8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

July 30, 2004

COLUMBIA BANKING SYSTEM, INC.

(Exact name of registrant as specified in its charter)

Washington

(State or other jurisdiction of incorporation)

0-20288	91-1422237
(Commission File Number)	IRS Employer Identification No.

1301 A Street

Tacoma, WA 98402

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (253) 305-1900

Item 12. RESULTS OF OPERATIONS AND FINANCIAL RESULTS

On July 29, 2004, we issued a press release announcing our second quarter 2004 financial results. A copy of the press release is attached as Exhibit 99.1 and is incorporated herein by reference in its entirety.

Exhibits

99.1 Press Release dated July 29, 2004 announcing Second Quarter 2004 Financial Results.

1

SIGNATURES

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

Dated: July 30, 2004	COLUMBIA BANKING SYSTEM, INC.
	By:	/s/ Melanie J. Dressel
		Melanie J. Dressel
		Chief Executive Officer

2

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

July 29, 2004

Contacts:	Melanie J. Dressel, President and
	Chief Executive Officer (253) 305-1911 Gary R. Schminkey, Executive Vice President and Chief Financial Officer (253) 305-1966

COLUMBIA BANKING SYSTEM ANNOUNCES

INCREASED SECOND QUARTER 2004 EARNINGS

SECOND QUARTER HIGHLIGHTS

• Net income of $5.4 million, up 14% from 2^nd quarter 2003.

• Earnings per diluted share of $0.37, up 9% from the prior year.

• Average core deposit growth of 24% compared with the prior year.

• Total nonperforming assets decreased 55% from December 31, 2003; allowance for loan losses to nonperforming assets improved to 285%.

• Total assets were $1.86 billion, up 7% from December 31, 2003; total loans increased $52 million to $1.13 billion.

• Definitive agreement signed to acquire Bank of Astoria

TACOMA, Washington—Columbia Banking System, Inc. (Nasdaq: COLB) today announced earnings for the second quarter 2004 of $5.4 million, up 14% from $4.8 million for the second quarter of 2003. Earnings per share were $0.37 per diluted share, an increase of 9% from $0.34 per diluted share one year ago. Return on average assets and return on average equity for the second quarter 2004 were 1.17% and 13.75%, respectively, compared to 1.12% and 13.61%, respectively, for the second quarter of the prior year. After careful analysis, the Company took no provision for loan losses due to improvement in asset quality for the second quarter of 2004, compared to $1.0 million for the second quarter of 2003. Expenses were higher during the second quarter primarily due to increased compensation and employee benefit expenses, and expenses related to compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley expenses,

which were initially incurred during the first quarter of 2004, are anticipated to continue into subsequent quarters as we continue to implement requirements.

Net income for the six months ended June 30, 2004 was $10.6 million, an increase of 15% from $9.2 million for the first six months of 2003. On a diluted per share basis, net income for the six months ended June 30, 2004 was $0.73, compared with $0.65 for the same period last year, an increase of 12%.

Melanie Dressel, President and Chief Executive Officer stated, “Our earnings continue to improve as a result of lower contributions needed to maintain an adequate level for our allowance for loan losses. We have been able to lower our cost of funds and manage our net interest margin through our continued growth in core deposits, which comprise over 73% of our total deposits.”

Ms. Dressel further noted, “Although the economy has shown signs of improvement, we hope to see more of a recovery ahead. Our total loans have increased over $52 million since the end of 2003. This growth is in spite of unusually high payoffs because of the sale of two large real estate projects and the culmination of several construction projects. Gross loan production through June 30, 2004 was approximately $138 million higher than the same period in 2003. The 25 basis point increase in the prime rate, which took effect at the end of June, was the first increase in over four years. This rate increase should have a positive impact on our net interest margin in the near term, as 43% of our loans are tied to prime and other related indices.”

“Our focus is on increasing our share of the market by building full relationships with our customers, providing competitive products, a wide variety of delivery channels and striving to deliver the best possible service,” Ms. Dressel continued. “Our new Equipment Finance product offering is up and running, with volumes exceeding our expectations, and our Merchant Card Services area continues increasing its contribution to the bottom line. While we continue to see a strong home purchase market, refinancing has seen a significant decrease. We have restructured our mortgage operation in response to lower loan volume in the current interest rate environment.”

At June 30, 2004, Columbia’s total assets were $1.86 billion, an increase of 7% from $1.74 billion at December 31, 2003. Total loans were $1.13 billion at June 30, 2004, up 5% from $1.08 billion at year-end 2003. Total deposits increased $127 million to $1.67 billion during the first six months of 2004, an increase of 8% from December 31, 2003. Most of the growth occurred in core deposits, which totaled $1.23 billion at June 30, 2004 from $1.10 billion at December 31, 2003, a 12% increase.

Ms. Dressel noted, “During the recent economic downturn, we focused our efforts on leveraging the strong base of branches we have built in our existing market areas and increasing market share in the communities we serve. In addition to our definitive agreement to acquire the Bank of Astoria, we will continue to consider new markets and branch locations on an ongoing basis, and will take advantage of opportunities to expand our footprint that make economic and strategic sense to the organization.”

Second Quarter 2004 Operating Results

Net Interest Income

Net interest income increased $862,000, or 5%, in the second quarter 2004 compared to the second quarter 2003. This is primarily due to a lower cost of funds and increased core deposits, and reflects the steps the Company has taken to manage its deposit costs.

Columbia’s net interest margin decreased to 4.10% in the second quarter of 2004, from 4.26% for the same period last year. Downward pressure on the Company’s net interest margin stemmed from a historically low interest rate environment resulting in new loan originations and refinancing of existing loans at lower rates.

Average interest-earning assets increased to $1.72 billion, or 10%, during the second quarter of 2004, compared with $1.55 billion during the second quarter of 2003. The yield on average interest-earning assets decreased 55 basis points to 5.09% during the second quarter of 2004, from 5.64% for the same period in 2003. Average interest-bearing liabilities increased to $1.36 billion from $1.27 billion last year. The cost of average interest-bearing liabilities decreased 44 basis points to 1.26% in the second quarter of 2004, compared to 1.70% in the second quarter of 2003.

For the six months ended June 30, 2004, net interest income increased 5% to $33.8 million from $32.1 million for the same period last year. During the first six months of 2004, Columbia’s net interest margin decreased to 4.17% from 4.31% for the same period of 2003. Average interest-earning assets grew to $1.68 billion during the first six months of 2004, compared with $1.54 billion for the

same period of 2003. The yield on average interest-earning assets decreased 58 basis points to 5.19% during the first six months of 2004, from 5.77% in 2003. In comparison, average interest-bearing liabilities grew to $1.32 billion compared with $1.25 billion for the first six months of 2003. The cost of average interest-bearing liabilities decreased to 1.29% during the first six months of 2004 from 1.79% in the same period of 2003.

Noninterest income

Total noninterest income for the 2^nd quarter 2004 increased $136,000, or 2%, from a year ago. The increase in noninterest income during the second quarter of 2004 as compared to second quarter 2003 was primarily due to increased fees on credit lines, ATM and check card usage, and investment services income. Total noninterest income for the first six months of 2004 was $11.0 million, a decrease of 3% from $11.3 million for the same period of 2003. This decrease is due to the impact of rising long-term interest rates, which decreased demand for refinancing activity. The decline in mortgage banking income was partially offset by increases in merchant services income and other fees.

Noninterest expense

Noninterest expense for the second quarter of 2004 was $15.2 million, an increase of 8% from $14.0 million for the same period in 2003. This increase was primarily a result of increased compensation and employee benefits costs, advertising and promotion expenses, and legal and professional services. Compensation and employee benefits increased due to traditional wage increases, rising group insurance rates and higher state employment taxes. Advertising and promotion expenses to support Columbia’s growth strategy increased as a result of higher television production and media costs. Additionally, implementation of internal control requirements of Section 404 of the Sarbanes-Oxley Act, which were initially incurred during the first quarter of 2004, necessitated additional expenditures during the first six months of 2004; these expenses are anticipated to continue into the third quarter and subsequent quarters as we continue to implement requirements.

Nonperforming Assets and Loan Loss Provision

Reflecting improved asset quality, no loan loss provision was required for the second quarter of 2004, compared with $1.0 million for the second quarter 2003. For the quarters ended June 30, 2004 and 2003, net loan charge-offs amounted to $189,000 and $278,000, respectively. Nonaccrual loans decreased $8.0 million, or 60%, from $13.3 million at December 31, 2003 to $5.3 million at June 30, 2004. As reported for the fourth quarter 2003, a credit was moved to nonaccrual status as a result of adverse changes in the borrower’s financial condition, and subsequently brought back into accrual status in early April 2004. This reduced nonperforming loans by $6.2 million.

The allowance for loan losses as a percentage of loans (excluding loans held for sale at each date) decreased to 1.75% at June 30, 2004 as compared to 1.88% at year-end 2003, primarily due to a $52 million increase in loan balances. At quarter-end, the allowance for loan losses to nonperforming loans increased to 359% compared to 153% at December 31, 2003. Ms. Dressel said, “We are maintaining a conservative approach to credit quality and will continue to prudently add to our loan loss allowance as necessary to ensure we maintain adequate reserves.”

Columbia Banking System, Inc. is a Tacoma-based bank holding company whose wholly owned bank subsidiary is Columbia Bank, a Washington state-chartered full-service commercial bank with 34 banking offices in Pierce, King, Cowlitz, Kitsap and Thurston counties.

###

Note Regarding Forward Looking Statements

This news release includes forward looking statements, which management believes are a benefit to shareholders. These forward looking statements describe Columbia’s management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “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 Columbia’s 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, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which Columbia is engaged.

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2004			2003			2004			2003
Earnings
Net interest income	$	16,976		$	16,114		$	33,848		$	32,133
Provision for loan loss					1,000			300			2,600
Noninterest income		5,871			5,735			10,985			11,288
Noninterest expense		15,179			14,044			29,528			27,738
Net income		5,414			4,765			10,565			9,196
Per Share
Net income (basic)	$	0.38		$	0.34		$	0.74		$	0.66
Net income (diluted)		0.37			0.34			0.73			0.65
Averages
Total assets	$	1,858,082		$	1,709,468		$	1,817,069		$	1,691,358
Interest-earning assets		1,716,825			1,554,936			1,679,730			1,537,953
Loans		1,150,611			1,143,862			1,138,487			1,159,810
Securities		498,553			404,914			504,655			370,365
Deposits		1,664,497			1,455,247			1,611,819			1,451,744
Core deposits		1,218,528			982,948			1,163,661			970,001
Shareholders’ Equity		158,331			140,417			156,656			137,803
Financial Ratios
Return on average assets		1.17	%		1.12	%		1.17	%		1.10	%
Return on average equity		13.75	%		13.61	%		13.56	%		13.46	%
Net interest margin		4.10	%		4.26	%		4.17	%		4.31	%
Efficiency ratio (tax equivalent) (1)		64.18	%		62.43	%		63.78	%		62.13	%
Average equity to average assets		8.52	%		8.21	%		8.62	%		8.15	%

	June 30,						December 31 2003
	2004			2003
Period end
Total assets	$	1,861,623		$	1,724,798		$	1,744,347
Loans		1,130,508			1,098,675			1,078,302
Allowance for loan losses		19,769			19,994			20,261
Securities		487,407			385,971			523,864
Deposits		1,671,545			1,542,387			1,544,626
Core deposits		1,227,948			1,079,879			1,098,237
Shareholders’ equity		155,674			144,871			150,372
Book value per share		10.92			10.31			10.66
Nonperforming assets
Nonaccrual loans	$	5,255		$	6,165		$	13,255
Restructured loans		251			50
Personal property owned		639			769			691
Real estate owned		781			2,547			1,452
Total nonperforming assets	$	6,926		$	9,531		$	15,398
Nonperforming loans to period-end loans		0.49	%		0.57	%		1.23	%
Nonperforming assets to period-end assets		0.37	%		0.55	%		0.88	%
Allowance for loan losses to period-end loans		1.75	%		1.82	%		1.88	%
Allowance for loan losses to nonperforming loans		359.04	%		321.71	%		152.86	%
Allowance for loan losses to nonperforming assets		285.43	%		209.78	%		131.58	%
Net loan charge-offs	$	792	(2)	$	1,777	(3)	$	1,760	(4)

⁽¹⁾ Noninterest expense divided by the sum of net interest income and noninterest income on a tax equivalent basis, excluding nonrecurring income and expense, such as gains/losses on investment securities and net cost (gain) of OREO.

⁽²⁾ For the six months ended June 30, 2004.

⁽³⁾ For the six months ended June 30, 2003.

⁽⁴⁾ For the twelve months ended December 31, 2003.

QUARTERLY FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

	Three Months Ended
(in thousands, except per share amounts)	Jun 30 2004			Mar 31 2004			Dec 31 2003			Sept 30 2003			Jun 30 2003
Earnings
Net interest income	$	16,976		$	16,872		$	16,245		$	15,489		$	16,114
Provision for loan loss					300						250			1,000
Noninterest income		5,871			5,114			5,464			6,032			5,735
Noninterest expense		15,179			14,349			13,931			14,291			14,044
Net income		5,414			5,151			5,431			4,895			4,765
Per Share
Net income [basic]		0.38			0.36			0.39			0.35			0.34
Net income [diluted]		0.37			0.36			0.38			0.34			0.34
Averages
Total assets	$	1,858,082		$	1,776,056		$	1,724,573		$	1,676,192		$	1,709,468
Interest-earning assets		1,716,825			1,642,635			1,588,762			1,514,584			1,554,936
Loans		1,150,611			1,126,363			1,081,513			1,115,637			1,143,862
Securities		498,553			510,756			497,380			367,246			404,914
Deposits		1,664,497			1,559,141			1,532,063			1,496,116			1,455,247
Core deposits		1,218,528			1,108,794			1,082,843			1,044,124			982,948
Shareholders’ Equity		158,331			154,981			145,593			143,208			140,417
Financial Ratios
Return on average assets		1.17	%		1.17	%		1.25	%		1.16	%		1.12	%
Return on average equity		13.75			13.37			14.80			13.56			13.61
Net interest margin		4.10			4.25			4.16			4.16			4.26
Efficiency ratio (tax equivalent)		64.18			63.36			62.84			64.36			62.43
Average equity to average assets		8.52			8.73			8.44			8.54			8.21
Period end
Total assets	$	1,861,623		$	1,801,353		$	1,744,347		$	1,698,956		$	1,724,798
Loans		1,130,508			1,131,531			1,078,302			1,071,201			1,098,675
Allowance for loan losses		19,769			19,958			20,261			20,331			19,994
Securities		487,407			508,046			523,864			433,460			385,971
Deposits		1,671,545			1,603,378			1,544,626			1,518,844			1,542,387
Core deposits		1,227,948			1,147,246			1,098,237			1,070,216			1,079,879
Shareholders’ equity		155,674			163,016			150,372			144,528			144,871
Book value per share		10.92			11.45			10.66			10.28			10.31
Nonperforming assets
Nonaccrual loans	$	5,255		$	12,715		$	13,255		$	6,806		$	6,165
Restructured loans		251												50
Personal property owned		639			635			691			700			769
Real estate owned		781			1,056			1,452			1,503			2,547
Total nonperforming assets	$	6,926		$	14,406		$	15,398		$	9,009		$	9,531
Nonperforming loans to period-end loans		0.49	%		1.12	%		1.23	%		0.64	%		0.57	%
Nonperforming assets to period-end assets		0.37	%		0.80	%		0.88	%		0.53	%		0.55	%
Allowance for loan losses to period-end loans		1.75	%		1.76	%		1.88	%		1.90	%		1.82	%
Allowance for loan losses to nonperforming loans		359.04	%		156.96	%		152.86	%		298.72	%		321.71	%
Allowance for loan losses to nonperforming assets		285.43	%		138.54	%		131.58	%		225.67	%		209.78	%
Net loan (recoveries) charge-offs	$	189		$	603		$	70		$	(87	)	$	278

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands except per share)	2004		2003		2004			2003
Interest Income
Loans	$	16,415	$	17,861	$	32,464		$	36,473
Securities available for sale		4,612		3,557		9,651			6,654
Securities held to maturity		26		43		54			87
Deposits with banks		165		18		178			45
Total interest income		21,218		21,479		42,347			43,259
Interest Expense
Deposits		3,962		4,770		7,877			9,976
Federal Home Loan Bank advances				323		80			600
Long-term obligations		280		272		542			550
Total interest expense		4,242		5,365		8,499			11,126
Net Interest Income		16,976		16,114		33,848			32,133
Provision for loan losses				1,000		300			2,600
Net interest income after provision for loan losses		16,976		15,114		33,548			29,533
Noninterest Income
Service charges and other fees		2,745		2,474		5,272			4,981
Mortgage banking		661		1,117		1,164			2,198
Merchant services fees		1,841		1,517		3,403			2,808
Loss on sale of investment securities, net						(6	)
Bank owned life insurance (BOLI)		346		368		596			766
Other		278		259		556			535
Total noninterest income		5,871		5,735		10,985			11,288
Noninterest Expense
Compensation and employee benefits		7,875		7,382		15,661			14,554
Occupancy		2,000		2,210		4,086			4,397
Merchant processing		750		638		1,402			1,134
Advertising and promotion		894		545		1,165			1,052
Data processing		563		467		1,078			916
Legal & professional services		668		470		1,296			984
Taxes, licenses & fees		405		362		789			812
Net cost (gain) of other real estate owned		62		42		74			37
Other		1,962		1,928		3,977			3,852
Total noninterest expense		15,179		14,044		29,528			27,738
Income before income taxes		7,668		6,805		15,005			13,083
Provision for income taxes		2,254		2,040		4,440			3,887
Net Income	$	5,414	$	4,765	$	10,565		$	9,196
Net income per common share:
Basic	$	0.38	$	0.34	$	0.74		$	0.66
Diluted		0.37		0.34		0.73			0.65
Dividends paid per common share		0.07		0.05		0.07			0.05
Average number of common shares outstanding		14,241		14,027		14,194			14,009
Average number of diluted common shares outstanding		14,463		14,207		14,425			14,151

CONSOLIDATED CONDENSED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)

(in thousands)			June 30, 2004			December 31, 2003
Assets
Cash and due from banks			$	68,392		$	49,685
Interest-earning deposits with banks				78,295			949
Total cash and cash equivalents				146,687			50,634
Securities available for sale at fair value (amortized cost of $482,768 and $509,989 respectively)				472,814			509,200
Securities held to maturity (fair value of $4,454 and $4,708 respectively)				4,354			4,548
Federal Home Loan Bank stock				10,239			10,116
Loans held for sale				12,679			10,640
Loans, net of unearned income of ($2,387) and ($2,437) respectively				1,130,508			1,078,302
Less: allowance for loan losses				19,769			20,261
Loans, net				1,110,739			1,058,041
Interest receivable				6,685			6,640
Premises and equipment, net				50,188			50,692
Real estate owned				781			1,452
Other				46,457			42,384
Total Assets			$	1,861,623		$	1,744,347
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing			$	341,772		$	317,721
Interest-bearing				1,329,773			1,226,905
Total deposits				1,671,545			1,544,626
Federal Home Loan Bank advances							16,500
Other borrowings				1,000
Long-term subordinated debt				22,213			22,180
Other liabilities				11,191			10,669
Total liabilities				1,705,949			1,593,975
Shareholders’ equity:
Preferred stock (no par value) Authorized, 2 million shares; none outstanding
	June 30, 2004	December 31, 2003
Common stock (no par value)
Authorized shares	63,034	63,034
Issued and outstanding	14,253	14,105		129,452			112,675
Retained earnings				32,692			38,210
Accumulated other comprehensive loss -
Unrealized losses on securities available for sale, net of tax				(6,470	)		(513	)
Total shareholders’ equity				155,674			150,372
Total Liabilities and Shareholders’ Equity			$	1,861,623		$	1,744,347