10-Q

UNITED STATES

SECURITIES AND 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 March 31, 2008.

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

For the transition period from to .

Commission File Number 0-20288

COLUMBIA BANKING SYSTEM, INC.

(Exact name of registrant as specified in its charter)

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

(253) 305-1900

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨                Accelerated filer  x                Non-accelerated filer  ¨

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

The number of shares of common stock outstanding at April 30, 2008 was 18,089,093.

 TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Condensed Statements of Income - three months ended March 31, 2008 and 2007	1
	Consolidated Condensed Balance Sheets – March 31, 2008 and December 31, 2007	2
	Consolidated Condensed Statements of Changes in Shareholders’ Equity - three months ended March 31, 2008 and 2007	3
	Consolidated Condensed Statements of Cash Flows - three months ended March 31, 2008 and 2007	4
	Notes to Unaudited Consolidated Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
	Signatures	28

i

PART I - FINANCIAL INFORMATION

ITEM 1 - Financial Statements (unaudited)

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

Columbia Banking System, Inc.

(Unaudited)  

	Three Months Ended March 31,
(in thousands except per share)	2008			2007
Interest Income
Loans	$	41,303		$	34,030
Taxable securities		4,980			4,785
Tax-exempt securities		2,001			1,960
Federal funds sold and deposits with banks		149			371
Total interest income		48,433			41,146
Interest Expense
Deposits		14,835			12,159
Federal Home Loan Bank advances		2,582			3,179
Long-term obligations		487			507
Other borrowings		202			598
Total interest expense		18,106			16,443
Net Interest Income		30,327			24,703
Provision for loan and lease losses		2,076			638
Net interest income after provision for loan and lease losses		28,251			24,065
Noninterest Income
Service charges and other fees		3,568			2,959
Merchant services fees		1,916			1,969
Gain on sale of investment securities, net		882			—
Gain on redemption of Visa shares		1,962			—
Bank owned life insurance (“BOLI”)		505			426
Other		1,324			823
Total noninterest income		10,157			6,177
Noninterest Expense
Compensation and employee benefits		13,396			11,358
Occupancy		3,259			2,837
Merchant processing		866			823
Advertising and promotion		581			547
Data processing		815			567
Legal and professional services		(51	)		823
Taxes, licenses and fees		751			613
Net gain from other real estate owned		(23	)		—
Other		3,960			2,834
Total noninterest expense		23,554			20,402
Income before income taxes		14,854			9,840
Provision for income taxes		3,877			2,557
Net Income	$	10,977		$	7,283
Net Income Per Common Share:
Basic	$	0.61		$	0.45
Diluted		0.61			0.45
Dividends paid per common share	$	0.17		$	0.15
Weighted average number of common shares outstanding		17,850			16,104
Weighted average number of diluted common shares outstanding		17,978			16,262

See accompanying notes to unaudited consolidated condensed financial statements.

1

CONSOLIDATED CONDENSED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)  

(in thousands)	March 31, 2008		December 31, 2007
ASSETS
Cash and due from banks	$	82,950	$	82,735
Interest-earning deposits with banks		9,165		11,240
Federal funds sold		31,500		—
Total cash and cash equivalents		123,615		93,975
Securities available for sale at fair value (amortized cost of $576,372 and $558,685, respectively)		582,029		561,366
Federal Home Loan Bank stock at cost		16,441		11,607
Loans held for sale		5,944		4,482
Loans, net of deferred loan fees of ($3,768) and ($3,931), respectively		2,300,465		2,282,728
Less: allowance for loan and lease losses		27,914		26,599
Loans, net		2,272,551		2,256,129
Interest receivable		14,200		14,622
Premises and equipment, net		56,291		56,122
Other real estate owned		—		181
Goodwill		95,981		96,011
Core deposit intangible, net		6,754		7,050
Other assets		72,780		77,168
Total Assets	$	3,246,586	$	3,178,713
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	508,955	$	468,237
Interest-bearing		2,017,559		2,029,824
Total deposits		2,526,514		2,498,061
Short-term borrowings:
Federal Home Loan Bank advances		256,400		257,670
Securities sold under agreements to repurchase		25,000		—
Other borrowings		5,321		5,061
Total short-term borrowings		286,721		262,731
Long-term subordinated debt		25,540		25,519
Other liabilities		56,144		50,671
Total liabilities		2,894,919		2,836,982
Commitments and contingent liabilities		—		—
Shareholders’ equity:
Preferred stock (no par value)
Authorized, 2 million shares; none outstanding		—		—

	March 31, 2008		December 31, 2007
Common stock (no par value)
Authorized shares		63,034		63,034
Issued and outstanding		18,084		17,953		228,156		226,550
Retained earnings						115,932		110,169
Accumulated other comprehensive income						7,579		5,012
Total shareholders’ equity						351,667		341,731
Total Liabilities and Shareholders’ Equity					$	3,246,586	$	3,178,713

See accompanying notes to unaudited consolidated condensed financial statements.

2

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Columbia Banking System, Inc.

(Unaudited)  

	Common stock							Accumulated Other			Total
	Number of Shares		Amount		Retained Earnings			Comprehensive Income (Loss)			Shareholders’ Equity
	(in thousands)
Balance at January 1, 2007		16,060	$	166,763	$	89,037		$	(3,453	)	$	252,347
Comprehensive income:
Net income		—		—		7,283			—			7,283
Other comprehensive income, net of tax:
Net unrealized gain from securities, net of reclassification adjustments		—		—		—			2,790			2,790
Net unrealized gain from cash flow hedging instruments		—		—		—			55			55
Total comprehensive income												10,128
Issuance of stock under stock option and other plans		57		891		—			—			891
Stock award compensation expense		40		194		—			—			194
Stock option compensation expense		—		44		—			—			44
Tax benefit associated with exercise of stock options		—		141		—			—			141
Cash dividends paid on common stock		—		—		(2,416	)		—			(2,416	)
Balance at March 31, 2007		16,157	$	168,033	$	93,904		$	(608	)	$	261,329
Balance at January 1, 2008		17,953	$	226,550	$	110,169		$	5,012		$	341,731
Cumulative effect of applying consensus in EITF 06-4		—		—		(2,155	)		—			(2,155	)
Comprehensive income:
Net income		—		—		10,977			—			10,977
Other comprehensive income, net of tax:
Net unrealized gain from securities, net of reclassification adjustments		—		—		—			1,904			1,904
Net unrealized gain from cash flow hedging instruments		—		—		—			663			663
Total comprehensive income												13,544
Issuance of stock under stock option and other plans		67		1,084		—			—			1,084
Stock award compensation expense		64		384		—			—			384
Tax benefit associated with exercise of stock options		—		138		—			—			138
Cash dividends paid on common stock		—		—		(3,059	)		—			(3,059	)
Balance at March 31, 2008		18,084	$	228,156	$	115,932		$	7,579		$	351,667

See accompanying notes to unaudited consolidated condensed financial statements.

3

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Columbia Banking System, Inc.

(Unaudited)  

	Three Months Ended March 31,
(in thousands)	2008			2007
Cash Flows From Operating Activities
Net income	$	10,977		$	7,283
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		2,076			638
Deferred income tax benefit		(220	)		(237	)
Excess tax benefit from stock-based compensation		(138	)		(41	)
Stock-based compensation expense		384			238
Depreciation, amortization & accretion		1,708			1,542
Net realized gain on sale of securities		(882	)		—
Net realized (gain) loss on sale of other real estate and fixed assets		(46	)		2
Net change in:
Loans held for sale		(1,462	)		(2,066	)
Interest receivable		422			(1,288	)
Interest payable		1,204			515
Other assets		(3,789	)		11
Other liabilities		3,243			(849	)
Net cash provided by operating activities		13,477			5,748
Cash Flows From Investing Activities
Purchase of securities available for sale		(76,907	)		(800	)
Proceeds from sales of securities available for sale		51,358			—
Proceeds from principal repayments and maturities of securities available for sale		8,545			10,316
Proceeds from maturities of securities held to maturity		—			250
Loans originated and acquired, net of principal collected		(19,489	)		(124,961	)
Purchases of premises and equipment		(1,425	)		(772	)
Purchase of FHLB stock		(4,834	)		—
Proceeds from termination of cash flow hedging instruments		8,093			—
Proceeds from sale of other real estate owned		204			—
Proceeds from disposal of premises and equipment		12			188
Net cash used in investing activities		(34,443	)		(115,779	)
Cash Flows From Financing Activities
Net increase in deposits		28,453			57,675
Proceeds from Federal Home Loan Bank advances		873,268			825,945
Repayment of Federal Home Loan Bank advances		(874,538	)		(819,045	)
Net increase in repurchase agreement borrowings		25,000			50,000
Net increase in other borrowings		260			146
Cash dividends paid on common stock		(3,059	)		(2,416	)
Proceeds from issuance of common stock, net		1,084			891
Excess tax benefit from stock-based compensation		138			41
Net cash provided by financing activities		50,606			113,237
Increase in cash and cash equivalents		29,640			3,206
Cash and cash equivalents at beginning of period		93,975			104,344
Cash and cash equivalents at end of period	$	123,615		$	107,550
Supplemental information:
Cash paid for interest	$	16,902		$	15,155
Cash paid for income taxes	$	150		$	880

See accompanying notes to unaudited consolidated condensed financial statements.

4

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Columbia Banking System, Inc.

1. Basis of Presentation and Significant Accounting Policies

(a) Basis of Presentation

The interim unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for condensed interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain financial information and footnotes have been omitted or condensed. The consolidated condensed financial statements include the accounts of the Company, and its wholly owned banking subsidiaries Columbia Bank and Bank of Astoria (“Astoria”). All intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of results to be anticipated for the year ending December 31, 2008.  The accompanying interim unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2007 Annual Report on Form 10-K.

(b) Significant Accounting Policies

The significant accounting policies used in preparation of our consolidated financial statements are disclosed in our 2007 Annual Report on Form 10-K. There have not been any other material changes in our significant accounting policies compared to those contained in our 2007 10-K disclosure for the year ended December 31, 2007.

2. Accounting Pronouncements Recently Issued or Adopted

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS 161”).  This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company plans to apply the enhanced disclosure provisions of SFAS 161 to all derivative and hedging activities.

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements.   SFAS 157 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurement.  For further information, see Note 7 of the Notes to Unaudited Consolidated Condensed Financial Statements.

On January 1, 2008, the Company began applying the consensus reached by the Emerging Issues Task Force in Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-4”).  EITF 06-4 provides recognition guidance regarding liabilities and related compensation costs for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods.  The Company recognized the effects of applying the consensus through a change in accounting principle with a cumulative-effect adjustment to retained earnings of $2.2 million.  Application of this consensus did not have a material effect on our results of operations.

3. Share-based Payments

At March 31, 2008 the Company had one equity compensation plan (the “Plan”), which is shareholder approved, that provides for the granting of share options and shares to eligible employees and directors up to 2,191,482 shares. Share option and share awards are made at the discretion of the Board of Directors.

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

5

A summary of the status of the Company’s nonvested shares as of March 31, 2008 is presented below:

Nonvested Shares	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2008		143,325		$	32.36
Granted		65,610			24.09
Vested		(4,165	)		33.72
Forfeited		(1,450	)		29.15
Nonvested at March 31, 2008		203,320		$	29.68

As of March 31, 2008 there was $4.1 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 3.4 years. The total fair value of shares vested during the three months ended March 31, 2008 and 2007 was $140,000 and $17,000, respectively.

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

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

A summary of option activity under the Plan for the three months ended March 31, 2008 is presented below:

Options	Shares			Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Balance at January 1, 2008		331,868		$	14.77
Granted		—			—
Forfeited		(2,431	)		21.60
Exercised		(55,314	)		13.84
Balance at March 31, 2008		274,123		$	14.89		3.4	$	2,220
Total Exercisable at March 31, 2008		274,123		$	14.89		3.4	$	2,220

There were no stock options granted by the Company during the three months ended March 31, 2008 and 2007. The total intrinsic value of options exercised during the three months ended March 31, 2008 and 2007 was $546,000 and $1.1 million, respectively.

6

As of March 31, 2008, outstanding stock options consist of the following:

Ranges of Exercise Prices		Number of Option Shares		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price of Option Shares		Number of Exercisable Option Shares		Weighted-Average Exercise Price of Exercisable Option Shares
$	3.09 – 6.17		27,740		2.3	$	4.76		27,740	$	4.76
	6.18 – 9.25		2,326		4.6		6.31		2,326		6.31
	9.26 – 12.34		102,285		1.4		11.21		102,285		11.21
	12.35 – 15.43		46,188		4.8		13.97		46,188		13.97
	15.44 – 18.51		15,369		4.4		17.29		15,369		17.29
	18.52 – 21.60		24,599		6.1		19.08		24,599		19.08
	21.61 – 24.68		18,635		4.2		22.88		18,635		22.88
	24.69 – 27.77		31,310		4.7		25.77		31,310		25.77
	27.78 – 30.86		5,671		8.9		30.86		5,671		30.86
			274,123	3.4 years		$	14.89		274,123	$	14.89

It is the Company’s policy to issue new shares for share option exercises and share awards. The Company expenses awards of share options and shares on a straight-line basis over the related vesting term of the award. For the three months ended March 31, 2008 and 2007, the Company recognized pre-tax compensation expense related to share options and shares of $384,000 and $238,000, respectively.

4. Earnings per share

The following table sets forth the computation of basic and diluted net income per share for the three months ended March 31, 2008 and 2007 (in thousands, except for per share data):

(dollars in thousands, except per share)	For The Three Months Ended 3/31/2008		For The Three Months Ended 3/31/2007
Net income	$	10,977	$	7,283
Weighted average common shares outstanding (for basic calculation)		17,850		16,104
Incremental shares from unexercised stock options and unvested restricted stock awards		128		158
Weighted average common stock and common equivalent shares outstanding (for diluted calculation)		17,978		16,262
Net earnings per common share – basic	$	0.61	$	0.45
Net earnings per common share – diluted	$	0.61	$	0.45

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three month periods ended March 31, 2008 and March 31, 2007 there were 36,981 and 0 anti-dilutive shares outstanding, respectively related to options to acquire common stock.

5. Dividends

On January 23, 2008, the Company declared a quarterly cash dividend of $0.17 per share, payable on February 20, 2008 to shareholders of record as of the close of business on February 6, 2008. Subsequent to quarter end, on April 23, 2008, the Company declared a quarterly cash dividend of $0.17 per share, payable on May 21, 2008, to shareholders of record at the close of business May 7, 2008. The payment of cash dividends is subject to Federal regulatory requirements for capital levels and other restrictions. In addition, the cash dividends paid by Columbia Bank and Bank of Astoria to the Company are subject to both Federal and State regulatory requirements.

7

6. Business Segment Information

The Company is managed along two major lines of business: commercial banking and retail banking. The treasury function of the Company, included in the “Other” category, although not considered a line of business, is responsible for the management of investments and interest rate risk. In addition, the provision for loan and lease losses is included in the “Other” category.  Subsequent to quarter-end, on April 1, 2008, the Bank of Astoria banking subsidiary was merged into the Columbia Bank banking subsidiary.  This change in internal organizational structure also changes the composition of the Company’s reportable segments.  Accordingly, segment results for the Bank of Astoria are now included in the Retail Banking segment.  Prior period segment reporting has been restated to reflect this change.

The Company generates segment results that include balances directly attributable to business line activities. The financial results of each segment are derived from the Company’s general ledger system. Overhead, including sales and back office support functions and other indirect expenses are not allocated to the major lines of business. Goodwill resulting from business combinations is included in the Retail Banking segment. Since the Company is not specifically organized around lines of business, most reportable segments comprise more than one operating activity.

The principal activities conducted by commercial banking are the origination of commercial business loans, private banking services and real estate lending. Retail banking includes all deposit products, with their related fee income, and all consumer loan products as well as commercial loan products offered in the Company’s branch offices.

Effective January 1, 2008 the Company implemented a more robust internal funds transfer pricing methodology.  Internal funds transfer pricing refers to the process we utilize to give an earnings credit to a branch or revenue center for the deposit funds they generate while providing an earnings charge to the centers that use deposit funds to make loans.  The implementation of this methodology changed the basis of measurement for segment net interest income as presented in the tables below.  Generally, this methodology had the effect of increasing net interest income for the commercial banking segment with a corresponding decrease in net interest income for the retail banking segment.  The increase in net interest income for the commercial banking segment is driven primarily by the earnings credit for deposit funds generated within that segment.  In prior years, the retail banking segment benefited from the earnings credit for deposit funds generated by the commercial banking segment.  Segment net interest income after provision for loan and lease losses for the current quarter is not directly comparable to the same line item in the first quarter of last year as the prior quarter cannot practicably be restated.

8

The organizational structure of the Company and its business line financial results are not necessarily comparable with information from other financial institutions. Financial highlights by lines of business are as follows:

Condensed Statements of Income:

	Three Months Ended March 31, 2008
(in thousands)	Commercial Banking			Retail Banking			Other			Total
Net interest income after provision for loan and lease losses	$	13,632		$	16,051		$	(1,432	)	$	28,251
Other income		1,173			2,244			6,740			10,157
Other expense		(2,696	)		(9,198	)		(11,660	)		(23,554	)
Net income before income taxes		12,109			9,097			(6,352	)		14,854
Income taxes											(3,877	)
Net income										$	10,977
Total assets	$	1,491,325		$	995,845		$	759,416		$	3,246,586
	Three Months Ended March 31, 2007
(in thousands)	Commercial Banking			Retail Banking			Other			Total
Net interest income after provision for loan and lease losses	$	6,455		$	18,776		$	(1,166	)	$	24,065
Other income		635			1,871			3,671			6,177
Other expense		(2,804	)		(6,196	)		(11,402	)		(20,402	)
Net income before income taxes		4,286			14,451			(8,897	)		9,840
Income taxes											(2,557	)
Net income										$	7,283
Total assets	$	1,342,496		$	652,626		$	681,082		$	2,676,204

9

7. Fair Value Accounting and Measurement

SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value.  SFAS 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

We hold fixed and variable rate interest bearing securities, investments in marketable equity securities and certain other financial instruments, which are carried at fair value.  Fair value is determined based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available.

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

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

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

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

Fair values are determined as follows:

Securities at fair value are priced using matrix pricing based on the securities’ relationship to other benchmark quoted prices, and under the provisions of SFAS 157 are considered a Level 2 input method.

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

The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair values as of March 31, 2008 by level within the fair value hierarchy.  As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	March 31, 2008		(Level 1)		(Level 2)		(Level 3)
Assets
Securities available for sale	$	582,029	$	—	$	582,029	$	—
Interest rate swap agreements	$	4,768	$	—	$	4,768	$	—
Liabilities
Interest rate swap agreements	$	4,768	$	—	$	4,768	$	—

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8. Comprehensive Income

The components of comprehensive income are as follows:

	Three Months Ended March 31,
(in thousands)	2008			2007
Net income as reported	$	10,977		$	7,283
Unrealized gain from securities:
Net unrealized holding gain from available for sale securities arising during the period, net of tax of $1,385 and $1,512		2,475			2,790
Reclassification adjustment of net gain from sale of available for sale securities included in income, net of tax of $311 and $0		(571	)		—
Net unrealized gain from securities, net of reclassification adjustments		1,904			2,790
Unrealized gain from cash flow hedging instruments:
Net unrealized gain from cash flow hedging instruments arising during the period, net of tax of $425 and $30		739			55
Reclassification adjustment of net gain included in income, net of tax of $42 and $0		(76	)		—
Net unrealized gain from cash flow hedging instruments		663			55
Total comprehensive income	$	13,544		$	10,128

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

The following table presents activity in the allowance for loan and lease losses for the three months ended March 31, 2008 and 2007:

	Three Months Ended March 31,
(in thousands)	2008			2007
Beginning balance	$	26,599		$	20,182
Provision charged to expense		2,076			638
Loans charged-off		(1,215	)		(153	)
Recoveries		454			152
Ending balance	$	27,914		$	20,819

Changes in the allowance for unfunded loan commitments and letters of credit are summarized as follows:

	Three Months Ended March 31,
(in thousands)	2008		2007
Beginning balance	$	349	$	339
Net changes in the allowance for unfunded loan commitments and letters of credit		60		—
Ending balance	$	409	$	339

10. Goodwill and Intangible Assets

The Company had $96 million in goodwill at March 31, 2008 and December 31, 2007. At March 31, 2008 and December 31, 2007, the Company had a core deposit intangible (“CDI”) asset of $6.8 million and $7.1 million, respectively. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is not amortized but is reviewed for potential impairment during the third quarter on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The CDI is evaluated for impairment if events and circumstances indicate a possible impairment. The CDI is amortized on an accelerated basis over an estimated life of approximately 10 years. Amortization expense related to the CDI was $296,000 and $96,000 for the three months ended March 31, 2008 and March 31, 2007 respectively. The CDI amortization expense is included in other noninterest expense on the consolidated condensed statements of income.

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11. Commitments and Contingent Liabilities

On March 18, 2008 Visa, Inc. (“Visa”) completed its initial public offering (“IPO”).  On March 31, 2008, Visa funded a litigation escrow account with $3.0 billion from its IPO proceeds. Based on the Company’s Visa USA membership percentage, the expected economic benefit to the Company from this escrow account is $889,200. Accordingly, the Company recognized a reversal of previously accrued legal expense of $889,200. This reversal is included in the legal and professional services line item of the consolidated condensed statements of income and is a reduction of the $1.8 million Visa litigation liability the Company accrued during the fourth quarter of 2007. The Company’s remaining Visa litigation reserve of approximately $888,000, which is included in other liabilities on the consolidated condensed balance sheets, will be subject to ongoing review and adjusted accordingly as information on Visa’s litigation matters emerges.

In addition, as a result of Visa’s IPO, the Company received 118,637 shares of Class B Common Stock.  Pursuant to Visa’s Certificate of Incorporation, a portion of the Company’s shares were subject to mandatory partial redemption.  On March 28, 2008, 45,866 shares of the Company’s Class B Visa Common Stock were redeemed for net cash proceeds of $1.96 million.  Consistent with Securities and Exchange Commission guidance, the Company will not recognize any gain on its remaining 72,771 shares of unredeemed Visa Class B Common Stock until such time they are redeemed for cash.

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

This discussion should be read in conjunction with the unaudited consolidated condensed financial statements of Columbia Banking System, Inc. (referred to in this report as “we”, “our”, and “the Company”) and notes thereto presented elsewhere in this report and with the December 31, 2007 audited consolidated financial statements and its accompanying notes included in our recent Annual Report on Form 10-K. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date one year earlier.

NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may be deemed to include forward looking statements, which management believes to be a benefit to shareholders.  These forward looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of our style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” and “anticipate” and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in our filings with the SEC, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local and national economic conditions are less favorable than expected or 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; (2) a continued decline in the housing/real estate market; (3) changes in interest rates significantly reduce interest margins and negatively affect funding sources; (4) deterioration of credit quality that could, among other things, increase defaults and delinquency risks in the Company’s loan portfolios (5) projected business increases following strategic expansion activities are lower than expected; (6) competitive pressure among financial institutions increases significantly; (7) legislation or regulatory requirements or changes adversely affect the businesses in which we are engaged; and (8) our ability to realize the efficiencies we expect to receive from our investments in personnel, acquisitions and infrastructure.

CRITICAL ACCOUNTING POLICIES

Management has identified the accounting policies related to the allowance for loan and lease losses as critical to an understanding of our financial statements. These policies and related estimates are discussed in “Item 7. Management Discussion and Analysis of Financial Condition and Results of Operation” under the heading “Allowance for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit” in our 2007 Annual Report on Form 10-K. There have not been any material changes in our critical accounting policies relating to the allowance for loan and lease losses as compared to those disclosed in our 2007 Annual Report on Form 10-K.

OVERVIEW

Note:  First quarter 2007 financial information does not include the results of Mountain Bank Holding Company and Town Center Bancorp, which were both acquired on July 23, 2007.

Earnings Summary

The Company reported net income of $11.0 million for the first quarter of 2008 or $.61 per diluted share, compared with $7.3 million, or $0.45 per diluted share for the first quarter of 2007.  Return on average assets and return on average equity were 1.39% and 12.60%, respectively, for the first quarter of 2008, compared with returns of 1.14% and 11.52%, respectively, for the first quarter of 2007.  The Company’s results for the first quarter of 2008 improved from the same period in 2007, as increases in noninterest expense and the provision for loan and lease losses were outpaced by increases in net interest income and noninterest income.  In addition, the first quarter 2008 results reflect the financial consolidation of Mountain Bank Holding Company and Town Center Bancorp, which were both acquired on July 23, 2007; consequently, the first quarter 2007 financial information does not include the results of the two organizations.

Revenue (net interest income plus noninterest income) for the first quarter of 2008, was $9.6 million, or 31%, higher than the first quarter of 2007, reflecting a 64% increase in noninterest income driven primarily by gains on the sale of investment securities and gains associated with Visa, Inc.’s (“Visa”) recent initial public offering (“IPO”).  Net interest income increased 23% from the prior year driven primarily by growth in earning assets.  Excluding the $882,000 gain arising from the sale of investment securities and the $1.96 million gain from Visa’s IPO, revenue was $6.8 million, or 22%, higher than the same period last year.

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Total noninterest expense in the first quarter of 2008 was $3.2 million, or 15%, higher than in the first quarter of 2007, principally due to higher operating costs from investments in personnel, branches and data processing.  These increases were mitigated by a partial reversal, totaling $889,000, of legal expenses related to certain Visa litigation previously accrued in the fourth quarter of 2007.  Excluding the partial reversal of Visa litigation legal expenses, noninterest expense was $4.0 million, or 20%, higher than in the first quarter of 2008.

The provision for loan and lease losses for the first quarter of 2008 increased $1.4 million, or 225%, compared with the first quarter of 2007. The increased provision for loan and lease losses is a result of an increase in the average balance of loans outstanding, increased net loan charge-offs and continuing weakness in the for-sale housing industry and the economy in general.

RESULTS OF OPERATIONS

Our results of operations are dependent to a large degree on our net interest income. We also generate noninterest income through service charges and fees, merchant services fees, and bank owned life insurance. Our operating expenses consist primarily of compensation and employee benefits, occupancy, merchant card processing, data processing and legal and professional fees. Like most financial institutions, our interest income and cost of funds are affected significantly by general economic conditions, particularly changes in market interest rates, and by government policies and actions of regulatory authorities.

Note:  First quarter 2007 financial information does not include the results of Mountain Bank Holding Company and Town Center Bancorp, which were both acquired on July 23, 2007.

Net Interest Income

For the three months ended March 31, 2008 the net interest margin remained stable when compared to the same period in 2007.  Interest income for the first quarter of 2008 increased 18% over the same period in 2007 while interest expense increased 10%.  The increase in interest income in the current quarter as compared to the same quarter in 2007 is primarily due to increased volumes in loans coupled with increased yields on available-for-sale securities.  The increase in interest expense is attributed to increased levels of deposits from the 2007 acquisitions as well as increased volumes of short-term borrowings, primarily Federal Home Loan Bank advances.

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The following tables set forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities, the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities, the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities by category and in total, net interest income and net interest margin.

	Three months ending March 31,							Three months ending March 31,
	2008							2007
(in thousands)	Average Balances (1)		Interest Earned / Paid		Average Rate			Average Balances (1)		Interest Earned / Paid		Average Rate
ASSETS
Loans, net	$	2,304,588	$	41,303		7.21	%	$	1,765,692	$	34,030		7.82	%
Securities (2)		582,056		8,300		5.74	%		597,952		7,820		5.30	%
Interest-earning deposits with banks and federal funds sold		19,528		149		3.07	%		28,728		371		5.24	%
Total interest-earning assets		2,906,172	$	49,752		6.89	%		2,392,372	$	42,221		7.16	%
Other earning assets		47,159							38,776
Noninterest-earning assets		232,682							154,877
Total assets	$	3,186,013						$	2,586,025
LIABILITIES AND SHAREHOLDERS’ EQUITY
Certificates of deposit	$	844,845	$	9,087		4.33	%	$	556,926	$	5,841		4.25	%
Savings accounts		114,868		115		0.40	%		109,211		109		0.40	%
Interest-bearing demand and money market accounts		1,044,382		5,633		2.17	%		921,411		6,209		2.73	%
Total interest-bearing deposits		2,004,095		14,835		2.98	%		1,587,548		12,159		3.11	%
Federal Home Loan Bank advances		284,054		2,582		3.66	%		233,243		3,179		5.53	%
Securities sold under agreements to repurchase		19,231		142		2.98	%		44,445		596		5.44	%
Other borrowings and interest-bearing liabilities		5,252		60		4.57	%		353		2		2.63	%
Long-term subordinated debt		25,527		487		7.67	%		22,384		507		9.19	%
Total interest-bearing liabilities		2,338,159	$	18,106		3.11	%		1,887,973	$	16,443		3.53	%
Noninterest-bearing deposits		451,095							413,588
Other noninterest-bearing liabilities		46,488							28,172
Shareholders’ equity		350,271							256,292
Total liabilities & shareholders’ equity	$	3,186,013						$	2,586,025
Net interest income (2)			$	31,646						$	25,778
Net interest margin						4.38	%						4.37	%

(1) Nonaccrual loans have been included in the tables as loans carrying a zero yield. Amortized net deferred loan fees were included in the interest income calculations. The amortization of net deferred loan fees was $1.1 million and $639,000 for the three months ended March 31, 2008 and 2007, respectively.

(2) Tax-exempt income is calculated on a tax equivalent basis, based on a marginal tax rate of 35%.

Provision for Loan and Lease Losses

During the first quarter of 2008, the Company allocated $2.1 million to its provision for loan and lease losses, compared to $638,000 for the same period in 2007. The increased provision for loan and lease losses is a result of an increase in the average balance of loans outstanding, increased net loan charge-offs and continuing weakness in the for-sale housing industry and the economy in general.  While the Pacific Northwest continues to outperform the rest of the nation, we recognize that we are not immune to the economic challenges outside the Pacific Northwest region as many customers are engaged in business activities which are impacted by the national economy.

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Noninterest Income

Noninterest income increased $4.0 million, or 64%, to $10.2 million for the first quarter of 2008 from $6.2 million one year ago. The increase in noninterest income is primarily due to the gain on the redemption of Visa shares of $2.0 million and a gain on sale of investment securities of $882,000.  Service charges and other fees increased $609,000, or 21%, during the first quarter of 2008 as compared to the same period in 2007 reflecting a change in our deposit account fee structure in conjunction with an increase in the number of deposit accounts. Other income includes such things as income from mortgage and international banking, miscellaneous loan fees, and income from our customer interest rate swap program.  Other income was favorably impacted this quarter by $244,000 of income related to our customer interest rate swap program as well as increase of $108,000 in miscellaneous loan fees and $56,000 of broker fees received.

Noninterest Expense

Total noninterest expense increased $3.2 million, or 15%, for the first quarter of 2008 from $20.4 million for the first quarter of 2007. This increase is primarily attributable to increases in compensation and employee benefits, occupancy expenses and data processing expenses. Compensation and employee benefits expenses increased $2 million in the first quarter of 2008 primarily as a result of our third quarter 2007 acquisitions, general wage increases and overall employee benefit expense increases. Occupancy expenses increased $422,000 from the first quarter of 2007 primarily due to expenses related to the above mentioned acquisitions and the opening of two additional branches late in 2007.  Data processing expenses increased $248,000 from the first quarter of 2007 as a result of increased volumes due in part by the acquisitions.  These increases were partially offset by lower legal expenses related to the reversal of previously accrued expenses relating to the Visa IPO.  For additional information on the Visa IPO, see Note 11 to the unaudited consolidated condensed financial statements in “Item 1. Financial Statements (unaudited)” of this report.

Share-based payments: Pretax share-based compensation recognized under SFAS 123(R) for the three months ended March 31, 2008 was $384,000 compared to $238,000 for the same period in 2007. These expenses reduced basic earnings per share by $0.03 and $0.01 and diluted earnings per share by $0.02 and $0.01, respectively for the quarters ended March 31, 2008 and 2007. Share-based compensation expense recorded during the quarter related to both stock options and stock awards. We anticipate an additional $4.1 million in pre-tax share-based compensation through 2012 for awards outstanding as of March 31, 2008. For additional information, see Note 3 to the unaudited consolidated condensed financial statements in “Item 1. Financial Statements (unaudited)” of this report.

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

	Three months ended March 31,				Increase (Decrease) Amount
(in thousands)	2008		2007
Core deposit intangible amortization (“CDI”)	$	296	$	96	$	200
Software support & maintenance		200		180		20
Telephone & network communications		399		273		126
Federal Reserve Bank processing fees		111		113		(2	)
Supplies		263		288		(25	)
Postage		362		291		71
Investor relations		51		75		(24	)
Travel		94		79		15
ATM network		199		137		62
Sponsorships & charitable contributions		159		87		72
Regulatory premiums		502		42		460
Directors fees		135		110		25
Employee expenses		181		171		10
Insurance		120		110		10
Losses on CRA investments (1)		128		181		(53	)
Miscellaneous		760		601		159
Total other non-interest expense	$	3,960	$	2,834	$	1,126

(1) A substantial portion of these losses is offset by credits taken as a reduction in our current period income tax expense.

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In managing our business, we review the efficiency ratio, on a fully taxable-equivalent basis (see definition in table below), which is not defined in accounting principles generally accepted in the United States.  Our efficiency ratio [noninterest expense divided by the sum of net interest income and noninterest income on a tax-equivalent basis, excluding gains arising from the sale of investment securities, OREO and the redemption of Visa shares as well as the reversal of previously accrued Visa litigation expense] was 62.36% and 63.39% for the first quarters of 2008 and 2007, respectively.  Other companies may define or calculate the efficiency ratio differently.  We believe this presentation provides investors with a more accurate picture of our operating efficiency.

Reconciliation of Financial Data to GAAP Financial Measures

	Three Months Ended March 31,
(in thousands)	2008			2007
Net interest income (1)	$	30,327		$	24,703
Tax equivalent adjustment for non-taxable investment securities interest income (2)		1,319			1,075
Adjusted net interest income	$	31,646		$	25,778
Noninterest income	$	10,157		$	6,177
Gain on sale of investment securities, net		(882	)		—
Gain on redemption of Visa shares		(1,962	)		—
Tax equivalent adjustment for BOLI income (2)		272			229
Adjusted noninterest income	$	7,585		$	6,406
Noninterest expense	$	23,554		$	20,402
Net gain from OREO		23			—
Reversal of previously accrued Visa litigation expense		889			—
Adjusted noninterest expense	$	24,466		$	20,402
Efficiency ratio		65.00	%		66.07	%
Efficiency ratio (fully taxable-equivalent)		62.36	%		63.39	%
Tax Rate		35.00	%		35.00	%

(1) Amount represents net interest income before provision for loan losses.

(2) Fully taxable-equivalent basis: Non taxable revenue is increased by the statutory tax rate to recognize the income tax benefit of the income realized.

Income Taxes

We recorded an income tax provision of $3.9 million during the first quarter of 2008 compared to a provision of $2.6 million for the first quarter of 2007, with both periods resulting in an effective tax rate of 26%.  Our effective tax rate is less than the statutory rate primarily due to earnings on both tax-exempt municipal securities and bank owned life insurance. For additional information, refer to our annual report on Form 10-K for the year ended December 31, 2007.

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Credit Risk Management

The extension of credit in the form of loans or other credit products to individuals and businesses is one of our principal business activities. Our policies and applicable laws and regulations require risk analysis as well as ongoing portfolio and credit management. We manage our credit risk through lending limit constraints, credit review, approval policies, and extensive, ongoing internal monitoring. We also manage credit risk through diversification of the loan portfolio by type of loan, type of industry, type of borrower and by limiting the aggregation of debt limits to a single borrower. In analyzing our existing portfolio, we review our consumer and residential loan portfolios by their performance as a pool of loans since no single loan is individually significant or judged by its risk rating, size, or potential risk of loss. In contrast, the monitoring process for the commercial business, private banking, real estate construction, and commercial real estate portfolios includes periodic reviews of individual loans with risk ratings assigned to each loan and performance judged on a loan by loan basis. We review these loans to assess the ability of the borrower to service all of its interest and principal obligations and, as a result, the risk rating may be adjusted accordingly. In the event that full collection of principal and interest is not reasonably assured, the loan is appropriately downgraded and, if warranted, placed on nonaccrual status even though the loan may be current as to principal and interest payments. Additionally, we review these types of loans for impairment in accordance with SFAS No. 114, “Accounting by Creditors for the Impairment of a Loan”. Impaired loans are considered for nonaccrual status and will typically remain as such until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan agreement appear relatively certain.

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

We have good diversification of loan types within our portfolio.  In addition, the Pacific Northwest economy has continued to outperform the rest of the nation.  However, we recognize that we are not immune to the challenges faced outside the Northwest region as many customers are engaged in business activities which are impacted by the national economy.  Accordingly, we will continue to build reserves for possible loan losses.

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Loan Portfolio Analysis

We are a full service commercial bank, originating a wide variety of loans, but concentrating our lending efforts on originating commercial business and commercial real estate loans.

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

(in thousands)	March 31, 2008			% of Total			December 31, 2007			% of Total
Commercial business	$	780,177			33.9	%	$	762,365			33.4	%
Real estate:
One-to-four family residential		62,733			2.7			60,991			2.7
Commercial and five or more family residential commercial properties		843,148			36.7			852,139			37.3
Total real estate		905,881			39.4			913,130			40.0
Real estate construction:
One-to-four family residential		282,797			12.3			269,115			11.8
Commercial and five or more family residential commercial properties		155,362			6.8			165,490			7.2
Total real estate construction		438,159			19.1			434,605			19.0
Consumer		180,016			7.8			176,559			7.8
Sub-total loans		2,304,233			100.2			2,286,659			100.2
Less: Deferred loan fees		(3,768	)		(0.2	)		(3,931	)		(0.2	)
Total loans	$	2,300,465			100.0	%	$	2,282,728			100.0	%
Loans held for sale	$	5,944					$	4,482

Loan growth for the first quarter 2008 was primarily from commercial business loans, which rose $17.8 million, or 2.3% from year-end 2007, followed by  an increase of $13.7 million primarily in advances under pre-existing relationships in our one-to-four family residential construction portfolio, and finally,  from a $3.5 million increase in consumer loans.  Commercial real estate and commercial construction loans declined by $19.1 million, due to contractual repayments and refinancing activity.

Commercial Loans: We are committed to providing competitive commercial lending in our primary market areas. We believe that increases in commercial lending during the three months of 2008 were due to the confidence of business owners in the stability of our local economy.  Management expects to continue to expand its commercial lending products and to emphasize, in particular, relationship banking with businesses, and business owners.

Real Estate Loans: These loans are used to collateralize outstanding advances from the FHLB. Generally, our policy is to originate residential loans for sale to third parties. Those residential loans are secured by properties located within our primary market areas, and typically have loan-to-value ratios of 80% or lower. However, the loan amounts may exceed 80% with private mortgage insurance.

Generally, commercial and five-or-more family residential real estate loans are made to borrowers who have existing banking relationships with us. Our underwriting standards generally require that the loan-to-value ratio for these loans not exceed 75% of appraised value, cost, or discounted cash flow value, as appropriate, and that commercial properties maintain debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. However, underwriting standards can be influenced by competition and other factors. We endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

Real Estate Construction Loans: We originate a variety of real estate construction loans. One-to-four family residential construction loans are originated for the construction of custom homes (where the home buyer is the borrower) and to provide financing to builders for the construction of pre-sold homes and speculative residential construction.

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

Foreign Loans: Our banking subsidiaries are not involved with loans to foreign companies or foreign countries.

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Nonperforming Assets

Nonperforming assets consist of: (i) nonaccrual loans; (ii) restructured loans, for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal, have been granted due to the borrower’s weakened financial condition (interest on restructured loans is accrued at the restructured rates when it is anticipated that no loss of original principal will occur); (iii) other real estate owned; and (iv) other personal property owned. Collectively, nonaccrual and restructured loans are considered nonperforming loans.

Nonaccrual loans: The consolidated financial statements are prepared according to the accrual basis of accounting. This includes the recognition of interest income on the loan portfolio, unless a loan is placed on a nonaccrual basis, which occurs when there are serious doubts about the collectibility of principal or interest. Generally our policy is to discontinue the accrual of interest on all loans past due 90 days or more and place them on nonaccrual status.  When a loan is placed on nonaccrual status, any accrued but unpaid interest on that date is removed from interest income.

At March 31, 2008, total nonperforming assets consisted of $187,000 in other personal property owned and nonperforming loans of $14.8 million, compared to other real estate owned of $181,000 and nonperforming loans of $14.5 million at December 31, 2007.   The percent of non-performing assets to period-end assets remained at .46% for March 31, 2008 and December 31, 2007.

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

(in thousands)	March 31, 2008		December 31, 2007
Nonaccrual:
Commercial business	$	3,778	$	2,170
Real estate:
One-to-four family residential		384		204
Commercial and five or more family residential		312		1,112
Total real estate		696		1,316
Real estate construction:
One-to-four family residential		5,804		6,005
Commercial and five or more family residential		3,676		3,676
Total real estate construction		9,480		9,681
Consumer		414		838
Total nonaccrual loans		14,368		14,005
Restructured:
Commercial business		468		456
Total nonperforming loans		14,836		14,461
Other real estate owned		—		181
Other personal property owned		187		—
Total nonperforming assets	$	15,023	$	14,642

Nonperforming assets are centered in a small number of lending relationships which management considers adequately reserved.  Generally, these relationships are well collateralized though loss of principal on certain of these loans will remain in question until the loans are paid or collateral is liquidated.

The majority of non-performing assets are centered in four credits, three of which are real estate construction loans and one of which is commercial business.  The first relationship is a single $4.6 million credit originated in October of 2006 in which Columbia Bank participates with another lender who acts as agent in the transaction.  The borrower is engaged in the business of selling residential lots to builders of the purpose of constructing single family residences.  The borrower’s inability to obtain final plat approval prior to the expiration of agreements for the sale of lots at a predetermined price combined with softening market conditions resulted in new agreements for the sale of lots at prices reduced from the original agreements.  The second relationship is for money we advanced in 2005 for the construction of an income-producing property along the Oregon coast.  The loans total approximately $1.5 million at March 31, 2008 and became past due as the borrower encountered operational challenges including delays, cost overruns and the inability to lease up the building as originally anticipated.  The third relationship is a $2.4 million credit which reflects continued stress in real-estate related lending.  The final relationship is a commercial client which has been negatively impacted by the decline in the for-sale housing market.  This client has now obtained financing from another lender and we are in the process of transitioning this account to the new lender.  We will continue our collection efforts and liquidation of collateral to recover as large a portion of the nonperforming assets as possible.

Allowance for Loan and Lease Losses

At March 31, 2008, our allowance for loan and lease losses (“ALLL”) was $27.9 million, or 1.21% of total loans (excluding loans held for sale), 188% of nonperforming loans and 186% of nonperforming assets. This compares with an allowance of $26.6 million, or 1.17% of the total loan portfolio (excluding loans held for sale), 184% of nonperforming loans and 182% of nonperforming assets at December 31, 2007.

There have been no significant changes during the first quarter of 2008 in estimation methods or assumptions that affected our methodology for assessing the appropriateness of the ALLL. Adjustments to the percentages of the allowance allocated to loan categories are made based on trends with respect to delinquencies and problem loans within each pool of loans. The Company maintains a conservative approach to credit quality and will continue to prudently add to its loan and lease loss allowance as necessary in order to maintain adequate reserves, factoring in changes and trends in the local and national economy.  Management carefully monitors and evaluates the loan portfolio and continues to emphasize credit quality and strengthening of its loan monitoring systems and controls.

In addition to the ALLL, we maintain an allowance for unfunded loan commitments and letters of credit. We report this allowance as a component of other liabilities on our consolidated balance sheet. We determine this amount using estimates of the probability of the ultimate funding and losses related to those credit exposures. This methodology is similar to the methodology we use for determining the adequacy of our ALLL. At March 31, 2008 and December 31, 2007, our allowance for unfunded loan commitments and letters of credit was $409,000 and $339,000, respectively.

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The following table provides an analysis of our allowance for loan and lease losses at the dates and the periods indicated:

	Three Months Ended March 31,
(in thousands)	2008			2007
Beginning balance	$	26,599		$	20,182
Charge-offs:
Commercial business		(359	)		(97	)
Residential construction, land and acquisitions		(107	)		—
Consumer		(749	)		(56	)
Total charge-offs		(1,215	)		(153	)
Recoveries:
Commercial business		31			98
Commercial real estate		300			9
Consumer		123			45
Total recoveries		454			152
Net charge-offs		(761	)		(1	)
Provision charged to expense		2,076			638
Ending balance	$	27,914		$	20,819
Total loans, net at end of period (1)	$	2,300,465		$	1,833,852
Allowance for loan and lease losses to total loans		1.21	%		1.14	%

(1) Excludes loans held for sale

Securities

All of our securities are classified as available for sale and carried at fair value. These securities are used by management as part of our asset/liability management strategy and may be sold in response to changes in interest rates or significant prepayment risk. In accordance with our investment strategy, management monitors market conditions with a view to realize gains on its available for sale securities portfolio when prudent. During the quarter, we recorded a gain on sale of investment securities of $882,000.  The gain resulted from the execution of a strategy to extend the weighted average life of approximately $50 million of the investment portfolio.  At March 31, 2008 and December 31, 2007, the market value of securities available for sale had an unrealized gain, net of tax, of $3.6 million and $1.7 million, respectively. The change in market value of securities available for sale is due primarily to fluctuations in interest rates.

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

(in thousands)	March 31, 2008		December 31, 2007
Securities Available for Sale
U.S. government-sponsored enterprise	$	29,174	$	61,300
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations		355,815		303,742
State and municipal securities		194,482		193,965
Other securities		2,558		2,359
Total	$	582,029	$	561,366

Liquidity and Sources of Funds

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

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Deposit Activities

Our deposit products include a wide variety of transaction accounts, savings accounts and time deposit accounts. Core deposits (demand deposit, savings, and money market accounts) increased $10.6 million since year-end 2007 and certificate of deposit balances increased $17.9 million, or 2%, compared to year-end 2007.

We have established a branch system to serve our consumer and business depositors. In addition, management’s strategy for funding asset growth is to make use of brokered and other wholesale deposits on an as-needed basis. At March 31, 2008 and December 31, 2007, brokered and other wholesale deposits (excluding public deposits) totaled $117 million and $72 million, respectively.  The brokered deposits have varied maturities.

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

(in thousands)	March 31, 2008		December 31, 2007		March 31, 2007
Deposit Composition
Demand and other non interest bearing	$	508,955	$	468,237	$	447,052
Interest bearing demand		471,980		478,596		430,967
Money market		584,834		609,502		530,542
Savings		116,486		115,324		110,236
Certificates of deposit		844,259		826,402		562,229
Total deposits	$	2,526,514	$	2,498,061	$	2,081,026

Borrowings

We rely on FHLB advances as another source of both short and long-term borrowings. FHLB advances are secured by one-to-four family real estate mortgages and certain other assets. At March 31, 2008, we had FHLB advances of $256.4 million, compared to advances of $257.7 million at December 31, 2007.

We also utilize wholesale repurchase agreements as a supplement to our funding sources. Wholesale repurchase agreements are secured by mortgage-backed securities. At March 31, 2008, we had repurchase agreements of $25.0 million, compared to agreements of $0 million at December 31, 2007. Management anticipates that we will continue to rely on both FHLB advances and wholesale repurchase agreements in the future, and we will use those funds primarily to make loans and purchase securities.

During 2001, the Company, through a special purpose trust (“the Trust”) participated in a pooled trust preferred offering, whereby the Trust issued $22.0 million of 30 year floating rate capital securities. The capital securities constitute guaranteed preferred beneficial interests in debentures issued by the Trust. The debentures had an initial rate of 7.29% and a rate of 6.82% at March 31, 2008. The floating rate is based on the 3-month LIBOR plus 3.58% and is adjusted quarterly. Through the Trust, we may call the debentures at any time for a premium and after ten years at par, allowing us to retire the debt early if market conditions are favorable. Through recent acquisition, the Company assumed an additional $3.0 million in floating rate trust preferred obligations; these debentures had a rate of 8.01% at March 31, 2008.   The floating rate is based on the 3-month LIBOR plus 3.75% and is adjusted quarterly.

The trust preferred obligations are classified as long-term subordinated debt and our related investment in the Trust is recorded in other assets on the consolidated balance sheets. The balance of the long-term subordinated debt was $25.5 million at March 31, 2008 and December 31, 2007. The subordinated debt payable to the Trust is on the same interest and payment terms as the trust preferred obligations issued by the Trust.

Additionally, we have a $20.0 million line of credit with a large commercial bank with an interest rate indexed to LIBOR. At March 31, 2008 and December 31, 2007 there was $5 million outstanding on the line of credit. In the event of discontinuance of the line by either party, we have up to two years to repay any outstanding balance.

Contractual Obligations & Commitments

We are party to many contractual financial obligations, including repayment of borrowings, operating and equipment lease payments, commitments to extend credit and investments in affordable housing partnerships. At March 31, 2008, we had commitments to extend credit of $775.4 million compared to $857.6 million at December 31, 2007.

Capital Resources

Shareholders’ equity at March 31, 2008 was $351.7 million, up 3% from $341.7 million at December 31, 2007. The increase is due primarily to net income of $11 million for the first quarter of 2008. Shareholders’ equity was 10.8% of total period-end assets at March 31, 2008 and December 31, 2007.

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Capital Ratios: Banking regulations require bank holding companies to maintain a minimum “leverage” ratio of core capital to adjusted quarterly average total assets of at least 3%. In addition, banking regulators have adopted risk-based capital guidelines, under which risk percentages are assigned to various categories of assets and off-balance sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common shareholders’ equity and trust preferred obligations, less goodwill and certain identifiable intangible assets, while Tier II capital includes the allowance for loan losses and subordinated debt, both subject to certain limitations. Regulatory minimum risk-based capital guidelines require Tier I capital of 4% of risk-adjusted assets and total capital (combined Tier I and Tier II) of 8% to be considered “adequately capitalized”.

Federal Deposit Insurance Corporation regulations set forth the qualifications necessary for a bank to be classified as “well capitalized”, primarily for assignment of FDIC insurance premium rates. To qualify as “well capitalized,” banks must have a Tier I risk-adjusted capital ratio of at least 6%, a total risk-adjusted capital ratio of at least 10%, and a leverage ratio of at least 5%. Failure to qualify as “well capitalized” can negatively impact a bank’s ability to expand and to engage in certain activities.

The Company and its subsidiaries qualify as “well-capitalized” at March 31, 2008 and December 31, 2007.

	Company						Columbia Bank						Astoria						Requirements
	3/31/2008			12/31/2007			3/31/2008			12/31/2007			3/31/2008			12/31/2007			Adequately capitalized			Well- capitalized
Total risk-based capital ratio		11.07	%		10.90	%		10.74	%		10.49	%		10.79	%		12.61	%		8	%		10	%
Tier 1 risk-based capital ratio		10.00	%		9.87	%		9.67	%		9.47	%		9.58	%		11.42	%		4	%		6	%
Leverage ratio		8.59	%		8.54	%		8.33	%		8.23	%		8.31	%		9.50	%		4	%		5	%

Stock Repurchase Program

In March 2002 the Board of Directors approved a stock repurchase program whereby the Company may systematically repurchase up to 500,000 of its outstanding shares of Common Stock. The Company may repurchase shares from time to time in the open market or in private transactions, under conditions which allow such repurchases to be accretive to earnings while maintaining capital ratios that exceed the guidelines for a well-capitalized financial institution. As of March 31, 2008 we have repurchased 64,788 shares of common stock in this current stock repurchase program, none of which was repurchased in the periods covered by this report.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A number of measures are used to monitor and manage interest rate risk, including income simulations and interest sensitivity (gap) analyses. An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Basic assumptions in the model include prepayment speeds on mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently subjective and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. At March 31, 2008, based on the measures used to monitor and manage interest rate risk, there has not been a material change in the Company’s interest rate risk since December 31, 2007. For additional information, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operation” referenced in the Company’s 2007 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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Changes in Internal Controls over Financial Reporting

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

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

Our business exposes us to certain risks. The following is a discussion of what we currently believe are the most significant risks and uncertainties that may affect our business, financial condition and future results.

Economic downturns in the market areas we serve or a rapidly increasing interest rate environment could increase the credit risk within the loan portfolio.

Lending activities are our largest source of credit risk, which is the risk that a borrower will fail to meet their obligations in accordance with agreed upon terms. We manage the credit risk inherent in our loan portfolio through the establishment of sound underwriting policies and procedures. We maintain an allowance for loan and lease losses as well as an allowance for unfunded loan commitments and letters of credit to absorb anticipated future losses. Although we consider our allowance for loan and lease losses and allowance for unfunded loan commitments and letters of credit to be adequate at March 31, 2008, a significant downturn in the economy could result in higher delinquencies and defaults which would negatively impact our financial position. A substantial portion of the loans in our portfolio are variable rate. While recently we have been in a decreasing interest rate environment, a rapidly increasing interest rate environment or inability to access credit or other funding could impair our borrower’s ability to service the interest portion of their obligations to us. This could result in decreased net income from increased provisions to the allowance for loan and lease losses as well as decreased interest income resulting from an increase in nonaccrual loans.

A rapid change in interest rates could negatively impact net interest income.

We are exposed to interest rate risk, which is the risk that changes in prevailing interest rates will adversely affect assets, liabilities, capital, income and expenses at different times or in different amounts. We utilize a number of measures to monitor and manage interest rate risk, such as income simulations and interest sensitivity (gap) analyses. A number of factors that impact interest rates are beyond our control such as general economic conditions as well as governmental and regulatory policies.  We cannot assure you that we can minimize interest rate risk.  The impact of rate changes to our net interest income is determined by the amount of change and the time horizon over which change occurs.

Competition.

We face significant competition from other financial institutions for loans and deposits. We believe the most significant competitive factor is customer service, in addition to interest rates offered on loans and paid on deposits, fee structures, branch locations, and the range of banking services and products offered. Failure to maintain our service culture could increase the susceptibility of our customer base to our competitors marketing campaigns and thwart our efforts to expand our existing customer base.

Failure to hire or retain management and staff could impede our ability to maintain or grow earnings.

Maintaining our current customer base is reliant upon the retention of key management and personnel across all our business lines. We rely on these talented professionals to manage lines of business which are critical in the generation of operating revenue. In addition, the failure to attract new employees critical to the execution of our expansion plan could result in diminished returns on our investment in these initiatives.

The tightening of available liquidity could limit our ability to meet loan demand, which could adversely affect our earnings.

A tightening of the credit market and the inability to obtain adequate money to fund continued loan growth may negatively affect asset growth and, therefore, earnings capability.  In addition to any deposit growth, maturity of investment securities and loan payments, we rely on certain wholesale funding sources to fund loans.  In the event of a downturn in the economy, these additional funding sources could be negatively affected which could limit the funds available to us.

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Concentration in real estate loans.

We have a high concentration of loans secured by real estate and a downturn in the real estate market, for any reason, could hurt our business and our prospects.  Our business activities and credit exposure are concentrated in loans secured by real estate.  A decline in the real estate market could hurt our business because the collateral securing those loans would decrease in value.  A downturn in the local economy could have a material adverse effect both on a borrower’s ability to repay these loans, as well as the value of the real property held as collateral.  Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans.

Allowance for loan and lease losses may not be adequate to cover actual loan losses, which could adversely affect earnings.

We maintain an allowance for loan and lease losses in an amount that is believed adequate to provide for losses inherent in the portfolio.  The size of the ALLL is determined through quarterly assessments of the probable estimated losses in the loan portfolio.  The ALLL is increased by provisions for loan and lease losses charged to expense, and is reduced by loans charged off, net of recoveries.  We believe the best information available is used by us to determine the ALLL. However, unforeseen market conditions could result in adjustments to the ALLL, affecting net income, if circumstances differ from the assumptions used in determining the ALLL.  For additional discussion see “Allowance for Loan and Lease Losses” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

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

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

On March 1, 2008, Columbia entered into a Supplemental Compensation Agreement (“Unit Plan”) with Kent L. Roberts, Executive Vice President and Director of Human Resources.  The Unit Plan provides that Mr. Roberts will begin receiving a monthly payment beginning the first month following the fifth anniversary of the Unit Plan, based on an annual aggregate payment of $25,000 per year for five years.  In the event Mr. Roberts’ employment is terminated by the Company without cause, or he is terminated due to disability, Mr. Roberts will be entitled to receive a payment based on the prorated portion of his term of employment, payable in monthly payments following the tenth anniversary of the plan.  If Mr. Roberts leaves the employment of Columbia prior to expiration during the five-year period, the entire amount is forfeited.  Once receiving the benefit, there is a non-competition clause against the participant gaining employment with a competing organization.

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Item 6. EXHIBITS

10	Form of Supplemental Compensation Agreement between the Bank and Mr. Kent L. Roberts
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

	COLUMBIA BANKING SYSTEM, INC.
Date: May 9, 2008	By	/s/    MELANIE J. DRESSEL
		Melanie J. Dressel President and Chief Executive Officer (Principal Executive Officer)
Date: May 9, 2008	By	/s/    GARY R. SCHMINKEY
		Gary R. Schminkey Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: May 9, 2008	By	/s/    CLINT E. STEIN
		Clint E. Stein Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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EX-10

EXHIBIT 10

SUPPLEMENTAL COMPENSATION AGREEMENT

THIS AGREEMENT is made and entered into effective as of _______, 200_ by and between COLUMBIA STATE BANK (hereinafter “Bank” or “Employer”), a bank organized and existing under the laws of the state of Washington, and ________________, an individual residing in the State of Washington (hereinafter  “Executive”).

R E C I T A L S

WHEREAS, the Executive’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are extremely valuable and that the assurance of the Executive’s continued employment is desired for aiding in the future growth and profits of the Bank, and whereas it is in the best interests of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure the Executive remains in the Bank’s employment during the Executive’s lifetime or until the age of retirement;

WHEREAS, the Executive is willing to be employed by the Bank provided the Bank agrees to pay certain benefits in accordance with the terms and conditions hereinafter set forth;

WHEREAS, the Executive and the Employer wish to specify in writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive;

WHEREAS, it is the intent of the parties hereto that this agreement be considered an un-funded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”);

WHEREAS, the Executive is fully advised of the Bank’s financial status;

NOW, THEREFORE, in consideration of the services to be performed by the Executive in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows:

A G R E E M E N T

1.0           Terms and Definitions.

1.1           Accrued Liability Balance.  For the purposes of this Agreement, the “Accrued Liability Balance” means the liability that is accrued by the Bank, under

Generally Accepted Accounting Principles (“GAAP”) to fund the Bank’s obligation to the Executive under this Agreement. The discount rate employed shall be determined by an actuary appointed by the Bank, and such rate shall be within reasonable standards according to GAAP.  Furthermore, any one of a variety of amortization methods may be used to determine the Accrued Liability Balance; however, once chosen, the method must be consistently applied.

1.2           Administrator.  The Employer shall be the "Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a fiduciary is required by ERISA.

1.3           Beneficiary(ies). The individual(s) or entities designated to receive any Executive Benefit due or outstanding to the Executive upon the death of the Executive. The Beneficiary(ies) shall be designated in accordance with the provisions of Paragraph 7.0 (and the subsequent subparagraphs).

1.4           The Code.  The "Code" shall mean the Internal Revenue Code of 1986, as amended (the “Code").

1.5     Disability/Disabled.  For the purpose of this Agreement, the Executive will be considered disabled if:

A.     He is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than Twelve (12) months, or

B.           He is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than Twelve (12) months, receiving income replacement benefits for a period of not less than Three (3) months under an accident and health plan covering employees of the Executive’s employer.

1.6           Effective Date.   The term "Effective Date" shall mean the date identified as such in the opening paragraph of this Agreement.

1.7           ERISA.  The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

                      1.8           Executive Benefit. The term "Executive Benefit" shall mean the benefit amounts determined pursuant to Paragraphs 3 through 5 (including sub-paragraphs, as applicable), reduced or adjusted to the extent:  (a) required under the other provisions of this Agreement; or  (b) required by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; or (c) required in order

for the Employer to comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (e.g. FICA, FUTA, SDI).

1.9           Involuntary Separation From Service. In accordance with IRC 409A, the term “Involuntary Separation from Service” shall mean a Separation from Service due to the independent exercise of the unilateral authority of the Bank to terminate the Executive’s services, other than due to the Executive’s implicit or explicit request, where the Executive was willing and able to continue performing services.

1.10           Net Present Value.                                           The term “Net Present Value” shall mean the value, as of a specified date, of future cash payments due, calculated using a discount rate determined by an actuary selected by the Bank and determined in accordance with GAAP.

1.11           Remains Employed.  The term “Remains Employed” shall mean that the Executive has not experienced a Separation From Service with Employer (as defined herein).

1.12           Service Period. For the purposes of this Agreement, the term “Service Period” shall refer to the period of time between the effective date of this Agreement and ______ __, 20__, during which time Executive must Remain Employed in order to receive the Executive Benefit specified in Paragraph 3. The Service Period shall expire on _____ __, 20__.

1.13           Service Ratio. For the purposes of this Agreement, the “Service Ratio” shall be a fraction, the numerator of which shall be the number of full months the Executive has been employed by the Bank since the Effective Date of this Agreement, and the denominator of which shall be Sixty (60).

1.14           Specified Employee. The term “Specified Employee” means an employee who, as of the date of his Separation from Service, is a key employee of an employer of which any stock is publicly traded on an established securities market or otherwise. An employee is a key employee if the employee meets the requirements of section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the twelve (12) month period ending on a specified employee identification date. If Executive is a key employee as of a specified employee identification date, then Executive shall be treated as a key employee for the entire twelve (12) month period beginning on the specified employee effective date.

1.15           Termination for Cause.  The term “Termination for Cause” shall mean a Termination of Employment of the Executive by the Employer by reason of any of the following:

A.	Willful misfeasance or gross negligence in the performance of Executive’s duties as an employee of the Employer; or
B.	Conduct demonstrably and significantly harmful to the Employer or a financial institution subsidiary; or
C.	Conviction of a felony.

1.16           Termination of Employment and Separation From Service. The terms  “Termination of Employment” (or “Terminate” or “Terminates”) as used in this Agreement shall be used interchangeably with the term “Separation From Service”, and shall be interpreted in accordance with the provisions of IRC 409A and any related notices,  guidance or regulations. Whether a Separation From Service (or a Termination of Employment) has occurred is determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipate that no further services will be performed after a certain date or that the level of bona fide services the employee will perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than twenty (20%) percent of the average level of bona fide services performed (as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the employer  if the employee has been providing services to the employer less than 36 months).  There shall be no Separation From Service while the participant is on military leave, sick leave or other bona fide leave of absence, as long as such leave does not exceed six (6) months, or if longer, so long as the individual retains a right to reemployment with the service recipient under an applicable statute or by contract.

1.17           Voluntary Termination. The term “Voluntary Termination” shall mean a Separation From Service elected by the Executive, and not as a result of a Termination for Good Reason.

2.0           Scope, Purpose and Effect.

2.1           Contract of Employment.  Although this Agreement is intended to provide the Executive with additional incentive to remain in the employ of the Employer, the Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer, nor shall any provision of the Agreement be applied to restrict or expand the right of the Employer to terminate the Executive's Employment with or without cause. This  Agreement shall have no impact or effect upon any separate written employment agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in such employment agreement, then  this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect on, or be affected by, the terms and provisions of any employment agreement. Events of Termination of Employment shall be characterized, for purposes of interpreting this  Agreement, in accord with the definitions herein.

2.2           Fringe Benefit.  The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase.  The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.

3.0           Long Term Compensation Benefit.

3.1           In the Event Executive Remains Employed by the Bank Throughout the Service Period.Inthe event that the Executive Remains Employed  throughout the Service Period, then he shall be entitled to receive an annual Executive Benefit of Twenty-Five Thousand Dollars ($25,000) for a period of five (5) years. Such annual Executive Benefit shall be paid by the Employer in Twelve (12) substantially equal monthly installments, commencing on the first day of the first month immediately following the expiration of the Service Period, and continuing for a period of Sixty (60) months thereafter.

4.0           Effect of Death, Disability or Separation From Service Prior to the Expiration of the Service Period.

In the event that the Executive Separates From Service prior to the expiration of the Service Period, then he (or his designated Beneficiary[ies]) shall be entitled to receive one of the following benefit amounts, depending on the circumstances of such Termination:

4.1           Involuntary Termination or Disability. In the event the Executive is Involuntarily Terminated by the Bank or becomes Disabled prior to the expiration of the Service Period, then Executive shall receive an annual amount equal to the Service Ratio multiplied by the annual Executive Benefit amount specified in Paragraph 3.1. This annual Executive Benefit shall be paid by the Employer in Twelve (12) substantially equal monthly installments, commencing on the first day of the first month following the expiration of the Service Period, and continuing for a period of Sixty (60) months thereafter.

4.2           Termination for Cause or Voluntary Termination. In the event the Executive Voluntarily Terminates or is Terminated for Cause by the Bank at any time prior to the expiration of the Service Period, then he shall forfeit any claim to benefits under this Agreement, and neither Executive nor his Beneficiary(ies) shall be entitled to receive any benefit pursuant to the terms of this Agreement.

4.3           Death.In the event of the Executive’s death prior to the expiration of the Service Period and prior to Executive’s Separation From Service with Employer, then Executive’s designated Beneficiary(ies) shall receive an annual amount equal to the Service Ratio multiplied by the annual Executive Benefit amount specified in Paragraph 3.1. This annual Executive Benefit shall be paid by the Employer in Twelve (12) substantially equal monthly installments, commencing within Forty-Five (45) days of Executive’s death and continuing for a period of Sixty (60) months thereafter. The Designated Beneficiary(ies) is not permitted, directly or indirectly, to designate the taxable year of any payment hereunder.

5.0           Death After Becoming Entitled to Receive Payment, but Prior to Receiving Any or All Such Payments.

 In the event Executive should die after becoming entitled to the benefits specified under the provisions of Paragraphs 3 and 4 herein (including subparagraphs), but prior to receiving any or all such payments, then Executive’s designated Beneficiary(ies) shall receive the remainder of such payments, in the same amount and on the same schedule as Executive would have received such payment, had he survived.

6.0 Intent to Comply With IRC Section 409A.

It is the intent of the parties to comply with all applicable Internal Revenue Code Sections, including, but not limited to, IRC 409A. Thus, for any benefits payable pursuant to this Agreement and as a result of a Separation from Service (if such payout trigger exists in this Agreement), if the Executive is a Specified Employee, as defined herein and/or by the Internal Revenue Service, and the Employer is publicly traded at the time of Separation from Service (as defined by IRC 409A), any such benefit payment described hereinabove shall be withheld for Six (6) months following such separation from service in order to comply with IRC 409A. In addition, for any individual affected by this Six (6) month delay in payment imposed by IRC 409A,  and when applicable, the aggregate amount of the first Seven (7) months of installments shall be paid at the beginning of the seventh month following the date of separation from service. Monthly installment payments shall continue thereafter as called for.

7.0           Beneficiary Designation

7.1           Beneficiary Designation. Executive shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both primary as well as secondary) to whom benefits under this Agreement shall be paid in the event of his death prior to complete distribution to the Executive of the benefits due under this Agreement. Each Beneficiary designation shall be in a written form and will be effective only when filed with the Bank during the Executive’s lifetime.

7.2           Amendments to Beneficiary Designation. Any beneficiary designation may be changed by the Executive without the consent of any designated Beneficiary by the filing of a new Beneficiary designation with the Bank. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If an Executive’s compensation is community property, any Beneficiary designation shall be valid or effective only as permitted under applicable law.

7.3           No Beneficiary Designation. In the absence of an effective beneficiary designation, or if all stated Beneficiaries predecease the Executive or die prior to complete distribution of the Executive’s Benefit, then the Executive’s designated Beneficiary shall be deemed to be the Executive’s estate.

7.4           Doubt as to Beneficiary. If there is a doubt as to the proper Beneficiary to receive payments pursuant to this Agreement, then the Bank shall have the right to withhold such payments until this matter is resolved.

7.5           Effect of Payment to the Beneficiary. The payment to the deemed Beneficiary shall fully and completely discharge the Bank from all further obligations under this Agreement.

8.0           IRS Section 280G Issues.  If all or any portion of the amounts payable to the Executive under this Agreement, either alone or together with other payments which the Executive has the right to receive from the Employer, constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax imposed by Section 4999 of the Code (or similar tax and/or assessment), Executive shall be responsible for the payment of such excise tax and Employer (and its successor) shall be responsible for any loss of deductibility related thereto; provided, however, that Employer and Executive shall cooperate with each other and use all reasonable efforts to minimize to the fullest extent possible the amount of excise tax imposed by Section 4999 of the Code.  If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by the Executive is greater than the amount initially so determined, then the Executive shall pay an amount equal to the sum of such additional excise taxes and any interest, fines and penalties resulting from such underpayment.  The determination of the amount of any such excise taxes shall be made by the independent accounting firm employed by the Employer immediately prior to the change in control or such other independent accounting firm or advisor as may be mutually agreeable to Employer and Executive in the exercise of their reasonable good faith judgment.

9.0           Right To Determine Funding Methods.  The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, under the terms of this Agreement.  In the event that the Employer elects to fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Employer shall determine the ownership and beneficial interests of any such policy of life insurance or annuity.  The Employer further reserves the right, in its sole and absolute discretion, to terminate any such policy, and any other device used to fund its obligations under this Agreement, at any time, in whole or in part.  Consistent with Paragraph 11 below, the Executive shall have no right, title or interest in or to any funding source or amount utilized by the Employer pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance of the Employer’s obligations pursuant to this Agreement.  In connection with the foregoing, the Executive agrees to execute such documents and undergo such medical examinations or tests which the Employer may request and which may be reasonably necessary to facilitate any funding for this Agreement including, without limitation, the Employer’s acquisition of any policy of insurance or annuity.

10.0           Status as an Unsecured General Creditor.  Except as provided below in this Paragraph, Executive agrees that:  (i) Executive shall have no legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result of this Agreement; (ii) none of the Employer’s assets shall be held in or under any trust for the benefit of the Executive or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer’s assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer’s obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) Executive shall be an unsecured general creditor with respect to any benefits which may be payable under the terms of this Agreement.

Notwithstanding provisions (i) through (v) above, the Employer and Executive acknowledge and agree that, in the event that the Employer signs a definitive agreement calling for a transaction that would result in a Change in Control, upon request of the Executive, or in the Employer’s discretion if the Executive does not so request and the Employer nonetheless deems it appropriate, the Employer shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the Employer, in its sole discretion, deems appropriate, in compliance with applicable provisions of the Code, and, pursuant to the Trusts,  the Employer shall promptly make contributions and/or transfer assets to the Trusts which facilitate and are appropriate to the discharge of the Trusts’ obligations pursuant to this Agreement.  The principal of the Trust or Trusts and any earnings thereon shall be held separate and apart from other funds of the Employer to be used for discharge of the Employer’s obligations pursuant to this Agreement and shall continue to be subject to the claims of the Employer’s general creditors until paid to the Executive in such manner and at such times as specified in this Agreement.

11.0           Opportunity To Consult With Independent Advisors. The Executive acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the (i) terms and conditions which may affect the Executive’s right to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Executive acknowledges and agrees shall be the sole responsibility of the Executive notwithstanding any other term or provision of this Agreement.  The Executive further acknowledges and agrees that the Employer shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Executive and further specifically waives any right for himself or herself, and his or her heirs, beneficiaries, legal representatives, agents, successor and assign to claim or assert liability on the part of the Employer related to the matters described herein.  The Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.

12.0           Claims Procedure.

12.1           Named Fiduciary and Plan Administrator. The "Named Fiduciary and Plan Administrator" of this plan shall be the Bank until its removal by the board of directors.  As Named Fiduciary and Administrator, the Bank shall be responsible for the management, control and administration of the Executive Long Term Compensation Agreement as established herein.  The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

12.2           Claims Procedure.  In the event a dispute arises over the benefits under this executive plan and benefits are not paid to the Executive (or to the Executive’s beneficiary[ies], if applicable) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above  in accordance with the following procedures:

A. Written Claim.  The claimant may file a written request for such benefit to the Plan Administrator.

B. Claim Decision.  Upon receipt of such claim, the Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim.  If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days for reasonable cause by notifying the claimant in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

If the claim is denied in whole or in part, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

(i)	The specific reasons for the denial;
(ii)	The specific reference to pertinent provisions of the Agreement on which the denial is based;
(iii)	A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;
(iv)	Appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits applicable to such procedures; and
(v)	A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

C. Request for Review.  Within sixty (60) days after receiving notice from the Plan Administrator that a claim has been denied (in part or all of the claim), then  claimant (or their duly authorized representative) may file with the Plan Administrator, a written request for a review of the denial of the claim.

 The claimant (or his duly authorized representative) shall then have the opportunity to submit written comments, documents, records and other information relating to the claim.  The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

D. Decision on Review.  The Plan Administrator shall respond in writing to such claimant within sixty (60) days after receiving the request for review.  If the Plan Administrator determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The notice of extension must set forth the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render its decision.

In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

The Plan Administrator shall notify the claimant in writing of its decision on review.  The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

(i)	The specific reasons for the denial;
(ii)	A reference to the specific provisions of the Agreement on which the denial is based;
(iii)	A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and
(iv)	A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

12.3           Arbitration of Disputes.  All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS").  In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties of the American Arbitration Association ("AAA") shall conduct the binding arbitration referred to in this paragraph.  Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary).  In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations.  The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA.  Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof.  The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of the Washington Code of Civil Procedure.  Any arbitration hereunder shall be conducted in Yakima, Washington, unless otherwise agreed to by the parties. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by such arbitration with respect to any controversy properly submitted to it for determination.

12.4           Attorneys' Fees.  In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, (a) each party shall pay his own attorneys’ arbitration Fees incurred pursuant to 12.3 hereof; (b) if the Executive prevails, he shall be entitled to recover from the other party reasonable expenses, attorneys' Fees and costs incurred in the enforcement or collection of any judgment or award rendered.   The term "prevails" applies if the arbitrator(s) or court finds that the Executives entitled to contested money payments from the other, but does not necessarily imply a judgment rendered in favor of the Executive.

12.5           Notice.  Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if

by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.

If to the Employer:	Columbia State Bank
	1301 A Street
	Tacoma, WA 98402
	Attention Corporate Secretary

If to the Executive:                                           

13.0           Confidentiality and Non-Competition Provisions

13.1           Confidentiality.  Executive shall keep the existence of this Agreement and all terms  hereof (including, without limitation, the amount of any benefits received hereunder) strictly confidential.  Executive shall keep this Agreement in a secure, private location and shall use his best efforts to prevent this Agreement from being seen by others, including, without limitation, co-workers.

13.2           Non-Competition.  Notwithstanding any contrary provisions of this Agreement, in the event any of the following events occur, whether before or after Executive begins to receive benefits under this Agreement, then Executive’s right to receive such benefits, and the Bank’s obligation to provide such benefits, shall immediately terminate: Executive is employed by, performs services for, or engages in any business or activities that competes with the Bank (or any entity or business owned by Bank).  In the event of a breach by Executive of this Paragraph 13.2, Bank shall have the right to seek injunctive relief, in addition to, and not in lieu of, any other legal or equitable rights and remedies available to it. If a court of competent jurisdiction shall find the foregoing provisions illegal or unenforceable in any way or for any other reason whatsoever, the court may reform such provisions to the minimum extent necessary to make such provisions legal and enforceable, so as to permit maximum restrictions that are legal and enforceable to be applied to the Executive’s ability to compete with Bank (or any entity or business owned by Bank).

14.0                      Miscellaneous

14.1           Assignment.  The Executive shall have no power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be:  (i) subject to seizure by any creditor of the Executive, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise.  Any such attempted assignment or transfer shall be void.

14.2           Binding Effect/Merger or Reorganization.  This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer.  Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement.

14.3           Non-waiver.  The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement.

14.4           Partial Invalidity.  If any terms, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.

14.5           Entire Agreement.  This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto.  Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party.

14.6           Modifications.  Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative.

14.7           Paragraph Headings.  The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement.

14.8           No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person.

14.9           Governing Law.  The laws of the State of Washington, other than those laws denominated choice of law rules, and where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or any other regulatory agency or governmental authority having jurisdiction over the Employer, shall govern the validity, interpretation, construction and effect of this Agreement.

14.10           Gender. Whenever in this Executive Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

14.11           Effect on Other Bank Benefit Plans.  Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

14.12           12 U.S.C. § 1828(k).  Any payments made to the Executive pursuant to this Executive Agreement, or otherwise, are subject to and conditioned upon his compliance with 12 U.S.C. § 1828(k) or any regulations promulgated thereunder.

IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement as of the following date, in the City of Tacoma, Washington.

	EMPLOYER:		EXECUTIVE:
	COLUMBIA STATE BANK
By		By
	Signature & Date		Signature & Date
Its
	Title
	Witness		Witness

BENEFICIARY DESIGNATION FORM

FOR THE EXECUTIVE LONG TERM COMPENSATION AGREEMENT

I.       PRIMARY DESIGNATION

(You may refer to the beneficiary designation information prior to completion of this form.)

A.              Person(s) as a Primary Designation:

(Please indicate the percentage for each beneficiary.)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

B.              Estate as a Primary Designation:

My Primary Beneficiary is The Estate of ______________________________________ as set forth in the last

will and testament dated the _____ day of _____________, _____ and any codicils thereto.

C.              Trust as a Primary Designation:

Name of the Trust:  ____________________________________________________________

Execution Date of the Trust: _____ / _____ / _________

Name of the Trustee: __________________________________________________________

Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):

___________________________________________________________________________

Is this an Irrevocable Life Insurance Trust?  ________ Yes                                                                                                              ________ No

(If yes and this designation is for a Split Dollar agreement, an Assignment of Rights form should be completed.)

II.     SECONDARY (CONTINGENT) DESIGNATION

A.              Person(s) as a Secondary (Contingent) Designation:

(Please indicate the percentage for each beneficiary.)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

Name___________________________________   Relationship___________________  / _______%

Address:_________________________________________________________________________

(Street)                                                                (City)                      (State)(Zip)

B.              Estate as a Secondary (Contingent)  Designation:

My Secondary Beneficiary is The Estate of _____________________________________ as set forth in my last will and testament dated the _____ day of ___________, _____ and any codicils thereto.

C.              Trust as a Secondary (Contingent)  Designation:

Name of the Trust:  ____________________________________________________________

Execution Date of the Trust: _____ / _____ / _________

Name of the Trustee: __________________________________________________________

Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):

___________________________________________________________________________

___________________________________________________________________________

All sums payable under the Executive SupplementalCompensation Agreement by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies).  This beneficiary designation is valid until the participant notifies the bank in writing.

Insured                                                                                                   Date

NOTE*** IF YOU RESIDE IN A COMMUNITY PROPERTY STATE (WASHINGTON, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON OR WISCONSIN), AND YOU ARE DESIGNATING A BENEFICIARY OTHER THAN YOUR SPOUSE, THEN YOUR SPOUSE MUST ALSO SIGN THE BENEFICIARY DESIGNATION FORM.

I am aware that my spouse, the above named Insured has designated someone other than me to be the beneficiary and waive any rights I may have to the proceeds of such insurance under applicable community property laws. I understand that this consent and waiver supersedes any prior spousal consent or waiver under this plan.

Spouse Signature:______________________________                                                                                                           Date:_________________

Witness (other than insured) : ___________________________

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Melanie J. Dressel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Columbia Banking System, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    MELANIE J. DRESSEL        

Melanie J. Dressel

President and Chief Executive Officer

Date: May 9, 2008

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Gary R. Schminkey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Columbia Banking System, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    GARY R. SCHMINKEY        

Gary R. Schminkey

Executive Vice President and

Chief Financial Officer

Date: May 9, 2008

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Columbia Banking System, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Melanie J. Dressel, President and Chief Executive Officer, and Gary R. Schminkey, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    MELANIE J. DRESSEL        

Melanie J. Dressel

President and Chief Executive Officer

Columbia Banking System, Inc.

/s/    GARY R. SCHMINKEY        

Gary R. Schminkey

Executive Vice President and

Chief Financial Officer

Columbia Banking System, Inc.

Dated: May 9, 2008