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, 2005.

¨ 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 issuer 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	98401-2156
(Address of principal executive offices)	(Zip Code)

(253) 305-1900

(Issuer’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 issuer: (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

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

The number of shares of the issuer’s Common Stock outstanding at April 30, 2005 was 15,651,381.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Consolidated Condensed Unaudited Financial Statements
	Consolidated Condensed Statements of Operations - three months ended March 31, 2005 and 2004	2
	Consolidated Condensed Balance Sheets – March 31, 2005 and December 31, 2004	3
	Consolidated Condensed Statements of Shareholders’ Equity – fiscal year ended December 31, 2004, and three months ended March 31, 2005	4
	Consolidated Condensed Statements of Cash Flows - three months ended March 31, 2005 and 2004	5
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
PART II — OTHER INFORMATION
Item 6.	Exhibits	25
	Signatures	26

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended March 31,
(in thousands except per share)	2005			2004
Interest Income
Loans	$	21,822		$	16,049
Securities available for sale		5,723			5,039
Securities held to maturity		16			28
Deposits with banks		9			13
Total interest income		27,570			21,129
Interest Expense
Deposits		5,182			3,915
Federal Home Loan Bank advances		706			80
Long-term obligations		347			262
Other borrowings		34
Total interest expense		6,269			4,257
Net Interest Income		21,301			16,872
Provision for loan losses		890			300
Net interest income after provision for loan losses		20,411			16,572
Noninterest Income
Service charges and other fees		2,636			2,527
Mortgage banking		422			503
Merchant services fees		1,789			1,562
Loss on sale of investment securities, net					(6	)
Bank owned life insurance (BOLI)		373			250
Other		454			278
Total noninterest income		5,674			5,114
Noninterest Expense
Compensation and employee benefits		9,268			7,786
Occupancy		2,332			2,086
Merchant processing		707			652
Advertising and promotion		504			271
Data processing		707			515
Legal and professional services		764			628
Taxes, licenses and fees		465			384
Net (gains) cost of other real estate owned		(2	)		12
Other		2,532			2,015
Total noninterest expense		17,277			14,349
Income before income taxes		8,808			7,337
Provision for income taxes		2,510			2,186
Net Income	$	6,298		$	5,151
Net income per common share:
Basic	$	0.40		$	0.36
Diluted		0.40			0.36
Dividends paid per common share	$	0.07		$	0.05
Average number of common shares outstanding		15,606			14,147
Average number of diluted common shares outstanding		15,852			14,391

See accompanying notes to consolidated condensed financial statements.

2

CONSOLIDATED CONDENSED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)

(in thousands)			March 31, 2005			December 31, 2004
Assets
Cash and due from banks			$	61,979		$	54,287
Interest-earning deposits with banks				782			369
Total cash and cash equivalents				62,761			54,656
Securities available for sale at fair value (amortized cost of $609,998 and $627,519, respectively)				605,018			628,897
Securities held to maturity (fair value of $3,186 and $3,199, respectively)				3,102			3,101
Federal Home Loan Bank stock				11,020			10,761
Loans held for sale				9,205			6,019
Loans, net of unearned income of ($2,960) and ($2,839), respectively				1,436,820			1,359,743
Less: allowance for loan losses				20,179			19,881
Loans, net				1,416,641			1,339,862
Interest receivable				10,124			9,582
Premises and equipment, net				44,850			44,774
Real estate owned							680
Goodwill				29,723			29,723
Other assets				51,295			49,495
Total Assets			$	2,243,739		$	2,177,550
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing			$	402,128		$	392,173
Interest-bearing				1,467,968			1,471,855
Total deposits				1,870,096			1,864,028
Federal Home Loan Bank advances				128,000			68,700
Other borrowings				2,500			2,500
Long-term subordinated debt				22,262			22,246
Other liabilities				16,127			16,922
Total liabilities				2,038,985			1,974,396
Commitments and contingent liabilities
Shareholders’ equity:
Preferred stock (no par value) Authorized, 2 million shares; none outstanding
	March 31, 2005	December 31, 2004
Common stock (no par value)
Authorized shares	63,034	63,034
Issued and outstanding	15,623	15,594		160,238			159,693
Retained earnings				47,758			42,552
Accumulated other comprehensive income (loss) – Unrealized (losses) gains on securities available for sale, net of tax				(3,242	)		909
Total shareholders’ equity				204,754			203,154
Total Liabilities and Shareholders’ Equity			$	2,243,739		$	2,177,550

See accompanying notes to consolidated condensed financial statements.

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CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

Columbia Banking System, Inc.

(Unaudited)

	Common stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
(in thousands)	Number Shares	Amount
Balance at January 1, 2004	14,105	$	112,675	$	38,210		$	(513	)	$	150,372
Comprehensive income:
Net income					22,513
Reclassification of net losses on securities available for sale included in net income, net of tax of $2								4
Unrealized gains on securities available for sale, net of tax of $743								1,418
Total comprehensive income											23,935
Issuance of stock under stock option and other plans	211		2,910								2,910
Tax benefit associated with stock options			342								342
Issuance of stock in acquisition	1,278		29,305								29,305
Issuance of shares of common stock – 5% stock dividend			14,461		(14,461	)
Cash dividends paid on common stock					(3,710	)					(3,710	)
Balance at December 31, 2004	15,594		159,693		42,552			909			203,154
Comprehensive income:
Net income					6,298
Unrealized losses on securities available for sale, net of tax of $2,207								(4,151	)
Total comprehensive income											2,147
Issuance of stock under stock option and other plans	29		472								472
Tax benefit associated with stock options			73								73
Cash dividends paid on common stock					(1,092	)					(1,092	)
Balance at March 31, 2005	15,623	$	160,238	$	47,758		$	(3,242	)	$	204,754

See accompanying notes to consolidated condensed financial statements.

4

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended March 31,
(in thousands)	2005			2004
Operating Activities
Net income	$	6,298		$	5,151
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		890			300
Deferred income tax (benefit) expense		(1,893	)		3,580
Tax benefit associated with stock options		(73	)		(246	)
Gains on sale of real estate owned and other personal property owned		(5	)		(16	)
Depreciation and amortization		2,493			2,025
Net realized (gain) loss on sale of assets		(71	)		27
Increase in loans held for sale		(3,186	)		(5,098	)
Increase in interest receivable		(542	)		(738	)
Increase (decrease) in interest payable		164			(20	)
Stock dividends from Federal Home Loan Bank stock		(259	)		(61	)
Net changes in other assets and liabilities		1,336			(2,740	)
Net cash provided by operating activities		5,152			2,164
Investing Activities
Proceeds from maturities of securities available for sale		1,597			511
Purchases of securities available for sale		(2,846	)		(3,046	)
Proceeds from sales of securities available for sale		1,618
Proceeds from maturities of mortgage-backed securities available for sale		15,387			22,573
Purchases of mortgage-backed securities available for sale					(10,239	)
Proceeds from sales of mortgage-backed securities available for sale					13,993
Proceeds from maturities of securities held to maturity					195
Loans originated and acquired, net of principal collected		(77,364	)		(53,424	)
Purchases of premises and equipment		(1,006	)		(270	)
Proceeds from disposal of premises and equipment		80			13
Proceeds from sales of real estate and other personal property owned		685			469
Net cash used in investing activities		(61,849	)		(29,225	)
Financing Activities
Net increase in deposits		6,065			58,752
Proceeds from Federal Home Loan Bank advances		278,840			56,100
Repayment of Federal Home Loan Bank advances		(219,540	)		(72,600	)
Cash dividends paid on common stock		(1,092	)		(672	)
Proceeds from other borrowings					1,000
Proceeds from issuance of common stock, net		545			1,909
Other, net		(16	)		16
Net cash provided by financing activities		64,802			44,505
Increase in cash and cash equivalents		8,105			17,444
Cash and cash equivalents at beginning of period		54,656			50,634
Cash and cash equivalents at end of period	$	62,761		$	68,078

5

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)

Columbia Banking System, Inc.

(Unaudited)

Supplemental disclosures of cash flow information:
Cash paid for interest	$	6,060	$	4,277
Cash paid for income taxes		152		748

See accompanying notes to consolidated condensed financial statements.

6

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Columbia Banking System, Inc.

Columbia Banking System, Inc. (the “Company”), through its wholly owned banking subsidiaries, provides a full range of banking services to small and medium-sized businesses, professionals and other individuals generally based in western Washington state and the northern Oregon coastal area. At March 31, 2005, the Company conducted its banking services in 39 office locations with nearly all of its loans, loan commitments and core deposits geographically concentrated in the Puget Sound region of Washington state.

In Washington state, the Company conducts a full-service commercial banking business through its wholly owned banking subsidiary, Columbia State Bank (“Columbia Bank”). In Oregon, the Company conducts a full-service commercial banking business through its wholly owned banking subsidiary, Bank of Astoria (“Astoria”), which was acquired on October 1, 2004. Astoria’s results of operations were included in the Company’s results beginning on the acquisition date. As such, the financial results for the first quarter of 2004 presented in this report do not include the results of operations of Astoria. See Note 2 of the consolidated financial statements in the Company’s 2004 Annual Report for additional information pertaining to the acquisition.

1. 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 Astoria. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments consisting only of normal recurring accruals necessary for a fair presentation of the financial condition and the results of operations for the interim periods included herein have been made. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of results to be anticipated for the year ending December 31, 2005. Certain reclassifications of prior year amounts have been made to conform to current classification. These reclassifications had no effect on net income. 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 2004 Annual Report on Form 10-K.

2. Earnings Per Share

Earnings per share (“EPS”) are computed using the weighted average number of common and diluted common shares outstanding during the period. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The only reconciling item affecting the calculations of earnings per share are the inclusion of stock options and restricted stock awards increasing the shares outstanding in diluted earnings per share by 246,000 and 244,000 for the three months ended March 31, 2005 and 2004, respectively.

The Company has a stock option plan (“Plan”) and applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations in accounting for the Plan. The Company’s policy is to recognize compensation expense at the date the options are granted based on the difference, if any, between the then market value of the Company’s common stock and the stated option price.

7

Had compensation cost for the Company’s Plan been determined based on the fair value at the option grant dates consistent with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, the Company’s net income and earnings per share would have been reduced to the pro forma amounts listed below:

(dollars in thousands, except per share)	For The Three Months Ended 3/31/2005			For The Three Months Ended 3/31/2004
Net income attributable to common stock:
As reported	$	6,298		$	5,151
Deduct: Total stock based employee compensation expense determined under fair value method for all options, net of tax		(507	)		(93	)
Pro forma net income	$	5,791		$	5,058
Net income per common share:
Basic:
As reported	$	0.40		$	0.36
Pro forma		0.37			0.36
Diluted:
As reported	$	0.40		$	0.36
Pro forma		0.37			0.35

3. Dividends

On January 27, 2005, the Company declared a quarterly cash dividend of $0.07 per share, payable on February 23, 2005, to shareholders of record at the close of business February 9, 2005. Subsequent to the current quarter-end, on April 27, 2005, the Company declared a quarterly cash dividend of $0.09 per share, payable on May 25, 2005, to shareholders of record at the close of business May 12, 2005. 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 and Astoria to the Company are subject to both Federal and State regulatory requirements.

4. Business Segment Information

Within Washington state, the Company is managed along three major lines of business: commercial banking, retail banking, and real estate lending. In Oregon, the Company operates as one segment through the Astoria banking subsidiary. The treasury function of the Company, although not considered a line of business, is responsible for the management of investments and interest rate risk.

The principal activities conducted by commercial banking are the origination of commercial business loans and private banking services. 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. Real estate lending offers single-family residential, multi-family residential, and commercial real estate loans, with their associated loan servicing activities.

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. Since the Company is not specifically organized around lines of business, most reportable segments comprise more than one operating activity.

The organizational structure of the Company and its business line financial results are not necessarily comparable across companies. As such, the Company’s business line performance may not be directly comparable with similar information from other financial institutions.

8

Financial highlights by lines of business are as follows:

	Three Months Ended March 31, 2005
	Oregon			Washington
(in thousands)	Astoria (1)			Commercial Banking			Retail Banking			Real Estate Lending			Other			Total
Net interest income after provision for loan loss	$	1,932		$	4,903		$	11,450		$	1,906		$	220		$	20,411
Other income		257			261			1,516			395			3,245			5,674
Other expense		(1,336	)		(2,239	)		(4,375	)		(418	)		(8,909	)		(17,277	)
Contribution to overhead and profit		853			2,925			8,591			1,883			(5,444	)		8,808
Income taxes																	(2,510	)
Net income																$	6,298
Total assets	$	206,849		$	689,008		$	456,398		$	254,398		$	637,086		$	2,243,739

	Three Months Ended March 31, 2004
(in thousands)	Commercial Banking			Retail Banking			Real Estate Lending			Other			Total
Net interest income after provision for loan loss	$	4,033		$	7,093		$	2,923		$	2,523		$	16,572
Other income		235			1,708			502			2,669			5,114
Other expense		(1,071	)		(4,571	)		(494	)		(8,213	)		(14,349	)
Contribution to overhead and profit		3,197			4,230			2,931			(3,021	)		7,337
Income taxes														(2,186	)
Net income													$	5,151
Total assets	$	471,171		$	469,766		$	274,736		$	585,680		$	1,801,353

⁽¹⁾ Acquisition of Bank of Astoria completed on October 1, 2004.

5. Securities

Securities held to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized in interest income using the interest method. If the security is determined to be other-than-temporarily impaired, the amount of the impairment is charged to operations.

Securities available for sale are carried at fair value. Premiums and discounts are amortized using the interest method over the remaining period to contractual maturity. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of shareholders’ equity as accumulated other comprehensive income, net of income taxes, unless the security is deemed other-than-temporarily impaired. If the security is determined to be other-than-temporarily impaired, the amount of the impairment is charged to operations.

Unrealized losses and fair values of securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2005 are summarized as follows:

	Less than 12 Months					12 Months of More					Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency	$	159,414	$	(2,146	)	$	—	$	—		$	159,414	$	(2,146	)
U.S. Government agency mortgage-backed securities and collateralized mortgage obligations		148,737		(2,240	)		130,707		(3,472	)		279,444		(5,712	)
State and municipal securities		38,023		(791	)		2,561		(128	)		40,584		(919	)
Total	$	346,174	$	(5,177	)	$	133,268	$	(3,600	)	$	479,442	$	(8,777	)

Based on management’s evaluation and intent, none of the unrealized losses summarized above are considered other-than-temporary.

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6. Comprehensive Income

The components of comprehensive income are as follows:

	Three Months Ended March 31,
(in thousands)	2005			2004
Net income as reported	$	6,298		$	5,151
Unrealized gains (losses) on securities available for sale:
Unrealized holding (losses) gains arising during the period		(6,358	)		9,624
Tax benefit (expense)		2,207			(3,364	)
Net unrealized (losses) gains on securities available for sale, net of tax		(4,151	)		6,260
Less: reclassification adjustment of realized losses on securities available for sale					(6	)
Tax benefit					2
Net realized losses on sale of securities available for sale, net of tax					(4	)
Total comprehensive income	$	2,147		$	11,407

7. Allowance for Loan Losses

The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The size of the allowance is determined through quarterly assessments of the probable estimated losses in the loan portfolio. The Company’s methodology for making such assessments and determining the adequacy of the allowance includes a general valuation allowance consistent with SFAS No. 5, “Accounting for Contingencies” and criticized/classified loss reserves on specific relationships. Specific allowances for identified problem loans are determined in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”.

On a quarterly basis the Chief Credit Officer of the Company reviews with Executive Management and the Board of Directors the various additional factors that management considers when determining the adequacy of the allowance, including economic and business condition reviews. These factors include existing general economic and business conditions affecting the Company’s market place, credit quality trends, including trends in nonperforming loans, collateral values, seasoning of the loan portfolio, bank regulatory examination results, findings of internal credit examiners and the duration of current business cycles. The allowance is increased by provisions charged to operations, and is reduced by loans charged-off, net of recoveries. While management believes it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments to the allowance, and net income could be affected, if circumstances differ from the assumptions used in determining the allowance.

	Three Months Ended March 31,
(in thousands)	2005			2004
Beginning balance	$	19,881		$	20,261
Provision charged to expense		890			300
Loans charged-off		(905	)		(714	)
Recoveries		313			111
Ending balance	$	20,179		$	19,958

8. Goodwill and Intangible Assets

As a result of the acquisition of Astoria in October 2004, the Company had $29.7 million in goodwill at March 31, 2005 and December 31, 2004. At March 31, 2005 and December 31, 2004, the Company had a core deposit intangible asset of $3.8 million and $3.9 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 core deposit intangible is evaluated for impairment if events and circumstances indicate a possible impairment based on undiscounted cash flow projections. The core deposit intangible is amortized on an accelerated basis over an estimated life of approximately 10 years. Amortization expense related to the core deposit intangible asset was $134,000 during the first quarter of 2005 and is included in other noninterest expense on the consolidated condensed statements of operations.

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9. Income Tax

The provision for income tax is based on income and expense reported for financial statement purposes, using the “asset and liability method” for accounting for deferred income tax. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against any deferred tax assets for which it is more likely than not that the deferred tax asset will not be realized.

10. New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R eliminates the ability to account for share-based compensation transactions using APB No. 25 and requires all entities to recognize such transactions in an amount equal to the fair value of share-based payments granted to employees. On April 14, 2005, the U.S Securities and Exchange Commission announced a new rule which amends the implementation date for SFAS 123R from July 1, 2005 to January 1, 2006. The adoption of SFAS 123R is not expected to have a significant impact on the Company’s results of operations or financial condition.

In March 2004, the Emerging Issues Task Force (“EITF”) finalized and issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”). EITF 03-1 provides recognition and measurement guidance regarding when impairments of equity and debt securities are considered other-than-temporary requiring a charge to operations, and also requires additional annual disclosures for investments in unrealized loss positions. The additional annual disclosure requirements were previously issued by the EITF in November 2003 and were effective for the Company for the year ended December 31, 2003. In September 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position EITF 03-1-1, which delays the recognition and measurement provisions of EITF 03-1 pending the issuance of further implementation guidance. We are currently evaluating the effect of the recognition and measurement provisions of EITF 03-1. While our analysis is pending the FASB’s revisions to EITF 03-1, we currently believe the adoption of EITF 03-1 will not have a significant impact on the Company’s results of operations or financial condition.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Columbia Banking System, Inc.

This discussion should be read in conjunction with the unaudited consolidated condensed financial statements of the Company and notes thereto presented elsewhere in this report and in our 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.

This Form 10-Q may be deemed to include forward looking statements, which management believes are 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 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, and (7) the Company’s ability to realize the efficiencies it expects to receive from its investments in personnel and infrastructure.

General

Columbia Banking System, Inc. (the “Company”) is a registered bank holding company whose wholly owned banking subsidiaries, Columbia State Bank (“Columbia Bank”) and Bank of Astoria (“Astoria”), conduct full-service commercial banking business. Headquartered in Tacoma, Washington, the Company provides a full range of banking services to small and medium-sized businesses, professionals and other individuals.

The Company’s significant wholly owned banking subsidiary, Columbia Bank, has 34 banking offices located in the Tacoma metropolitan area and contiguous parts of the Puget Sound region of Washington state, as well as the Longview and Woodland communities in southwestern Washington state. Substantially all of the Company’s loans, loan commitments and core deposits are geographically concentrated in its service areas. Columbia Bank is a Washington state-chartered commercial bank, the deposits of which are insured by the Federal Deposit Insurance Corporation (the “FDIC”). Columbia Bank is subject to regulation by the FDIC and the Washington State Department of Financial Institutions Division of Banks. Although Columbia Bank is not a member of the Federal Reserve System, the Board of Governors of the Federal Reserve System has certain supervisory authority over the Company, which can also affect Columbia Bank.

On October 1, 2004, the Company completed its acquisition of Astoria, an Oregon state-chartered commercial bank headquartered in Astoria, Oregon. Astoria operates as a separate banking subsidiary of the Company and has five full service branch offices located within Clatsop and Tillamook Counties, along the northern Oregon coast. The deposits of Astoria are insured by the FDIC. Astoria is subject to regulation by the FDIC and the State of Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities. Although Astoria is not a member of the Federal Reserve System, the Board of Governors of the Federal Reserve System has certain supervisory authority over the Company, which can also affect Astoria. The results of operations at Astoria are included in the Company’s results beginning on the acquisition date.

Business Overview

The Company’s goal is to be a leading community banking company headquartered in the Pacific Northwest and to consistently increase earnings and shareholder value. The Company continues to build on its reputation for excellent customer service in order to be recognized in all markets it serves as the bank of choice for retail deposit customers, small to medium-sized businesses and affluent households. Strategic business combinations may augment this internal growth.

The Company has established a network of 39 branches as of March 31, 2005 from which it intends to grow market share. Western Washington state locations consist of twenty-one branches in Pierce County, eight in King County, three in Cowlitz County, and one each in Kitsap and Thurston Counties. Northern Oregon coastal area locations consist of four branches in Clatsop County and one in Tillamook County. The Company is committed to increasing market share in the communities its serves by continuing to

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leverage its existing branch network and adding new branch locations that are consistent with its expansion strategy throughout the Pacific Northwest. All Washington state branches operate as Columbia Bank and all Oregon branches operate as Bank of Astoria.

Business Strategy

The Company’s strategy to improve earnings and shareholder value is to leverage its branch network to grow market share by meeting the needs of current and prospective customers with its wide range of financial products and services and outstanding customer service. In addition, the Company will continue to focus on asset quality, expanding revenue, and expense control. The Company evaluates its business processes to benefit customers, create cost efficiencies, and increase profitability.

The Company’s business strategy is to provide its customers with the financial sophistication and breadth of products of a regional banking company while retaining the appeal and service level of a community bank. Management believes that as a result of the Company’s strong commitment to highly personalized, relationship-oriented customer service, its varied products, its strategic branch locations and the long-standing community presence of its managers, lending officers and branch personnel, it is well positioned to attract new customers and to increase its market share of loans, deposits, and other financial services in the markets it serves. Management believes consolidation among financial institutions in its market area has created significant gaps in the ability of large banks to serve certain customers, particularly the Company’s target customer base of small and medium-sized businesses, professionals and other individuals.

The Company intends to achieve its growth strategy by continuing to develop existing branch offices and branch locations, and successfully completing strategic business combinations. New branches, markets and locations are reviewed continually. The Company will take advantage of these opportunities as they arise.

Products & Services

The Company offers customers the support, reliability and personal relationships of a locally owned and operated community bank, combined with all the products, services and technology they would expect from a larger bank. New products, technologies and services are continually reviewed to meet customers’ financial services needs, and for business development and cost savings purposes. Some of the products and services available include tailored Commercial & Industrial, Real Estate and Real Estate Construction and Consumer lending, Business & Individual Checking, Savings & Time Deposits, Private Banking, Cash Management, Columbia OnLine^™ (the Company’s online banking service), International, Merchant Card Services, Investment Services, Cash Management account analysis, sweep accounts, ACH and other electronic banking services.

Market Area

Approximately 70% of the Company’s branches are centered in the South Puget Sound Region (“the South Sound”) of Washington state. Pierce County is located in the South Sound and Tacoma is the largest city in the County. The Company has 21 branch offices located in Pierce County and has the largest deposit market share as of June 30, 2004 according to the annual FDIC “Market Share Report”. In early 2005, the Company announced the addition of its University Place branch located west of Tacoma. The South Sound is benefiting from major construction projects currently underway, including the new Tacoma Narrows Bridge Project and several commercial real estate projects including hotels, multi-family residential complexes, and office buildings. Additionally, expansion of the Port of Tacoma completed in late 2004 provides the South Sound with a container terminal capable of handling the largest volume of container traffic north of Los Angeles. With two large military installations (McChord Air Force Base and Fort Lewis Army Base), government related employment represents approximately 20% of the County’s total employment.

To the north of Tacoma, King County is Washington state’s most populous at 1.8 million residents. In Seattle, located in King County, the Company has a banking office in the downtown business sector. East of Seattle, the Company has two banking offices, one in Bellevue and one in Redmond. A large portion of the economy within this area is linked to aerospace, construction, computer software and biotechnology industries.

The Company has five branches in south King County, an area of residential communities whose employment base is supported by light industrial, aerospace and forest products industries. With its close proximity to Tacoma, the south King County market area is considered an important natural extension of the Company’s Pierce County market area. The Weyerhaeuser Corporation maintains its world headquarters in Federal Way, which is located in south King County adjacent to the King/Pierce County line. The Auburn and Kent Valley areas located east of Federal Way are high residential and commercial growth markets.

The Company’s market area also includes the Longview and Woodland communities in southwest Washington state, the State’s capital of Olympia, and Port Orchard in Kitsap County. Both Olympia and Port Orchard are located in the South Puget Sound Region.

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Through the acquisition of Astoria in October 2004, the Company added five branches located in the western portions of Clatsop and Tillamook Counties, Oregon, in the northern Oregon coastal area. Both Clatsop and Tillamook Counties are comprised primarily of forestry, commercial fishing, and tourism related businesses.

CRITICAL ACCOUNTING POLICIES

Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company’s financial statements. These policies relate to the methodology for the determination of the allowance for loan losses, the valuation of deferred tax assets and the impairment of investments, goodwill and other intangible assets. These policies and the judgments, estimates and assumptions are described in greater detail in subsequent sections of Management’s Discussion and Analysis, in the notes to the consolidated condensed financial statements of this report and in the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2004. Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of the financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the results of operations or financial condition.

EFFECT OF INFLATION AND CHANGING PRICES

The impact of inflation on the Company’s operations is increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than the effect of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates.

HIGHLIGHTS

• Net income for the first quarter of 2005 increased 22% to $6.3 million, or $0.40 per diluted share from $5.2 million, or $0.36 per diluted share, for the first quarter of 2004.

• Total loans increased $77.1 million or 6% to $1.44 billion at March 31, 2005 compared to total loans of $1.36 billion at December 31, 2004.

• Core deposits increased $11.5 million to $1.39 billion at March 31, 2005 as compared to December 31, 2004.

• Total nonperforming assets decreased 19% from December 31, 2004 and the allowance for loan losses to nonperforming loans improved to 273% at March 31, 2005 from 235% at December 31, 2004.

• Total assets reached $2.24 billion at March 31, 2005, an increase of $66.2 million from December 31, 2004.

RESULTS OF OPERATIONS

The results of operations of the Company are dependent to a large degree on the Company’s net interest income. The Company also generates noninterest income through service charges and fees, merchant services fees, and income from mortgage banking operations. The Company’s operating expenses consist primarily of compensation and employee benefits expense, and occupancy expense. Like most financial institutions, the Company’s 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.

Net Interest Income

Net interest income for the first quarter of 2005 increased 26% to $21.3 million, from $16.9 million in the first quarter of 2004. The Company’s net interest income was impacted favorably by continued growth in its loan portfolio, rising short-term interest rates and the acquisition of Astoria. Loan growth has been stimulated by improvements in the local economy and the addition of several experienced commercial lending officers to the King County lending team late in 2004. Increases in short-term interest rates have contributed to the increase in net interest income, as approximately 40% of the Company’s loan portfolio consists of variable rate loans tied to prime and other related indices. The increase in short-term interest rates were partially offset by relatively lower long-term rates.

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The Company’s net interest margin (net interest income divided by average interest-earning assets) increased to 4.35% during the first quarter of 2005 from 4.25% during the first quarter of 2004. Average interest-earning assets grew to $2.04 billion, an increase of 24%, during the first quarter of 2005, compared with $1.64 billion during the same period in 2004. The yield on average interest-earning assets increased 29 basis points (a basis point is 1/100^th of 1 percent, alternatively 100 basis points equals 1.00%) to 5.59% during the first quarter of 2005 compared with 5.30% during the same period of 2004. The increase in yield on average interest-earning assets is primarily due to loan growth and rising short-term interest rates. Average interest-bearing liabilities increased to $1.60 billion, or 24%, during the first quarter of 2005 compared with $1.29 billion in the same period of 2004. The average cost of interest-bearing liabilities increased 27 basis points to 1.59% during the first quarter of 2005, from 1.32% in the same period of 2004. The increase in the Company’s cost of interest-bearing liabilities is due to continued growth in core deposits, increasing deposit rates and increased borrowing levels resulting in a $2.0 million increase in interest expense.

At March 31, 2005, the Company estimates that its balance sheet is asset sensitive over a short-term horizon of three months, which means that interest-earning assets mature or reprice more rapidly than interest-bearing liabilities. Therefore, the Company’s net interest margin may increase during a rising rate environment and may decrease in a declining rate environment.

CONSOLIDATED AVERAGE BALANCES—NET CHANGES

Columbia Banking System, Inc.

	Three Months Ended March 31,				Increase (Decrease)
(in thousands)	2005		2004		Amount
ASSETS
Loans	$	1,409,119	$	1,126,363	$	282,756
Securities		632,410		510,756		121,654
Interest-earnings deposits with banks		1,388		5,516		(4,128	)
Total interest-earning assets		2,042,917		1,642,635		400,282
Other earning assets		35,521		31,611		3,910
Noninterest-earning assets		143,917		101,810		42,107
Total assets	$	2,222,355	$	1,776,056	$	446,299
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	1,466,837	$	1,243,059	$	223,778
Federal Home Loan Bank advances		108,624		27,613		81,011
Long-term subordinated debt		22,252		22,186		66
Other borrowings		2,500		418		2,082
Other interest bearing liabilities		366				366
Total interest-bearing liabilities		1,600,579		1,293,276		307,303
Noninterest-bearing deposits		397,773		316,081		81,692
Other noninterest-bearing liabilities		17,492		11,718		5,774
Shareholders’ equity		206,511		154,981		51,530
Total liabilities and shareholders’ equity	$	2,222,355	$	1,776,056	$	446,299

Noninterest Income

Noninterest income increased $560,000 or 11% to $5.7 million for the first quarter of 2005 from $5.1 million for the first quarter of 2004. The increase is primarily due to increased merchant services fees and earnings on bank owned life insurance (“BOLI”) policies. Merchant services fees increased $227,000 or 15% during the first quarter of 2005 as compared to the same period in 2004. This increase is consistent with trends in prior quarters and is a result of continued gains in market share. Earnings on BOLI policies increased $123,000 or 49% during the first quarter of 2005 as compared to the same period in 2004 due to purchases of additional policies and higher yields on underlying investments. These increases were partially offset by a decrease in mortgage banking income, which dropped 16% to $422,000 from the first quarter of 2004. The decrease in mortgage banking income is consistent with prior quarterly trends and is due to declining levels of refinancing activity and originations. The Company has responded to this downward trend by restructuring its mortgage banking department late in 2004 and allocating resources to more profitable areas within Columbia Bank.

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Noninterest Expense

Total noninterest expense increased 20% to $17.3 million for the first quarter of 2005 from $14.3 million for the first quarter of 2004. The increase is primarily due to higher employee compensation and benefits expense, occupancy expense and advertising and promotion expense. Compensation and benefits expense increased $1.5 million in the first quarter of 2005 as compared to the same period in 2004. The number of full-time equivalent employees increased with the acquisition of Astoria and the addition of commercial lending officers during the fourth quarter of 2004 which contributed to increased compensation costs. Additionally, the Company continues to experience higher employee benefit expenses due to rising health insurance premiums. Occupancy expense increased $246,000 or 12% during the first quarter of 2005 as compared to the same period in 2004. The increase in occupancy expense is primarily due to the Company’s sale and lease-back of its Broadway location in September 2004. The sale of the building resulted in decreased rental income received from tenants and increased rent expense. During the first quarter of 2005 advertising and promotion expense increased $233,000 or 86% as compared to the first quarter of 2004. This increase is due to residual payments associated with television commercials created early in 2004 which will continue to run throughout 2005. Consistent with historical trends, the Company’s advertising and promotional expenses are generally higher in the first quarter and decrease throughout subsequent quarters.

The Company’s efficiency ratio [noninterest expense divided by the sum of net interest income and noninterest income on a tax equivalent basis, excluding (gain) loss on sale of investment securities and net (cost) gain of OREO] was 62.2% for the first quarter of 2005 compared to 63.4% for the first quarter of 2004. The improvement (decrease) in the efficiency ratio is due to increases in net interest income resulting from loan growth and increasing short-term interest rates exceeding increases in noninterest expense categories.

Reconciliation of Financial Data to GAAP Financial Measures

	Three Months Ended March 31,
(in thousands)	2005			2004
Net interest income (1)	$	21,301		$	16,872
Tax equivalent adjustment for non-taxable Investment securities interest income (2)		612			502
Adjusted net interest income	$	21,913		$	17,374
Noninterest income	$	5,674		$	5,114
(Gain) loss on sale of securities, net					6
Tax equivalent adjustment for BOLI income (2)		201			135
Adjusted noninterest income	$	5,875		$	5,255
Noninterest expense	$	17,277		$	14,349
Net gain (cost) of OREO		2			(12	)
Adjusted noninterest expense	$	17,279		$	14,337
Efficiency ratio		64.0	%		65.3	%
Efficiency ratio (fully taxable-equivalent)		62.2	%		63.4	%
Tax Rate		35.0	%		35.0	%

⁽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

The Company recorded an income tax provision of $2.5 million for the first quarter of 2005 compared with a provision of $2.2 million for the same period in 2004. The effective tax rate was 28% for the first quarter of 2005 compared with 30% for the first quarter of 2004. The Company’s effective tax rate is less than the statutory rate primarily due to earnings on tax-exempt municipal securities and BOLI. For additional information, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2004.

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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 the Company’s principal business activities. Company policies and applicable laws and regulations require risk analysis as well as ongoing portfolio and credit management. The Company manages its credit risk through lending limit constraints, credit review, approval policies, and extensive, ongoing internal monitoring. The Company also manages 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 its existing portfolio, the Company reviews its 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. The Company reviews 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, the Company assesses whether an impairment of a loan warrants specific reserves or a write-down of the loan. See “Provision and Allowance For Loan Losses” on page 19.

Loan policies, credit quality criteria, portfolio guidelines and other controls are established under the guidance of the Company’s 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, the Company uses an independent internal credit review and examination function to provide assurance that loans and commitments are made and maintained as prescribed by its credit policies. This includes a review of documentation when the loan is initially extended and subsequent on-site examination to ensure continued performance and proper risk assessment.

Loan Portfolio Analysis

The Company is a full service commercial bank, which originates a wide variety of loans, and concentrates its lending efforts on originating commercial business and commercial real estate loans.

The following table sets forth the Company’s loan portfolio by type of loan for the dates indicated:

(in thousands)	March 31, 2005			% of Total		December 31, 2004			% of Total
Commercial business	$	540,177		37.6	%	$	488,157		35.9	%
Real estate:
One-to-four family residential		47,248		3.3			49,580		3.7
Commercial and five or more family residential commercial properties		613,791		42.7			595,775		43.8
Total real estate		661,039		46.0			645,355		47.5
Real estate construction:
One-to-four family residential		28,234		2.0			26,832		2.0
Commercial and five or more family residential commercial properties		76,430		5.3			70,108		5.1
Total real estate construction		104,664		7.3			96,940		7.1
Consumer		133,900		9.3			132,130		9.7
Sub-total loans		1,439,780		100.2			1,362,582		100.2
Less: Deferred loan fees		(2,960	)	(0.2	)		(2,839	)	(0.2	)
Total loans	$	1,436,820		100.0	%	$	1,359,743		100.0	%
Loans held for sale	$	9,205				$	6,019

Total loans (excluding loans held for sale) at March 31, 2005 increased $77.1 million, to $1.44 billion from $1.36 billion at year-end 2004. Commercial real estate and commercial business loans contributed a majority of the growth in total loans.

Commercial Loans: As of March 31, 2005, commercial loans increased $52.0 million, or 11%, to $540.2 million from $488.2 million at year-end 2004, representing 38% of total loans at March 31, 2005 as compared with 36% of total loans at December 31, 2004. Management is committed to providing competitive commercial lending in the Company’s primary market areas. Management believes that increases in commercial lending during the first quarter of 2005 were due to increased confidence of business owners in response to an improving economy as well as the addition of several experienced commercial lending officers during the fourth quarter of 2004. Management expects to continue to expand its commercial lending products and to emphasize in particular its relationship banking with businesses, and business owners.

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Real Estate Loans: Residential one-to-four family loans decreased $2.3 million to $47.2 million at March 31, 2005, representing 3% of total loans, compared with $49.6 million, or 4%, of total loans at December 31, 2004. The decrease in loans from December 31, 2004 is due to the effect of rising long-term interest rates which slowed refinancing activity and originations. These loans are used by the Company to collateralize outstanding advances from the FHLB. Generally, the Company’s policy is to originate residential loans for sale to third parties. Those residential loans are secured by properties located within the Company’s 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.

Commercial and five-or-more family residential real estate lending increased $18.0 million, or 3%, to $613.8 million at March 31, 2005, representing 43% of total loans, from $595.8 million, or 44% of total loans at December 31, 2004. Generally, commercial and five-or-more family residential real estate loans are made to borrowers who have existing banking relationships with the Company. The Company’s 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. The Company endeavors to maintain the highest practical underwriting standards while balancing the need to remain competitive in its lending practices.

Real Estate Construction Loans: The Company originates 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 provide financing to builders for the construction of pre-sold homes and speculative residential construction. Construction loans on one-to-four family residences increased $1.4 million, or 5%, to $28.2 million at March 31, 2005, representing 2% of total loans, from $26.8 million, or 2% of total loans at December 31, 2004. Commercial and five-or-more family real estate construction loans increased $6.3 million, or 9%, to $76.4 million at March 31, 2005, representing 5% of total loans, from $70.1 million, or 5% of total loans at December 31, 2004. This growth is due to the Company placing an increased emphasis on its Builder Banking program. The Company endeavors to limit its construction lending risk through adherence to strict underwriting procedures.

Consumer Loans: At March 31, 2005, the Company had $133.9 million of consumer loans outstanding, representing 9% of total loans, an increase of $1.8 million compared with $132.1 million at December 31, 2004. Consumer loans made by the Company include automobile loans, boat and recreational vehicle financing, home equity and home improvement loans and miscellaneous personal loans.

Foreign Loans: The Company is not involved with loans to foreign companies or foreign countries.

Nonperforming Assets

Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans placed on a nonaccrual basis when the loan becomes past due 90 days or when there are otherwise serious doubts about the collectibility of principal or interest; (ii) in most cases 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) real estate owned; and (iv) personal property owned.

Total nonperforming assets totaled $7.4 million, or 0.33% of period-end assets at March 31, 2005 from $9.1 million, or 0.42% of period-end assets at December 31, 2004.

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The following tables set forth, at the dates indicated, information with respect to nonaccrual loans, restructured loans, total nonperforming loans (nonaccrual loans plus restructured loans), real estate owned, other personal property owned, and total nonperforming assets of the Company:

(in thousands)	March 31, 2005		December 31, 2004
Nonaccrual:
Commercial business	$	5,613	$	6,587
Real estate:
One-to-four family residential		650		375
Commercial and five or more family residential real estate				440
Real estate construction:
One-to-four family residential		30
Consumer		890		820
Total nonaccrual loans		7,183		8,222
Restructured:
Commercial business		205		227
Total nonperforming loans		7,388		8,449
Real estate owned				680
Total nonperforming assets	$	7,388	$	9,129

Nonperforming 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. The policy of the Company generally is to discontinue the accrual of interest on all loans past due 90 days or more and place them on nonaccrual status.

Nonperforming loans were $7.4 million, or 0.51% of total loans (excluding loans held for sale) at March 31, 2005, compared to $8.4 million, or 0.62% of total loans at December 31, 2004. Nonaccrual loans decreased $1.0 million, or 13% from year-end 2004 to $7.2 million at March 31, 2005.

Nonaccrual loans and other 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 Company will continue its collection efforts and liquidation of collateral to recover as large a portion of the nonaccrual assets as possible. Substantially, all nonperforming loans are to borrowers within the states of Washington and Oregon.

Real Estate Owned: Real estate owned (“REO”), is comprised of property from foreclosed real estate loans. During the first quarter of 2005, the Company sold all of its REO property totaling $680,000 for net realized gains of $5,000. There were no foreclosures or additions to REO, recoveries of previously charged-off balances or write-downs during the first quarter of 2005.

Other Personal Property Owned: Other personal property owned (“OPPO”) is comprised of other, non-real estate property from foreclosed loans. The Company had no outstanding OPPO balance at March 31, 2005 and December 31, 2004. There were no foreclosures, additions or charge-offs of OPPO during the first quarter of 2005.

Provision and Allowance for Loan Losses

At March 31, 2005, the Company’s allowance for loan losses was $20.2 million, or 1.40% of total loans (excluding loans held for sale), 273% of nonperforming loans, and 273% of nonperforming assets. This compares with an allowance of $19.9 million, or 1.46% of the total loan portfolio, excluding loans held for sale, 235% of nonperforming loans, and 218% of nonperforming assets at December 31, 2004. In the first quarter of 2005, the Company allocated $890,000 to its provision for loan losses, compared to $300,000 in the first quarter of 2004. The increase in the provision for loan losses is due to the significant growth in the Company’s loan portfolio.

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The Company has used the same methodology for allowance calculations for the first quarter of 2005 and the year-ended December 31, 2004. 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. There were no significant changes during the first quarter of 2005 in estimation methods or assumptions that affected the Company’s methodology for assessing the appropriateness of the allowance. The Company maintains a conservative approach to credit quality and will continue to prudently add to its loan loss allowance as necessary in order to maintain adequate reserves. The Company’s credit quality measures continue to improve into the first quarter of 2005 from the year-ended 2004 and are some of the strongest in the Company’s history. Management carefully monitors the loan portfolio and continues to emphasize credit quality and strengthening of its loan monitoring systems and controls.

The following table provides an analysis of the Company’s allowance for loan losses at the dates and the periods indicated:

	Three Months Ended March 31,
(in thousands)	2005			2004
Beginning balance	$	19,881		$	20,261
Charge-offs:
Commercial business		(221	)		(665	)
Commercial real estate		(665	)
Consumer		(19	)		(49	)
Total charge-offs		(905	)		(714	)
Recoveries:
Commercial business		78			22
Commercial real estate		210
Consumer		25			89
Total recoveries		313			111
Net charge-offs		(592	)		(603	)
Provision charged to expense		890			300
Ending balance	$	20,179		$	19,958
Total loans, net at end of period (1)	$	1,436,820		$	1,131,531
Allowance for loan losses to total loans		1.40	%		1.76	%

⁽¹⁾ Excludes loans held for sale

In the first quarter of 2005, net charge-offs totaled $592,000 compared to net charge-offs of $603,000 during the same period of 2004. The net charge-offs during these periods were comprised of several loans.

Securities

At March 31, 2005, the Company’s securities (securities available for sale and securities held to maturity) decreased $23.9 million, or 4% to $608.1 million from $632.0 million at year-end 2004. In the first quarter of 2005, the Company purchased $2.9 million and received principal payments of $17.0 million and sold $1.6 million of securities at book value resulting in no gain or loss. Approximately 99% of the Company’s securities are classified as available for sale and carried at fair value. These securities are used by management as part of its asset/liability management strategy and may be sold in response to changes in interest rates or significant prepayment risk. In accordance with the Company’s investment strategy, management monitors market conditions with a view to realize gains on its available for sale securities portfolio when prudent. At March 31, 2005, the market value of securities available for sale had an unrealized loss of $3.2 million (net of tax) as compared to an unrealized gain of $909,000 (net of tax) at December 31, 2004. The change in market value of securities available for sale is due primarily to fluctuations in interest rates.

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The following table sets forth the Company’s securities portfolio by type for the dates indicated:

Securities Available for Sale

(in thousands)	March 31, 2005		December 31, 2004
U.S. Government agency	$	159,915	$	163,388
U.S. Government agency mortgage-backed securities & collateralized mortgage obligations		338,035		358,067
State & municipal securities		105,415		105,606
Other securities		1,653		1,836
Total	$	605,018	$	628,897
Securities Held to Maturity
(in thousands)	March 31, 2005		December 31, 2004
State & municipal securities	$	3,102	$	3,101

Liquidity and Sources of Funds

The Company’s primary sources of funds are customer deposits and advances from the Federal Home Loan Bank of Seattle (the “FHLB”). 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.

Deposit Activities

The Company’s deposit products include a wide variety of transaction accounts, savings accounts and time deposit accounts. Total deposits increased $6.1 million to $1.87 billion at March 31, 2005 from $1.86 billion at December 31, 2004. Core deposits (demand deposit, savings, and money market accounts) increased $11.5 million, or 1% and certificate of deposit balances decreased $5.4 million, or 1% compared to year-end 2004. Average core deposits decreased $2.6 million from quarter ended December 31, 2004 to $1.38 billion for the quarter ended March 31, 2005.

As equity markets improve, the Company recognizes that some of the deposit growth that occurred during the past couple of years may eventually be deployed elsewhere as customers regain confidence in those markets. At the same time, the Company anticipates growing its deposits through new customers and its current customer base as business and individual prosperity improves during an anticipated economic recovery.

The Company has established a branch system to serve its consumer and business depositors. In addition, management’s strategy for funding growth is to make use of brokered and other wholesale deposits. At March 31, 2005, brokered and other wholesale deposits (excluding public deposits) totaled $10.9 million, less than 1% of total deposits, down from $11.0 million at December 31, 2004. The brokered deposits have varied maturities.

Borrowings

The Company relies on FHLB advances to supplement its funding sources, and the FHLB serves 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, 2005, the Company had FHLB advances of $128.0 million, compared to advances of $68.7 million at December 31, 2004. Management anticipates that the Company will continue to rely on the same sources of funds in the future, and 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 6.31% at March 31, 2005. The floating rate is based on the 3-month LIBOR plus 3.58% and is adjusted quarterly. The Company through the Trust may call the debt at five years for a premium and at ten years at par, allowing the Company to retire the debt early if conditions are favorable. Prior to December 31, 2003, the Trust was considered a consolidated subsidiary of the Company. At December 31, 2003, the Company adopted Financial Accounting Standards Board Interpretation (FIN) No. 46 (as revised), “Consolidation of Variable Interest Entities,” whereby the Trust was deconsolidated with the result being that the trust preferred obligations are now classified as long-term subordinated debt and the Company’s related investment in the Trust is recorded in other assets. The balance of the long-term subordinated debt was $22.3 million at March 31, 2005 and $22.2 million at December 31, 2004. The subordinated debt payable to the Trust is on the same interest and payment terms as the trust preferred obligations issued by the Trust.

21

Additionally, The Company has a $10.0 million line of credit with a large commercial bank with an interest rate indexed to LIBOR. At March 31, 2005 and December 31, 2004, the outstanding balance was $2.5 million with an interest rate of 4.55% and 4.10%, respectively. In the event of discontinuance of the line by either party, the Company has up to two years to repay any outstanding balance.

Contractual Obligations & Commitments

The Company is party to many contractual financial obligations, including repayment of borrowings, operating and equipment lease payments, and commitments to extend credit. The table below presents certain future financial obligations of the Company.

	Payments due within time period at March 31, 2005
	0-12 Months		1-3 Years		4-5 Years		Due after Five Years		Total
	(in thousands)
Operating & equipment leases	$	3,408	$	5,367	$	5,092	$	14,289	$	28,156
Capital lease		154		231						385
FHLB advances		128,000								128,000
Other borrowings				2,500						2,500
Long-term subordinated debt								22,262		22,262
Total	$	131,562	$	8,098	$	5,092	$	36,551	$	181,303

At March 31, 2005, the Company had commitments to extend credit of $605.9 million compared to $588.2 million at December 31, 2004.

Capital Resources

Shareholders’ equity at March 31, 2005 was $204.8 million, up 1% from $203.2 million at December 31, 2004. The increase is due primarily to net income of $6.3 million for the quarter ended March 31, 2005. Shareholders’ equity was 9.13%, and 9.33% of total period-end assets at March 31, 2005, and December 31, 2004, respectively.

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, 2005 and December 31, 2004.

	Company				Columbia Bank				Astoria				Requirements
	3/31/2005		12/31/2004		3/31/2005		12/31/2004		3/31/2005		12/31/2004		Adequately capitalized		Well- capitalized
Total risk-based capital ratio	12.78	%	12.99	%	12.42	%	12.68	%	13.72	%	13.28	%	8	%	10	%
Tier 1 risk-based capital ratio	11.57	%	11.75	%	11.20	%	11.43	%	12.56	%	12.15	%	4	%	6	%
Leverage ratio	8.98	%	8.99	%	8.78	%	8.83	%	9.02	%	10.30	%	4	%	5	%

22

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, 2005 the Company had not repurchased any shares of common stock in this current stock repurchase program.

23

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, 2005, 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, 2004. For additional information, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” referenced in the Company’s annual report on Form 10-K for the year ended December 31, 2004.

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 required by Rule 13a-15(b) 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 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the SEC’s rules and forms.

Changes in Internal Controls Over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s first quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

24

PART II - OTHER INFORMATION

Item  6. EXHIBITS

3.1	The Second Amended and Restated Articles of Incorporation
3.2	Amended and Restated Bylaws
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

25

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 6, 2005	By	/s/ Melanie J. Dressel
		Melanie J. Dressel
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: May 6, 2005	By	/s/ Gary R. Schminkey
		Gary R. Schminkey
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

26

EX-3.1

EXHIBIT 3.1

CERTIFICATE

TO THE

SECOND AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

COLUMBIA BANKING SYSTEM, INC.

This Certificate to the Amended and Restated Articles of Incorporation of Columbia Banking System, Inc., a Washington corporation (the “Corporation”), are hereby executed and delivered for filing in accordance with the provisions of RCW § 23B.10.070:

ARTICLE 1

The name of the corporation, as set forth in the Articles of Incorporation, is COLUMBIA BANKING SYSTEM, INC.

ARTICLE 2

The Amended and Restated Articles of Incorporation of Columbia Banking System, Inc. are hereby amended and replaced in their entirety with the Second Amended and Restated Articles of Incorporation attached hereto as Exhibit A (the “Restated Articles”).

ARTICLE 3

The amendments do not provide for an exchange, reclassification, or cancellation of issued shares.

ARTICLE 4

In accordance with the provisions of RCW § 23B.10.030, the Amendments were approved by the Board of Directors on February 23, 2005 and by the Shareholders of Columbia on April 27, 2005.

DATED this 2^nd day of May 2005.

COLUMBIA BANKING SYSTEM, INC.
By	/s/ Kristy W. House
	Kristy W. House
	Its Secretary

EXHIBIT A

SECOND AMENDED AND RESTATED

ARTICLES OF INCORPORATION

FOR

COLUMBIA BANKING SYSTEM, INC.

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

COLUMBIA BANKING SYSTEM, INC.

The undersigned, being the Secretary of Columbia Banking System, Inc., executes in duplicate the following Amended and Restated Articles of Incorporation for the corporation.

ARTICLE 1

Section 1.1 The name of the corporation shall be COLUMBIA BANKING SYSTEM, INC.

ARTICLE 2

Section 2.1 The corporation’s period of duration shall be perpetual.

ARTICLE 3

Section 3.1 The purpose for which the corporation is organized is the transaction of any and all lawful business for which corporations may be incorporated under the Washington Business Corporation Act.

ARTICLE 4

Section 4.1 The aggregate number of shares which the corporation shall have authority to issue is 63,032,681 common shares with no par value (hereinafter referred to as “the common stock”) and 2,000,000 preferred shares with no par value (hereinafter referred to as “the preferred stock”). The preferred stock is senior to the common stock, and the common stock is subject to the rights and preferences of the preferred stock as provided in the following section.

Section 4.2 The board of directors is hereby vested with authority to divide any or all of the preferred stock into one or more series and, within the limitations set forth in the Washington Business Corporation Act (as amended from time to time), to fix and determine or to amend the relative rights and preferences of the shares of any series so established.

ARTICLE 5

Section 5.1 No shareholder shall have the preemptive right to acquire unissued shares of the corporation.

ARTICLE 6

Section 6.1 Each shareholder entitled to vote at any election for directors shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote, and no shareholder shall be entitled to cumulate his votes.

ARTICLE 7

Section 7.1 The corporation reserves the right to amend, alter, change or repeal any provision of its Articles of Incorporation to the extent permitted by the laws of the State of Washington. All rights of shareholders are granted subject to this reservation.

ARTICLE 8

Section 8.1 The corporation may enter into a contract and otherwise transact business as vendor, purchaser, or otherwise, with its directors, officers and shareholders, and with corporations, associations, firms and entities in which they are or may become interested as directors, officers, shareholders, members or otherwise, as freely as though such adverse interest did not exist, even though the vote, action or presence of such director, officer or shareholder may be necessary to obligate the corporation upon such contract or transaction; and in the absence of fraud, no such contract or transaction shall be avoided and no such director, officer or shareholder shall be held liable to account to the corporation, by reason of such adverse interest or any fiduciary relationship to the corporation arising out of such office or stock ownership, for any profit or benefit realized by him through any such contract or transaction; provided that the nature of the interest of such director, officer or shareholder, though not necessarily the details or extent thereof, be disclosed or known to the board of directors or shareholders of the corporation, at the meeting thereof at which such contract or transaction is authorized or confirmed. A general notice that a director, officer or shareholder of the corporation is interested in any corporation, association, firm or entity shall be sufficient disclosure as to such director, officer or shareholder with respect to all contracts and transactions with that corporation, association, firm or entity.

ARTICLE 9

Section 9.1 In addition to the requirements of any applicable statute, and notwithstanding any other provisions of any other articles of these Articles of Incorporation, the affirmative vote of not less than 66 2/3% of the total shares attributable to persons other than a Control Person (as defined below), considered for the purposes of this Article 9 as one class, which are entitled to be voted in an election of directors shall be required for the approval of any Business Combination (as defined below) between the corporation and any Control Person.

Section 9.2 The approval requirements of Section 9.1 shall not apply if either:

(a) The Business Combination is approved by at least a majority of Continuing Directors (as defined below) of the corporation; or

(b) All the following conditions are satisfied:

(i) The cash or fair market value of the property, securities or other consideration to be received per share in the Business Combination by holders of the common stock of the corporation is not less than the higher of: (A) the highest price per share (including brokerage commissions, soliciting dealers, fees and dealer-management compensation) paid by such Control Person in acquiring any of its holdings of the corporation’s common stock; (B) the highest per share market price of the common stock during the three-month period immediately preceding the date of the proxy statement described in (iii) below; or (C) the per share value of the common stock at the end of the fiscal quarter immediately prior to the Business Combination,

as determined by an appraisal prepared by persons, selected by the Continuing Directors, who are independent of the corporation and the Control Person, and who are experienced and expert in the area of corporate appraisal.

(ii) After becoming a Control Person and prior to the consummation of such Business Combination (A) such Control Person shall not have acquired any newly issued shares of capital stock, directly or indirectly, from the corporation (except upon conversion of convertible securities acquired by it prior to becoming a Control Person or upon compliance with the provisions of this Article 9 or as a result of a pro rata stock dividend or stock split), and (B) such Control Person shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation, or made any major changes in the corporation’s business or equity capital structure; and

(iii) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, whether or not the corporation is then subject to such requirements, shall be mailed to the public stockholders of the corporation for the purpose of soliciting stockholder approval of such Business Combination.

Section 9.3 For the purpose of this Article 9

(a) The term “Business Combination” shall mean (i) any merger or consolidation of the corporation with or into a Control Person, (ii) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any Substantial Part (as defined below) of the assets of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary, to a Control Person, (iii) any merger or consolidation of a Control Person with or into the corporation or a subsidiary of the corporation, (iv) any sale, lease, exchange, transfer or other disposition of all or any Substantial Part of the assets of a Control Person to the corporation or a subsidiary of the corporation, (v) the issuance of any securities of the corporation or a subsidiary of the corporation to a Control Person, (vi) the acquisition by the corporation or a subsidiary of the corporation of any securities of a Control Person, (vii) any reclassification of common stock of the corporation, or any recapitalization involving common stock of the corporation, consummated within five years after a Control Person becomes a Control Person, or (viii) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination;

(b) The term “Continuing Director” shall mean (i) a director who was a member of the board of directors of the corporation immediately prior to the time that a Control Person became the beneficial owner (as this term is defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 on the date on which this amendment becomes effective) of 10% or more of the outstanding shares of common stock of the corporation or (ii) a person so designated before initially becoming a director by a majority of the then Continuing Directors.

(c) The term “Control Person” shall mean and include any individual, corporation, partnership or other person or entity which, together with their Affiliates and Associates (as those terms are defined on the date on which this amendment becomes effective in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934) is the beneficial owner in the aggregate of 20% or more of the outstanding shares of common stock of the corporation, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity;

(d) The term “Substantial Part” shall mean more than 10% of the total assets of the corporation in question, as of the end of its most recent fiscal year prior to the time the determination is being made;

(e) Without limitation, any shares of common stock of the corporation which any Control Person has the right to acquire at any time pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed outstanding and beneficially owned by such Control Person for purposes of this Article 9; and

(f) For the purposes of Section 9.2(b)(i) of this Article 9, the phrase “other consideration to be received” shall include, without limitation, common stock of the corporation retained by its existing public stockholders in the event of a Business Combination with such Control Person in which the corporation is the surviving corporation.

Section 9.4 For the purposes of this Article 9, a majority of the Continuing Directors shall have the power and duty to determine on the basis of information known to them (a) whether a proposed transaction is subject to the provisions of this Article 9, (b) the amount of shares of the corporation Beneficially Owned by any person, (c) whether a person is an Affiliate or Associate of another, and (d) such other matters as to which a determination may be required by the provisions of this Article 9.

Section 9.5 The provisions set forth in this Article 9 may not be repealed or amended in any respect or in any manner including any merger or consolidation of the corporation with any other corporation unless the surviving corporation’s Articles of Incorporation contain an article to the same effect as this Article 9, except by the affirmative vote of the holders of not less than 66 2/3% of the outstanding shares of common stock of the corporation, subject to the provisions of any series of preferred stock which may at the time be outstanding; provided, however, that if there is a Control Person such action must be approved by not less than 66 2/3% of the total shares entitled to be voted in an election of directors attributable to shares owned by person other than the Control Persons.

ARTICLE 10

Section 10.1 The board of directors of the corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of the corporation, (b) merge or consolidate the corporation with another corporation, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its stockholders, give due consideration to all relevant factors, including without limitation the social and economic effects on the employees, customers, suppliers and other constituents of the corporation and its subsidiaries and on the communities in which the corporation and its subsidiaries operate or are located.

ARTICLE 11

Section 11.1 Defined Terms. As used in this Article 11:

(a) “Egregious conduct” by a person shall mean acts or omissions that involve intentional misconduct or a knowing violation of law, conduct violating section 23B. of the Revised Code of Washington, or participation in any transaction from which the person will personally receive a benefit in money, property, or services to which the person is not legally entitled.

(b) “Finally adjudged” shall mean stated in a judgment based upon clear and convincing evidence by a court having jurisdiction, from which there is no further right to appeal.

(c) “Director” shall mean any person who is a director of the corporation and any person who, while a director of the corporation, is serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of the corporation or of any employer in which it has an ownership interest; and “conduct as a director” shall include conduct while a director is acting in any of such capacities.

(d) “Officer-director” shall mean any person who is simultaneously both an officer and director of the corporation and any person who, while simultaneously both an officer and director of the corporation, is serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of the corporation or of any employer in which it has an ownership interest; and “conduct as an officer-director” shall include conduct while an officer-director is acting as an officer of the corporation or in any of such other capacities.

(e) “Subsidiary corporation” shall mean any corporation at least eighty percent of the voting stock of which is held beneficially by this corporation.

Section 11.2 - Liability of Directors. No director, officer-director, former director or former officer-director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for conduct as a director or officer-director occurring after the effective date of this Article 11 unless the conduct is finally adjudged to have been egregious conduct, as defined herein.

Section 11.3 - Liability of Subsidiary Directors. No director, officer-director, former director, or former officer-director of a subsidiary corporation shall be personally liable in any action brought directly by this corporation as a shareholder of the subsidiary corporation or derivatively on behalf of the subsidiary corporation (or by any shareholder of this corporation double-derivatively on behalf of this corporation and the subsidiary corporation) for monetary damages for conduct as a director or officer-director of such subsidiary corporation occurring after the effective date of this Article 11 unless the conduct is finally adjudged to have been egregious conduct, as defined herein.

Section 11.4 - Indemnification of Directors. The corporation shall indemnify any person who is, or is threatened to be made, a party to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and whether by or in the right of the corporation or its shareholders or by any other party, by reason of the fact that the person is or was a director or officer-director of the corporation or of a subsidiary corporation against judgments, penalties or penalty taxes, fines, settlements (even if paid or payable to the corporation or its shareholders or to a subsidiary corporation) and reasonable expenses, including attorneys’ fees, actually incurred in connection with such proceeding unless the liability and expenses were on account of conduct finally adjudged to be egregious conduct, as defined herein. The reasonable expenses, including attorneys’ fees, of such person incurred in connection with such proceeding shall be paid or reimbursed by the corporation, upon request of such person, in advance of the final disposition of such proceeding upon receipt by the corporation of a written, unsecured promise by the person to repay such amount if it shall be finally adjudged that the person is not eligible for indemnification. All expenses incurred by such person in connection with such proceeding shall be considered reasonable unless finally adjudged to be unreasonable.

Section 11.5 - Procedure. No action by the board of directors, the shareholders, independent counsel, or any other person or persons shall be necessary or appropriate to the determination of the corporation’s indemnification obligation in any specific case, to the determination of the reasonableness of any expenses incurred by a person entitled to indemnification under this Article 11, nor to the authorization of indemnification in any specific case.

Section 11.6 Internal Claims Expected. Notwithstanding section 11.4, the corporation shall not be obligated to indemnify any person for any expenses, including attorneys’ fees, incurred to assert any claim against the corporation (except a claim based on section 11.7) or any person related to or associated with it, including any person who would be entitled hereby to indemnification in connection with the claim.

Section 11.7 - Enforcement of Rights. The corporation shall indemnify any person granted indemnification rights under this Article 11 against any reasonable expenses incurred by the person to enforce such rights.

Section 11.8 - Set-off of Claims. Any person granted indemnification rights herein may directly assert such rights in set-off of any claim raised against the person by or in the right of the corporation and shall be entitled to have the same tribunal which adjudicates the corporation’s claim adjudicate the person’s entitlement to indemnification by the corporation.

Section 11.9 - Continuation of Rights. The indemnification rights provided in this Article 11 shall continue as to a person who has ceased to be a director or officer-director and shall inure to the benefit of the heirs, executors, and administrators of such person.

Section 11.10 - Effect of Amendment or Repeal. Any amendment or repeal of this Article 11 shall not adversely affect any right or protection of a director, officer-director, former director or former officer-director existing at the time of such amendment or repeal with respect to acts or omissions occurring prior to such amendment or repeal.

Section 11.11 - Severability of Provisions. Each of the substantive provisions of this Article 11 is separate and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions.

These Amended and Restated Articles of Incorporation correctly set forth without change the corresponding provisions of the Articles of Incorporation as heretofore amended, and supersede the original Articles of Incorporation and all amendments thereto.

Executed in duplicate this 2^nd of May 2005.

COLUMBIA BANKING SYSTEM, INC.
By:	/s/ Kristy W. House
	Kristy W. House, Secretary

EX-3.2

EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS OF

COLUMBIA BANKING SYSTEM, INC.

April 27, 2005

TABLE OF CONTENTS

	Page
ARTICLE 1 Meetings of Shareholders	3
SECTION 1.1 - Shareholder Meetings	3
SECTION 1.2 - Annual Meeting	3
SECTION 1.3 - Special Meetings	3
SECTION 1.4 - Notice	3
SECTION 1.5 - Quorum	3
SECTION 1.6 - Adjournment	3
SECTION 1.7 - Chairman of Meeting	3
SECTION 1.8 - Secretary of Meeting	4
SECTION 1.9 - Conduct of Meetings	4
SECTION 1.10 - Voting	4
SECTION 1.11 - Proxies	4
SECTION 1.12 - Shareholder Advisor	4
SECTION 1.13 - Recording of Proceedings	4
SECTION 1.14 - Record Date	4
SECTION 1.15 - List of Shareholders	4
SECTION 1.16 - Shareholder Proposals	4
ARTICLE 2 Directors	6
SECTION 2.1 - Management of Corporation	6
SECTION 2.2 - Number of Directors	6
SECTION 2.3 - Qualifications of Directors	6
SECTION 2.4 - Nomination of Directors	6
SECTION 2.5 - Annual Meetings	7
SECTION 2.6 - Place of Meetings	7
SECTION 2.7 - Regular Meetings	7
SECTION 2.8 - Special Meetings	7
SECTION 2.9 - Notices	7
SECTION 2.10 - Quorum	7
SECTION 2.11 - Attendance by Conference Telecommunication	7
SECTION 2.12 - Consent to Action	7
SECTION 2.13 - Compensation	7
SECTION 2.14 - Manifestation of Dissent	8
ARTICLE 3 Committees of the Board of Directors	8
SECTION 3.1 - Executive Committee	8
SECTION 3.2 - Audit Committee	8
SECTION 3.3 - Other Committees	8
SECTION 3.4 - Rules of Procedure	8

ARTICLE 4 Officers and Employees	8
SECTION 4.1 - Officers	8
SECTION 4.2 - Election	9
SECTION 4.3 - Removal and Vacancy	9
SECTION 4.4 - Compensation	9
SECTION 4.5 - Exercise of Rights as Stockholders	9
SECTION 4.6 - Duties of Chairman of the Board	9
SECTION 4.7 - Duties of Vice Chairman	9
SECTION 4.8 - Duties of Chief Executive Officer	9
SECTION 4.9 - Duties of President	10
SECTION 4.10 - Duties of Vice President	10
SECTION 4.11 - Duties of Secretary	10
SECTION 4.12 - Duties of Treasurer	10
SECTION 4.13 - Other Officers	10
SECTION 4.14 - Clerks and Agents	10
ARTICLE 5 Shares and Certificates for Shares	10
SECTION 5.1 - Consideration	10
SECTION 5.2 - Stock Certificates	11
SECTION 5.3 - Lost Certificates	11
SECTION 5.4 - Transfer of Shares	11
SECTION 5.5 - Holder of Record	11
SECTION 5.6 - Issuance of Shares	11
SECTION 5.7 - Subscriptions	11
SECTION 5.8 - Payment of Subscriptions	11
SECTION 5.9 - Default in Payment of Subscriptions	11
ARTICLE 6 Seal	12
SECTION 6.1 - Corporate Seal	12
ARTICLE 7 Miscellaneous Provisions	12
SECTION 7.1 - Fiscal Year	12
SECTION 7.2 - Records	12
ARTICLE 8 Bylaws	12
SECTION 8.1 - Inspection	12
SECTION 8.2 - Amendments	12

RESTATED BYLAWS OF

COLUMBIA BANKING SYSTEM, INC.

ARTICLE 5

Meetings of Shareholders

SECTION 5.1 - Shareholder Meetings. Shareholder meetings shall be held at the principal office of the corporation, or at such other location within or without the State of Washington as shall be determined by the Board of Directors and stated in the Notice of Meeting.

SECTION 5.2 - Annual Meeting. The regular annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such day and at such time following the close of the corporation’s fiscal year as shall be determined each year by the Board of Directors. If such annual meeting is omitted by oversight or otherwise during such period, a subsequent annual meeting may nonetheless be held, and any business transacted or elections held at such meeting shall be as valid as if the annual meeting had been held during the period provided above.

SECTION 5.3 - Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman, the Chief Executive Officer, the President, a majority of the Board of Directors, or any shareholder or shareholders holding in the aggregate not less than one-tenth of all shares entitled to vote at the special meeting. Shareholders may hold a meeting at any time and place without notice or call, upon appropriate waivers signed by all shareholders who are entitled to vote at a shareholders’ meeting.

SECTION 5.4 - Notice. Written notice stating the place, day, and hour of the meeting, and in case of a special meeting the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) days nor more that sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman, the Chief Executive Officer, the President, the Secretary, or the person or persons calling the meeting to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. Each shareholder shall be responsible for providing the Secretary with the shareholder’s current mailing address to which notices of meetings and all other corporate notices may be sent. A shareholder may waive any notice required for any meeting by executing a written waiver of notice either before or after said meeting and such waiver shall be equivalent to the giving of such notice. The attendance of a shareholder at a shareholders’ meeting, in person or by proxy, shall constitute a waiver of notice of the meeting.

SECTION 5.5 - Quorum. A majority of the shares entitled to vote shall constitute a quorum at a meeting of shareholders. When a quorum is present at any meeting, action on a matter, other than the election of directors, is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless otherwise provided by the Articles of Incorporation or law.

SECTION 5.6 - Adjournment. A majority of the shares represented at a meeting, even if less than a quorum, may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally stated in the notice of meeting. The shareholders present at a duly organized meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

SECTION 5.7 - Chairman of Meeting. The Chairman, or in his absence, the Chief Executive Officer, or the President, shall preside at all meetings of the shareholders unless the Board of Directors shall otherwise determine. The Board of Directors may appoint any shareholder to act as chairman of the meeting.

SECTION 5.8 - Secretary of Meeting. The Secretary shall act as a secretary at all meeting of the shareholders, and in his absence, the presiding officer may appoint any person to act as secretary.

SECTION 5.9 - Conduct of Meetings. Shareholder meetings shall be conducted in an orderly and fair manner, but the presiding officer shall not be bound by any technical rules of parliamentary procedure.

SECTION 5.10 - Voting. Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholder.

SECTION 5.11 - Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder of by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

SECTION 5.12 - Shareholder Advisor. A shareholder or holder of a valid proxy may be accompanied at any shareholders’ meeting by one personal advisor, but no such advisor may address the meeting without the consent of the presiding officer.

SECTION 5.13 - Recording of Proceedings. The proceedings of a shareholders’ meeting may not be mechanically or electronically recorded other than by the Secretary or acting secretary without the express approval of all individuals in attendance at the meeting.

SECTION 5.14 - Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall not be more than sixty (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed by the Board of Directors, the date on which notice of the meeting is mailed or the date on which the resolution of the Board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

SECTION 5.15 - List of Shareholders. The Secretary of the corporation shall make a complete record of the shareholders entitled to vote at a meeting of shareholders, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each as shown on the corporation’s stock transfer books on the record date. Such record shall be kept on file at the registered office of the corporation for a period of ten (10) days prior to the meeting of shareholders. Such record shall be produced and kept open at the time and place of the shareholders’ meeting and shall be subject to the inspection of any shareholder during the meeting for any proper purpose.

SECTION 5.16 - Shareholder Proposals. At an annual meeting of the shareholders, only such business will be conducted as will have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a shareholder. For nominations or other business to be properly brought before a shareholder meeting by a shareholder pursuant to clause (C) of the preceding sentence, the shareholder must have given timely notice thereof in writing to the Secretary of the bank and such other business must otherwise be a proper matter for action. To be timely for purposes of advance notice requirements, a shareholder’s proposal must be delivered to the Secretary

at the principal executive offices of the bank not less than one hundred twenty (120) calendar days in advance of the first anniversary of the date the bank’s proxy statement was mailed to shareholders for the preceding year’s annual meeting. In no event will the public announcement of an adjournment of a shareholder meeting commence a new time period for the giving of a shareholder’s notice as described above. A shareholder’s notice to the secretary must set forth as to each matter the proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the bank’s books, of the shareholder proposing such business, (c) the class and number of shares of the bank which are owned beneficially by such shareholder, (d) any material interest of the shareholder in such business, and (e) any other information that is required to be provided by the shareholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”) (or any successor thereto) in such shareholder’s capacity as a proponent of a proposal. Notwithstanding anything in these Bylaws to the contrary, no business will be conducted at any annual meeting except in accordance with the procedures set forth in this section. The Chairman of the annual meeting will, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this section, and, if the Chairman should so determine, he will so declare at the meeting that any such business not properly brought before the meeting will not be transacted.

ARTICLE 6

Directors

SECTION 6.1 - Management of Corporation. All corporate powers shall be exercised by, or under authority of, and the business and affairs of the corporation shall be managed under the direction of the Board of Directors (hereinafter sometimes referred to as the “Board”).

SECTION 6.2 - Number of Directors. The initial number of directors is stated in the Articles of Incorporation. The number to be elected by the shareholders shall consist of not less than five (5) nor more than twenty-five (25) persons. The exact number within such minimum and maximum limits shall be fixed and determined by resolution of the Board of Directors. The number of directors elected by the shareholders at the last preceding annual meeting may be increased by not more than two (2) directors by the Board between annual meetings of the shareholders. The Board of Directors may appoint qualified persons to fill vacancies on the Board of Directors, whether caused by resignation, death or otherwise; provided, that at no time shall the total number of directors exceed twenty-five (25)

SECTION 6.3 - Qualifications of Directors. Any person who will not attain the age of 75 before the meeting of shareholders at which elected (or had not attained that age by the date of the last annual meeting of shareholders, if appointed) may become a director of this corporation.

SECTION 6.4 - Nomination of Directors. Only persons who are nominated in accordance with this section will be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth below. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation To be timely for purposes of advance notice requirements, a shareholder nomination must be delivered to the Secretary at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the first anniversary of the date the corporation’s proxy statement was released to shareholders for the preceding year’s annual meeting. Such shareholder’s notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the shareholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (or any successor thereto) (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice (a) the name and address, as they appear in the corporation’s books, of the nominating shareholder; (b) the number of shares of the corporation which are owned beneficially by such shareholder; and (c) any other information that is required to be provided by the shareholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended in such shareholder’s capacity as a proponent of a shareholder nomination. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the Chairman of the corporation, c/o of the Corporate Secretary, that information required to be set forth in the shareholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with these procedures. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures, and if he should so determine, he shall so declare at the meeting, and the

defective nomination shall be disregarded. Nominations submitted pursuant to these procedures will be reviewed and considered by the Nominating Committee.

SECTION 6.5 - Annual Meetings. Immediately after the annual meeting of shareholders, the Directors shall meet to elect officers and transact any other business.

SECTION 6.6 - Place of Meetings. Meetings of the Board of Directors, regular or special, may be held within or without this state.

SECTION 6.7 - Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as the Board may by vote from time to time designate.

SECTION 6.8 - Special Meetings. Special meetings of the Board of Directors may be called by the Chairman, the Chief Executive Officer, the President, or by any two (2) directors.

SECTION 6.9 - Notices. Notices of special meetings of the Board of Directors stating the date, time, place and in general terms the purpose or purposes thereof shall be delivered to each director, by mailing written notice at least two (2) days before the meeting or by telephoning, telegraphing or personally advising each director at least one (1) day before the meeting. A special meeting shall be held not more than twenty (20) days after the delivery of said notice. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the director at the address provided to the Secretary. An entry of the service of notice, given in the manner above provided, shall be made in the minutes of the proceedings of the Board of Directors, and such entry, if read and approved at the subsequent meeting of the Board, shall be conclusive on the question of service. Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. A director also may waive any notice required for any meeting by executing a written waiver of notice either before or after said meeting, and such waiver shall be equivalent to the giving of such notice.

SECTION 6.10 - Quorum. A majority of the directors shall constitute a quorum for the transaction of business. Unless otherwise provided in the Articles of Incorporation or these Bylaws, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. A majority of those present at the time and place of any regular or special meeting, although less than a quorum, may adjourn from time to time, without further notice, until a quorum shall attend. When a quorum shall attend, any business may be transacted which might have been transacted at the meeting had the same been held on the date stated in the notice of meeting.

SECTION 6.11 - Attendance by Conference Telecommunication. Members of the Board of Directors may participate in a meeting of such Board by means of a conference telephone or similar communications equipment, by means of which all person participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting.

SECTION 6.12 - Consent to Action. Any action which may be taken at a meeting of the Board of Directors, or at a meeting of any committee of the Board, may be taken without a meeting if a consent in writing, setting forth the action so taken shall be signed by all of the directors or all the members of the committee. Such consent shall have the same force and effect as a unanimous vote at a duly convened meeting.

SECTION 6.13 - Compensation. The directors shall receive such reasonable compensation for their services as directors and as members of any committee appointed by the Board as may be prescribed by the Board of Directors, and may be reimbursed by the corporation for ordinary and reasonable expenses incurred in the performance of their duties.

SECTION 6.14 - Manifestation of Dissent. A director of the corporation who is present at a meeting of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

ARTICLE 7

Committees of the Board of Directors

SECTION 7.1 - Executive Committee. By resolution adopted by a majority of the entire Board of Directors, the Board may designate from among its members an Executive Committee of not less than five (5) nor more than nine (9) members, including the Chairman, the Chief Executive Officer, and the President. The Chairman, or in his absence the Chief Executive Officer, shall act as chairman of the Executive Committee. Any member of the Board may serve as an alternate member of the Executive Committee in the absence of a regular member or members. The Executive Committee shall have and may exercise all of the authority of the Board of Directors during the intervals between meetings of the Bank, except that the committee shall not have the authority to: (1) authorize or approve a distribution or issuance of shares, except according to a general formula or method prescribed by the Board of Directors, (2) approve or propose to shareholders actions or proposals requiring shareholder approval, (3) fill vacancies on the Board of Directors or any committee thereof, (4) amend the Articles of Incorporation pursuant to RCW 23B.10.020, (5) adopt, amend or repeal Bylaw s, (6) approve a plan of merger not requiring shareholder approval, or (7) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except within certain limits specifically prescribed by the Board of Directors.

SECTION 7.2 - Audit Committee. By resolution adopted by a majority of the entire Board of Directors, the Board may appoint from among its members an Audit Committee of three (3) or more, none of whom shall be active officers of the corporation, and may designate one (1) of such members as chairman of the Committee. The Board may also designate one or more directors as alternates to serve as a member or members of the Committee in the absence of a regular member or members. The Committee shall establish and maintain continuing communications between the Board and the corporation’s independent auditors, internal auditors, and members of financial management with respect to the audit of the corporation’s accounts and financial affairs and the audit of the corporation’s controlled subsidiaries. The Committee shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors.

SECTION 7.3 - Other Committees. By resolution adopted by a majority of the entire Board of Directors, the Board may designate from among its members such other committees as it may deem necessary, each of which shall consist of not less than two (2) directors and have such powers and duties as may from time to time be prescribed by the Board.

SECTION 7.4 - Rules of Procedure. The majority of the members of any committee may fix its rules of procedure. All actions by any committee shall be reported in written minutes available at any reasonable time to any Board member. Such actions shall be subject to revision, alteration and approval by the Board of Directors; provided, that no rights or acts of third parties who have relied in good faith on the authority granted herein shall be affected by such revision or alteration.

ARTICLE 8

Officers and Employees

SECTION 8.1 - Officers. The Board of Directors shall elect a Chairman, a Chief Executive Officer, and a President. It shall also elect one or more Vice Presidents, a Secretary and a Treasurer and such additional

officers as in the opinion of the Board the business of the corporation requires. The Board may also elect or appoint, or in its discretion delegate to the Chief Executive Officer the authority to appoint, from time to time such other or additional officers as are desirable for the conduct of the business of the corporation.

SECTION 8.2 - Election. The Chairman, the Chief Executive Officer and the President shall be directors. These persons shall be elected annually by the Board of Directors and they shall hold office at the pleasure of the Board of Directors.

SECTION 8.3 - Removal and Vacancy. Any officer, agent, or employee of the corporation may be removed by the Board of Directors at any time with or without cause. Such removal, however, shall be without prejudice to the contract rights, if any, of the persons so removed. Election or appointment of an officer or agent or employee shall not of itself create contract rights. If any corporate office becomes vacant by reason of death, resignation, removal or otherwise, the Board of Directors or the executive officer possessing delegated authority to appoint such an officer, shall have power to fill such vacancies. In case of the absence or disability of any officer, the Board of Directors or the Chief Executive Officer may delegate the powers or duties of any such officer to another officer for the time being.

SECTION 8.4 - Compensation. The compensation of the Chief Executive Officer shall be fixed by the Board of Directors. Unless fixed by the Board of Directors, the compensation for all other officers, employees or agents of the corporation shall be established by or at the direction of the Chief Executive Officer.

SECTION 8.5 - Exercise of Rights as Stockholders. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer or the Chief Executive Officer’s designee acting by written designation, shall have full power and authority on behalf of the corporation to attend and to vote at any meeting of shareholders of any corporation in which this corporation may hold stock, other than in a fiduciary capacity, and may exercise on behalf of this corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, and shall have power and authority to execute and deliver proxies and consents on behalf of this corporation in connection with the exercise by this corporation of the rights and powers incident to the ownership of such stock. The Board of Directors, from time to time, may confer like powers upon any other person or persons.

SECTION 8.6 - Duties of Chairman of the Board. The Chairman shall preside at all meetings of the shareholders and at meetings of the Board of Directors and the Executive Committee; provided, however, that the Chairman of the Board shall not, by reason of such office, be considered an executive officer of the corporation or be assigned executive responsibilities or participate in the operational management of the corporation.

SECTION 8.7 - Duties of Vice Chairman. The Vice Chairman shall have such powers and exercise such other duties as shall be delegated to such officer by the Chief Executive Officer or the Board.

SECTION 8.8 - Duties of Chief Executive Officer. The Chief Executive Officer shall have general management of the business of the corporation. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors and the Executive Committee are carried into effect and shall have general supervision over the property, business, and affairs of the corporation and its several officers. The Chief Executive Officer shall be the person to whom the President, and all other officers designated by the Chief Executive Officer, shall report. The Chief Executive Officer may delegate such duties as such officer sees fit to delegate to the President, or other officers of the corporation. The Chief Executive Officer may appoint agents or employees other than those appointed by the Board of Directors, and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the Bylaws.

SECTION 8.9 - Duties of President. The President shall, subject to the authority granted to the Chief Executive Officer, be the chief operating officer of the corporation and shall have general supervision over the day-to-day business of the corporation. The President shall have such other authority and shall exercise such other duties as shall, from time to time, be delegated to such officer by the Chief Executive Officer or by the Board. Unless otherwise determined by the Board of Directors, the President shall perform all of the duties of the Chief Executive Officer in case of absence or disability of the Chief Executive Officer.

SECTION 8.10 - Duties of Vice President. The Vice Presidents shall have such powers and perform such duties as may be assigned to them by the Board of Directors or the Chief Executive Officer. A Vice President designated by the Board of Directors shall perform all of the duties of the President in case of absence or disability of the President.

SECTION 8.11 - Duties of Secretary. The Secretary shall, subject to the direction of the Chief Executive Officer keep the minutes of all meetings of the shareholders and of the Board of Directors, and to the extent ordered by the Board of Directors or the Chief Executive Officer the minutes of all meetings of all committees. The Secretary shall cause notice to be given of the meetings of the shareholders, of the Board of Directors, and of any committee appointed by the Board. The Secretary shall have custody of the corporate seal and general charge of the records, documents, and papers of the corporation not pertaining to the performance of the duties vested in other officers, which shall at all reasonable times be open to the examination of any director. Without limiting the generality of the foregoing, the Secretary shall have charge (directly or through such transfer agents or registrars as the Board of Directors may appoint) of the issuance, transfer, and registration of certificates for shares of the corporation and of the records pertaining thereto. Said records shall be kept in such manner as to show at any time the number of shares of the corporation issued and outstanding, the manner in which and the time when such shares were paid for, the names and addresses of the holders of record thereof, the numbers and classes of shares held by each, and the time when each became such holder of record. The Secretary shall perform such other duties as may be assigned by the Board of Directors or the Chief Executive Officer.

SECTION 8.12 - Duties of Treasurer. Except as otherwise set forth herein, the Treasurer shall, subject to the direction of the Chief Executive Officer have general custody of all the property, funds and securities of the corporation and have general supervision of the collection and disbursement of funds of the corporation. The Treasurer shall provide for the keeping of proper records of all transactions of the corporation, and shall perform such other duties as may be assigned to him by the Board of Directors or the Chief Executive Officer.

SECTION 8.13 - Other Officers. Such other officers as shall be appointed by the Board of Directors, or the Chief Executive Officer, acting pursuant to delegated authority of the Board, shall exercise such powers and perform such duties as pertain to their several offices, or as may be conferred upon, or assigned to, them by the Board of Directors or the Chief Executive Officer or such officer’s designee.

SECTION 8.14 - Clerks and Agents. The Chief Executive Officer, or any other officer of the corporation authorized by the Chief Executive Officer, may, subject to the supervision of the Board of Directors, appoint such custodians, bookkeepers and other clerks, agents, and employees as he shall deem advisable for the prompt and orderly transaction of the business of the corporation and shall define their duties, fix the salaries to be paid to them and dismiss them.

ARTICLE 9

Shares and Certificates for Shares

SECTION 9.1 - Consideration. Certificates for shares of the corporation shall be issued only when fully paid for.

SECTION 9.2 - Stock Certificates. The certificates shall be in such form as designated by the Board of Directors, shall be numbered in the order in which they shall be issued, and shall be signed, either manually or in facsimile, by the Chief Executive Officer and by the Secretary, or by such officers as may be designated by the Board of Directors. If a corporate seal is maintained, it or a facsimile thereof may be affixed to the certificates. Each certificate shall state upon its face the name of the corporation and that the corporation is organized under the laws of the State of Washington, the name of the person to whom it is issued, and the number and class of shares and the designation of the series, if any, the certificate represents.

SECTION 9.3 - Lost Certificates. No new certificates shall be issued until the former certificate for the shares represented thereby shall have been surrendered and cancelled, except in the case of lost or destroyed certificates, and in that case only after the receipt of a bond or other security by the corporation, satisfactory to the Board of Directors, indemnifying the corporation and all persons against loss in consequence of the issuance of such new certificate.

SECTION 9.4 - Transfer of Shares. Shares of the corporation may be transferred by endorsement by the signature of the owner, his agent, attorney or legal representative, and the delivery of the certificate; but no transfer shall be valid except between the parties thereto, until the same shall have been entered upon the books of the corporation, so as to show the names of the parties, by and to whom transferred, the numbers and designation of the shares and the date of transfer.

SECTION 9.5 - Holder of Record. The person registered on the books of the corporation as the owner of the issued shares shall be recognized by the corporation as the person exclusively entitled to have and to exercise the rights and privileges incident to the ownership of such shares. Notwithstanding the preceding sentence, the Board of Directors may adopt by resolution a procedure whereby a shareholder may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. Upon receipt by the corporation of a certification complying with such an adopted procedure, the person specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification.

SECTION 9.6 - Issuance of Shares. Any shares authorized but not issued by this corporation shall be issued, sold, or otherwise transferred by this corporation only upon authorization of the Board of Directors.

SECTION 9.7 - Subscriptions. A subscription for shares of this corporation shall be in writing and upon such terms as may be approved by the Board of Directors.

SECTION 9.8 - Payment of Subscriptions. A subscription for shares shall be paid in accordance with the terms set forth in the subscription or related subscription agreement, if any. If the subscription or subscription agreement does not require payment on or before a stated date or at a fixed period after a stated date, then payment shall be made in such manner and at such times as may be determined by the Board of Directors and expressed by it in a written call for payment; provided that the call shall be uniform as to all shares of the same class or series and that the call shall be mailed to each subscriber at his last post office address known to the corporation at least thirty (30) days in advance of the date upon which payment or the first installment, if installment payments are called for, is due.

SECTION 9.9 - Default in Payment of Subscriptions. If a payment required by a subscription, a subscription agreement, or a call of the Board of Directors is not paid when due, then the corporation may make written demand for payment upon the defaulting subscriber by personal service or by mailing a copy of the demand to the subscriber at his last post office address known to the corporation. If the payment is not made within twenty (20) days of the serving or mailing of the demand for payment, the corporation may terminate the subscription, forfeit the subscriber’s rights thereunder, retain as liquidated damages any sums previously paid

on the subscription, and hold and dispose of the shares as though never subject to the subscription. In lieu of forfeiture, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation.

ARTICLE 10

Seal

SECTION 10.1 - Corporate Seal. In the exercise of its discretion the Board of Directors may adopt and maintain a suitable seal for the corporation.

ARTICLE 11

Miscellaneous Provisions

SECTION 11.1 - Fiscal Year. The fiscal year of the corporation shall be the calendar year.

SECTION 11.2 - Records. The Articles of Incorporation, the Bylaws, and the proceedings of all meetings of the shareholders, the Board of Directors and standing committees of the Board shall be recorded in appropriate minute books provided for that purpose. The minutes of each meeting shall be signed by the Secretary or other officer appointed to act as Secretary.

ARTICLE 12

Bylaws

SECTION 12.1 - Inspection. A copy of the Bylaws, with all amendments thereto, shall at all times be kept in a convenient place at the principal office of the corporation, and shall be open for inspection of all shareholders during normal business hours.

SECTION 12.2 - Amendments. The Bylaws may be amended, altered or repealed, at any regular meeting of the Board of Directors, by a vote of the majority of the whole Board of Directors, provided that a written statement of the proposed action shall have been personally delivered or mailed to all directors at least two (2) days prior to any such meeting.

I HEREBY CERTIFY that the foregoing are the Restated Bylaws of Columbia Banking System, Inc, in effect on this 27^th day of April 2005.

Secretary

/s/ Kristy House

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Melanie J. Dressel, certify that:

1. I have reviewed this annual 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 6, 2005

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Gary R. Schminkey, certify that:

1. I have reviewed this annual report on Form 10-K 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 6, 2005

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, 2005 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 6, 2005