8-K

UNITED STATES

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):

10/28/04

COLUMBIA BANKING SYSTEM, INC.

(Exact name of registrant as specified in its charter)

Washington	0-20288	91-1422237
(State or other jurisdiction of incorporation)	(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

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Items to be Included in this Report

Item 2.02 Results of Operations and Financial Condition

On October 28, 2004, we issued a press release announcing our third 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.

Item 9.01 Financial Statements and Exhibits

(a) Financial statements. – not applicable

(b) Pro forma financial information. – not applicable

(c) The following exhibit is being furnished herewith:

99.1 Press Release dated October 28, 2004 announcing third quarter 2004 financial results.

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SIGNATURES

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

	COLUMBIA BANKING SYSTEM, INC.
Date: October 29, 2004	/s/ Melanie J. Dressel
	Melanie J. Dressel
	President and Chief Executive Officer

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

October 28, 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 THIRD QUARTER 2004 EARNINGS

THIRD QUARTER HIGHLIGHTS

• Net income of $5.5 million, up 12% from 3rd quarter 2003.

• Earnings per diluted share of $0.38, up 12% from the prior year.

• Average core deposit growth of 19% compared with the prior year.

• Total nonperforming assets decreased 53% from December 31, 2003; allowance for loan losses to nonperforming loans at 333%

• Total assets were $1.94 billion, up 11% from December 31, 2003; total loans increased $87 million to $1.17 billion.

• Bank of Astoria acquisition completed October 1, 2004

• Expanded King County commercial loan team

• Columbia named one of “Northwest 100” leading public companies by Seattle Times

• Melanie Dressel named one of US Banker magazines “Top 25 Most Powerful Women in Banking”

TACOMA, Washington—Columbia Banking System, Inc. (Nasdaq: COLB) today announced earnings for the third quarter 2004 of $5.5 million, up 12% from $4.9 million for the third quarter of 2003. Earnings per share were $0.38 per diluted share, an increase of 12% from $0.34 per diluted share one year ago. Return on average assets and return on average equity for the third quarter 2004 were 1.16% and 13.45%, respectively, compared to 1.16% and 13.56%, respectively, for the third quarter of the prior year. Expenses were higher during the third quarter primarily due to expenses related to compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Net income for the nine months ended September 30, 2004 increased $2.0 million to $16.0 million, an increase of 14% from $14.1 million for the first nine months of 2003. On a diluted per share basis, net income for the nine months ended September 30, 2004 was $1.11 compared with $0.99 for the same period last year, an increase of 12%.

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Sarbanes-Oxley 404 external implementation expenses for the third quarter 2004 were $626,000, and total $866,000 year-to-date. Excluding these expenses, pro-forma net income for the third quarter 2004 was $5.9 million, up 20% from $4.9 million for the third quarter of 2003 and pro-forma earnings per share were $0.41 per diluted share, an increase of 21% from $0.34 per diluted share one year ago. Pro-forma net income for the nine months ended September 30, 2004 was $16.6 million, an increase of 18% from $14.1 million for the first nine months of 2003; pro-forma net income on a diluted per share basis for the first nine months of 2004 was $1.15 compared with $0.99 for the same period last year, an increase of 16%. The pro-forma efficiency ratio for the third quarter 2004 was 61.49%, compared to 64.36% for the third quarter of 2003; the pro-forma efficiency ratio for the first nine months of 2004 was 62.66%, compared to 62.87% for the same period last year.

Melanie Dressel, President and Chief Executive Officer stated, “Our earnings continue to improve as a result of increased interest income due to rising short-term rates and growth in loans, despite incurring significant expenses to comply with Sarbanes-Oxley 404. 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 almost 74% of our total deposits.”

Ms. Dressel further noted, “Our total loans have increased almost $87 million since the end of 2003, despite historically low construction and business credit line usage. Three 25-basis point increases in the prime rate, which took effect in June, August and late September were the first increases in over four years. These rate increases should have a positive impact on our net interest income in the near term, as over 40% of our loans are tied to prime and other related indices.”

Mark Nelson, Executive Vice President and Chief Banking Officer, added, “Recently, we have significantly expanded our commercial lending team in the King County market by adding experienced bankers when Washington Mutual discontinued their business banking operation. We are looking forward to substantially building our loan portfolio as businesses discover the advantages of a responsive, local bank.”

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At September 30, 2004, Columbia’s total assets were $1.94 billion, an increase of 11% from $1.74 billion at December 31, 2003. Total loans were $1.17 billion at September 30, 2004, up 8% from $1.08 billion at year-end 2003. Total deposits increased $144 million to $1.69 billion during the first nine months of 2004, an increase of 9% from December 31, 2003. Most of the growth occurred in core deposits, which totaled $1.25 billion at September 30, 2004 from $1.10 billion at December 31, 2003, a 14% increase.

Ms. Dressel noted, “While we are maintaining our focus on increasing market share in the communities we serve, we have continued to consider strategic new markets and branch locations. In addition to the completion of the Bank of Astoria acquisition, we recently announced plans for a new branch in University Place, a thriving community just southwest of Tacoma. The facility is scheduled to open early in the first quarter of 2005.”

Third Quarter 2004 Operating Results

Net Interest Income

Net interest income increased $2.1 million, or 13%, in the third quarter 2004 compared to the third quarter 2003. This was primarily due to higher average earning assets during this period, coupled with an increase in the prime lending rate, and lower funding costs from increased core deposits. Although net interest income increased, Columbia’s net interest margin decreased slightly to 4.13% in the third quarter of 2004 as compared to 4.16% for the same period last year. The decrease in net interest margin was primarily due to the strong increase in core deposits which were deployed into investment securities.

Average interest-earning assets increased to $1.74 billion, or 15%, during the third quarter of 2004, compared with $1.51 billion during the third quarter of 2003. The yield on average interest-earning assets decreased 22 basis points to 5.13% during the third quarter of 2004, from 5.35% for the same period in 2003. Average interest-bearing liabilities increased to $1.36 billion from $1.21 billion last year. The cost of average interest-bearing liabilities decreased 21 basis points to 1.28% in the third quarter of 2004, compared to 1.49% in the third quarter of 2003.

For the nine months ended September 30, 2004, net interest income increased 8% to $51.4 million from $47.6 million for the same period last year. During the first nine months of 2004, Columbia’s net interest margin decreased to 4.16% from 4.26% for the same period of 2003. Average interest-earning assets

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grew to $1.70 billion during the first nine months of 2004, compared with $1.53 billion for the same period of 2003. The yield on average interest-earning assets decreased 46 basis points to 5.17% during the first nine months of 2004, from 5.63% in 2003. In comparison, average interest-bearing liabilities grew to $1.34 billion compared with $1.24 billion for the first nine months of 2003. The cost of average interest-bearing liabilities decreased to 1.29% during the first nine months of 2004 from 1.69% in the same period of 2003.

Noninterest income

Total noninterest income for the third quarter 2004 decreased $696,000, or 12%, from a year ago. Total noninterest income for the first nine months of 2004 was $16.3 million, a decrease of 6% from $17.3 million for the same period of 2003. The decreases in noninterest income during the third quarter and first nine months of 2004 as compared to the same periods in 2003 were primarily due to decreases in mortgage banking activity, as increases in long-term interest rates lowered demand for home refinancing. The decline in mortgage banking income was partially offset by increases in merchant services income. Merchant services income increased $910,000 to $5.4 million for the nine months ended September 30, 2004 compared to $4.5 million for the same period in 2003.

Noninterest expense

Noninterest expense for the third quarter of 2004 was $15.1 million, an increase of 5% from $14.3 million for the same period in 2003. Noninterest expense for the first nine months of 2004 was $44.6 million, an increase of 6% from $42.0 million for the first nine months of 2003. These increases were primarily a result of implementing internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes”). The Company has had external Sarbanes expenditures of $866,000 year-to-date; $626,000 was expensed in the third quarter, 2004. These expenses should continue at a lower level into subsequent quarters as we continue to implement the requirements. The Company also continues to see rising group health insurance rates and higher state employment taxes in its employee benefit expenses.

Nonperforming Assets and Loan Loss Provision

The provision for loan loss was $250,000 for the third quarter of 2004, unchanged from the same period in 2003. Reflecting improved asset quality, the loan loss provision for the first nine months of 2004 was $550,000 compared to $2.9 million for the first nine months of 2003.

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For the quarter ended September 30, 2004, net loan charge-offs amounted to $92,000. Nonaccrual loans decreased $7.5 million, or 57%, from $13.3 million at December 31, 2003 to $5.7 million at September 30, 2004.

The allowance for loan losses as a percentage of loans (excluding loans held for sale at each date) decreased to 1.71% at September 30, 2004 as compared to 1.88% at year-end 2003, primarily due to an $87 million increase in loan balances. At quarter-end, the allowance for loan losses to nonperforming loans increased to 333% 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 appropriate reserves.”

Columbia appreciated recent recognition from national and local media. Columbia Bank was named to the “Northwest 100,” the Seattle Times’13^th annual listing of the top public companies of Washington, Oregon and Idaho. Additionally, the October 2004 issue of US Banker magazine named Melanie Dressel one of their “Top 25 Most Powerful Women in Banking.” In its second annual ranking, the magazine profiled individuals whose professional achievements and personal integrity have made them icons of influence in the workplace, at home and within their communities.

Columbia Banking System, Inc. is a Tacoma-based bank holding company whose wholly owned bank subsidiaries are Columbia Bank and Bank of Astoria, which was acquired October 1, 2004. Columbia Bank is a Washington state-chartered full-service commercial bank with 34 banking offices in Pierce, King, Cowlitz, Kitsap and Thurston counties. Bank of Astoria, a federally insured commercial bank headquartered in Astoria, Oregon, operates four branches in Clatsop County: Astoria, Warrenton, Seaside and Cannon Beach; and one branch in Manzanita in Tillamook County.

###

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

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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.

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FINANCIAL STATISTICS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share amounts)	2004			2003			2004			2003
Earnings
Net interest income	$	17,567		$	15,489		$	51,415		$	47,622
Provision for loan loss		250			250			550			2,850
Noninterest income		5,336			6,032			16,321			17,320
Noninterest expense		15,061			14,291			44,589			42,029
Net income		5,483			4,895			16,048			14,091
Per Share
Net income (basic)	$	0.38		$	0.35		$	1.13		$	1.00
Net income (diluted)		0.38			0.34			1.11			0.99
Averages
Total assets	$	1,885,892		$	1,676,192		$	1,840,178		$	1,686,247
Interest-earning assets		1,742,778			1,514,584			1,700,899			1,530,078
Loans		1,147,746			1,115,637			1,141,595			1,144,924
Securities		550,203			367,246			519,948			369,314
Deposits		1,681,896			1,496,116			1,635,349			1,466,697
Core deposits		1,243,860			1,044,124			1,190,589			994,980
Shareholders’ Equity		162,133			143,208			158,495			139,625
Financial Ratios
Return on average assets		1.16	%		1.16	%		1.16	%		1.12	%
Return on average equity		13.45	%		13.56	%		13.53	%		13.49	%
Net interest margin		4.13	%		4.16	%		4.16	%		4.26	%
Efficiency ratio (tax equivalent) (1)		64.14	%		64.36	%		63.90	%		62.87	%
Average equity to average assets		8.60	%		8.54	%		8.61	%		8.28	%

	September 30,						December 31, 2003
	2004			2003
Period end
Total assets	$	1,936,048		$	1,698,956		$	1,744,347
Loans		1,165,340			1,071,201			1,078,302
Allowance for loan losses		19,927			20,331			20,261
Securities		608,939			433,460			523,864
Deposits		1,688,437			1,518,844			1,544,626
Core deposits		1,246,958			1,070,216			1,098,237
Shareholders’ equity		169,939			144,528			150,372
Book value per share		11.90			10.28			10.66
Nonperforming assets
Nonaccrual loans	$	5,743		$	6,806		$	13,255
Restructured loans		239			—			—
Real estate owned		680			1,503			1,452
Personal property owned		615			700			691
Total nonperforming assets	$	7,277		$	9,009		$	15,398
Nonperforming loans to period-end loans		0.51	%		0.64	%		1.23	%
Nonperforming assets to period-end assets		0.38	%		0.53	%		0.88	%
Allowance for loan losses to period-end loans		1.71	%		1.90	%		1.88	%
Allowance for loan losses to nonperforming loans		333.12	%		298.72	%		152.86	%
Allowance for loan losses to nonperforming assets		273.84	%		225.67	%		131.58	%
Net loan charge-offs	$	884	(2)	$	1,690	(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 (gains) of OREO.

(2) For the nine months ended September 30, 2004.

(3) For the nine months ended September 30, 2003.

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

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QUARTERLY FINANCIAL STATISTICS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended
(in thousands, except per share amounts)	Sept 30, 2004			Jun 30, 2004			Mar 31, 2004			Dec 31, 2003			Sept 30, 2003
Earnings
Net interest income	$	17,567		$	16,976		$	16,872		$	16,245		$	15,489
Provision for loan loss		250			—			300						250
Noninterest income		5,336			5,871			5,114			5,464			6,032
Noninterest expense		15,061			15,179			14,349			13,931			14,291
Net income		5,483			5,414			5,151			5,431			4,895
Per Share
Net income [basic]		0.38			0.38			0.36			0.39			0.35
Net income [diluted]		0.38			0.37			0.36			0.38			0.34
Averages
Total assets	$	1,885,892		$	1,858,082		$	1,776,056		$	1,724,573		$	1,676,192
Interest-earning assets		1,742,778			1,716,825			1,642,635			1,588,762			1,514,584
Loans		1,147,746			1,150,611			1,126,363			1,081,513			1,115,637
Securities		550,203			498,553			510,756			497,380			367,246
Deposits		1,681,896			1,664,497			1,559,140			1,532,063			1,496,116
Core deposits		1,243,860			1,218,528			1,108,794			1,082,843			1,044,124
Shareholders’ Equity		162,133			158,331			154,981			145,593			143,208
Financial Ratios
Return on average assets		1.16	%		1.17	%		1.17	%		1.25	%		1.16	%
Return on average equity		13.45	%		13.75	%		13.37	%		14.80	%		13.56	%
Net interest margin		4.13	%		4.10	%		4.25	%		4.16	%		4.16	%
Efficiency ratio (tax equivalent)(1)		64.14	%		64.18	%		63.36	%		62.84	%		64.36	%
Average equity to average assets		8.60	%		8.52	%		8.73	%		8.44	%		8.54	%
Period end
Total assets	$	1,936,048		$	1,861,623		$	1,801,353		$	1,744,347		$	1,698,956
Loans		1,165,340			1,130,508			1,131,531			1,078,302			1,071,201
Allowance for loan losses		19,927			19,769			19,958			20,261			20,331
Securities		608,939			487,407			508,046			523,864			433,460
Deposits		1,688,437			1,671,545			1,603,378			1,544,626			1,518,844
Core deposits		1,246,958			1,227,948			1,147,246			1,098,237			1,070,216
Shareholders’ equity		169,939			155,674			163,016			150,372			144,528
Book value per share		11.90			10.92			11.45			10.66			10.28
Nonperforming assets
Nonaccrual loans	$	5,743		$	5,255		$	12,715		$	13,255		$	6,806
Restructured loans		239			251			—			—			—
Real estate owned		680			781			1,056			1,452			1,503
Personal property owned		615			639			635			691			700
Total nonperforming assets	$	7,277		$	6,926		$	14,406		$	15,398		$	9,009
Nonperforming loans to period-end loans		0.51	%		0.49	%		1.12	%		1.23	%		0.64	%
Nonperforming assets to period-end assets		0.38	%		0.37	%		0.80	%		0.88	%		0.53	%
Allowance for loan losses to period-end loans		1.71	%		1.75	%		1.76	%		1.88	%		1.90	%
Allowance for loan losses to nonperforming loans		333.12	%		359.04	%		156.96	%		152.86	%		298.72	%
Allowance for loan losses to nonperforming assets		273.84	%		285.43	%		138.54	%		131.58	%		225.67	%
Net loan charge-offs (recoveries)	$	92		$	189		$	603		$	70		$	(87	)

(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 (gains) of OREO.

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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands except per share)	2004			2003		2004			2003
Interest Income
Loans	$	16,604		$	16,969	$	49,068		$	53,442
Securities available for sale		5,162			2,945		14,813			9,599
Securities held to maturity		27			41		81			128
Deposits with banks		144			77		322			122
Total interest income		21,937			20,032		64,284			63,291
Interest Expense
Deposits		4,051			4,260		11,928			14,236
Federal Home Loan Bank advances		23			16		103			616
Long-term obligations		296			267		838			817
Total interest expense		4,370			4,543		12,869			15,669
Net Interest Income		17,567			15,489		51,415			47,622
Provision for loan losses		250			250		550			2,850
Net interest income after provision for loan losses		17,317			15,239		50,865			44,772
Noninterest Income
Service charges and other fees		2,554			2,417		7,826			7,163
Mortgage banking		169			1,109		1,333			3,307
Merchant services fees		2,002			1,687		5,405			4,495
Loss on sale of investment securities, net		—			—		(6	)		—
Bank owned life insurance (BOLI)		338			385		934			1,151
Other		273			434		829			1,204
Total noninterest income		5,336			6,032		16,321			17,320
Noninterest Expense
Compensation and employee benefits		7,824			7,591		23,485			22,145
Occupancy		1,900			2,271		5,986			6,668
Merchant processing		819			707		2,221			1,841
Advertising and promotion		478			367		1,643			1,419
Data processing		616			509		1,694			1,425
Legal and professional services		1,018			398		2,314			1,382
Taxes, licenses and fees		421			447		1,210			1,259
Net (gains) cost of other real estate owned		(89	)		61		(15	)		98
Other		2,074			1,940		6,051			5,792
Total noninterest expense		15,061			14,291		44,589			42,029
Income before income taxes		7,592			6,980		22,597			20,063
Provision for income taxes		2,109			2,085		6,549			5,972
Net Income	$	5,483		$	4,895	$	16,048		$	14,091
Net income per common share:
Basic	$	0.38		$	0.35	$	1.13		$	1.00
Diluted		0.38			0.34		1.11			0.99
Dividends paid per common share	$	0.07		$	0.05	$	0.19		$	0.10
Average number of common shares outstanding		14,266			14,061		14,218			14,026
Average number of diluted common shares outstanding		14,481			14,260		14,439			14,187

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CONSOLIDATED CONDENSED BALANCE SHEETS

COLUMBIA BANKING SYSTEM, INC.

(Unaudited)

(in thousands)			September 30, 2004		December 31, 2003
Assets
Cash and due from banks			$	58,567	$	49,685
Interest-earning deposits with banks				148		949
Total cash and cash equivalents				58,715		50,634
Securities available for sale at fair value (amortized cost of $590,310 and $509,989, respectively)				594,612		509,200
Securities held to maturity (fair value of $4,141 and $4,708, respectively)				4,026		4,548
Federal Home Loan Bank stock				10,301		10,116
Loans held for sale				11,165		10,640
Loans, net of unearned income of $2,456 and $2,437, respectively)				1,165,340		1,078,302
Less: allowance for loan losses				19,927		20,261
Loans, net				1,145,413		1,058,041
Interest receivable				8,585		6,640
Premises and equipment, net				50,369		50,692
Real estate owned				680		1,452
Other personal property owned				615		691
Bank owned life insurance				32,492		31,558
Deferred tax asset				4,052		5,733
Other assets				15,023		4,402
Total Assets			$	1,936,048	$	1,744,347
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing			$	366,039	$	317,721
Interest-bearing				1,322,398		1,226,905
Total deposits				1,688,437		1,544,626
Federal Home Loan Bank advances				32,000		16,500
Other borrowings				1,000		—
Long-term subordinated debt				22,229		22,180
Finance lease obligation				10,134		—
Other liabilities				12,309		10,669
Total liabilities				1,766,109		1,593,975
Commitments and contingent liabilities
Shareholders’ equity:
Preferred stock (no par value)
Authorized, 2 million shares; none outstanding
	September 30, 2004	December 31, 2003
Common stock (no par value)
Authorized shares	63,034	63,034
Issued and outstanding	14,278	14,105		129,966		112,675
Retained earnings				37,177		38,210
Accumulated other comprehensive gain (loss) – Unrealized gains (losses) on securities available for sale, net of tax				2,796		(513	)
Total shareholders’ equity				169,939		150,372
Total Liabilities and Shareholders’ Equity			$	1,936,048	$	1,744,347

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