8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

10/26/06

COLUMBIA BANKING SYSTEM, INC.

(Exact name of registrant as specified in its charter)

Washington	0-20288	91-1422237
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1301 A Street Tacoma, WA	98402
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

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

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

Items to be Included in this Report

Item 2.02 Results of Operations and Financial Condition

On October 26, 2006, we issued a press release announcing our third quarter ended September 30, 2006 financial results. A copy of the press release is attached as Exhibit 99.1 and is incorporated herein by reference in its entirety.

The information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Item 8.01 Other Events

On October 26, 2006, we issued a press release that Columbia Banking System, Inc. declared a $0.15 per share dividend. The dividend will be paid on November 22, 2006, to shareholders of record at the close of business on November 8, 2006. A copy of the press release is attached as Exhibit 99.2 and is incorporated herein by reference in its entirety.

Item 9.01 Financial Statements and Exhibits

(a) Financial statements. – not applicable

(b) Pro forma financial information. – not applicable

(c) Shell company transactions. – not applicable

(d) The following exhibits are being furnished herewith:

99.1	Press Release dated October 26, 2006 announcing third quarter ended September 30, 2006 financial results.
99.2	Press Release dated October 26, 2006 announcing a quarterly cash dividend.

SIGNATURES

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

	COLUMBIA BANKING SYSTEM, INC.
Date: October 26, 2006	/s/ Melanie J. Dressel
	Melanie J. Dressel
	President and Chief Executive Officer

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

October 26, 2006

Contacts:	Melanie J. Dressel, President and
	Chief Executive Officer            (253) 305-1911

Gary R. Schminkey, Executive Vice President

and Chief Financial Officer        (253) 305-1966

COLUMBIA BANKING SYSTEM ANNOUNCES

INCREASED THIRD QUARTER 2006 EARNINGS

THIRD QUARTER HIGHLIGHTS

• Net income of $8.3 million, up 5% from third quarter 2005.

• Earnings per diluted share of $0.52, up 4% from the same period in 2005.

• Total loans were $1.66 billion, an increase of 6% from December 31, 2005.

• Efficiency ratio improves to 58.81%

• Core earnings for first 9 months of 2006 increased 17%.

• President & CEO Melanie Dressel named one of Top 25 Most Powerful Women in Banking by U.S. Banker magazine

TACOMA, Washington——Columbia Banking System, Inc. (NASDAQ: COLB) today announced earnings for the third quarter 2006 of $8.3 million, up 5% from $8.0 million for the third quarter of 2005. Earnings per share were $0.52 per diluted share, an increase of 4% from $0.50 per diluted share one year ago. Return on average assets and return on average equity for the third quarter 2006 were 1.32% and 13.88%, respectively, compared to 1.36% and 14.45%, respectively, for the third quarter of the prior year. Revenue (net interest income plus noninterest income) was $30.5 million for the third quarter of 2006, up 2% from $29.8 million one year ago.

Net income for the nine months ended September 30, 2006 increased $2.8 million to $23.8 million, up 13% from $21.0 million for the first nine months of 2005. On a diluted per share basis, net income for the nine months ended September 30, 2006 was $1.47, compared with $1.33 for the same period last year, an increase of 11%. Return on average assets and return on average equity for the nine months ended September 30, 2006 were 1.29% and 13.58%, respectively, compared to 1.23% and 13.30%, respectively for the same period of 2005. Revenue for the nine months ended September 30, 2006 was $91.4 million, up 7% from $85.3 million for the first nine months of 2005.

For the nine months ended September 30, 2006, core earnings were $24.5 million, an increase of 17% from $21.0 million for the nine months ended September 30, 2005; core earnings on a diluted per share basis for the nine months ended September 30, 2006 were $1.52 compared with $1.33 for the same period in 2005, an increase of 14%. Columbia recorded mark-to-market adjustments for interest rate floor instruments in the second and third quarters of 2006. In July 2006, Columbia achieved hedge accounting treatment for these instruments. Therefore, no future mark-to-market adjustments to earnings will be necessary. Please refer to the table under Core Financial Results.

Melanie Dressel, President & Chief Executive Officer said, “Our earnings continued to improve as a result of loan growth, increased interest income and effective expense management. Much of our focus this year has been on managing the composition of our balance sheet to minimize both interest rate and economic risks, as well as on the enhancement and adaptability of our core systems, enabling us to aggressively pursue our strategic plans going forward. As always, we have maintained our focus on growing our core deposits by deepening our customer relationships. While we are not immune to the industry-wide competition for low cost deposits and the resulting pressure on our net interest margin, we have been able to maintain a strong and stable core deposit base of over 72% of our total deposits.”

Ms. Dressel noted, “While the rate of loan growth this year has moderated, we achieved 6% growth since year-end 2005. We have maintained a diverse portfolio. In spite of the increasingly competitive lending environment in all the markets we serve, we have seen 6% growth in our commercial business loans and 8% growth in commercial real estate loans. As we anticipate the end of the current credit cycle, we feel it is prudent to maintain our discipline in both credit administration and in the diversification of our loan portfolio.”

At September 30, 2006, Columbia’s total assets were $2.51 billion, an increase of 5% from $2.38 billion at December 31, 2005. Total loans were $1.66 billion at September 30, 2006, up 6% from $1.56 billion at year-end 2005, and 10% from $1.51 billion at September 30, 2005. Total deposits increased to $2.02 billion during the first nine months of 2006, an increase of 1% from December 31, 2005. Core deposits totaled $1.46 billion at September 30, 2005, comprising 72% of total deposits.

Core Financial Results

Excluding the valuation adjustment for Columbia’s interest rate floors, core earnings for the third quarter 2006 were $7.9 million, compared to $8.0 million for the third quarter of 2005. Core earnings were $0.49 per diluted share, a decrease of 2% from $0.50 per diluted share one year ago. For the nine months ended September 30, 2006, core earnings were $24.5 million, an increase of 17% from $21.0 million for the nine months ended September 30, 2005; core earnings on a diluted per share basis for the nine months ended September 30, 2006 was $1.52 compared with $1.33 for the same period in 2005, an increase of 14%. Return on average assets and return on average equity for first nine months of 2006 were 1.33% and 13.99%, respectively, compared to 1.23% and 13.30%, respectively, for the period in 2005.

As noted above, core earnings for the third quarter 2006 were $7.9 million. Core earnings for the second quarter 2006, in which Columbia first purchased the interest rate floors, were $8.4 million. Core earnings were $0.49 per diluted share for the third quarter 2006, a decrease of 6% from $0.52 per diluted share for the second quarter 2006, a result of compression in the net interest margin.

The following tables reconcile GAAP net income to core earnings, including per-share figures:

(Dollars in thousands, except per Share data)

	Three months ended September 30,					Nine months ended September 30,
	2006			2005		2006		2005
Net income	$	8,335			7,952	$	23,762	$	21,048
Add (Subtract): Interest rate floor mark-to-market, net of tax		(397	)		—		757		—
Core earnings	$	7,938		$	7,952	$	24,519	$	21,048
Earnings per Diluted Share:
GAAP earnings	$	0.52		$	0.50	$	1.47	$	1.33
Core earnings	$	0.49		$	0.50	$	1.52	$	1.33
	Three months ended
	September 30, 2006			June 30, 2006
Net income	$	8,335		$	7,239
Add (Subtract): Interest rate floor mark-to-market, net of tax		(397	)		1,153
Core earnings	$	7,938		$	8,392
Earnings per Diluted Share:
GAAP earnings	$	0.52		$	0.45
Core earnings	$	0.49		$	0.52

Third Quarter 2006 Operating Results

Net Interest Income

Net interest income increased $1.1 million, or 5%, in the third quarter 2006 compared to the third quarter 2005. The increase is primarily due to moderately increased loan volumes along with rising short-term interest rates. Columbia’s net interest margin decreased slightly to 4.41% in the third quarter of 2006, from 4.45% for the same period in 2005 as slower deposit growth resulted in increased reliance on higher cost deposits and borrowings. For the three months and nine months ended September 30, 2006, deposit and borrowing costs have increased faster than loan yields.

Average interest-earning assets increased to $2.29 billion, or 7%, during the third quarter of 2006, compared with $2.14 billion during the third quarter of 2005. The yield on average interest-earning assets increased 95 basis points to 6.97% during the third quarter of 2006, from 6.02% for the same period in 2005. Average interest-bearing liabilities increased to $1.80 billion from $1.65 billion last year. The cost of average interest-bearing liabilities increased 123 basis points to 3.25% in the third quarter of 2006, compared to 2.02% in the third quarter of 2005.

For the nine months ended September 30, 2006, net interest income increased 9% to $73.0 million from $67.0 million for the same period last year. During the first nine months of 2006, Columbia’s net interest margin increased to 4.51% from 4.39% for the same period of 2005. Average interest-earning assets grew to $2.25 billion during the first nine months of 2006, compared with $2.10 billion for the same period of 2005. The yield on average interest-earning assets increased 99 basis points to 6.80% during the first nine months of 2006, from 5.81% in 2005. In comparison, average interest-bearing liabilities grew to $1.76 billion compared with $1.64 billion for the first nine months of 2005. The cost of average interest-bearing liabilities increased 111 basis points to 2.93% during the first nine months of 2006, compared to 1.82% for the same period in 2005.

Noninterest income

Total noninterest income for the third quarter 2006 was $6.1 million, a decrease of 6% from $6.5 million a year ago. The decrease is partially due to decreases in merchant services fees, service charges on deposit accounts and mortgage banking income. The gross volume for merchant card services increased for the first nine months of 2006; however, the increased income attributable to volume was offset by net fees paid to the card associations. Total noninterest income for the first nine months of 2006 was $18.35 million, unchanged from $18.32 million for the same period of 2005.

Decreases in mortgage banking income due to declining trends in refinance activity and increases in competitive pricing in the secondary market were offset by increases in service charges and other income.

Noninterest expense

Noninterest expense for the third quarter of 2006 was $18.1 million, a decrease of 4% from $18.8 million for the same period in 2005. This decrease is partially due to the valuation adjustment of the prime rate floor instruments of $611,000, as well as decreases in data processing and legal and professional services expenses.

Noninterest expense for the first nine months of 2006 was $57.6 million, an increase of 5% from $54.6 million for the same period of 2005. The increase is primarily due to the prime rate floor market valuation adjustment of $1.2 million as well as higher occupancy and advertising and promotion expenses. Noninterest expense for the first nine months of 2006 excluding the valuation adjustment of the interest rate floors was $56.4 million, an increase of 3% from $54.6 million for the first nine months of 2005.

Nonperforming Assets and Loan Loss Provision

During the third quarter of 2006, the Company allocated $650,000 to its provision for loan and lease losses, compared to $245,000 for the same period in 2005. The increased allocation for the three months ending September 30, 2006 is due to moderate loan growth during the period coupled with an increase in loan charge-offs when compared to the third quarter of 2005. For the first nine months of 2006, the Company allocated $1.1 million to its provision for loan and lease losses, compared to $1.5 million for the same period in 2005. This decreased allocation is consistent with the rate of loan growth for the first nine months of 2006 compared to the same period in 2005. The ratio of the allowance for credit losses to nonperforming loans was 427% at September 30, 2006 compared with 429% at December 31, 2005 and 329% at September 30, 2005.

Expansion Activities

Ms. Dressel commented, “We are continuing our efforts to move our style of banking into strategic new markets in the Pacific Northwest, either through de novo growth or acquisition opportunities which will need to make sense financially, be culturally compatible and present opportunities to broaden our geographic footprint. We are currently expanding space in our Seattle

facility to accommodate new relationship managers in our King County market. Next year, we are planning to move our Commerce Branch in Longview to a considerably more visible and convenient location. Opening new branches has become more challenging due to increasingly limited site availability and increased time required for permitting and other issues. However, in addition to our upcoming branch location in Lacey, scheduled to open in the second quarter of 2007, our goal is to launch two branches each year.”

Columbia Banking System, Inc. is a Tacoma-based bank holding company whose wholly owned bank subsidiaries are Columbia Bank and Bank of Astoria. Columbia Bank is a Washington state-chartered full-service commercial bank with 35 banking offices in Pierce, King, Cowlitz, Kitsap and Thurston counties. Bank of Astoria, a federally insured commercial bank headquartered in Astoria, Oregon, operates four branches in Clatsop County: Astoria, Warrenton, Seaside and Cannon Beach; and one branch in Tillamook County: Manzanita. More information about Columbia can be found on its website at www.columbiabank.com.

###

Note Regarding Forward Looking Statements

This news release includes forward looking statements, which management believes are a benefit to shareholders. These forward looking statements describe Columbia’s management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of Columbia’s style of banking and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” and “anticipate” and words of similar construction are intended in part to help identify forward looking statements. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in Columbia’s filings with the SEC, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on Columbia than expected and adversely affect Columbia’s ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches are lower than expected; (4) costs or difficulties related to the integration of acquisitions are greater than expected; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which Columbia is engaged.

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
(in thousands, except per share amounts)
Earnings
Net interest income	$	24,405		$	23,331		$	73,013		$	66,978
Provision for loan and lease losses	$	650		$	245		$	1,115		$	1,505
Noninterest income	$	6,108		$	6,516		$	18,348		$	18,318
Noninterest expense	$	18,098		$	18,793		$	57,574		$	54,584
Net income	$	8,335		$	7,952		$	23,762		$	21,048
Per Share
Net income (basic)	$	0.52		$	0.50		$	1.49		$	1.34
Net income (diluted)	$	0.52		$	0.50		$	1.47		$	1.33
Averages
Total assets	$	2,504,371		$	2,325,262		$	2,458,431		$	2,282,015
Interest-earning assets	$	2,290,351		$	2,136,229		$	2,250,192		$	2,097,852
Loans	$	1,647,471		$	1,534,281		$	1,609,739		$	1,481,255
Securities	$	627,821		$	598,204		$	630,895		$	614,231
Deposits	$	1,975,103		$	1,948,022		$	1,960,387		$	1,895,919
Core deposits	$	1,433,641		$	1,451,054		$	1,424,671		$	1,409,299
Shareholders’ Equity	$	238,272		$	218,308		$	234,015		$	211,605
Financial Ratios
Return on average assets		1.32	%		1.36	%		1.29	%		1.23	%
Return on average equity		13.88	%		14.45	%		13.58	%		13.30	%
Return on average tangible equity(1)		16.32	%		17.35	%		16.02	%		16.08	%
Average equity to average assets		9.51	%		9.39	%		9.52	%		9.27	%
Net interest margin		4.41	%		4.45	%		4.51	%		4.39	%
Efficiency ratio (tax equivalent) (2)		58.81	%		61.26	%		59.48	%		62.21	%
	September 30,						December 31, 2005
Period end	2006			2005
Total assets	$	2,507,450		$	2,322,896		$	2,377,322
Loans	$	1,655,809		$	1,511,386		$	1,564,704
Allowance for loan and lease losses	$	20,926		$	20,790		$	20,829
Securities	$	611,497		$	592,467		$	585,332
Deposits	$	2,020,065		$	1,992,238		$	2,005,489
Core deposits	$	1,460,634		$	1,493,925		$	1,478,090
Shareholders’ equity	$	245,801		$	221,873		$	226,242
Book value per share	$	15.32		$	14.04		$	14.29
Tangible book value per share	$	13.27		$	11.93		$	12.20
Nonperforming assets
Nonaccrual loans	$	4,101		$	6,165		$	4,733
Restructured loans		804			151			124
Personal property owned		—			—			—
Real estate owned		—			—			18
Total nonperforming assets	$	4,905		$	6,316		$	4,875
Nonperforming loans to period-end loans		0.30	%		0.42	%		0.31	%
Nonperforming assets to period-end assets		0.20	%		0.27	%		0.21	%
Allowance for loan and lease losses to period-end loans		1.26	%		1.38	%		1.33	%
Allowance for loan and lease losses to nonperforming loans		426.63	%		329.16	%		428.84	%
Allowance for loan and lease losses to nonperforming assets		426.63	%		329.16	%		427.26	%
Net loan charge-offs	$	1,018	(3)	$	596	(4)	$	572	(5)

⁽¹⁾ Annualized net income, excluding core deposit intangible asset amortization, divided by average daily shareholders’ equity, excluding average goodwill and average core deposit intangible asset.

⁽²⁾ Noninterest expense divided by the sum of net interest income and noninterest income on a tax equivalent basis, excluding nonrecurring income and expense, such as gains/losses on investment securities, net cost (gain) of OREO and mark-to-market adjustments of interest rate floor instruments.

⁽³⁾ For the nine months ended September 30, 2006.

⁽⁴⁾ For the nine months ended September 30, 2005.

⁽⁵⁾ For the twelve months ended December 31, 2005.

FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

	Period End
	September 30,						December 31, 2005
	2006			2005
(in thousands)
Loan Portfolio Composition
Commercial business	$	589,634		$	556,098		$	556,589
Leases		10,981			—			14,385
Real Estate:
One-to-four family residential		49,507			51,399			74,930
Five or more family residential and commercial		704,452			648,075			651,393
Total Real Estate		753,959			699,474			726,323
Real Estate Construction:
One-to-four family residential		77,093			33,075			41,033
Five or more family residential and commercial		80,918			87,895			89,134
Total Real Estate Construction		158,011			120,970			130,167
Consumer		145,873			137,881			140,110
Subtotal loans		1,658,458			1,514,423			1,567,574
Less: Deferred loan fees		(2,649	)		(3,037	)		(2,870	)
Total loans	$	1,655,809		$	1,511,386		$	1,564,704
Loans held for sale	$	1,160		$	6,704		$	1,850
Deposit Composition
Demand and other noninterest bearing	$	455,773		$	463,560		$	455,838
Interest bearing demand		395,281			343,198			339,686
Money market		495,933			571,934			563,973
Savings		113,647			116,808			118,604
Certificates of deposit		559,431			496,738			527,388
Total deposits	$	2,020,065		$	1,992,238		$	2,005,489

QUARTERLY FINANCIAL STATISTICS

Columbia Banking System, Inc.

Unaudited

	Three Months Ended
	Sep 30 2006			Jun 30 2006			Mar 31 2006			Dec 31 2005			Sept 30 2005
(in thousands, except per share amounts)
Earnings
Net interest income	$	24,405		$	24,302		$	24,306		$	23,934		$	23,331
Provision for loan and lease losses	$	650		$	250		$	215		$	15		$	245
Noninterest income	$	6,108		$	6,267		$	5,973		$	6,468		$	6,516
Noninterest expense	$	18,098		$	21,136		$	18,340		$	18,271		$	18,793
Net income	$	8,335		$	7,239		$	8,188		$	8,583		$	7,952
Per Share
Net income [basic]	$	0.52		$	0.45		$	0.52		$	0.55		$	0.50
Net income [diluted]	$	0.52		$	0.45		$	0.51		$	0.54		$	0.50
Averages
Total assets	$	2,504,371		$	2,480,585		$	2,388,680		$	2,316,654		$	2,325,262
Interest-earning assets	$	2,290,351		$	2,268,259		$	2,190,872		$	2,116,345		$	2,136,229
Loans	$	1,647,471		$	1,613,253		$	1,567,615		$	1,534,068		$	1,534,281
Securities	$	627,821		$	645,343		$	619,428		$	579,177		$	598,204
Deposits	$	1,975,103		$	1,949,608		$	1,955,851		$	2,006,448		$	1,948,022
Core deposits	$	1,433,641		$	1,414,455		$	1,425,442		$	1,467,077		$	1,451,054
Shareholders’ Equity	$	238,272		$	232,614		$	231,080		$	223,538		$	218,308
Financial Ratios
Return on average assets		1.32	%		1.17	%		1.39	%		1.47	%		1.36	%
Return on average equity		13.88	%		12.48	%		14.37	%		15.23	%		14.45	%
Return on average tangible equity		16.32	%		14.77	%		17.00	%		18.17	%		17.35	%
Average equity to average assets		9.51	%		9.38	%		9.67	%		9.65	%		9.39	%
Net interest margin		4.41	%		4.47	%		4.65	%		4.61	%		4.45	%
Efficiency ratio (tax equivalent)		58.81	%		60.97	%		58.64	%		58.46	%		61.26	%
Period end
Total assets	$	2,507,450		$	2,544,598		$	2,460,453		$	2,377,322		$	2,322,896
Loans	$	1,655,809		$	1,625,255		$	1,595,262		$	1,564,704		$	1,511,386
Allowance for loan and lease losses	$	20,926		$	20,990		$	20,691		$	20,829		$	20,790
Securities	$	611,497		$	650,955		$	634,620		$	585,332		$	592,467
Deposits	$	2,020,065		$	1,962,748		$	1,990,363		$	2,005,489		$	1,992,238
Core deposits	$	1,460,634		$	1,418,313		$	1,455,390		$	1,478,090		$	1,493,925
Shareholders’ equity	$	245,801		$	232,241		$	231,137		$	226,242		$	221,873
Book value per share	$	15.32		$	14.49		$	14.47		$	14.29		$	14.04
Tangible book value per share	$	13.27		$	12.44		$	12.41		$	12.20		$	11.93
Nonperforming assets
Nonaccrual loans	$	4,101		$	4,575		$	5,115		$	4,733		$	6,165
Restructured loans		804			1,197			1,146			124			151
Personal property owned		—			—			—			—			—
Real estate owned		—			—			18			18			—
Total nonperforming assets	$	4,905		$	5,772		$	6,279		$	4,875		$	6,316
Nonperforming loans to period-end loans		0.30	%		0.36	%		0.39	%		0.31	%		0.42	%
Nonperforming assets to period-end assets		0.20	%		0.23	%		0.26	%		0.21	%		0.27	%
Allowance for loan and lease losses to period-end loans		1.26	%		1.29	%		1.30	%		1.33	%		1.38	%
Allowance for loan and lease losses to nonperforming loans		426.63	%		363.65	%		330.47	%		428.84	%		329.16	%
Allowance for loan and lease losses to nonperforming assets		426.63	%		363.65	%		329.53	%		427.26	%		329.16	%
Net loan charge-offs (recoveries)	$	714		$	(49	)	$	353		$	(24	)	$	42

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Columbia Banking System, Inc.

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006			2005		2006			2005
(in thousands except per share)
Interest Income
Loans	$	32,010		$	26,080	$	90,982		$	72,215
Taxable securities		5,019			4,532		15,185			13,680
Tax-exempt securities		1,944			1,112		5,124			3,304
Deposits with banks		174			31		306			55
Federal funds sold		19			—		48			—
Total interest income		39,166			31,755		111,645			89,254
Interest Expense
Deposits		10,868			6,871		28,767			17,873
Federal Home Loan Bank advances		3,370			1,100		8,344			3,151
Long-term obligations		519			412		1,470			1,140
Other borrowings		4			41		51			112
Total interest expense		14,761			8,424		38,632			22,276
Net Interest Income		24,405			23,331		73,013			66,978
Provision for loan and lease losses		650			245		1,115			1,505
Net interest income after provision for loan and lease losses		23,755			23,086		71,898			65,473
Noninterest Income
Service charges and other fees		2,891			2,955		8,632			8,388
Mortgage banking		141			189		397			947
Merchant services fees		2,154			2,355		6,366			6,392
Gain on sale of investment securities, net		—			—		10			—
Bank owned life insurance (“BOLI”)		427			400		1,260			1,184
Other		495			617		1,683			1,407
Total noninterest income		6,108			6,516		18,348			18,318
Noninterest Expense
Compensation and employee benefits		9,878			9,434		28,973			28,140
Occupancy		2,735			2,588		8,068			7,497
Merchant processing		881			906		2,552			2,454
Advertising and promotion		608			535		2,114			1,574
Data processing		475			733		1,795			2,169
Legal & professional services		580			891		1,547			2,589
Taxes, licenses & fees		637			529		1,873			1,480
Net cost (gain) of other real estate owned		—			1		(11	)-		(8	)
Net cost (gain) of interest rate floor instruments		(611	)		—		1,164			—
Other		2,915			3,176		9,499			8,689
Total noninterest expense		18,098			18,793		57,574			54,584
Income before income taxes		11,765			10,809		32,672			29,207
Provision for income taxes		3,430			2,857		8,910			8,159
Net Income	$	8,335		$	7,952	$	23,762		$	21,048
Net income per common share:
Basic	$	.52		$	.50	$	1.49		$	1.34
Diluted	$	.52		$	.50	$	1.47		$	1.33
Dividend paid per common share	$	0.15		$	.11	$	0.42		$	0.27
Average number of common shares outstanding		15,981			15,746		15,931			15,672
Average number of diluted common shares outstanding		16,143			15,940		16,135			15,852

CONSOLIDATED CONDENSED BALANCE SHEETS

Columbia Banking System, Inc.

(Unaudited)

			September 30, 2006			December 31, 2005
(in thousands)
Assets
Cash and due from banks			$	86,290		$	96,787
Interest-earning deposits with banks				15,190			3,619
Federal funds sold				4,000			—
Total cash and cash equivalents				105,480			100,406
Securities available for sale at fair value (amortized cost of $606,307 and $576,619 respectively)				598,847			572,355
Securities held to maturity at cost (fair value of $2,248 and $2,587 respectively)				2,197			2,524
Federal Home Loan Bank stock				10,453			10,453
Loans held for sale				1,160			1,850
Loans, net of unearned income of ($2,649) and ($2,870) respectively				1,655,809			1,564,704
Less: allowance for loan and lease losses				20,926			20,829
Loans, net				1,634,883			1,543,875
Interest receivable				13,684			11,671
Premises and equipment, net				44,997			44,690
Real estate owned				—			18
Goodwill				29,723			29,723
Other assets				66,026			59,757
Total Assets			$	2,507,450		$	2,377,322
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing			$	455,773		$	455,838
Interest-bearing				1,564,292			1,549,651
Total deposits				2,020,065			2,005,489
Federal Home Loan Bank advances				191,900			94,400
Other borrowings				699			2,572
Long-term subordinated debt				22,362			22,312
Other liabilities				26,623			26,307
Total liabilities				2,261,649			2,151,080
Shareholders’ equity:
Preferred stock (no par value)
Authorized, 2 million shares; none outstanding
	September 30, 2006	December 31, 2005
Common stock (no par value)
Authorized shares	63,034	63,034
Issued and outstanding	16,047	15,831		166,420			162,973
Retained earnings				83,104			66,051
Accumulated other comprehensive income				(3,723	)		(2,782	)
Total shareholders’ equity				245,801			226,242
Total Liabilities and Shareholders’ Equity			$	2,507,450		$	2,377,322

EX-99.2

EXHIBIT 99.2

FOR IMMEDIATE RELEASE

October 26, 2006

Contacts:             Melanie J. Dressel, President and

Chief Executive Officer

(253) 305-1911

Gary R. Schminkey, Executive Vice President

and Chief Financial Officer

(253) 305-1966

COLUMBIA BANKING SYSTEM DECLARES

CASH DIVIDEND

TACOMA, Washington — William T. Weyerhaeuser, Chairman of the Board of Columbia Banking System, Inc. (Nasdaq: COLB) announced that a quarterly cash dividend of $0.15 per share will be paid on November 22, 2006 to shareholders of record as of the close of business on November 8, 2006.

Mr. Weyerhaeuser noted, “We are pleased to reward our shareholders for their continued confidence in Columbia.”

Columbia Banking System, Inc. (Columbia) is a Tacoma-based bank holding company whose wholly owned banking subsidiaries are Columbia Bank and Bank of Astoria. Columbia Bank is a Washington state-chartered full-service commercial bank with 35 banking offices in Pierce, King, Cowlitz, Kitsap and Thurston counties. Bank of Astoria, a federally insured commercial bank headquartered in Astoria, Oregon, operates four branches in Clatsop County: Astoria, Warrenton, Seaside and Cannon Beach; and one branch in Manzanita in Tillamook County. More information about Columbia can be found on its website at www.columbiabank.com.

###

Note Regarding Forward Looking Statements

This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as “may,” “expected,” “anticipate”, “continue,” or other comparable words. In addition, all statements other than statements of historical facts that address activities that Columbia expects or anticipates will or may occur in the future are forward-looking statements. Readers are encouraged to read the SEC reports of Columbia, particularly its form 10-K for the Fiscal Year ended December 31, 2005, for meaningful cautionary language discussing why actual results may vary materially from those anticipated by management.