2006 Annual Report Making a Difference Strengthening communities People make the difference Look around on any given day and you’ll see it happening — dreamers starting businesses, people working hard, families planning their futures, neighbors helping neighbors. It’s the underlying thread that holds a community together, and we all make a difference. At Columbia Bank and Bank of Astoria, we’re here to help make a difference, too — for our customers, the communities we serve, and our shareholders. From helping families manage their finances to helping businesses grow with loans, you can count on us to be here for you. Because, when each of us makes a difference, the entire community benefits. Consolidated financials How we measure success FOR The YeAR Net interest income Provision for loan losses Noninterest income Noninterest expense Net income PeR ShARe Net income (basic) Net income (diluted) Book value AVeRAgeS Total assets Interest-earning assets Loans Securities Deposits Core deposits Shareholders’ equity FInAnCIAL RATIOS Net interest margin Return on average assets Return on average equity Efficiency ratio Average equity to average assets AT YeAR-enD Total assets Loans Allowance for loan losses Securities Deposits Core deposits Shareholders’ equity 2006 $97,763 2,065 24,672 76,134 32,103 $2.01 1.99 15.71 $2,473,404 2,265,393 1,629,616 623,631 1,976,448 1,433,395 237,843 4.49% 1.30% 13.50% 58.95% 9.62% $2,553,131 1,708,962 20,182 605,133 2,023,351 1,473,701 252,347 Total nonperforming assets $3,480 Full-time equivalent employees Banking offices 657 40 2005 ChAnge $90,912 1,520 24,786 72,855 29,631 $1.89 1.87 14.29 $2,290,746 2,102,513 1,494,567 605,395 1,923,778 1,423,862 214,612 4.44% 1.29% 13.81% 61.20% 9.37% $2,377,322 1,564,704 20,829 585,332 2,005,489 1,478,090 226,242 $4,875 651 40 8% 36% 0% 5% 8% 6% 6% 10% 8% 8% 9% 3% 3% 1% 11% 7% 9% - 3% 3% 1% 0% 12% - 29% 1% 0% All dollar figures are in thousands. $32,000 $27,000 $22,000 $17,000 $12,000 $7,000 net income Stock price Total revenue $38.00 $31.00 $24.00 $17.00 $10.00 $125,000 $115,000 $105,000 $95,000 $85,000 $75,000 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Leading the way It all starts with people Executive Officers Clockwise from top: Gary R. Schminkey, Executive Vice President, Chief Financial Officer; Andrew McDonald, Executive Vice President, Chief Credit Officer; Mark W. Nelson, Executive Vice President, Chief Banking Officer; Melanie J. Dressel, President & Chief Executive Officer, Columbia Banking System and Columbia Bank; Evans Q. “Tex” Whitney, Executive Vice President, Human Resources Board of Directors Clockwise from top: John P. Folsom, President, Brown & Brown of Washington, Inc.; Thomas M. Hulbert, President and Chief Executive Officer, Hulco, Inc. and Winsor Corporation; James M. Will, President, Titus-Will Enterprises; Daniel C. Regis, Managing Director, Digital Partners; Melanie J. Dressel, President & Chief Executive Officer, Columbia Banking System and Columbia Bank; William T. Weyerhaeuser, Chairman of the Board, Columbia Banking System; Thomas L. Matson, Owner & President, Tom Matson Dodge; Donald Rodman, Owner and Executive Officer, Rodman Realty; Frederick M. Goldberg, Managing Partner, Goldberg Investments “Tex” Whitney Tex Whitney, Executive Vice President, Human Resources, retired on January 3, 2007 after 40 years in banking. Tex has been an integral part of Columbia Bank since its reorganization and the relocation of its headquarters to Tacoma in 1993. “Tex leaves a meaningful legacy,” Melanie Dressel said, “not only from his contribution to Columbia Bank’s culture, but also in the banking community he has served so well. We are grateful for Tex’s commitment to the bank, its employees, and the communities we serve.” Corporate Headquarters Columbia Banking System, Inc. 1301 A Street, Suite 800 P.O. Box 2156 Tacoma, WA 98401-2156 253.305.1900 800.305.1905 www.columbiabank.com Independent Auditors Deloitte & Touche, LLP Transfer Agent & Registrar American Stock Transfer & Trust Co. Market Makers Lehman Brothers Inc. Keefe Bruyette and Woods, Inc. Morgan Stanley & Co., Inc. Goldman Sachs UBS Securities LLC Knight Equity Markets LP D.A. Davidson and Co. Regulatory & Securities Counsel Information Graham & Dunn PC Annual Meeting Greater Tacoma Convention & Trade Center 1500 Broadway Tacoma, WA Wednesday, April 25, 2007 at 1 p.m. Stock Listing The Company’s common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Markets under the symbol: COLB For information about Columbia Banking System, including news and financial results, product information, and service locations, access our home page on the World Wide Web at www.columbiabank.com. You can also view or retrieve copies of Columbia’s financial reports on the Internet by connecting to 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. Shareholders, media representatives, and other individuals seeking general information, additional copies of the annual report, Form 10-Q, or Form 10-K should contact: JoAnne Coy Vice President, Corporate Communications P.O. Box 2156, MS 8300 Tacoma, WA 98402-2156 Tel 253.305.1965 Fax 253.305.0317 E-mail jcoy@columbiabank.com To our shareholders Building for the future 2006 was a year characterized by solid loan growth, increased interest income, effective expense management, and improved profitability. As always, our focus was on our core value of deepening and strengthening customer relationships through providing the best service possible, coupled with a wide range of products and services. In order to deliver this level of service, we rely on our outstanding team of professionals at both Columbia Bank and Bank of Astoria who share this commitment to meeting the needs of our customers. They truly make a difference. Our earnings for the year were $32.1 million, an increase of 8% from 2005. Diluted earnings per share for 2006 were $1.99, an increase of 6% from $1.87 in 2005. Revenue grew to $122 million from $116 million in 2005, with an 8% increase in net interest income. Return on average assets for 2006 improved to 1.30%, up from 1.29% for 2005. Return on average equity for the year was $13.50% compared to 13.81% for the prior year. During the first half of 2006, we successfully completed the conversion of Columbia Bank’s operating system. The implementation of our new system, while requiring time and resources as we diligently worked to have a smooth transition for our customers, has positioned us for the future. It has given us more flexibility in developing and implementing new products and services for our customers, and has resulted in significantly lower data processing expenses. We saw good growth in our loans, which were up over 9% year-over-year, and up $53 million from third quarter 2006. Total loans at year-end were more than $1.7 billion. We maintain an excellent diversity in our loan portfolio, which positions us well to evaluate all new loans based on their individual merits without the constraints created by excessive concentrations in any single category. To fund these loans, we were pleased with our ability to maintain a strong and stable core deposit base of more than 73% of our total deposits, which helped us manage the expected pressure on our net interest margin as costs for deposits caught up with rising interest rates. In order to continue to grow our loans and deposits, finding high-quality bankers is very important to us. We are fortunate that we attract talented individuals—we call them “Columbia Bankers” rather than lenders, as deposit gathering is as important as generating loans, and will continue to be a strong focus for us throughout our market area. During the fourth quarter, we allocated $950,000 to our loan loss provision as a result of loan growth and a $1.5 million loan charge-off on a “legacy credit” dating back to 1999. The balance of our loan portfolio has continued to perform very well, with our nonperforming loans at their lowest level in seven years. We are very proud that Columbia Bank was named the 2006 Outstanding Philanthropic Corporation by the Association of Fundraising Professionals, Washington Chapter. This award not only reflects a strong commitment to their community by our Columbia bankers, but also demonstrates our staff’s dedication to their customers, translating into value for our shareholders. We know that the foundation of our growth is the strength of the communities we serve, and thank our staff for making a real difference. All of us at Columbia would like to express our deep appreciation to Tex Whitney, who retired at the end of the year after 40 years in banking. Tex was an integral part of the organization since the formation of the new Columbia Bank almost 14 years ago. He will be missed. Our commitment for 2007 and beyond is to grow the organization, and build long-term value for our shareholders. As always, our focus continues on growth in earnings and increasing market share, emphasizing the vision of customer service and the broad range of products that has served us so well. We plan to expand our geographic footprint as we position ourselves as a Pacific Northwest regional community bank. We have several branches in our pipeline and have enthusiastic, experienced bankers looking forward to developing these new markets for us. As we go forward, we will stay true to our core values, remaining grounded in long-term decision-making that will benefit our customers, our employees, and our shareholders. Thank you for your continued support. Sincerely, William T. Weyerhaeuser Melanie J. Dressel Chairman of the Board, Columbia Banking System President and Chief Executive Officer Branch locations We’re here where you need us 176th & Meridian 17208 Meridian E Puyallup, WA 98373 253.445.6748 Puyallup 618 S Meridian Puyallup, WA 98371 253.840.6000 Spanaway 17502 Pacific Ave. S Spanaway, WA 98387 253.539.3094 Stadium 601 North 1st Tacoma, WA 98403 253.597.8811 Summit 10409 Canyon Road E Puyallup, WA 98373 253.770.9323 84th & Pacific 201 South 84th St. Tacoma, WA 98444 253.471.7000 University Place 4221 Bridgeport Way West University Place, WA 98466 253.564.8333 Westgate 5727 North 21st St. Tacoma, WA 98406 253.761.8170 King County Auburn 25 16th St. NE Auburn, WA 98002 253.939.9600 Auburn (South) 4101 A St. SE Auburn, WA 98002 253.939.9800 Bellevue Way 10350 NE 10th St. Bellevue, WA 98004 425.452.7323 Federal Way 33370 Pacific Highway S Federal Way, WA 98003 253.925.9323 Forest Villa 2749 Auburn Way S Auburn, WA 98002 253.887.1186 Kent 504 West Meeker Kent, WA 98032 253.852.0475 Redmond 8201 164th Ave. NE Suite 105 Redmond, WA 98052 425.558.7500 2nd & Columbia 721 Second Ave. Seattle, WA 98104 206.223.1000 Cowlitz County Commerce 1338 Commerce Ave. Longview, WA 98632 360.636.9200 30th Avenue 2207 30th Ave. Longview, WA 98632 360.423.8760 Woodland 782 Goerig St. Woodland, WA 98674 360.225.9421 Kitsap County Port Orchard 228 Bravo Terrace Port Orchard, WA 98367 360.876.8384 Thurston County West Olympia 2820 Harrison Ave. NW Olympia, WA 98502 360.357.5800 Oregon Bank of Astoria Clatsop County Astoria (Headquarters) 1122 Duane St. Astoria, OR 97103 503.325.2228 Cannon Beach 107 Sunset Blvd. Cannon Beach, OR 97110 503.436.0727 Seaside 301 Ave. A Seaside, OR 97138 503.738.8445 Warrenton 630 SE Marlin Ave. Warrenton, OR 97146 503.861.9750 Tillamook County Manzanita 715 Laneda Ave. Manzanita, OR 97130 503.368.4284 Washington Columbia Bank Pierce County 13th & A 1301 A Street Suite 100 Tacoma, WA 98402 253.396.6900 Allenmore 1959 South Union Tacoma, WA 98405 253.627.6909 Bonney Lake 19925 State Rte. 410 E Bonney Lake, WA 98391 253.863.8500 Broadway Plaza 1102 Broadway Plaza Tacoma, WA 98402 253.305.1940 Edgewood/Milton 1250 Meridian E Milton, WA 98354 253.952.6646 Fife 1501 54th Ave. E Fife, WA 98424 253.922.7870 Fircrest 2401 Mildred St. W Fircrest, WA 98466 253.566.1172 Gig Harbor 5303 Point Fosdick Dr. NW Gig Harbor, WA 98335 253.858.5105 Gig Harbor (Downtown) 3006 Judson St. Suite 101 Gig Harbor, WA 98335 253.851.5551 Lakewood 6202 Mount Tacoma Dr. SW Lakewood, WA 98499 253.581.4232 Martin Luther King Jr. 1102 Martin Luther King Jr. Way Tacoma, WA 98405 253.597.8000 Old Town 2200 North 30th St. Tacoma, WA 98403 253.272.0412 104th & Canyon 10321 Canyon Road E Puyallup, WA 98373 253.539.7100 43rd & Meridian 4220 South Meridian Puyallup, WA 98373 253.770.0770 Columbia Bank 1301 A Street Tacoma, Washington 98402 253.305.1900 / 800.305.1905 www.columbiabank.com