BUILDING ON R U O STRENGTH Columbia Banking System, Inc. 2 0 0 2 A N N U A L R E P O R T S R E D L O H E R A H S R U O O T SHAREHOLDER Value. 2002 was a year in which Columbia Bank’s employees and board have no new branch locations identified to open in the near term, it is still our intent to grow materially members met both challenges and opportunities. by leveraging the infrastructure we already have. We worked diligently to improve the Bank’s profitability and stayed focused on the quality of our loan portfolio in light of a difficult economic CB Solutions. We also have been involved for the past several months in what we call CB environment. We believe that the steps we have Solutions. This is an initiative to improve how we taken and our clear focus have put us in a do business—to allow our branch staff and better position for continued improvement and lenders to spend more time with our customers. profitability, for the benefit of our shareholders. We have been looking at virtually every area of the After a disappointing first quarter, due principally to a large charge-off in connection with a now concluded, single problem credit relationship, profitability improved quarter over quarter as we concentrated on refining our operational processes and improving credit quality, while continuing our emphasis on high quality customer service. Market GROWTH. During the first quarter of 2002, we opened our long-awaited Redmond branch and our 2nd and Columbia office in down- town Seattle. We are pleased to report that both of these branches have been well received in their communities, and deposit and loan growth have exceeded our expectations. In Pierce County, we opened an auxiliary branch to our Summit location which provides a drive-up facility to complement our very successful in-store operation. And finally, in August 2002, we opened a second Gig Harbor location in a storefront facility within the busy downtown core; this office has been a very successful operation as well. Even though we Bank to ensure that we are handling transactions in the most efficient way, while always keeping in mind that our organization was built on customer service. The effect of our initiatives to increase noninterest income and decrease the growth of noninterest expense became evident late in the year as we saw fourth-quarter earnings increase 41% over the prior year’s fourth quarter. BOARD OF DIRECTORS, pictured above right (seated) William T. Weyerhaeuser, Chairman and Interim Chief Executive Officer, Columbia Banking System, Inc.; Melanie J. Dressel, President and Chief Operating Officer, Columbia Banking System, Inc.; President and Chief Executive Officer, Columbia Bank. (standing, from left to right)John P. Folsom, President and Chief Executive Officer, Brown & Brown Insurance, Inc.; Jack Fabulich, Honorary Chairman, Parker Paint Manufacturing, Inc.; Commissioner, Port of Tacoma; Donald Rodman, Owner and Executive Officer, Rodman Realty; John A. Halleran, private investor; Thomas M. Hulbert, President and Chief Executive Officer, Hulco, Inc. and Winsor Corporation; Thomas L. Matson, Owner and President, Tom Matson Dodge, Inc.; Richard S. DeVine, President, Chinook Resources, Inc.; James M. Will, President, Titus-Will Enterprises. O U R F O C U S LENDING Activity. Loan growth continued to be very slow during the year as we saw less line- of-credit usage than is typical, as businesses were conservative in their borrowing patterns during the unsettled economic times. We saw one rate decline in November. Although there was com- pression in the net interest margin to a small degree, we worked very diligently to control this during the year. The result was a net interest margin of 4.54% for the first and second quarters, 4.52% for the third quarter, and a decrease to 4.43% in the fourth quarter, following the 50 basis point reduction in the Federal Funds target rate. In light of the economic environment, we decided to bolster our loan loss allowance by $15.8 million for 2002 as compared to $5.8 million in 2001. The 2002 charge-offs included $5.3 million in connection with the now concluded problem credit relation- ship with a single borrower that we mentioned previously. Our allowance for loan losses at year end 2002 increased to 1.63% of total loans, up from 1.26% at year end 2001, which we feel is more prudent coverage in light of these uncertain economic times. Corporate GOVERNANCE. As we have all read and heard about, corporate governance is certainly on everyone’s mind. We want to use this opportunity to assure our shareholders that we take our corporate governance very seriously. Even though we are a more heavily regulated industry than most, it is more a matter of personal integrity for our directors than a regulatory mandate. Our directors are very proud to serve on the Columbia Bank board and understand the responsibilities that their positions carry. COMMUNITY Focus. Columbia now has 36 branches in Pierce, King, Cowlitz, Thurston and Kitsap counties. We are proud to be the community bank in whatever community we serve. We demonstrate this through our ongoing commitment to contributing generously to a variety of needs in each of our market areas. This is also evidenced through our staff’s involvement in the areas in which they live and work. In the coming months we will focus on the deep roots we have established. We will work to increase our market share around every one of our branches, as well as to build upon our existing customer base by providing real value through our products and services and our local, friendly approach to doing business. We will continue to emphasize our strong commitment to our customers and their communities, and to our valued employees. In turn, we feel this will drive our Company’s success and that our shareholders will benefit. We want to thank you, our shareholders, for your continued support. EXECUTIVE OFFICERS, pictured above right (clockwise, from bottom left)Tex Whitney, Executive Vice President, Retail Banking; Melanie J. Dressel, President and Chief Operating Officer, Columbia Banking System, Inc.; President and Chief Executive Officer, Columbia Bank; H. R. Russell, Executive Vice President, Senior Lending Officer; Mark W. Nelson, Executive Vice President, Senior Credit Officer; Gary R. Schminkey, Executive Vice President, Chief Financial Officer. William T. Weyerhaeuser Melanie J. Dressel D E E P R O O T S . La s t i n g g ro w t h. Columbia Bank is all about customers. That may be a tired cliché to some banks, but to us, it’s simply the truth. We get to know our customers by name. Over time, we earn their trust, respect and loyalty. This firm foundation enables us to set deep roots in the communities we serve, while helping to maintain and grow our customer base consistent with our goals and objectives. We’re on a long-term mission—to grow one relationship at a time. It’s something we’ve practiced from the first day we opened our doors, and it continues today. Best of all, customers really do notice the difference. PL A N T I N G t he s e e d s f o r s u c c e s s. Columbia Bank grew up in The Great Northwest. It’s our home. From the very beginning, we have rooted ourselves within the neighborhoods we serve, and we have remained committed to our role as a vital, contributing community member. We’ve witnessed the growth of these communities while helping to play a role in their success. Whether serving as a trusted financial partner or contributing our time, energy and talents to numerous worthy causes, we will continue to dedicate ourselves to helping build closer, stronger communities—from the ground up. Consolidated FINANCIALS 2002 F O R T H E Y E A R Net interest income Provision for loan losses Noninterest income Noninterest expense Net income P E R S H A R E Basic earnings Diluted earnings Book value AV E R A G E S Total assets Interest-earning assets Loans Securities Deposits Core deposits Shareholders’ equity 2002 2001 % change $64,289 15,780 20,050 53,653 10,885 $0.83 0.82 9.95 $58,205 5,800 17,451 50,954 12,513 10% 172% 15% 5% -13% $0.92 0.91 9.01 -10% -10% 10% $1,601,061 1,454,714 1,183,922 246,995 1,360,968 885,008 124,096 $1,460,263 1,343,410 1,218,906 100,343 1,281,748 718,262 120,403 10% 8% -3% 146% 6% 23% 3% F I N A N C I A L R AT I O S Net interest margin Return on average assets Return on average equity Efficiency ratio Average equity to average assets 4.50% 0.68 8.77 66.17 7.75 4.36% 0.86 10.39 68.92 8.25 AT Y E A R E N D Total assets Loans Allowance for loan losses Deposits Core deposits Shareholders’ equity $1,699,613 1,175,853 19,171 1,487,153 980,709 132,384 $1,498,294 1,170,633 14,734 1,306,750 846,546 118,966 13% 0% 30% 14% 16% 11% Full-time equivalent employees Banking offices 525 36 589 32 -11% 13% all dollar figures on this page are in thousands S T H G I L H G I H 2 0 0 2 C O R P O R A T E D I R E C T O R Y S h a r e h o l d e r I n f o r m a t i o n Corporate Headquarters Stock Listing Columbia Banking System, Inc. 1301 South A Street, Suite 800 P.O. Box 2156 Tacoma, WA 98401-2156 253.305.1900 Independent Auditors Deloitte & Touche, LLP Transfer Agent & Registrar American Stock Transfer & Trust Company Market Makers Knight Securities LP Hoefer & Arnett, Inc. Spears, Leeds & Kellogg Keefe, Bruyette & Woods Morgan Stanley & Co., Inc. RBC Dain Rauscher, Inc. Regulatory & Securities Counsel Graham & Dunn PC Annual Meeting Sheraton Tacoma Hotel 1320 Broadway Plaza Tacoma, Washington Wednesday, April 23, 2003 1:00 p.m. The Company’s common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol “COLB.” Financial Information Columbia news and financial results are available through the Internet and by mail. Internet: For information about Columbia, including news and financial results, product information and service locations, access our Web site at www.columbiabank.com. You can also view or retrieve copies of Columbia’s financial reports online by visiting www.sec.gov. Immediate access to the Company’s quarterly earnings news releases via the Internet is provided by Company News On Call at www.prnewswire.com. Mail: At your request, we will mail you our quarterly earnings news releases, quarterly financial data on Form 10-Q and additional annual reports. To be added to Columbia’s mailing list for quarterly earnings news releases, or to request other information, please contact: Jo Anne Coy Vice President, Director of Marketing P.O. Box 2156, MS 8300 Tacoma, WA 98401-2156 Tel 253.305.1965 Fax 253.305.0317 jcoy@columbiabank.com B R A N C H L o c a t i o n s PIERCE COUNTY 13th & A 1301 A Street Suite 100 Tacoma, WA 98402 253.396.6900 Michael Block Allenmore 1959 South Union Tacoma, WA 98405 253.627.6909 Bonney Lake 19925 State Rte 410 E Bonney Lake, WA 98390 253.863.8500 Lillian McGinnis Broadway Plaza 1102 Broadway Plaza Tacoma, WA 98402 253.305.1940 Michael Block Edgewood/Milton 1250 Meridian E Milton, WA 98354 253.952.6646 Dolores Ehli Fife 1501 54th Ave. E Fife, WA 98424 253.922.7870 Julie Borell Fircrest 2401 Mildred St. W Tacoma, WA 98466 253.566.1172 Dan Patjens Gig Harbor 5303 Point Fosdick Dr. NW Gig Harbor, WA 98335 253.858.5105 Chris Thomas Downtown Gig Harbor 3006 Judson St. Suite 101 Gig Harbor, WA 98335 253.851.5551 Ellen Dunn Lakewood 6202 Mount Tacoma Dr. SW Lakewood, WA 98499 253.581.4232 Jay Mayer Martin Luther King 1102 Martin Luther King Jr. Way Tacoma, WA 98405 253.597.8000 Calvin Pearson Old Town 2200 North 30th St. Tacoma, WA 98403 253.272.0412 Connie Nelson 104th & Canyon 10321 Canyon Road E Puyallup, WA 98373 253.539.7100 Debra Hamilton 43rd & Meridian 4220 South Meridian Puyallup, WA 98373 253.770.0770 Stan Ausmus 176th & Meridian 17208 Meridian E Puyallup, WA 98373 253.445.6748 Alana Rouff South Hill Mall 3500 South Meridian Suite 503 Puyallup, WA 98373 253.770.8161 Stan Ausmus Spanaway 17502 Pacific Ave. S Spanaway, WA 98387 253.539.3094 Stadium 601 North 1st St. Tacoma, WA 98403 253.597.8811 Monica Stevens Summit 10409 Canyon Road E Puyallup, WA 98373 253.770.9323 Debra Hamilton 84th & Pacific 201 South 84th St. Tacoma, WA 98444 253.471.7000 Keith Brown Westgate 5727 North 21st St. Tacoma, WA 98406 253.761.8170 Connie Pentecost KING COUNTY Auburn 25 16th St. NE Auburn, WA 98002 253.939.9600 Doug Hedger Bellevue Plaza 777 108th Ave. NE Suite 100 Bellevue, WA 98004 425.646.9696 Rebecca Holverson Bellevue Way 10350 NE 10th St. Bellevue, WA 98004 425.452.7323 Rebecca Holverson Federal Way 33370 Pacific Highway S Federal Way, WA 98003 253.925.9323 Mike Harris Forest Villa 2749 Auburn Way S Auburn, WA 98002 253.887.1186 Rod Clemmer Issaquah 775 NW Gilman Blvd. Suite F Issaquah, WA 98027 425.369.9200 Kent 504 West Meeker Kent, WA 98032 253.852.0475 Shirley McGregor Redmond 8201 164th Ave. NE Suite 105 Redmond, WA 98052 425.558.7500 Judi Lindsay South Auburn 4101 A St. SE Auburn, WA 98002 253.939.9800 Rod Clemmer 2nd & Columbia 721 Second Avenue Seattle, WA 98104 206.223.1000 Kellie Warren COWLITZ COUNTY Commerce 1338 Commerce Ave. Longview, WA 98632 360.636.9200 Faith Pacheco 30th Avenue 2207 30th Ave. Longview, WA 98632 360.423.8760 Faith Pacheco Woodland 782 Goerig St. Woodland, WA 98674 360.225.9421 Carol Rounds KITSAP COUNTY Port Orchard 228 Bravo Terrace Port Orchard, WA 98367 360.876.8384 Rob Putaansuu THURSTON COUNTY West Olympia 2820 Harrison Ave. NW Olympia, WA 98502 360.357.5800 Diane Avery Columbia Banking System, Inc.