/C O R R E C T I O N -- Columbia Banking System, Inc./

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Jan. 8, 2012 11:38 AM EST

Columbia Banking System Announces Second Quarter 2010 Earnings; Declares Cash Dividend

Highlights for the Quarter

- Net income applicable to common shareholders of $3.9 million, or $0.11 per common share, compared to a loss of $6.6 million for the 2nd quarter 2009.

- Raised $229 million in net proceeds through public offering of common stock

- Remains well capitalized at 27% total risk-based capital ratio, up from 18% at March 31, 2010

- Strong core deposits at 86% of total deposits

- Net interest margin increased to 4.66% from 4.30% for the quarter ended December 31, 2009 and 4.38% from 2nd quarter 2009.

- Assets increase to $4.29 billion, up from $3.20 billion at December 31, 2009

- Deposits increase to $3.28 billion, up from $2.48 billion at December 31, 2009

- Opened downtown Portland, Oregon office; substantial retail network of 83 branches in Washington and Oregon.

TACOMA, Wash., July 29 /PRNewswire-FirstCall/ -- Columbia Banking System, Inc. (Nasdaq: COLB) today announced net income applicable to common shareholders of $3.9 million for the second quarter of 2010 compared to a net loss applicable to common shareholders of $6.6 million for the same quarter of 2009. On a diluted per common share basis, net income for the quarter was $0.11, compared to a net loss of $0.37 for the second quarter of 2009. The continuing challenges of the difficult economy resulted in management's decision to record a $13.5 million provision for loan losses for the quarter. In addition, earnings were impacted by one-time conversion expenses due to the FDIC-assisted acquisition of the former Columbia River Bank completed during the first quarter 2010. The conversion of the former American Marine Bank is scheduled for third quarter 2010.

Net income applicable to common shareholders for the six months ended June 30, 2010 was $10.8 million, compared to a net loss of $6.2 million for the first six months of 2009. On a diluted per common share basis, net income for the first six months of 2010 was $0.34, compared to a loss of $0.35 a year earlier.

Melanie Dressel, President & Chief Executive Officer commented, "We are continuing to implement our strategic initiatives to benefit from the current disruptions in our industry and to increase our presence in the Pacific Northwest. The transitions of the former Columbia River Bank and American Marine Bank to the Columbia Bank family are proceeding successfully, although we have not yet seen the full benefit or normalization in expenses relating to the two acquisitions."

Ms. Dressel noted, "We will continue to enhance our future growth by hiring experienced teams of bankers who give us access to new clients and markets, and by adding retail locations that make strategic sense for us. We are also pleased with our ability to maintain our historically stable net interest margin supported by solid core deposits. As the economy improves, we believe we are well positioned for the future as a Pacific Northwest regional community bank."

Significant Influences on the Quarter Ended June 30, 2010

Columbia River Bank and American Marine Bank

In January, 2010, Columbia State Bank completed two FDIC-assisted transactions, acquiring the former Columbia River Bank and American Marine Bank. The two acquisitions increased our asset size by approximately $1 billion and added 32 branches to our retail system in Oregon and Washington. The transactions met our criteria of making financial sense, extending our geographic footprint, and being a cultural fit, including strong core deposits. The conversion of Columbia River Bank to Columbia State Bank data systems was successfully completed in the second quarter of 2010; conversion of American Marine Bank is scheduled for mid-third quarter this year. Including temporary help and vendor-related costs, conversion expenses included in the second quarter 2010 results were approximately $1.2 million.

Capital

During the second quarter, 2010, Columbia raised $240 million through a public offering by issuing 11,040,000 shares of common stock, including 1,440,000 shares pursuant to the underwriters' over-allotment option, at a price of $21.75 per share. The net proceeds to the Company after deducting underwriting discounts, commission and expenses were approximately $229 million. We intend to deploy the capital to support opportunistic growth and our capital needs, as well as for general corporate purposes.

The Company's total risk-based capital ratio at June 30, 2010 was 27%, well in excess of the minimum of 10% required to be "well-capitalized" under applicable regulatory standards. Our excess capital over and above this 10% minimum was approximately $432.6 million at June 30, 2010. At the end of the second quarter 2010, our tangible common equity to tangible assets ratio stood at 14% as compared to 8.3% at March 31, 2010 and 11.4% at December 31, 2009.

Net Interest Margin

Columbia's net interest margin increased to 4.66% in the second quarter of 2010, up from 4.38% for the same quarter last year and 4.30% in the fourth quarter of 2009, and a decrease from 4.78% for the first quarter of 2010. The net interest margin in the second quarter was positively impacted by approximately 7 basis points due to the $604,727 accretion of the discount on the loan portfolios acquired in the two FDIC-assisted transactions. The net interest margin was negatively impacted by interest reversals relating to nonaccrual loans totaling $532,117, reducing the net interest margin by an estimated 6 basis points. Additionally, the net interest margin was negatively affected by 18 basis points due to the short term investment of the $229 million in proceeds of the May, 2010 capital raise.

Balance Sheet

At June 30, 2010, the Company's total assets were $4.29 billion, an increase of 34% from $3.20 billion at December 31, 2009. Total shareholders' equity at June 30, 2010 was $775.3 million, an increase of 47% from $528.1 million at December 31, 2009.

Loans not covered under the FDIC loss-sharing agreements ("non-covered loans") were $1.95 billion at June 30, 2010, down 3% from $2.00 billion at December 31, 2009. The average yield on non-covered loans for the quarter ended June 30, 2010 was 6.14%. The non-covered loan portfolio continues to be diversified, mitigating risk by avoiding concentration in any one segment. The portfolio includes 39% commercial business loans, 6% total construction including commercial and residential, 3% one-to-four family residential real estate, and 10% consumer. Approximately 42% of the portfolio is commercial real estate, which consists of 60% income property and 40% owner occupied. Net loans covered under the FDIC-loss sharing agreements ("covered loans"), which provide protection against credit risk on those covered loans, totaled $585 million at June 30, 2010.

Total deposits at June 30, 2010 increased 40% to $3.28 billion from $2.35 billion at June 30, 2009, and 32% from $2.48 billion at December 31, 2009. Core deposits (defined as demand, savings, money market accounts and certificates of deposit under $100,000) increased 47% to $2.83 billion at June 30, 2010, from $1.93 billion at June 30, 2009, and comprised 86% of total deposits. The average cost of deposits for the quarter ended June 30, 2010 was 0.70% compared to 0.64% for the quarter ended March 31, 2010.

Asset Quality

Virtually all loans and real estate owned (OREO) acquired in both FDIC-assisted transactions during the first quarter 2010 are covered under FDIC loss-sharing agreements and carry minimal loss exposure.

At June 30, 2010, nonperforming assets were $131.9 million, compared to $126.6 million at March 31, 2010, $129.5 million at December 31, 2009, $148.9 at September 30, 2009 and $136.1 million at June 30, 2009. The increase in nonperforming assets from year-end was the result of a modest increase in nonperforming assets within the commercial real estate term loan portfolio and a less favorable environment for asset resolution with the expiration of the Federal Home Buyer tax credit in April. "The transition away from nonperforming construction loans and into nonperforming term commercial real estate and commercial business loans is a typical pattern seen in most credit cycles," noted Andy McDonald, Executive Vice President and Chief Credit Officer. "As we have previously discussed, this transition is consistent with what we expected would take place during the first half of this year."

Mr. McDonald continued, "During the quarter, we placed $12.7 million in term commercial real estate loans on nonaccrual status, bringing the total amount of term commercial real estate nonaccrual loans to $36.1 million, or approximately 50 loans. Of these 50 loans, only two required any type of impairment at quarter-end for total impairments of approximately $716,000 as a result of our conservative underwriting standards based on cash flow rather than loan-to-value."

The table below sets forth information with respect to our nonaccrual loans, restructured loans, total nonperforming loans and total nonperforming assets.


                                              June 30, December 31,
    (in thousands)                                2010         2009
    --------------                                ----         ----
    Nonaccrual noncovered loans:
      Commercial business                      $17,309      $18,979
      Real estate:
        One-to-four family residential           3,113        1,860
        Commercial and five or more family
         residential real estate                36,097       24,354
                                                ------       ------
               Total real estate                39,210       26,214
      Real estate construction:
        One-to-four family residential          32,653       47,653
        Commercial and five or more family
         residential real estate                14,282       16,230
                                                ------       ------
               Total real estate construction   46,935       63,883
      Consumer                                   4,955        1,355
                                                 -----        -----
        Total nonaccrual noncovered loans      108,409      110,431
    Restructured noncovered loans:
      One-to-four family residential
       construction                                687           60
                                                   ---          ---
    Total nonperforming noncovered loans       109,096      110,491
       Noncovered real estate owned and other
        personal property owned                 22,814       19,037
    Total nonperforming noncovered assets     $131,910     $129,528
                                              ========     ========

For the quarter ended June 30, 2010, net loan charge-offs were approximately $10.7 million, compared to $16.4 million for the same period a year ago, and $11.5 million during the first quarter of 2010. Charge-offs for the quarter were primarily commercial business and residential construction, land and acquisition loans.

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


                                                     Three Months Ended June
                                                               30,
                                                   ------------------------
    (in thousands)                                      2010           2009
    --------------                                      ----           ----
    Beginning balance                                $56,981        $44,249

    Charge-offs:
      Commercial business                             (5,428)          (755)
      One-to-four family residential                    (104)          (220)
      Commercial and five-or-more family
       residential                                      (499)          (682)
      One-to-four family residential
       construction                                   (3,002)        (9,759)
      Commercial and five-or-more family
       residential construction                         (726)        (4,697)
      Consumer                                        (1,314)          (684)
                                                      ------           ----
        Total charge-offs                            (11,073)       (16,797)

    Recoveries
      Commercial business                                132            363
      One-to-four family residential                      15              -
      Commercial and five-or-more family
       residential                                         3              -
      One-to-four family residential
       construction                                      141             52
      Commercial and five-or-more family
       residential construction                            -              -
      Consumer                                            49             13
                                                         ---            ---
        Total recoveries                                 340            428
                                                         ---            ---
             Net charge-offs                         (10,733)       (16,369)
    Provision charged to expense                      13,500         21,000
                                                      ------         ------
    Ending balance                                   $59,748        $48,880
                                                     =======        =======
    Total noncovered loans, net at end of
     period                                       $1,945,972     $2,119,443
                                                  ----------     ----------
    Allowance for loan losses to period-
     end noncovered loans                               3.07%          2.31%
                                                        ====           ====

For the second quarter 2010, the provision for loan losses was $13.5 million compared to $21.0 million for the same quarter last year, and $15.0 million for the prior two quarters. The allowance for loan losses to non-covered period-end loans was 3.07% at June 30, 2010 compared to 2.66% and 2.31% at December 31, 2009 and June 30, 2009, respectively.

Columbia's provision for loan losses reflects management's continuing evaluation of the loan portfolio's credit quality, which is affected by a broad range of economic metrics. Additional factors affecting the provision include, but are not limited to, net-loan charge-offs, non-accrual loans, specific reserves, risk-rating migration and general economic factors.

Non-covered past due loans were $12.0 million at June 30, 2010, or 0.62% of total non-covered loans compared to $16.4 million, or 0.85% of total loans, as of March 31, 2010 and $9.1 million, or 0.45% of total loans, as of December 31, 2009.

Ms. Dressel commented. "As we have stated over the past few months, we believe the economic recovery will be slow, resulting in problem credits shifting away from construction assets and into commercial real estate and commercial business loans. Although the reduction in net charge-offs is a hopeful sign, we look forward to seeing more stabilization in the economy, which should result in a downward trend in our nonperforming loans. In the interim, we will be proactive, as always, in managing our loan portfolio."

Operating Results

Quarter ended June 30, 2010

Net Interest Income

Net interest income for the second quarter of 2010 was $40.7 million, an increase of 43% from $28.5 million for the same quarter in 2009, primarily due to the impact of the addition of Columbia River Bank and American Marine Bank loan portfolios. The Company's net interest margin increased to 4.66% in the second quarter of 2010, from 4.38% for the same quarter last year. The net interest margin was negatively impacted by interest reversals for the quarter ended June 30, 2010 related to noncovered nonaccrual loans, and by the short-term investment of the proceeds of the May, 2010 capital raise. However, the net interest margin was also positively impacted by accretion of the discount on the loan portfolios acquired in the two FDIC-assisted transactions.

Average interest-earning assets were $3.62 billion during the quarter, an increase of 33% compared with $2.73 billion during the same quarter of 2009. The yield on average interest-earning assets decreased 15 basis points (a basis point equals 1/100 of 1%) to 5.26% during the second quarter compared with 5.41% during the same quarter of 2009. During the same period, average interest-bearing liabilities increased to $2.66 billion, or 28%, from $2.07 billion in the second quarter of 2009. The cost of average interest-bearing liabilities decreased 53 basis points to 0.82% during the quarter, from 1.35% in the same quarter of 2009.

Noninterest Income

Noninterest income was $13.2 million, compared to $7.0 million in the second quarter of last year. The increase was primarily due to $3.4 million of accretion income to increase the FDIC indemnification asset. In addition, noninterest income was affected by an increase of $2.9 million in service charges and other fees primarily attributable to the addition of Columbia River Bank and American Marine Bank.

Noninterest Expense

Total noninterest expense for the second quarter of 2010 was $34.7 million, an increase of 37% from $25.3 million for the same quarter in 2009. The increase was primarily due to the addition of operating expenses of Columbia River Bank and American Marine Bank, both acquired in January 2010. In addition to the normalized operating expenses for these two acquisitions, we expect expenses to continue to be elevated as we finalize the integration of the two banks, open new offices and invest in teams of bankers as we take advantage of opportunities in our markets.

Organizational Update

Ms. Dressel commented, "We continue to be pleased with the positive response from customers in the new communities we serve in both Oregon and Washington. I would like to express my thanks to all our employees involved in the successful conversion of the former Columbia River Bank to our system during the second quarter; the transition went smoothly. We anticipate the same for the conversion of the former American Marine Bank, which is scheduled for later this quarter."

Ms. Dressel continued, "Our new downtown Portland office, which houses business bankers and a full-service branch in Fox Tower, opened during the second quarter. To support our efforts to reach new customers in relatively untapped markets for us, we have also added two teams of business bankers, who are based in the Salem, Oregon area and the Snohomish, Skagit and Whatcom counties in northwest Washington. Our investment in bringing these talented bankers on board will provide local experience and a customer-centric approach. To help fill in our geographic footprint between Seattle and Bellingham, we anticipate opening two additional branches in northwest Washington, and will apply for regulatory approval when appropriate locations are determined."

"In addition to our core value of excellent customer service, it is important for us to provide a great place to work for the people who provide that service," Ms. Dressel noted. "We are very gratified that we were recently awarded third place in the large company category for Seattle Business Magazine's 2010 Washington's 100 Best Companies to Work For."

Cash Dividend Announcement

The Board of Directors has announced a quarterly cash dividend of $0.01 per common share, which will be paid on August 25, 2010 to shareholders of record as of the close of business on August 11, 2010.

Conference Call

Columbia's management will discuss the second quarter results on a conference call scheduled for Thursday, July 29, 2010 at 1:00 p.m. PDT (4:00 p.m. EDT). Interested parties may listen to this discussion by calling 1-888-318-7969; Conference ID code #88090193.

A conference call replay will be available from approximately 4:00 p.m. PDT on July 29, 2010, through midnight PDT on August 5, 2010. The conference call replay can be accessed by dialing 1-800-642-1687 and entering Conference ID code #88090193.

About Columbia

Headquartered in Tacoma, Washington, Columbia Banking System, Inc. is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank which was awarded third place in the large employer category by Seattle Business Magazine's 100 Best Companies to Work For 2010 and was designated one of Puget Sound Business Journal's "Washington's Best Workplaces 2009".

With the January, 2010 FDIC-assisted acquisitions of Columbia River Bank and American Marine Bank, Columbia Banking System has 83 banking offices, including 59 branches in Washington State and 24 branches in Oregon. Columbia Bank does business under the Bank of Astoria name at the Bank of Astoria's former branches located in Astoria, Warrenton, Seaside, Cannon Beach, Manzanita and Tillamook. 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 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," "intend," "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 Securities and Exchange Commission, available at the SEC's website at www.sec.gov and the Company's website at www.columbiabank.com, including the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our annual reports on Form 10-K and quarterly reports on Form 10-Q, factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (1) local, national and international economic conditions may be 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 may reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new branches may be lower than expected; (4) costs or difficulties related to the integration of acquisitions may be greater than expected; (5) competitive pressure among financial institutions may increase significantly; and (6) legislation or regulatory requirements or changes may adversely affect the businesses in which Columbia is engaged. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The factors noted above and the risks and uncertainties described in our SEC filings should be considered when reading any forward-looking statements in this release.


    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

    FINANCIAL STATISTICS

    Columbia Banking System,
     Inc.                                Three Months Ended
    Unaudited                                 June 30,
                                              --------
    (in thousands except per
     share)                               2010               2009
                                          ----               ----
    Earnings
    --------
      Net interest income              $40,732            $28,531
      Provision for loan and
       lease losses                    $13,500            $21,000
      Noninterest income               $13,237             $7,000
      Noninterest expense              $34,745            $25,314
      Net income (loss)                 $5,056            $(5,530)
      Net income (loss)
       applicable to common
       shareholders                     $3,946            $(6,631)

    Per Common Share
    ----------------
      Earnings (loss) (basic)            $0.11             $(0.37)
      Earnings (loss) (diluted)          $0.11             $(0.37)

    Averages
    --------
      Total assets                  $4,327,894         $3,024,491
      Interest-earning assets       $3,624,548         $2,728,086
      Loans                         $2,550,813         $2,159,415
      Securities                      $728,169           $554,270
      Deposits                      $3,303,661         $2,337,385
      Core deposits                 $2,820,378         $1,893,419
      Interest-bearing
       deposits                     $2,487,757         $1,850,193
      Interest-bearing
       liabilities                  $2,663,584         $2,073,750
      Noninterest-bearing
       deposits                       $815,904           $487,192
      Shareholders' equity            $684,929           $417,961

    Financial Ratios
    ----------------


    Columbia Banking System,
     Inc.                                 Six Months Ended
    Unaudited                                 June 30,
                                              --------
    (in thousands except per
     share)                               2010               2009
                                          ----               ----
    Earnings
    --------
      Net interest income              $79,006            $56,434
      Provision for loan and
       lease losses                    $28,500            $32,000
      Noninterest income               $31,710            $13,974
      Noninterest expense              $68,642            $48,495
      Net income (loss)                $12,972            $(4,018)
      Net income (loss)
       applicable to common
       shareholders                    $10,755            $(6,212)

    Per Common Share
    ----------------
      Earnings (loss) (basic)            $0.34             $(0.35)
      Earnings (loss) (diluted)          $0.34             $(0.35)

    Averages
    --------
      Total assets                  $4,137,525         $3,041,084
      Interest-earning assets       $3,497,103         $2,751,045
      Loans                         $2,495,919         $2,188,500
      Securities                      $719,457           $546,867
      Deposits                      $3,220,268         $2,331,153
      Core deposits                 $2,714,914         $1,880,268
      Interest-bearing
       deposits                     $2,441,914         $1,859,622
      Interest-bearing
       liabilities                  $2,617,840         $2,104,228
      Noninterest-bearing
       deposits                       $778,354           $471,532
      Shareholders' equity            $612,793           $418,852

    Financial Ratios
    ----------------



                                                 June 30,
                                                 --------
    Period end                              2010                2009
    ----------                              ----                ----
      Total assets, including covered
       assets                         $4,289,115          $3,021,857
      Covered assets                    $599,306                  $-
      Loans, excluding covered loans  $1,945,972          $2,119,443
      Allowance for loan and lease
       losses                            $59,748             $48,880
      Securities                        $727,825            $558,011
      Deposits                        $3,284,947          $2,353,326
      Core deposits                   $2,831,319          $1,932,771
      Shareholders' equity              $775,295            $411,871

    Book value per common share           $17.83              $18.50

    Nonperforming assets
    --------------------
      Nonaccrual loans, excluding
       covered assets                   $108,409            $127,767
      Restructured loans accruing
       interest, excluding covered
       assets                                687                   -
      Noncovered real estate owned
       and other personal property
       owned                              22,814               8,369
                                          ------               -----
        Total nonperforming assets,
         excluding covered assets       $131,910            $136,136
                                        --------            --------
    Nonperforming loans to period-
     end loans, excluding covered
     loans                                  5.61%               6.03%
    Nonperforming assets to period-
     end assets, excluding covered
     assets                                 3.57%               4.51%
    Allowance for loan and lease
     losses to period-end loans,
     excluding covered loans                3.07%               2.31%
    Allowance for loan and lease
     losses to nonperforming loans,
     excluding covered loans               54.77%              38.26%
    Allowance for loan and lease
     losses to nonperforming
     assets, excluding covered
     assets                                45.29%              35.91%
    Net loan charge-offs                 $22,230    (2)      $25,867  (3)



                                                            December 31,
                                                            ------------
    Period end                                                       2009
    ----------                                                       ----
      Total assets, including covered assets                   $3,200,930
      Covered assets                                                   $-
      Loans, excluding covered loans                           $2,008,884
      Allowance for loan and lease losses                         $53,478
      Securities                                                 $631,645
      Deposits                                                 $2,482,705
      Core deposits                                            $2,072,821
      Shareholders' equity                                       $528,139

    Book value per common share                                    $16.13

    Nonperforming assets
    --------------------
      Nonaccrual loans, excluding covered assets                 $110,431
      Restructured loans accruing interest, excluding
       covered assets                                                  60
      Noncovered real estate owned and other personal
       property owned                                              19,037
                                                                   ------
        Total nonperforming assets, excluding covered
         assets                                                  $129,528
                                                                 --------
    Nonperforming loans to period-end loans,
     excluding covered loans                                         5.50%
    Nonperforming assets to period-end assets,
     excluding covered assets                                        4.05%
    Allowance for loan and lease losses to period-
     end loans, excluding covered loans                              2.66%
    Allowance for loan and lease losses to
     nonperforming loans, excluding covered loans                   48.40%
    Allowance for loan and lease losses to
     nonperforming assets, excluding covered assets                 41.29%
    Net loan charge-offs                                          $52,769  (4)


    (1)  Noninterest expense, excluding net cost of operation of other
    real estate divided by the sum of net interest income and
          noninterest income on a tax equivalent basis, excluding gain/loss on
          sale of investment securities, proceeds from redemption
          of Visa and Mastercard shares, gain on bank acquisition and the
          decrease in FDIC indemnification asset and FDIC receivable.
    (2)  For the six months ended June 30, 2010.
    (3)  For the six months ended June 30, 2009.
    (4)  For the twelve months ended December 31, 2009.

    FINANCIAL STATISTICS
    Columbia Banking System, Inc.

    Unaudited                                             June 30,
                                                          --------
    (in thousands)                                                  2010
                                                                    ----
    Loan Portfolio Composition
    --------------------------

    Loans not covered under FDIC loss share
     agreements:
      Commercial business                                $756,796   38.9%

      Real Estate:
        One-to-four family residential                     56,554    2.9%
        Five or more family residential and commercial    821,504   42.2%
                                                          -------   ----
             Total Real Estate                            878,058   45.1%

      Real Estate Construction:
        One-to-four family residential                     85,151    4.4%
        Five or more family residential and commercial     33,438    1.7%
                                                           ------    ---
             Total Real Estate Construction               118,589    6.1%

      Consumer                                            196,576   10.1%
                                                          -------   ----
             Subtotal loans                             1,950,019  100.2%
      Less:  Deferred loan fees                            (4,047)  -0.2%
                                                           ------   ----
        Total loans not covered under FDIC loss share
         agreements, net of deferred fees               1,945,972  100.0%
                                                                   =====

    Loans covered under FDIC loss share agreements:
      Covered loans                                       584,954
                                                          -------

    Total loans, net                                   $2,530,926
                                                       ==========

      Loans held for sale                                      $-
                                                              ===


    Unaudited                                              June 30,
                                                           --------
    (in thousands)                                                   2009
                                                                     ----
    Loan Portfolio Composition
    --------------------------

    Loans not covered under FDIC loss share
     agreements:
      Commercial business                                $789,166    37.2%

      Real Estate:
        One-to-four family residential                     56,494     2.7%
        Five or more family residential and commercial    857,181    40.4%
                                                          -------    ----
             Total Real Estate                            913,675    43.1%

      Real Estate Construction:
        One-to-four family residential                    154,299     7.3%
        Five or more family residential and commercial     56,124     2.6%
                                                           ------     ---
             Total Real Estate Construction               210,423     9.9%

      Consumer                                            210,457     9.9%
                                                          -------     ---
             Subtotal loans                             2,123,721   100.2%
      Less:  Deferred loan fees                            (4,278)   -0.2%
                                                           ------    ----
        Total loans not covered under FDIC loss share
         agreements, net of deferred fees               2,119,443   100.0%
                                                                    =====

    Loans covered under FDIC loss share agreements:
      Covered loans                                             -
                                                              ---

    Total loans, net                                   $2,119,443
                                                       ==========

      Loans held for sale                                  $2,272
                                                           ======



                                                          June 30,
                                                          --------
                                                                    2010
                                                                    ----
    Deposit Composition
    -------------------
    Core deposits:
      Demand and other non-interest bearing        $835,356         25.4%
      Interest bearing demand                       648,263         19.7%
      Money market                                  831,059         25.3%
      Savings                                       200,806          6.1%
      Certificates of deposit less than $100,000    315,835          9.6%
                                                    -------          ---
        Total core deposits                       2,831,319         86.2%

    Certificates of deposit greater than $100,000   354,780         10.8%
    Wholesale certificates of deposit (CDARS(R))     74,242          2.3%
    Wholesale certificates of deposit                23,155          0.7%
                                                     ------          ---
      Subtotal                                    3,283,496        100.0%



                                                     June 30,
                                                     --------
                                                               2009
                                                               ----
    Deposit Composition
    -------------------
    Core deposits:
      Demand and other non-interest bearing        $491,617    20.2%
      Interest bearing demand                       456,388    19.4%
      Money market                                  576,594    22.6%
      Savings                                       134,631     5.7%
      Certificates of deposit less than $100,000    273,541    12.0%
                                                    -------    ----
        Total core deposits                       1,932,771    79.9%

    Certificates of deposit greater than $100,000   268,308    13.4%
    Wholesale certificates of deposit (CDARS(R))     92,035     4.1%
    Wholesale certificates of deposit                60,212     2.6%
                                                     ------     ---
      Subtotal                                    2,353,326   100.0%

    QUARTERLY FINANCIAL STATISTICS

    Columbia Banking System, Inc.           Three Months Ended
                                            ------------------
    Unaudited                            Jun 30      Mar 31      Dec 31
    (in thousands except per share)          2010        2010        2009
                                             ----        ----        ----
    Earnings
    --------
      Net interest income                 $40,732     $38,274     $29,800
      Provision for loan and lease
       losses                             $13,500     $15,000     $15,000
      Noninterest income                  $13,237     $18,473      $8,526
      Noninterest expense                 $34,745     $33,897     $22,847
      Net income (loss)                    $5,056      $7,916      $1,552
      Net income (loss) applicable to
       common shareholders                 $3,946      $6,809        $447

    Per Common Share
    ----------------
      Earnings (loss) (basic)               $0.11       $0.24       $0.02
      Earnings (loss) (diluted)             $0.11       $0.24       $0.02
      Book value                           $17.83      $16.44      $16.13

    Averages
    --------
      Total assets, including covered
       assets                          $4,327,894  $3,945,042  $3,177,098
      Interest-earning assets          $3,624,548  $3,368,241  $2,872,842
      Loans, including covered loans   $2,550,813  $2,440,415  $2,034,903
      Securities                         $728,169    $710,648    $643,716
      Deposits                         $3,303,661  $3,135,949  $2,453,553
      Core deposits                    $2,820,378  $2,608,279  $2,039,533
      Interest-bearing deposits        $2,487,757  $2,395,562  $1,890,479
      Interest-bearing liabilities     $2,663,584  $2,571,588  $2,041,761
      Noninterest-bearing deposits       $815,904    $740,387    $563,074
      Shareholders' equity               $684,929    $539,856    $530,804

    Financial Ratios
    ----------------
      Return on average assets               0.47%       0.81%       0.19%
      Return on average common equity        2.59%       5.93%       0.39%
      Average equity to average assets      15.83%      13.68%      16.71%
      Net interest margin                    4.66%       4.78%       4.30%
      Efficiency ratio (tax
       equivalent)                          68.15%      67.03%      58.12%

    Period end
    ----------
      Total assets, including covered
       assets                          $4,289,115  $4,133,812  $3,200,930
      Covered assets                     $599,306    $634,443          $-
      Loans, excluding covered loans   $1,945,972  $1,949,609  $2,008,884
      Allowance for loan and lease
       losses                             $59,748     $56,981     $53,478
      Securities                         $727,825    $736,939    $631,645
      Deposits                         $3,284,947  $3,371,165  $2,482,705
      Core deposits                    $2,831,319  $2,856,186  $2,072,821
      Shareholders' equity               $775,295    $538,721    $528,139


    Nonperforming assets
    --------------------
      Nonaccrual loans and leases not
       covered under FDIC loss share
       agreements                        $108,409    $105,565    $110,431
      Restructured loans accruing
       interest, excluding covered
       assets                                 687         287          60
      Noncovered real estate owned and
       other personal property owned       22,814      20,726      19,037
                                           ------      ------      ------
      Total nonperforming assets,
       excluding covered assets          $131,910    $126,578    $129,528
                                         --------    --------    --------
      Nonperforming loans to period-
       end loans, excluding covered
       loans                                 5.61%       5.43%       5.50%
      Nonperforming assets to period-
       end assets, excluding covered
       assets                                3.57%       3.62%       4.05%
      Allowance for loan and lease
       losses to period-end loans,
       excluding covered loans               3.07%       2.92%       2.66%
      Allowance for loan and lease
       losses to nonperforming loans,
       excluding covered loans              54.77%      53.83%      48.40%
      Allowance for loan and lease
       losses to nonperforming assets,
       excluding covered assets             45.29%      45.02%      41.29%
      Net loan charge-offs                $10,733     $11,497     $13,210


    Columbia Banking System, Inc.               Three Months Ended
                                                ------------------
    Unaudited                                     Sep 30          Jun 30
    (in thousands except per share)                   2009            2009
                                                      ----            ----
    Earnings
    --------
      Net interest income                          $29,118         $28,531
      Provision for loan and lease losses          $16,500         $21,000
      Noninterest income                            $7,190          $7,000
      Noninterest expense                          $23,146         $25,314
      Net income (loss)                            $(1,502)        $(5,530)
      Net income (loss) applicable to common
       shareholders                                $(2,605)        $(6,631)

    Per Common Share
    ----------------
      Earnings (loss) (basic)                       $(0.11)         $(0.37)
      Earnings (loss) (diluted)                     $(0.11)         $(0.37)
      Book value                                    $16.15          $18.50

    Averages
    --------
      Total assets, including covered assets    $3,077,005      $3,024,491
      Interest-earning assets                   $2,783,121      $2,728,086
      Loans, including covered loans            $2,088,478      $2,159,415
      Securities                                  $593,516        $554,270
      Deposits                                  $2,395,311      $2,337,385
      Core deposits                             $1,977,977      $1,893,419
      Interest-bearing deposits                 $1,857,708      $1,850,193
      Interest-bearing liabilities              $2,019,051      $2,073,750
      Noninterest-bearing deposits                $537,603        $487,192
      Shareholders' equity                        $478,589        $417,961

    Financial Ratios
    ----------------
      Return on average assets                      (0.19)%         (0.73%)
      Return on average common equity               (2.56)%         (7.73%)
      Average equity to average assets               15.55%          13.82%
      Net interest margin                             4.34%           4.38%
      Efficiency ratio (tax equivalent)              60.85%          63.79%

    Period end
    ----------
      Total assets, including covered assets    $3,167,028      $3,021,857
      Covered assets                                    $-              $-
      Loans, excluding covered loans            $2,063,398      $2,119,443
      Allowance for loan and lease losses          $51,688         $48,880
      Securities                                  $658,227        $558,011
      Deposits                                  $2,443,567      $2,353,326
      Core deposits                             $2,027,482      $1,932,771
      Shareholders' equity                        $527,920        $411,871


    Nonperforming assets
    --------------------
      Nonaccrual loans and leases not covered
       under FDIC loss share agreements           $130,718        $127,767
      Restructured loans accruing interest,
       excluding covered assets                          -               -
      Noncovered real estate owned and other
       personal property owned                      18,137           8,369
                                                    ------
      Total nonperforming assets, excluding
       covered assets                             $148,855        $136,136
                                                  --------        --------
      Nonperforming loans to period-end loans,
       excluding covered loans                        6.34%           6.03%
      Nonperforming assets to period-end
       assets, excluding covered assets               4.70%           4.51%
      Allowance for loan and lease losses to
       period-end loans, excluding covered
       loans                                          2.50%           2.31%
      Allowance for loan and lease losses to
       nonperforming loans, excluding covered
       loans                                         39.54%          38.26%
      Allowance for loan and lease losses to
       nonperforming assets, excluding covered
       assets                                        34.72%          35.91%
      Net loan charge-offs                         $13,692         $16,369

    CONSOLIDATED CONDENSED STATEMENTS OF INCOME

    Columbia Banking
     System, Inc.               Three Months Ended        Six Months Ended
    (Unaudited)                      June 30,                 June 30,
                                     --------                 --------
    (in thousands except
     per share)                 2010           2009     2010          2009
    --------------------        ----           ----     ----          ----
    Interest Income
    Loans                    $38,940        $29,250  $75,887       $59,051
    Taxable securities         4,708          4,195    9,453         8,403
    Tax-exempt securities      2,290          2,076    4,736         4,089
    Federal funds sold and
     deposits in banks           210              9      359            16
    ----------------------       ---            ---      ---           ---
      Total interest income   46,148         35,530   90,435        71,559

    Interest Expense
    Deposits                   4,334          5,874    9,275        12,766
    Federal Home Loan Bank
     and Federal Reserve
     Bank borrowings             710            700    1,415         1,465
    Long-term obligations        254            306      503           657
    Other borrowings             118            119      236           237
    ----------------             ---            ---      ---           ---
      Total interest expense   5,416          6,999   11,429        15,125
      ----------------------   -----          -----   ------        ------

    Net Interest Income       40,732         28,531   79,006        56,434
    Provision for loan and
     lease losses             13,500         21,000   28,500        32,000
    ----------------------    ------         ------   ------        ------
      Net interest income
       after provision for
       loan and lease losses  27,232          7,531   50,506        24,434

    Noninterest Income
    Gain on bank
     acquisition                   -              -    9,818             -
    Service charges and
     other fees                6,442          3,562   11,866         7,176
    Merchant services fees     1,913          1,880    3,652         3,650
    Redemption of Visa and
     Mastercard shares             -             49        -            49
    Gain on sale of
     investment securities,
     net                           -              -       58             -
    Bank owned life
     insurance ("BOLI")          516            516    1,020         1,017
    Change in
     indemnification asset     3,399              -    3,399             -
    Other                        967            993    1,897         2,082
    -----                        ---            ---    -----         -----
      Total noninterest
       income                 13,237          7,000   31,710        13,974

    Noninterest Expense
    Compensation and
     employee benefits        17,497         12,296   34,483        24,148
    Occupancy                  4,307          2,937    8,276         5,982
    Merchant processing        1,227            879    2,327         1,693
    Advertising and
     promotion                   785            687    1,623         1,379
    Data processing and
     communications            2,567          1,354    4,446         2,674
    Legal and professional
     fees                      1,477          1,019    2,975         1,986
    Taxes, licenses and
     fees                        688            597    1,252         1,393
    Regulatory premiums        1,462          2,492    2,958         3,499
    Net cost of operation
     of other real estate       (672)           225      640           272
    Amortization of
     intangibles               1,055            271    1,842           541
    Other                      4,352          2,557    7,820         4,928
    -----                      -----          -----    -----         -----
      Total noninterest
       expense                34,745         25,314   68,642        48,495
      -----------------       ------         ------   ------        ------

    Income before income
     taxes                     5,724       (10,783)   13,574      (10,087)
    Income tax provision
     (benefit)                   668         (5,253)     602        (6,069)
    --------------------         ---         ------      ---        ------

    Net Income (Loss)         $5,056        $(5,530) $12,972       $(4,018)
    =================         ======        =======  =======       =======
    Net Income (Loss)
     Applicable to Common
     Shareholders             $3,946        $(6,631) $10,755       $(6,212)
    =====================     ======        =======  =======       =======

    Earnings (loss) per
     common share
      Basic                    $0.11         $(0.37)   $0.34        $(0.35)
      Diluted                  $0.11         $(0.37)   $0.34        $(0.35)
    Dividends paid per
     common share              $0.01          $0.01    $0.02         $0.05
    Weighted average number
     of common shares
     outstanding              34,829         18,002   31,376        17,991
    Weighted average number
     of diluted common
     shares outstanding       35,077         18,002   31,607        17,991


    CONSOLIDATED CONDENSED BALANCE SHEETS
    Columbia Banking System, Inc.


    (Unaudited)                           June 30,  December 31,
    (in thousands)                             2010         2009
    --------------                             ----         ----
                   ASSETS
    Cash and due from banks                 $89,026      $55,802
    Interest-earning deposits with
     banks                                  407,922      249,272
    ------------------------------          -------      -------
         Total cash and cash equivalents    496,948      305,074
    Securities available for sale at
     fair value (amortized cost of
     $681,499 and $602,675,
     respectively)                          709,917      620,038
    Federal Home Loan Bank stock at
     cost                                    17,908       11,607
    Loans, net of deferred loan fees
     of ($4,047) and ($4,033),
     respectively                         1,945,972    2,008,884
        Less: allowance for loan and
         lease losses                        59,748       53,478
        ----------------------------         ------       ------
         Noncovered loans, net            1,886,224    1,955,406
    Loans covered under FDIC loss
     share agreements                       584,954            -
    -----------------------------           -------          ---
        Total loans, net                  2,471,178    1,955,406
    FDIC indemnification asset              194,865            -
    Interest receivable                      15,167       10,335
    Premises and equipment, net              61,360       62,670
    Other real estate owned, covered
     under FDIC loss share agreement         14,351            -
    Other real estate owned                  22,814       19,037
    -----------------------                  ------       ------
        Total other real estate owned        37,165       19,037
    Goodwill                                110,013       95,519
    Core deposit intangible, net             20,776        4,863
    Other assets                            153,818      116,381
         Total Assets                    $4,289,115   $3,200,930
         ============                    ==========   ==========
        LIABILITIES AND SHAREHOLDERS'
                    EQUITY
    Deposits:
    Noninterest-bearing                    $835,356     $574,687
    Interest-bearing                      2,449,591    1,908,018
    ----------------                      ---------    ---------
         Total deposits                   3,284,947    2,482,705
    Federal Home Loan Bank advances         125,766      100,000
    Securities sold under agreements
     to repurchase                           25,000       25,000
    Other borrowings                            173           86
    Long-term subordinated debt              25,703       25,669
    Other liabilities                        52,231       39,331
    -----------------                        ------       ------
         Total liabilities                3,513,820    2,672,791
    Commitments and contingent
     liabilities


                               June 30, December 31,
                                   2010         2009
                                   ----         ----
    Preferred stock (no
     par value, 76,898
     aggregate liquidation
     preference)
        Authorized shares         2,000        2,000
        Issued and outstanding       77           77     74,595     74,301
    Common Stock (no par
     value)
        Authorized shares        63,033       63,033
        Issued and outstanding   39,304       28,129    579,049    348,706
      Retained earnings                                 103,397     93,316
    Accumulated other
     comprehensive income                                18,254     11,816
    ---------------------                                ------     ------
         Total shareholders'
          equity                                        775,295    528,139
         -------------------                            -------    -------
         Total Liabilities and
          Shareholders' Equity                       $4,289,115 $3,200,930
         =====================                       ========== ==========

    FINANCIAL STATISTICS
    Columbia Banking System, Inc.

    Unaudited                                        June 30,
    (in thousands)                                                2010
                                                                  ----
    Loan Portfolio Composition
    --------------------------

    Loans not covered under FDIC loss
     share agreements:
      Commercial business                              $756,796   38.9%

      Real Estate:
        One-to-four family residential                   56,554    2.9%

        Five or more family residential
         and commercial
         Retail                             $104,166               5.4%
         Office                              155,360               8.0%
         Multi-family                         53,608               2.8%
         Condos                                6,910               0.4%
         Warehouse                           177,135               9.1%
         Manufacturing & Industrial           39,863               2.0%
         Acquisition and development             509               0.0%
         Land                                 26,605               1.4%
         Hotel / Motel                        59,699               3.1%
         Healthcare                           11,862               0.6%
         Residential                          24,080               1.2%
         Recreational                         16,954               0.9%
         Other                               144,753               7.4%
                                                                   ---
           Total Five Or More Family
            Residential And Commercial Real
            Estate                                      821,504   42.2%

      Real Estate Construction:
        One-to-four family residential
         Single family residential
          (vertical)                          35,515               1.8%
         Lots                                 24,014               1.2%
         Acquisition and development          15,908               0.8%
         Land                                  9,714               0.5%
                                                                   ---
           Total One-To-Four Family
            Residential Construction                     85,151    4.4%

        Five or more family residential
         and commercial
         Condos                                6,927               0.4%
         Warehouse                             2,693               0.1%
         Other                                15,758               0.8%
         Retail                                7,355               0.4%
         Office                                  705               0.0%
                                                                   ---
           Total Five Or More Family
            Residential And Commercial
            Construction                                 33,438    1.7%

      Consumer                                          196,576   10.1%
                                                        -------   ----

         Subtotal loans                               1,950,019  100.2%
      Less:  Deferred loan fees                          (4,047)  -0.2%
                                                         ------   ----
        Total loans not covered under FDIC
         loss share agreements, net of
         deferred fees                                1,945,972  100.0%
                                                                 =====

        Net covered loans under loss share
         agreements                                     584,954
                                                        -------

    Total loans                                      $2,530,926
                                                     ==========

SOURCE Columbia Banking System, Inc.

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