~borrowings beoutstanding from the FHLB, no ~~assurance~~borrowings ~~that~~outstanding ~~any~~with the ofFRB, ~~our~~and ~~other~~not ~~large~~borrowings ~~depositor~~on ~~relationships~~its ~~will~~overnight becorrespondent ~~maintained~~bank orlines, ~~that~~leaving ~~the~~a ~~loss~~total of ~~one~~$706,766 oravailable ~~more~~on ofits ~~these~~secured ~~clients~~and ~~will~~unsecured ~~not adversely~~borrowing ~~affect~~lines ~~the~~as ~~Company’s~~of ~~liquidity~~such date.

AtNet ~~September 30,~~cash ~~2016,~~provided ~~the~~by ~~Company~~operating ~~had~~activities ~~secured~~was ~~borrowing lines with the FHLB of Des Moines and the FRB, along with unsecured borrowing lines with various correspondent banks, totaling~~ $~~813~~10,~~630.~~209 ~~The~~during ~~Company’s secured lines with~~ the ~~FHLB~~first ~~and~~three ~~FRB~~months ~~were~~of ~~limited~~2017. byDuring the ~~amount~~same ~~of collateral pledged. At September 30~~period, ~~2016,~~cash ~~the~~of ~~Company had pledged~~ $~~602~~61,~~715~~261 inwas ~~discounted~~used ~~collateral value~~ in ~~commercial real estate loans~~investing activities, ~~first~~consisting ~~and~~principally ~~third~~of ~~lien~~a ~~single-family~~net ~~residential~~loan ~~loans,~~principal ~~multi-family~~increase ~~loans,~~of ~~and securities to the FHLB. Additionally~~$55,603 ~~certain commercial~~ and ~~commercial~~net ~~real~~purchases ~~estate~~of ~~loans with~~securities ~~a discounted value~~ of $811,~~915~~654. ~~were~~Cash ~~pledged~~provided toby ~~the~~financing ~~FRB~~activities ~~under~~during the ~~Company’s~~first ~~Borrower-In-Custody~~three ~~program.~~months ~~The~~of ~~Company’s~~2017 ~~unsecured~~was ~~correspondent bank lines totaled~~ $~~129~~48,~~000.~~040 Atand ~~September 30,~~primarily ~~2016,~~consisted ~~the~~of ~~Company~~an ~~had~~increase in ~~$45~~deposits,~~500~~ ~~in borrowings~~which ~~outstanding~~was ~~from~~partially ~~the~~offset ~~FHLB,~~by noa reduction in borrowings ~~outstanding~~and ~~with~~cash ~~the~~dividends ~~FRB,~~paid ~~and~~to noshareholders. ~~borrowings~~Additional information on ~~its~~the ~~overnight~~Company’s ~~correspondent~~cash ~~bank~~flows ~~lines,~~can ~~leaving~~be areviewed ~~total~~in ofthe ~~$768,130~~Consolidated ~~available~~Statement onof ~~its~~Cash ~~secured~~Flows ~~and~~in ~~unsecured~~Part I, ~~borrowing~~Item ~~lines~~I as of ~~such~~this ~~date~~report.

Net cash provided by operating activities was $19,957 during the nine months ended September 30, 2016. During the same period, cash of $114,903 was used in investing activities, consisting principally of a net loan principal increase of $133,405 and net purchases of securities of $25,624. Cash provided by financing activities during the first nine months of 2016 was $165,443 and primarily consisted of an increase in borrowings and cash related to the Notes issuance. Additional information on the Company cash flows can be reviewed in the Consolidated Statement of Cash Flows in Part I, Item 1 of this report.

ITEM 3 Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in the Company’s exposure to market risk. Readers are referred to the Company’s ~~2015~~2016 Form 10-K ~~and the Annual Report to Shareholders for the year ended December 31~~, ~~2015,~~ for additional information.

ITEM 4 Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the quarter ended ~~September 30~~March 31, ~~2016~~2017, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1 Legal Proceedings

On August 23, 2013, a putative class action lawsuit (“Class Action”) was filed in the Circuit Court of the State of Oregon for the County of Multnomah on behalf of individuals who placed money with Berjac of Oregon and Berjac of Portland (collectively, “Berjac”). The Berjac entities merged and the surviving company, Berjac of Oregon, is currently in Chapter 7 bankruptcy. The Class Action complaint, which has been amended several times, currently asserts three claims against ~~Pacific Continental Bank~~PCB, Fred “Jack” W. Holcomb, Holcomb Family Limited Partnership, Jones & Roth, P.C., and Umpqua Bank, as defendants. The lawsuit asserts that ~~the~~PCB ~~Bank~~ is jointly and severally liable for materially aiding or participating in Berjac’s sales of securities in violation of the Oregon Securities Law. Claimants seek the return of the money placed with Berjac of Oregon and Berjac of Portland, plus interest, and costs and attorneys’ fees. The current version of the complaint seeks $100 million in damages from all defendants.

On August 28, 2014, the court-appointed bankruptcy trustee for Berjac of Oregon filed an adversary complaint (“Trustee’s Lawsuit”) in the U.S. Bankruptcy Court for the District of Oregon alleging that ~~the Company~~PCC, ~~the Bank~~PCB, Umpqua Bank, Century Bank and Summit Bank provided lines of credit that enabled continuation of the alleged Ponzi scheme operated by Berjac of Oregon and the two partners of the pre-existing Berjac general partnerships, Michael Holcomb and Gary Holcomb. The Company acquired Century Bank on February 1, 2013. The Trustee’s Lawsuit was transferred from the U.S. Bankruptcy Court to the U.S. District Court for the District of Oregon (Eugene Division), where it is currently pending.

In addition to seeking an award of punitive damages, the trustee is asserting fraudulent transfer law and unjust enrichment in an effort to recover payments made by Berjac to Century Bank and ~~the Bank~~PCB. Among other claims for relief, the trustee is seeking the disgorgement of monies advanced to the Holcomb Family Limited Partnership by Century Bank and returned to the estate by court order following the post-petition cash collateral hearing, and of monies received by ~~the~~PCB ~~Bank~~ from the proceeds of the sale of stock held by the Holcomb Family Limited Partnership and securing one of the lines of credit previously held by Century Bank. The trustee also asserts a claim for alleged aiding and abetting of breaches of duties owed to Berjac. The complaint in the Trustee’s Lawsuit indicates the range of damages sought by the trustee which include, among other claims for relief, an award of punitive damages not to exceed $10 million, recovery of payments associated with allegedly fraudulent transfers totaling up to approximately $55.3 million, including up to $20.7 million from Century Bank and up to $7.7 million from ~~the Bank~~PCB. This case is not currently set for trial.

On November 16, 2015, the U.S. District Court judge stayed all deadlines in the Trustee’s Lawsuit and all parties were ordered to participate in a judicial settlement conference. The judicial settlement conference sessions were held on February 18, 2016 and April 20, 2016. At the April 20, 2016, settlement conference, ~~the~~PCB ~~Bank~~ reached a tentative settlement of the Class Action and the Trustee’s Lawsuit. ~~The~~Per ~~settlement~~the December 2, 2016 Trustee’s Motion and Notice of Intent to Settle and Compromise Adversary Proceeding (“Motion”), and subsequently ordered by District Court Judge Aiken on December 6, the ~~Class~~settlement ~~Action~~and ~~will~~compromise ~~require~~between ~~approval~~PCB and the Trustee was to be deemed effective without further order within 23 days unless a written objection to the Trustee’s Motion was filed and served on the Trustee. No written objection was filed, and PCB is informed that no written objection was served on the Trustee. Accordingly, final approval of the settlement of the Trustee’s Action was effective December 29, 2016. The state Circuit Court ~~judge~~gave final approval of the settlement of the Class Action at a hearing on January 6, 2017. In April 2017, PCB remitted the settlement funds to the plaintiffs’ representatives, and the matter was concluded. The settlement is not expected to have a material adverse effect on ~~the Company~~PCC’s financial condition.

We may from time to time be involved in claims, proceedings and litigation arising from our business and property ownership. Based on currently available information, the Company does not expect that the results of such proceedings, including the above-described proceeding, in the aggregate, to have a material adverse effect on our financial condition.

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ITEM 1A

Risk Factors

For a discussion of risk factors relating to our business, please refer to Item 1A of of Part I of our ~~2015~~2016 Form 10-K, which is incorporated by reference herein, in addition to the following information:

Industry Factors

Fluctuating interest rates could adversely affect our profitability.

As is the case with many banks, our profitability is dependent to a large extent upon our net interest income, which is the difference between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect, and has in past years, impacted, our net interest margin, and, in turn, our profitability. This impact could result in a decrease in our interest income relative to interest expense. Increases in interest rates may also adversely impact the value of our securities investment portfolio. At ~~September 30~~March 31, ~~2016~~2017, our balance sheet was liability sensitive, and an increase in interest rates could cause our net interest margin and our net interest income to decline. Since the ~~financial~~ financial crisis of 2008, the banking industry has operated in an extremely low interest rate environment relative to historical averages, and the Federal Reserve has pursued highly accommodative monetary policies (including a very low Federal funds rate and substantial purchases of long-term U.S. Treasury and agency securities) in an effort to facilitate growth in the U.S. economy and a reduction in levels of unemployment. This environment has placed downward pressure on the net interest margins of U.S. banks, including the Bank. In December 2015, the Federal Reserve raised the target range for the federal funds rate from 1/⁄4 to 1/⁄2 percent. The Federal Reserve further indicated future policy actions to normalize interest rates will depend upon progress towards its objectives of maximum employment and two percent inflation, although the stance of monetary policy remains accommodative, and, even after employment and inflation are near its objectives, economic conditions may warrant for some time keeping the target federal funds rate below longer-term normal levels. The Federal Reserve also indicated that it intended to continue its policy of holding longer-term agency and Treasury securities at sizeable levels to help maintain accommodative financial conditions. In September 2016, the Federal Reserve decided to keep the target range for the federal funds rate at 1⁄4 to 1⁄2 percent, noting that, while the case for an increase in the federal funds rate has strengthened, it decided to wait for further evidence of continued ~~progress~~ progress towards its objectives. In March 2017, the Federal Reserve raised the target range for the federal funds rate from 3⁄4 to 1 percent. The degree to which the Federal Reserve will continue its accommodative monetary policies, and the timing of any easing of those policies, will depend upon the Federal Reserve’s judgments regarding labor market conditions and the overall economic outlook, and are, therefore, subject to continuing uncertainty.

Company Factors

We have a significant concentration in loans to dental professionals, and loan concentrations within one industry may create additional risk.

Bank regulatory authorities and investors generally view significant loan concentrations within any particular industry as carrying higher inherent risk than a loan portfolio without any significant concentration in one industry. We have a significant concentration of loans to dental professionals which represented 20.4600% in principal amount of our total loan portfolio at ~~September 30~~March 31, ~~2016~~2017 (see Note 54 in the Notes to Consolidated Financial Statements included in this Form 10-Q). While we apply credit practices which we believe to be prudent to these loans as well as all the other loans in our portfolio, due to our concentration in ~~dental~~ dental lending, we are exposed to the general risks of industry concentration, which include adverse market factors impacting that industry alone or disproportionately to other industries. In addition, bank regulatory authorities may in the future ~~require~~ require us to limit additional lending in the dental industry if they have concerns that our concentration in that industry creates significant risks, which in turn could limit our ability to pursue new loans in an area where we believe we currently have a competitive advantage.

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Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition.

At ~~September 30~~March 31, ~~2016~~2017, our nonperforming loans (which include all nonaccrual loans, net of government guarantees) were 0.5440% of the loan portfolio. At ~~September 30~~March 31, ~~2016~~2017, our nonperforming assets (which include foreclosed real estate) were 0.9072% of total assets. Nonperforming loans and assets adversely affect our net income in various ways. Until economic and market conditions improve, we expect to continue to incur losses relating to nonperforming assets. We generally do not record interest income on nonperforming loans or other real estate owned, thereby adversely affecting our income and increasing our loan administration costs. When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to the then fair market value of the collateral, less estimated selling expenses, which may ultimately result in a loss. An increase in the level of nonperforming assets increases our risk profile and may impact the capital levels our regulators believe are appropriate in light of the ensuing risk profile. While we reduce problem assets through loan sales, workouts, and restructurings and otherwise, decreases in the value of the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond our control, could adversely ~~affect~~ affect our business, results of operations and financial condition, perhaps materially. In addition, the resolution of nonperforming assets requires significant commitments of time from management and our directors, which can be detrimental to the performance of their other responsibilities. Any significant future increase in nonperforming assets could have a material adverse effect on our business, financial condition and results of operations.

We may not have the ability to continue paying dividends on our common stock at current or historic levels.

On October 26, 2016, we announced a quarterly cash dividend of $0.11 per share, payable to shareholders on November 23, 2016. Our ability to pay dividends on our common stock depends on a variety of factors. It is possible in the future that we may not be able to continue paying quarterly dividends commensurate with historic levels, if at all. As a holding company, a substantial portion of our cash flow typically comes from dividends our bank subsidiary pays to us. Cash dividends will depend on sufficient earnings to support them and adherence to bank regulatory requirements. If the Bank is not able to pay dividends to the Company, the Company may not be able to pay dividends on its common stock. Consequently, the inability to receive dividends from the Bank could adversely affect the Company’s financial condition, results of operations and prospects.

We may be required, in the future, to recognize impairment with respect to investment securities, including the FHLB stock we hold.

Our securities portfolio contains whole loan private mortgage-backed securities and municipal securities and currently includes securities with unrecognized losses. We may continue to observe volatility in the fair market value of these securities. We evaluate the securities portfolio for any other than temporary impairment (“OTTI”) each reporting period, as required by GAAP. Future evaluations of the securities portfolio could require us to recognize impairment charges. The credit quality of securities issued by certain municipalities has deteriorated in recent quarters. Although management does not believe the credit quality of the Company’s municipal securities has similarly deteriorated, such deterioration could occur in the future. For example, it is possible that government-sponsored programs to allow mortgages to be refinanced to lower rates could materially adversely impact the yield on our portfolio of mortgage-backed securities, since a significant portion of our investment portfolio is composed of such securities.

In addition, as a condition to membership in the FHLB, we are required to purchase and hold a certain amount of FHLB stock, based on our asset size, which is assessed annually. In addition to asset based stock holding, stock is also held to support the outstanding principal balance of advances from the FHLB. At September 30, 2016, we had stock in the FHLB totaling $4,643. The FHLB stock held by us is carried at cost and is subject to recoverability testing under applicable accounting standards. As of September 30, 2016, we did not recognize an impairment charge related to our FHLB stock holdings. Future negative changes to the financial condition of the FHLB could require us to recognize an impairment charge with respect to such holdings.

If the goodwill we have recorded in connection with acquisitions becomes impaired, it could have an adverse impact on our reported earnings.

At September 30, 2016, we had $61,434 of goodwill on our consolidated balance sheet. In accordance with GAAP, our goodwill is not amortized but rather evaluated for impairment on an annual basis or more frequently if events or circumstances indicate that a potential impairment exists. Such evaluation is based on a variety of qualitative and quantitative factors, including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant entity-specific events. The last impairment test was performed at December 31, 2015. At December 31, 2015, we did not recognize an impairment charge related to our goodwill. Future evaluations of goodwill may result.

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

ITEM 3

Defaults upon Senior Securities

None

ITEM 4

Mine Safety Disclosures

Not applicable

ITEM 5

Other Information

None

ITEM 6

Exhibits

3.1		Second Amended and Restated Articles of Incorporation, as amended on August 16, 2016.
10.1		First Amendment to the Amended and Restated Employment Agreement for Roger Busse dated July 19, 2016
10.2		First Amendment to the Amended and Restated Employment Agreement for Casey Hogan dated July 19, 2016
31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of the Registrant
31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of the Registrant
32*		Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C Section 1350
101		The following financial information from Pacific Continental Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2016~~2017, is formatted in XBRL; (i) the unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income , (iv) the Unaudited Consolidated Statements of Changes in Shareholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Consolidated Financial Statements.

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

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SIGNATURES

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

		PACIFIC CONTINENTAL CORPORATION
		(Registrant)
Dated	~~November~~May 89, ~~2016~~2017	/s/ Roger Busse
		Roger Busse
		President and Chief Executive Officer
		(Duly Authorized Officer; Principal Executive Officer)
Dated	~~November~~May 89, ~~2016~~2017	/s/ Richard R. Sawyer
		Richard R. Sawyer
		Executive Vice President and Chief Financial Officer (Duly Authorized Officer; Principal Financial and Accounting Officer)

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Filing Compare · PACIFIC CONTINENTAL CORP