COLUMBIA BANKING SYSTEM INC, S-4/A, 1997-10-16

COLUMBIA BANKING SYSTEM INC
S-4/A, 1997-10-16
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997

REGISTRATION NO. 333-35037

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________

AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------------

COLUMBIA BANKING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON 6712 91-1422237
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1102 BROADWAY PLAZA, TACOMA, WASHINGTON 98402 (253) 305-1900
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
__________________________________
A.G. Espe
Chairman and Chief Executive Officer
Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, Washington 98402
(253) 305-1900
(Name, address, including zip code and telephone number, including area code, of
agent for service)

Copies of communications to

J. JAMES GALLAGHER, Esq. STEPHEN M. KLEIN, Esq.
SANDRA L. GALLAGHER, Esq. Graham & Dunn
Gordon, Thomas, Honeywell, 1420 Fifth Avenue
Malanca, Peterson & Daheim, P.L.L.C. Seattle, WA 98101
1201 Pacific Avenue, Suite 2200 (206) 624-8300
Tacoma, Washington 98401
(253) 572-5050
__________________________________

Approximate date of commencement of proposed sale of securities to the
public: The date of mailing of the enclosed Joint Proxy Statement/Prospectus to
stockholders of Cascade Bancorp, Inc. and Bank of Fife.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
<PAGE>

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
S-4 Item Prospectus Heading

Part I

A. INFORMATION ABOUT THE TRANSACTION

<S> <C> <C>
Item 1. Forepart of Registration Statement and Outside
Front Cover of Prospectus.............................. Cover Page; Cross Reference Sheet;
Outside Front Cover Page of Joint
Proxy Statement/Prospectus

Item 2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Available Information; Information
Incorporated by Reference

Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.......................... Summary; Special Meeting of Cascade
Shareholders; Special Meeting of
Fife Shareholders; The Merger(s) -
Conditions to the Merger(s) -
Dissenters' Rights of Appraisal

Item 4. Terms of the Transaction............................... Summary; The Merger(s)

Item 5. Pro Forma Financial Information........................ Selected Historical and Pro Forma
Financial Data; Pro Forma Combined
Financial Statements
Item 6. Material Contracts with the Company Being
Acquired............................................... Background of and Reasons for the
Merger(s)
Item 7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be Underwriters....... Not Applicable

Item 8. Interests of Named Experts and Counsel................. Not Applicable

Item 9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities......... Not Applicable
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
B. INFORMATION ABOUT THE REGISTRANT

<S> <C> <C>
Item 10. Information with Respect to S-3 Registrants............ Available Information; Information
Incorporated by Reference
Item 11. Incorporation of Certain Information by
Reference.............................................. Available Information; Information
Incorporated by Reference
Item 12. Information with Respect to S-2 or S-3
Registrants............................................ Not Applicable

Item 13. Incorporation of Certain Information by
Reference.............................................. Not Applicable

Item 14. Incorporation with Respect to Registrants Other
Than S-3 or S-2 Registrants............................ Not Applicable

C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED

Item 15. Information with Respect to S-3 Companies.............. Not Applicable

Item 16. Information with Respect to S-2 or S-3 Companies....... Not Applicable

Item 17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.............................. Stock Price and Dividend
Information; Information Concerning
Cascade; Information Concerning
Fife; Selected Historical and Pro
Forma Financial Data; Pro Forma
Combined Financial Statements;
Cascade Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Fife
Management's Discussion and
Analysis of Financial Condition and
Results of Operations
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
D. VOTING AND MANAGEMENT INFORMATION

<S> <C> <C>
Item 18. Information if Proxies, Consents or
Authorizations are to be
Solicited.............................................. Introduction; Special Meeting of
Cascade Shareholders; Special
Meeting of Fife Shareholders; The
Merger(s) - Dissenters' Rights of
Appraisal; Security Ownership of
Certain Beneficial Owners and
Management of CBSI, Cascade and Fife

Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer......................................... Not Applicable

</TABLE>
<PAGE>

[CASCADE BANCORP LETTERHEAD]

October 16, 1997

Dear Fellow Shareholder:

You are cordially invited to attend a special meeting of shareholders of
Cascade Bancorp, Inc. ("Cascade"), which will be held on Thursday, November
20, 1997, at 7:30 p.m., local time, at Cascade's principal office located at
25 16th Street N.E., Auburn, Washington (the "Special Meeting").

At the Special Meeting, you will be asked to consider and approve a Plan and
Agreement of Reorganization and Merger, dated as of June 30, 1997 (the "Merger
Agreement"), under the terms of which Cascade will be merged into Columbia
Banking System, Inc. ("CBSI"), with the result that Cascade shareholders would
become shareholders of CBSI (the "Merger"). The Merger is subject to various
conditions that are contained in the Merger Agreement. The terms of the Merger
are described in the attached Joint Proxy Statement, which also serves as a
Prospectus of CBSI for the shares of its Common Stock to be issued in the
Merger. Since the Joint Proxy Statement also relates to the proposed merger of
Bank of Fife, Fife, Washington, into CBSI's wholly owned subsidiary Columbia
State Bank, in a separate transaction, it also includes information relative
to Bank of Fife.

The complete text of the Merger Agreement appears as Appendix A to the Joint
Proxy Statement/Prospectus. If the Merger is completed, each Cascade
shareholder will receive 2.27 shares of CBSI Common Stock for each share of
Cascade Common Stock owned. The Board of Directors has received an opinion
from Columbia Financial Advisors, Inc. to the effect that the consideration to
be received by Cascade's shareholders in the Merger is fair from a financial
point of view.

YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
CASCADE BANCORP AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE MERGER.

Approval of the Merger requires the affirmative vote of the holders of two-
thirds of the outstanding shares of Cascade Common Stock. We urge you to read
the attached Joint Proxy Statement/Prospectus and to consider your vote
carefully. If you have any questions regarding this material in advance of the
Special Meeting, please feel free to call Donald W. Lisko, Cascade's
President, at (253) 939-9600. Regardless of the size of your holdings, it is
important that your shares be voted at the Special Meeting.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE BE CERTAIN TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, AND RETURN IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON IF YOU WISH. IF FOR ANY REASON YOU
SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
VOTED AT THE SPECIAL MEETING.

Very truly yours,

Thomas L. Matson Donald W. Lisko
Chairman of the Board President

PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
<PAGE>

CASCADE BANCORP, INC.
25 16TH AVENUE N.E.
AUBURN, WASHINGTON 98002

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD NOVEMBER 20, 1997

TO THE SHAREHOLDERS OF CASCADE BANCORP:

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Cascade
Bancorp, Inc. ("Cascade") will be held on Thursday, November 20, 1997, at 7:30
p.m., local time, at Cascade's principal office located at 25 16th Avenue
N.E., Auburn, Washington. The Special Meeting is for the following purposes:

1. MERGER AGREEMENT. To consider and vote upon a proposal to approve the
Plan and Agreement of Reorganization and Merger, dated as of June 30, 1997, as
more fully described in the accompanying Joint Proxy Statement/Prospectus, and
attached as Appendix A thereto.

2. OTHER MATTERS. To act upon such other matters as may properly come before
the Special Meeting or any adjournment thereof.

Only holders of record of the Cascade Common Stock, $1.00 par value per
share, at the close of business on October 15, 1997, the record date for the
Special Meeting, are entitled to vote at the Special Meeting or any
adjournments or postponements thereof. Shareholders desiring to do so may
dissent from the Merger and obtain payment for their shares in accordance with
the provisions of the Washington Business Corporation Act, RCW 23B.13, a copy
of which is included in the Joint Proxy Statement/Prospectus as Appendix C.
See "THE MERGER--Dissenters' Rights of Appraisal" and Appendix C.

All shareholders are cordially invited to attend the Special Meeting
personally. Whether or not you are able to do so, it is important that you
complete, sign, date, and promptly return the accompanying proxy in the
enclosed postage-paid envelope in order to vote your shares of Cascade Common
Stock. Shareholders may revoke proxies previously submitted by completing a
later-dated proxy, by written revocation delivered to Cascade's secretary at
or prior to the Special Meeting, or by appearing, withdrawing the proxy and
voting at the Special Meeting in person. Attendance at the Special Meeting
will not of itself revoke a previously submitted proxy.

By Order of the Board of Directors,

DONALD W. LISKO
President
Auburn, Washington

October 16, 1997

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. APPROVAL
OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF TWO-THIRDS OF THE
OUTSTANDING SHARES OF CASCADE COMMON STOCK. IN ORDER TO ENSURE THAT THE
REQUISITE VOTES ARE OBTAINED, AND IN ORDER TO ENSURE A QUORUM, WE URGE YOU TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY.
<PAGE>

[BANK OF FIFE LETTERHEAD]

October 16, 1997

Dear Fellow Shareholder:

You are cordially invited to attend a special meeting of shareholders of the
Bank of Fife ("Fife"), which will be held on Thursday, November 20, 1997, at
5:30 p.m., local time, at Fife's office located at 5501 Pacific Highway East,
Fife, Washington (the "Special Meeting").

At the Special Meeting, you will be asked to consider and approve a Plan and
Agreement of Reorganization and Merger, dated as of July 30, 1997 (the "Merger
Agreement"), under the terms of which Fife will be merged (the "Merger") into
Columbia State Bank ("Columbia Bank") and with the result that Fife
shareholders would become shareholders of Columbia Bank's parent holding
company, Columbia Banking System, Inc. ("CBSI"). The Merger is subject to
various conditions that are contained in the Merger Agreement. The terms of
the Merger are described in the attached Joint Proxy Statement, which also
serves as a Prospectus of CBSI for the shares of its Common Stock to be issued
in the Merger. Since the Joint Proxy Statement also relates to the proposed
merger of Cascade Bancorp, Inc., Auburn, Washington, with CBSI, in a separate
transaction, it also includes information relative to Cascade.

The complete text of the Merger Agreement appears as Appendix B to the Joint
Proxy Statement/Prospectus. If the Merger is completed, each share of Fife
Common Stock issued and outstanding will be converted into the right to
receive between approximately 1.45 to 1.77 shares of CBSI Common Stock (the
"Exchange Ratio"), with the precise number of such shares to be determined by
the average price of CBSI Common Stock for a 20 day period before the closing
of the Merger ("Average Price"). The Exchange Ratio will fluctuate between
approximately 1.45 and 1.77 if the Average Price of CBSI Common Stock is
between $22 and $18. Accordingly, if the Average Price of CBSI Common Stock is
$22 or more, the Exchange Ratio will be approximately 1.45, and if the Average
Price of CBSI Common Stock is $18 or less, the Exchange Ratio will be
approximately 1.77.

The Board of Directors has received an opinion from Columbia Financial
Advisors, Inc. to the effect that the consideration to be received by Fife's
shareholders in the Merger is fair from a financial point of view.

YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
THE BANK OF FIFE AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE MERGER.

Approval of the Merger requires the affirmative vote of the holders of two-
thirds of the outstanding shares of Fife Common Stock. We urge you to read the
attached Joint Proxy Statement/Prospectus and to consider your vote carefully.
If you have any questions regarding this material in advance of the Special
Meeting, please feel free to call Jim Davis, Fife's President, at (253) 922-
7870. Regardless of the size of your holdings, it is important that your
shares be voted at the Special Meeting.

Very truly yours,

Robert Oldright James L. Davis
Chairman of the Board President

PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
<PAGE>

BANK OF FIFE
5501 PACIFIC HIGHWAY EAST
FIFE, WASHINGTON 98424

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD NOVEMBER 20, 1997

TO THE SHAREHOLDERS OF THE BANK OF FIFE:

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the Bank of
Fife ("Fife") will be held on Thursday, November 20, 1997, at 5:30 p.m., local
time, at Fife's office located at 5501 Pacific Highway East, Fife, Washington.
The Special Meeting is for the following purposes:

1. MERGER AGREEMENT. To consider and vote upon a proposal to approve the
Plan and Agreement of Reorganization and Merger, dated as of July 30, 1997, as
more fully described in the accompanying Joint Proxy Statement/Prospectus, and
attached as Appendix B thereto.

2. OTHER MATTERS. To act upon such other matters as may properly come before
the Special Meeting or any adjournment thereof.

Only holders of record of the Fife Common Stock, $0.50 par value per share,
at the close of business on October 15, 1997, the record date for the Special
Meeting, are entitled to vote at the Special Meeting or any adjournments or
postponements thereof. Shareholders desiring to do so may dissent from the
Merger and obtain payment for their shares in accordance with the provisions
of RCW 30.49, a copy of which is included in the Joint Proxy
Statement/Prospectus. See "THE MERGER--Dissenters' Rights of Appraisal" and
Appendix D.

All shareholders are cordially invited to attend the Special Meeting
personally. Whether or not you are able to do so, it is important that you
complete, sign, date, and promptly return the accompanying proxy in the
enclosed postage-paid envelope in order to vote your shares of Fife Common
Stock. Shareholders may revoke proxies previously submitted by completing a
later-dated proxy, by written revocation delivered to Fife's secretary at or
prior to the Special Meeting, or by appearing, withdrawing the proxy and
voting at the Special Meeting in person. Attendance at the Special Meeting
will not of itself revoke a previously submitted proxy.

By Order of the Board of Directors,

JAMES L. DAVIS
President
Fife, Washington

October 16, 1997

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. APPROVAL
OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF TWO-THIRDS OF THE
OUTSTANDING SHARES OF FIFE COMMON STOCK. IN ORDER TO ENSURE THAT THE REQUISITE
VOTES ARE OBTAINED, AND IN ORDER TO ENSURE A QUORUM, WE URGE YOU TO SIGN, DATE
AND RETURN THE ENCLOSED PROXY.
<PAGE>

JOINT PROXY STATEMENT FOR SPECIAL MEETINGS OF
SHAREHOLDERS OF CASCADE BANCORP AND BANK OF FIFE

PROSPECTUS OF COLUMBIA BANKING SYSTEM, INC.
SHARES OF COMMON STOCK, NO PAR VALUE

This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the management of Cascade Bancorp, Inc.,
("Cascade") a Washington corporation, and Bank of Fife ("Fife"), a Washington
banking corporation, for the Special Meetings of Shareholders of each of
Cascade and Fife, to be held, in the case of Cascade on November 20, 1997 at
7:30 p.m. at Cascade's office located at 25 16th Avenue N.E., Auburn,
Washington and in the case of Fife, on November 20, 1997 at 5:30 p.m. at the
Bank's office located at 5501 Pacific Highway East, Fife, Washington, and at
any adjournments or postponements thereof.

Cascade shareholders will vote upon a proposal to approve the merger (the
"Cascade Merger") of Cascade with and into Columbia Banking System, Inc.
("CBSI"), a Washington corporation, on the terms described in the Plan and
Agreement of Reorganization and Merger (the "Cascade Merger Agreement") dated
as of June 30, 1997 among CBSI, Cascade, Columbia State Bank ("Columbia
Bank"), and Cascade Community Bank ("CCB"). The Cascade Merger Agreement is
incorporated herein by reference.

Fife shareholders will vote upon a proposal to merge Fife (the "Fife
Merger") into Columbia Bank, a Washington banking corporation and wholly-owned
subsidiary of CBSI, on the terms described in the Plan and Agreement of
Reorganization and Merger (the "Fife Merger Agreement") dated as of July 30,
1997 among CBSI, Columbia Bank and Fife. The Fife Merger Agreement is
incorporated herein by reference.

Both transactions are referred to together as the "Merger(s)". The Cascade
Merger and the Fife Merger are separate transactions. Approval of one merger
is not in any way contingent on approval of the other merger. The closing of
the Merger(s) is expected to occur on or about November 28, 1997.

When the Merger(s) become effective, all outstanding shares of common stock,
$1.00 par value per share of Cascade ("Cascade Common Stock") and $0.50 par
value per share of Fife ("Fife Common Stock"), will be converted into the
right to receive shares of CBSI Common Stock. Cash will be paid in lieu of
fractional shares. Upon consummation of the Cascade Merger, each Cascade
shareholder will receive 2.27 shares of CBSI Common Stock for each share of
Cascade Common Stock owned. Upon consummation of the Fife Merger, each Fife
shareholder will receive approximately 1.45 to 1.77 shares of CBSI Common
Stock for each share of Fife Common Stock owned (the "Fife Exchange Ratio"),
with the precise number of such shares to be determined after Fife
shareholders vote on the Fife Merger by the average price of CBSI Common Stock
for a 20-day period ending shortly before the closing of the Fife Merger (the
"Average Closing Price"). If the Average Closing Price of CBSI Common Stock is
$22 or more, the Fife Exchange Ratio will be approximately 1.45, and if the
Average Closing Price of CBSI Common Stock is $18 or less, the Fife Exchange
Ratio will be approximately 1.77. See "THE MERGER(S)--Terms of Merger(s)." For
a description of certain significant considerations in connection with the
Merger(s), see "THE MERGER(S)--Conditions to the Merger(s)"and "Interests of
Certain Persons in the Merger(s)."

CBSI Common Stock trades on the Nasdaq National Market under the symbol
COLB. The last reported sale price for the CBSI Common Stock on the Nasdaq
National Market was $24.38 per share on October 15, 1997. Neither the shares
of Cascade nor Fife are traded on any market, thus no current market prices
are available for the shares of either Cascade or Fife. See "SUMMARY--Stock
Price and Dividend Information."

The aggregate number of shares of CBSI Common Stock to be issued in the
Cascade Merger is 774,978 (which is valued at $18,893,964 based on the $24.38
closing price of CBSI Common Stock on October 15, 1997), assuming the
outstanding options for 11,400 shares of Cascade Common Stock are exercised
prior to closing of the Cascade Merger. The aggregate number of shares of CBSI
Common Stock to be issued in the Fife Merger is 329,034 (which is valued at
$8,021,849 based on the October 15, 1997 closing price of CBSI Common Stock),
assuming the outstanding options for 24,000 shares of Fife Common Stock are
exercised prior to closing of the Fife Merger and assuming the Fife Exchange
Ratio is 1.45. Assuming 774,978 shares of CBSI Common Stock are issued in the
Cascade Merger, 329,034 shares of CBSI Common Stock are issued in the Fife
Merger and 6,598,198 shares of CBSI Common Stock are outstanding after closing
of the Merger(s), Cascade shareholders will hold approximately 11.75% of CBSI
Common Stock and Fife shareholders will hold approximately 4.99% of CBSI
Common Stock.

This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
CBSI filed as part of a Registration Statement on Form S-4 with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the shares of Common Stock, no
par value per share ("CBSI Common Stock"), of CBSI to be issued in the
Merger(s). This Joint Proxy Statement/Prospectus does not cover any resale of
the securities to be received by shareholders of Cascade and Fife upon
consummation of the Merger(s), and no person is authorized to make any use of
this Joint Proxy Statement/Prospectus in connection with any such resale,
although the CBSI Common Stock may be traded without use of this Joint Proxy
Statement/Prospectus by those shareholders of CBSI not deemed to be
"affiliates" of either CBSI, Cascade or Fife. See "THE MERGER(S)--Resales of
Stock Received in the Merger(s) by Cascade and Fife Affiliates".

All information concerning CBSI contained in this Joint Proxy
Statement/Prospectus has been provided by CBSI, and all information concerning
Cascade and Fife has been provided by those companies, respectively.

This Joint Proxy Statement/Prospectus and the accompanying proxy cards will
first being mailed to shareholders of Cascade and Fife on or about October 20,
1997.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE SHARES OF CBSI COMMON STOCK ISSUABLE IN THE MERGER(S) ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS OCTOBER , 1997
<PAGE>

AVAILABLE INFORMATION

CBSI is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, (the "Exchange Act") as amended. In
accordance with the Exchange Act, CBSI files reports, proxy statements, and
other information with the Commission. Copies of such reports, proxy
statements and other information can be obtained, upon payment of prescribed
fees, from the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street NW,
Washington D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected at the Commission's facilities referred to above
and at the Commission's Regional Offices at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison,
Suite 1400, Chicago, Illinois 60661. The Common Stock of CBSI is included for
quotation on the Nasdaq National Market and such reports, proxy statements and
other information concerning CBSI are available for inspection and copying at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street NW, Washington D.C. 20006. Under the rules and regulations of the
Commission, the solicitation of Cascade and Fife shareholders to approve the
Merger(s) constitutes an offering of the CBSI Common Stock to be issued in
conjunction with the Merger(s). CBSI has filed with the Commission a
registration statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") under the Securities Act covering the CBSI Common
Stock to be issued in connection with the Merger(s). This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement. The Commission also maintains a site accessible to the
public by computer on the World Wide Web at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants that
file electronically with the Commission, including CBSI.

While statements contained in this Joint Proxy Statement/Prospectus or in
any document incorporated by reference into this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein disclose material terms of such contract or
other document, such statements are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.

Neither Cascade nor Fife is subject to the information and reporting
requirements of the Exchange Act.

INFORMATION INCORPORATED BY REFERENCE

The following documents previously filed by CBSI with the Commission (File
Number 0-20288) pursuant to the Exchange Act are incorporated in this Joint
Proxy Statement/Prospectus by reference:

1. CBSI's Annual Report on Form 10-K for the year ended December 31, 1996
(the "CBSI 1996 10-K");

2. CBSI's Proxy Statement for its 1997 Annual Meeting of Shareholders
(the "CBSI 1997 Proxy");

3. CBSI's Quarterly Report on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997 (the "CBSI 1997 10-Qs");
4. CBSI's Current Report on Form 8-K dated July 7, 1997;

5. CBSI's Current Report on Form 8-K/A dated March 14, 1997; and

6. The description of CBSI's capital stock contained in its Registration
Statement on Form S-2 originally filed with the Commission on October 18,
1996, as amended (Registration No. 333-14465).

All documents filed by CBSI pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act after the date hereof and prior to the Cascade and Fife
Special Meetings of Shareholders shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein or in any
other subsequently filed document that also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such document. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part hereof.

This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents) are available, without charge,
to each person to whom a copy of this Joint Proxy Statement/Prospectus is
delivered. Requests for such copies should be directed to: Kristen Kopay,
Marketing Officer, Columbia Banking System, Inc., 1102 Broadway Plaza, Tacoma,
Washington 98402, (253) 305-1900.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY CBSI, CASCADE OR FIFE. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
AN OFFER, OR SOLICITATION OF AN OFFER.

NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF CBSI, CASCADE OR FIFE AND THEIR SUBSIDIARIES SINCE THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS OR THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
<PAGE>

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 1
Introduction............................................................. 1
Parties to the Merger.................................................... 1
Meetings and Votes Required.............................................. 2
The Merger(s)............................................................ 3
Effect of Merger(s).................................................... 3
Recommendation of the Cascade Board.................................... 5
Recommendation of the Fife Board....................................... 5
Opinions of Financial Advisor.......................................... 5
Effective Time and Closing of Merger(s)................................ 5
Conditions; Regulatory Approvals....................................... 5
Termination and Amendment of the Merger Agreement(s)................... 6
Interests of Certain Persons in the Merger(s).......................... 6
Dissenters' Rights of Appraisal........................................ 8
Tax Treatment of the Merger(s)......................................... 8
Accounting Treatment of the Merger(s).................................. 8
Trading Market......................................................... 8
Comparison of Shareholders' Rights..................................... 8
Stock Price And Dividend Information..................................... 9
Comparative Per Common Share Data........................................ 12
Selected Historical and Pro Forma Financial Data......................... 15
SPECIAL MEETING OF CASCADE SHAREHOLDERS.................................... 22
Date, Time, and Place.................................................... 22
Purpose of the Meeting................................................... 22
Shares Outstanding and Entitled to Vote; Record Date..................... 22
Vote Required............................................................ 22
Voting, Solicitation, and Revocation of Proxies.......................... 22
SPECIAL MEETING OF FIFE SHAREHOLDERS....................................... 23
Date, Time, and Place.................................................... 23
Purpose of the Meeting................................................... 23
Shares Outstanding and Entitled to Vote; Record Date..................... 23
Vote Required............................................................ 23
Voting, Solicitation, and Revocation of Proxies.......................... 24
BACKGROUND OF AND REASONS FOR THE MERGER(S)................................ 25
Cascade.................................................................. 25
Background of the Merger............................................... 25
CBSI's Reasons For The Merger.......................................... 26
Cascade's Reasons For The Merger....................................... 27
Opinion of Columbia Financial Advisors, Inc. .......................... 27
Recommendation of the Cascade Board.................................... 30
Fife..................................................................... 30
Background of the Merger............................................... 30
CBSI's Reasons for the Merger.......................................... 30
Fife's Reasons For The Merger.......................................... 31
Opinion of Columbia Financial Advisors, Inc. .......................... 32
Recommendation of the Fife Board....................................... 34
THE MERGER(S).............................................................. 35
General.................................................................. 35
Terms of the Merger(s)................................................... 35
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange of Stock Certificates.......................................... 36
Employee Benefit Plans.................................................. 36
Mechanics of the Merger(s).............................................. 36
Conduct Pending Consummation of the Merger(s)........................... 37
Conditions to the Merger(s)............................................. 37
Amendment of the Merger Agreement(s).................................... 38
Termination of the Merger Agreement(s).................................. 38
Interests of Certain Persons in the Merger(s)........................... 38
Certain Federal Income Tax Matters...................................... 39
Accounting Treatment of the Merger(s)................................... 40
Dissenters' Rights of Appraisal......................................... 41
Resales of Stock Received in the Merger(s) by Cascade and Fife Affili-
ates................................................................... 42
No Solicitation......................................................... 42
Expenses................................................................ 42
PRO FORMA COMBINED FINANCIAL STATEMENTS................................... 43
INFORMATION CONCERNING CBSI............................................... 51
INFORMATION CONCERNING CASCADE............................................ 53
Business................................................................ 53
Competition............................................................. 53
Facilities.............................................................. 54
Employees............................................................... 54
Legal Proceedings....................................................... 54
CASCADE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 55
Six months ended June 30, 1997 and 1996................................. 55
Financial Condition and Results of Operations for the Years ended Decem-
ber 31, 1996 and 1995.................................................. 55
Loan Quality, Liquidity, Capital........................................ 55
Lending................................................................. 56
Summary of Loan Loss Experience......................................... 58
Investment Activities................................................... 59
INFORMATION CONCERNING FIFE............................................... 61
Business................................................................ 61
Competition............................................................. 61
Facilities.............................................................. 62
Employees............................................................... 62
Legal Proceedings....................................................... 62
FIFE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 63
Six months ended June 30, 1997 and 1996................................. 63
Financial Condition and Results of Operations for the Years ended
December 31, 1996
and 1995............................................................... 63
Loan Quality, Liquidity, Capital........................................ 63
Lending................................................................. 64
Summary of Loan Loss Experience......................................... 66
Investment Activities................................................... 67
MANAGEMENT OF RESULTING COMPANY........................................... 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBSI,
CASCADE AND FIFE......................................................... 71
SUPERVISION AND REGULATION................................................ 73
CBSI and Cascade........................................................ 73
Columbia Bank, CCB and Fife............................................. 74
</TABLE>

ii
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF CBSI, CASCADE, AND FIFE COMMON
STOCK................................................................... 79
General................................................................ 79
Preferred Stock........................................................ 79
Common Stock........................................................... 79
Dividend Rights........................................................ 79
Voting Rights.......................................................... 80
Preemptive Rights...................................................... 80
Liquidation Rights..................................................... 80
Assessments............................................................ 80
Board of Directors..................................................... 81
Indemnification and Limitation of Liability............................ 81
Amendment of Articles of Incorporation and Bylaws...................... 81
Repurchase of Shares................................................... 82
Dissenters' Rights..................................................... 82
Voting on Sales of Assets, Mergers and Dissolutions.................... 82
Potential "Anti-Takeover" Provisions................................... 83
CERTAIN LEGAL MATTERS.................................................... 84
EXPERTS.................................................................. 84
OTHER MATTERS............................................................ 84
GLOSSARY OF KEY TERMS.................................................... 85
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>

APPENDICES

Appendix A--Plan and Agreement of Reorganization and Merger--Cascade.
Appendix B--Plan and Agreement of Reorganization and Merger--Fife.
Appendix C--Dissenters' Rights of Appraisal--Cascade.
Appendix D--Dissenters' Rights of Appraisal--Fife.
Appendix E--Opinion of CFA--Cascade.
Appendix F--Opinion of CFA--Fife.

iii
<PAGE>

SUMMARY

The following material summarizes certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. This summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Joint Proxy Statement/Prospectus
(including the appendices hereto). Capitalized terms used in this Joint Proxy
Statement/Prospectus, unless the context otherwise requires, have the meanings
ascribed to them in the Glossary of Key Terms inside the back cover of this
Joint Proxy Statement/Prospectus or in the respective Merger Agreement.
Additional terms used principally in particular sections of this Joint Proxy
Statement/Prospectus are defined in the sections where they are used.

INTRODUCTION

Shareholders of Cascade will be asked to vote on a proposed merger of Cascade
into CBSI pursuant to the Cascade Merger Agreement. Shareholders of Fife will
be asked to vote on a proposed merger of Fife into Columbia Bank pursuant to
the Fife Merger Agreement. Under applicable Washington corporate law and NASDAQ
requirements, CBSI shareholders are not required to vote on the Merger(s). The
Boards of Directors of CBSI and Cascade have unanimously adopted the Cascade
Merger Agreement. The Boards of Directors of CBSI, Columbia Bank and Fife have
unanimously adopted the Fife Merger Agreement. See "THE MERGER(S)--Terms of the
Merger(s)."

PARTIES TO THE MERGER

CBSI. CBSI is a registered bank holding company that conducts a full service
commercial banking business through its wholly owned subsidiary, Columbia Bank,
a Washington state chartered bank. Headquartered in Tacoma, Washington, CBSI
provides a full range of commercial banking services to small and medium-sized
businesses, professionals and other individuals through 18 branch offices
located in the Tacoma metropolitan area and contiguous parts of the Puget Sound
region of Washington, as well as the Longview and Woodland communities in
southwestern Washington.

CBSI was reorganized and additional management was added in 1993 in order to
take advantage of commercial banking business opportunities resulting from the
increased consolidation of banks in CBSI's principal market area, primarily
through acquisitions by out-of-state holding companies, and the resulting
dislocation of customers. Since the reorganization, CBSI has experienced rapid
growth and has greatly expanded its commercial lending activities. CBSI has
grown from four branch offices at January 1, 1993 to its present 18 branch
offices and has regulatory approval to open four additional branch offices in
its market area. Between January 1, 1993 and June 30, 1997, CBSI increased its
consolidated assets to $655.1 million from $158.6 million, its loans to $541.4
million from $120.8 million and its deposits to $549.9 million from $118.0
million. While accomplishing this expansion, CBSI's asset quality ratios have
improved. At June 30, 1997, CBSI's nonperforming assets constituted 0.23% of
total assets, as compared to 0.39%, 0.89% and 1.17% at December 31, 1996, 1995
and 1994, respectively.

CBSI's principal executive offices are located at 1102 Broadway Plaza,
Tacoma, Washington, 98402. Its telephone number is (253) 305-1900.

Additional information concerning CBSI and its business is included in the
documents incorporated into this Joint Proxy Statement/Prospectus by reference.
See "INFORMATION INCORPORATED BY REFERENCE," "AVAILABLE INFORMATION," the CBSI
1996 10-K, the CBSI 1997 10-Qs and the CBSI 1997 Proxy. See also "INFORMATION
CONCERNING CBSI."

CASCADE. Cascade was organized under Washington law in February 1995 under an
Agreement and Plan of Exchange pursuant to which shareholders of CCB became
shareholders of Cascade. Cascade is registered with

1
<PAGE>

the Board of Governors of the Federal Reserve System (the "FRB") as a bank
holding company, and conducts a commercial banking business through its wholly
owned subsidiary CCB. CCB is a state chartered bank organized under Washington
law in 1990. It offers commercial banking services, primarily to small and
medium-sized businesses, professionals and retail customers, including
commercial loans, accounts receivable and inventory financing, consumer
installment loans, acceptance of deposits, and personal savings and checking
accounts.

At June 30, 1997, Cascade had total assets of $87.0 million, total deposits
of $76.2 million and total loans of $55.2 million.

Cascade's principal offices are located at 25-16th Street N.E., Auburn,
Washington, 98002. Its telephone number is (253) 939-9600.

FIFE. Fife is a state chartered commercial bank organized under Washington
law in 1992. Fife offers commercial banking services primarily to small and
medium-sized businesses, professionals and retail customers. Such services
include commercial loans, accounts receivable and inventory financing, consumer
installment loans, acceptance of deposits, and personal savings and checking
accounts.

At June 30, 1997, Fife had total assets of $33.4 million, total deposits of
$29.9 million and total loans of $23.9 million.

Fife has one office which is located at 5501 Pacific Highway East, Fife,
Washington, 98424. Its telephone number is (253) 922-7870.

MEETINGS AND VOTES REQUIRED

GENERAL. The affirmative vote of two-thirds ( 2/3) of the shares of Cascade
Common Stock and Fife Common Stock outstanding respectively on the Cascade
Record Date and Fife Record Date is required to approve the respective Merger
Agreement(s). In order to ensure that the requisite votes are obtained Cascade
and Fife shareholders are urged to sign, date and return the enclosed proxy.
Shareholders may revoke proxies previously submitted by completing a later-
dated proxy, by written revocation delivered to Cascade's or Fife's secretary,
as appropriate, at or prior to the special meeting of shareholders, or by
appearing, withdrawing the proxy and voting at the special meeting in person.

As of the Cascade Record Date, Cascade's directors and executive officers and
their affiliates were entitled to vote 154,896 shares at the Cascade Meeting,
which represent approximately forty-seven percent (47%) of the total number of
outstanding shares on such date. As of the Fife Record Date, Fife's directors
and executive officers and their affiliates were entitled to vote 106,490
shares at the Fife Meeting, which represent approximately forty-seven percent
(47%) of the total number of outstanding shares on such date. Each director of
Cascade and Fife have agreed to vote their shares in favor of the respective
merger.

CASCADE. A special meeting of Cascade shareholders (the "Cascade Special
Meeting") will be held at the principal office of Cascade located at 25-16th
Avenue N.E., Auburn, Washington, on November 20, 1997, at 7:30 p.m., local
time. The purpose of the Cascade Special Meeting is to vote to approve the
Cascade Merger Agreement providing for the merger of Cascade with and into
CBSI, pursuant to which each share of Cascade Common Stock will be exchanged
for 2.27 shares of CBSI Common Stock. Shares of Cascade Common Stock are the
only shares entitled to vote at the Cascade Special Meeting. October 15, 1997
is the record date for the Cascade Special Meeting (the "Cascade Record Date").
On the Cascade Record Date, there were 330,000 shares of Cascade Common Stock
outstanding.

FIFE. A special meeting of Fife shareholders (the "Fife Special Meeting")
will be held at the Bank's office located at 5501 Pacific Highway East, Fife,
Washington, on November 20, 1997, at 5:30 p.m., local time. The

2
<PAGE>

purpose of the Fife Special Meeting is to vote to approve the Fife Merger
Agreement providing for the merger of Fife with and into Columbia Bank,
pursuant to which each share of Fife Common Stock will be exchanged for
approximately 1.45 to 1.77 shares of CBSI Common Stock. The precise number of
shares to be received will not be calculated until after the Fife Special
Meeting and will be determined by the average price of CBSI Common Stock for a
brief period before the closing of the Fife Merger which is expected to occur
on or around November 28, 1997. Shares of Fife Common Stock are the only shares
entitled to vote at the Fife Special Meeting. October 15, 1997 is the record
date for the Fife Special Meeting (the "Fife Record Date"). On the Fife Record
Date, there were 202,920 shares of Fife Common Stock outstanding.

THE MERGER(S)

Effect of Merger(s)

CASCADE. In accordance with the Cascade Merger Agreement, on the Effective
Date, Cascade will merge into CBSI, with CBSI as the surviving corporation, and
CCB will merge into Columbia Bank, with Columbia Bank as the surviving
corporation. Upon consummation of the Cascade Merger, each holder of shares of
Cascade Common Stock, other than any shares as to which dissenters' rights are
perfected under Washington law ("Dissenters' Shares"), will be entitled to
receive, in exchange for each share of Cascade Common Stock held of record by
such shareholder as of the Effective Date, 2.27 shares (the "Cascade Exchange
Ratio") of CBSI Common Stock. Cash will be paid in lieu of issuing fractional
shares of CBSI Common Stock. Upon completion of the Cascade Merger,
shareholders of Cascade will no longer own any stock in Cascade. BECAUSE THE
MARKET PRICE OF CBSI COMMON STOCK IS SUBJECT TO FLUCTUATION, THE MARKET VALUE
OF THE SHARES OF CBSI COMMON STOCK THAT CASCADE SHAREHOLDERS WILL RECEIVE IN
THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE MERGER. See, "Stock Price and
Dividend Information". The aggregate number of shares of CBSI Common Stock to
be issued in the Cascade Merger is 774,978 (which is valued at $18,893,964
based on the $24.38 closing price of CBSI Common Stock on October 15, 1997),
assuming the outstanding options for 11,400 shares of Cascade Common Stock are
exercised prior to the closing of the Cascade Merger. As a result, Cascade
shareholders would hold approximately 11.75% of the 6,598,198 shares of CBSI
Common Stock expected to be outstanding after closing the Mergers.

For more detailed information concerning the Cascade Merger, and how Cascade
Shareholders may exchange certificates representing shares of Cascade Common
Stock, see "THE MERGER--Terms of the Merger--Cascade; Exchange of Stock
Certificates."

FIFE. In accordance with the Fife Merger Agreement, on the Effective Date,
Fife will merge into Columbia Bank, with Columbia Bank as the surviving
corporation. Upon consummation of the Fife Merger, each holder of shares of
Fife Common Stock, other than Dissenting Shares, will be entitled to receive,
in exchange for each share of Fife Common Stock held of record by such
shareholder as of the Effective Date, CBSI Common Stock. The precise number of
shares of CBSI Common Stock to be received in exchange for each share of Fife
Common Stock will be calculated by dividing the Purchase Price by the Average
Closing Price and by further dividing such quotient by the aggregate number of
shares of Fife Common Stock that are issued and outstanding or subject to
unexercised options, on the Effective Date. The terms "Purchase Price" and
"Average Closing Price" are defined in the Fife Merger Agreement. "Purchase
Price" means an amount equal to (a) two times the sum of shareholders' equity
of Fife at June 30, 1997 plus the amount added to such shareholders' equity
upon exercise of outstanding options, plus (b) the amount of Fife's net income
between June 30, 1997 and the Effective Date. "Average Closing Price" means the
average of the closing sales prices per share of CBSI Common Stock for the
twenty consecutive trading days ending five days prior to the Effective Date,
except that if such average is less than $18.00, then the Average Closing Price
will be $18.00, and if such average is more than $22.00, then the Average
Closing Price will be $22.00.

3
<PAGE>

For example, if Fife's net income between June 30, 1997 and the Effective
Date is $50,000, then the number of shares of CBSI Common Stock to be issued in
exchange for each share of Fife Common Stock will be between approximately 1.45
and 1.77 depending upon the Average Closing Price, calculated as follows:

<TABLE>
<S> <C> <C> <C>
3,216,000(1)
+ 384,000(2)
---------
3,600,000
X 2
---------
7,200,000
+ 50,000(3)
---------
7,250,000
/ 226,920(4)
=========
$31.95 $31.95
/ 22(5) / 18(6)
1.45 1.77
</TABLE>
- --------
(1) June 30, 1997 shareholders' equity.
(2) Amount added to shareholders' equity upon exercise of outstanding options
for 24,000 shares at exercise price of $16. The Purchase Price will not be
affected on a per share basis by the exercise of outstanding options since
the per share Purchase Price is calculated on a fully diluted basis.
(3) Assumed earnings from June 30, 1997 to Effective Date. Actual earnings from
June 30, 1997 to the date of this Joint Proxy Statement/Prospectus have
been offset by expenses of the Fife Merger.
(4) The aggregate number of shares of Fife Common Stock outstanding or subject
to unexercised options.
(5) Assumed Average Closing Price.
(6) Alternative assumed Average Closing Price.

If the Average Closing Price is $22.00 or more, 1.45 shares of CBSI Common
Stock will be issued in exchange for each share of Fife Common Stock. If the
Average Closing Price is $18.00 or less, 1.77 shares of CBSI Common Stock will
be issued in exchange for each share of Fife Common Stock.

The range of approximately 1.45 to 1.77 shares of CBSI Common Stock for each
share of Fife Common Stock is the "Fife Exchange Ratio". The Board of Directors
of Fife may elect to terminate the Fife Merger under certain conditions if the
Average Closing Price of CBSI Common Stock is less than $18.00. See "THE
MERGER(S)--Termination of the Merger Agreements." Cash will be paid in lieu of
issuing fractional shares of CBSI Common Stock. Upon completion of the Fife
Merger, shareholders of Fife will no longer own any stock of Fife.

The aggregate number of shares of CBSI Common Stock to be issued in the Fife
Merger is 329,034 (which is valued at $8,021,849 based on the $24.38 October
15, 1997 closing price of CBSI Common Stock), assuming the outstanding options
for 24,000 shares of Fife Common Stock are exercised prior to closing of the
Fife Merger and assuming the Fife Exchange Ratio is 1.45. As a result, Fife
shareholders would hold approximately 4.99% of the 6,598,198 shares of CBSI
Common Stock expected to be outstanding after closing of the Mergers.

For more detailed information concerning the Fife Merger, and how Fife
Shareholders may exchange certificates representing shares of Fife Common
Stock, see "THE MERGER--Terms of the Merger--Fife; Exchange of Stock
Certificates."

4
<PAGE>

Recommendation of the Cascade Board

The Board of Directors of Cascade (the "Cascade Board") has unanimously
determined that the Cascade Merger is fair to and in the best interests of
Cascade's shareholders. In making this determination, the Cascade Board
considered a variety of factors, including the value of the CBSI Common Stock
that the shareholders of Cascade will receive in exchange for their shares of
Cascade Common Stock, the ability of CBSI to provide competitive and
comprehensive services in the markets in which Cascade operates, and the
parties' shared belief in community banking, which emphasizes responsiveness to
local markets and the delivery of personalized services to customers. The
Cascade Board believes that the Cascade Merger will allow Cascade shareholders
to realize a premium for their shares and will also allow CBSI to provide the
advantages of personal community banking to Cascade's current customers. THE
CASCADE BOARD HAS UNANIMOUSLY APPROVED THE CASCADE MERGER AGREEMENT AS
ADVISABLE AND IN THE BEST INTERESTS OF CASCADE AND ITS SHAREHOLDERS AND
RECOMMENDS THAT CASCADE'S SHAREHOLDERS APPROVE THE MERGER AGREEMENT. See
"BACKGROUND OF AND REASONS FOR THE MERGER--Cascade."

Recommendation of the Fife Board

The Board of Directors of Fife (the "Fife Board") has unanimously determined
that the Merger is fair to and in the best interests of Fife's shareholders. In
making this determination, the Fife Board considered a variety of factors,
including the value of the CBSI Common Stock that the shareholders of Fife will
receive in exchange for their shares of Fife Common Stock, the ability of CBSI
to provide competitive and comprehensive services in the Fife market area, and
the parties' shared community banking philosophies. The Fife Board believes
that the Fife Merger will allow Fife shareholders to realize a premium for
their shares and will also allow CBSI to provide the advantages of personal
community banking to Fife's current customers. THE FIFE BOARD HAS UNANIMOUSLY
APPROVED THE FIFE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF
FIFE AND ITS SHAREHOLDERS AND RECOMMENDS THAT FIFE'S SHAREHOLDERS APPROVE THE
MERGER AGREEMENT. See "BACKGROUND OF AND REASONS FOR THE MERGER--Fife."

Opinions of Financial Advisor

Columbia Financial Advisors, Inc. ("CFA"), the financial advisor to both
Cascade and Fife, has delivered to the Cascade Board a written opinion dated
June 30, 1997, and to the Fife Board a written opinion dated July 30, 1997, to
the effect that the respective Merger is fair, from a financial perspective, to
Cascade, Fife and their respective shareholders. Copies of CFA's updated
opinions dated the date of this Joint Proxy Statement/Prospectus setting forth
the limits of its review, assumptions made, matters considered and procedures
followed, are attached to this Joint Proxy Statement/Prospectus as Appendix E
for Cascade and as Appendix F for Fife, and should be read in their entirety by
the shareholders of the respective entities. See "BACKGROUND OF AND REASONS FOR
THE MERGER--Cascade--Opinion of Columbia Financial Advisors, Inc.,--Fife--
Opinion of Columbia Financial Advisors, Inc."

Effective Time and Closing of Merger(s)

The parties presently expect to consummate the Merger(s) during the fourth
quarter of 1997, although the timing is subject to the satisfaction of certain
conditions. The Cascade Merger Agreement provides that if the Cascade Merger
has not been consummated by March 31, 1998, at any time after such date, the
Board of either CBSI or Cascade may vote to abandon the Cascade Merger. See
"THE MERGER(S)--Terms of the Merger(s)--Cascade. " The Fife Merger Agreement
provides that if the Fife Merger has not been consummated by April 30, 1998, at
any time after such date, the Board of either CBSI or Fife may vote to abandon
the Fife Merger. See "THE MERGER(S)--Terms of the Merger(s)--Fife."

Conditions; Regulatory Approvals

Consummation of each Merger is conditioned on (a) approval of the respective
Merger Agreement by the holders of not less than a two-thirds ( 2/3) of the
outstanding shares of Cascade Common Stock or Fife Common

5
<PAGE>

Stock, as applicable; (b) receipt of all necessary approvals of the Merger(s)
by governmental regulatory agencies, including the FRB (in the case of the
Cascade Merger), the FDIC and the Director of the Washington State Department
of Financial Institutions (the "Washington Director"); (c) receipt by each
party of a favorable tax opinion from Gordon, Thomas, Honeywell, Malanca,
Peterson & Daheim, P.L.L.C.; (d) receipt of a letter from Deloitte & Touche LLP
to the effect that each Merger qualifies for pooling of interests accounting
treatment; (e) the continuing accuracy of the representations and warranties of
each party; (f) the performance of specified obligations by each party; and (g)
certain other conditions. THE CLOSING OF NEITHER THE CASCADE MERGER NOR THE
FIFE MERGER IS DEPENDENT UPON CLOSING OF THE OTHER MERGER. EACH MERGER IS A
SEPARATE AND INDEPENDENT TRANSACTION. See "THE MERGER(S)--Conditions to the
Merger(s)" and "SUPERVISION AND REGULATION."

No Solicitation

Cascade and Fife have agreed in the respective Merger Agreement(s) that,
except as required by law, neither Cascade nor any of its officers or
directors, nor Fife nor any of its officers or directors will (i) solicit,
encourage, entertain or facilitate any other proposals or inquiries for an
acquisition of the shares or assets of Cascade or its subsidiaries (an
"Acquisition Proposal"), (ii) enter into discussions concerning any such
acquisition, or (iii) furnish any nonpublic information relating to CBSI's
business or organization to any person that is not affiliated with Cascade,
Fife or CBSI.

If (i) there is an Acquisition Proposal prior to the Cascade Shareholder vote
on the Cascade Merger or the Fife Shareholder vote on the Fife Merger, (ii) the
Merger(s) are not approved by two-thirds of the outstanding shares of Cascade
and Fife Common Stock at the Special Meeting(s) (and approved by Cascade as the
sole shareholder of CCB); and (iii) prior to January 1, 1999, in the case of
Cascade, and February 1, 1999, in the case of Fife, as the case may be, such
party is acquired by a third party, then unless the representations and
warranties of CBSI in the Merger Agreement(s) were false in any material
respect as of the date of the Special Meeting(s) or CBSI was in material
default of its covenants in the Agreement(s) as of such date, Cascade and Fife
must promptly pay CBSI $500,000 and $200,000, respectively.

No solicitation provisions generally increase the likelihood that a merger
transaction will lead to a completed transaction, thus justifying the time and
expense of the acquiror in pursuing the transaction, or, in the alternative,
will result in the acquiror being compensated for its time and expense if the
no solicitation agreement is breached and the transaction is not completed.

Termination and Amendment of the Merger Agreement(s)

Either the Cascade Merger Agreement or the Fife Merger Agreement may be
terminated, and either Merger abandoned, before the Effective Date, whether
before or after its adoption by the shareholders or by either the CBSI or the
Cascade Board, or the CBSI or the Fife Board, under certain specified
circumstances, including a failure to consummate the Merger by March 31, 1998
in the case of Cascade and April 30, 1998 in the case of Fife. Either Merger
Agreement may be amended at any time before the Effective Date if the amendment
is approved by both the CBSI and Cascade Boards or CBSI and Fife Boards , but
no amendment reducing the amount or changing the form of any consideration
which is to be received by Cascade or Fife shareholders can be effected without
the approval of Cascade or Fife shareholders after approval of the Merger
Agreements by shareholders. See "THE MERGER(S)--Amendment and Termination of
Merger Agreements."

Interests of Certain Persons in the Merger(s)

Certain members of Cascade's management and the Cascade Board and certain
members of Fife's management may be deemed to have interests in the Merger(s)
in addition to their interests as shareholders of Cascade and Fife generally.
As discussed below, these include, among other things, provisions in the
Cascade

6
<PAGE>

Merger Agreement relating to employment agreements, an appointment to the CBSI
Board, the sale of certain real property owned by a partnership comprised of
directors of Cascade, provisions in the Fife Merger Agreement relating to
satisfaction of existing contractual obligations and an option agreement
between CBSI and Rocco Associates, a partnership comprised of members of Fife
director James Manza's family, relating to certain real property owned by Rocco
Associates. See "The MERGER(S)--Interests of Certain Persons in the Merger(s)."

EMPLOYMENT/SEVERANCE AGREEMENTS. CBSI has ratified employment agreements
entered into between CCB and Messrs. Lisko, Plummer, Bray and Clemmer and Ms.
Ehli, Giffin, Long and Van Lant, officers of CCB. The employment agreement with
Mr. Lisko, who currently serves as the President and Chief Executive Officer of
CCB, provides that Mr. Lisko will serve as the Executive Vice President--Auburn
Area Manager of Columbia Bank. The agreement has a term of three years
beginning on the effective date of the Cascade Merger. It provides for an
annual salary of $94,000 and the grant at the close of business on the
Effective Date of the Cascade Merger of an incentive stock option to purchase
at market value on the date of grant 5,000 shares of CBSI Common Stock. The
agreement provides for payment to Mr. Lisko of two and one-half years' salary
in the event of a change in control of CBSI. It also provides for a payment of
salary through the term of the agreement in the event of termination of
employment without cause. The employment agreements with Mr. Bray and Mr.
Plummer, Senior Officers of Cascade, have two year terms and provide for
payment of salary through the term of the agreement in the event of termination
of employment without cause and a payment of one years' salary in the event of
a change in control of CBSI. The annual salary provided for Mr. Bray is
$63,000, and the annual salary for Mr. Plummer is $65,000. The employment
agreements with Mr. Clemmer and Ms. Ehli, Giffin, Long and Van Lant provide for
payment of salary (totaling in the aggregate approximately $231,000) through
the one year term of the agreement in the event of termination of employment
without cause. The salaries and benefits to be provided to each of the
aforementioned persons are substantially similar to those provided to them
prior to Cascade entering into the Cascade Merger Agreement.

As a condition to the Fife Merger Agreement, Fife has agreed to take all
necessary steps to terminate or satisfy existing severance agreements with Mr.
Davis, President of Fife, and Messrs. Hixenbaugh and Mason, Senior Officers of
Fife. The severance agreement for Mr. Davis provides for payment of one years'
salary (approximately $94,000) in the event of a change in control of Fife. Mr.
Hixenbaugh's severance agreement provides for payment of two years' salary
(approximately $135,000) in the event of a change in control of Fife, and Mr.
Mason's severance agreement provides for payment of twenty-five percent (25%)
of one years' salary (approximately $14,000) in the event of change in control
of Fife.

APPOINTMENT TO THE CBSI BOARD. In connection with the Cascade Merger, CBSI
has agreed to appoint Mr. Matson, currently the Chairman of the Cascade Board,
to the CBSI Board. Directors of CBSI receive an annual retainer of $1,600 and
fees of $200 for each Board meeting attended.

AGREEMENTS RELATING TO REAL PROPERTY. In connection with the Cascade Merger,
CBSI has agreed to buy the main office of Cascade and the land on which the
South Auburn branch office is located, both of which are owned by a partnership
(Cascade Investment Properties) comprised substantially of directors of
Cascade. The purchase price for the property will be $1.6 million which the
parties believe is substantially similar to the price Cascade Investment
Properties would have obtained had they sold the properties to a person or
entity not a party to the Cascade Merger.

In connection with the Fife Merger, CBSI has entered into an Option Agreement
with Rocco Associates, a partnership comprised of members of Fife director
James Manza's family. The Option Agreement grants CBSI the right to acquire the
property located at 1507-54th Avenue, Fife, Washington, which was the location
of Bank of Fife prior to relocating to its current location, for a purchase
price of $320,000.

7
<PAGE>

Messrs. Gerald Barkshire, Gary Garrison, Nat Luppino, James Manza, Albert
Meier, Robert Oldright and Michael Porter, members of the Fife Board, executed
a Director Non-Competition Agreement with CBSI. The Director Non-Competition
Agreement prohibits these directors for three years after the Effective Date of
the respective Merger from competing with CBSI or any of its subsidiaries
within Pierce, King or Thurston Counties, in the case of Cascade Directors, and
within Pierce County in the case of Fife Directors. Director Non-Competition
Agreements generally provide acquiring companies with added assurance that the
value of the target company will be preserved after closing of the merger
transaction.

Dissenters' Rights of Appraisal

Holders of Cascade Common Stock and Fife Common Stock have the right to
dissent from the Cascade Merger and the Fife Merger, respectively, and, subject
to certain conditions, to receive payment of the "value" of their shares of
Cascade Common Stock or Fife Common Stock, as provided in RCW 23B.13, in the
case of Cascade, and RCW 30.49, in the case of Fife. See "THE MERGER(S)--
Dissenters' Rights of Appraisal."

Tax Treatment of the Merger(s)

Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C. delivered its
opinion dated October 6, 1997, to the effect that (i) each Merger will
constitute a tax-free reorganization within the meaning of Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, (the "Code") as amended, (ii) pursuant to
the provisions of Section 354(a)(i) of the Code, no gain or loss will be
recognized with respect to each shareholder of Cascade and Fife who exchanges
his or her shares of Cascade Common Stock or Fife Common Stock solely for
shares of CBSI Common Stock, and (iii) the payment of cash to a shareholder of
Cascade or Fife in lieu of a fractional share of CBSI Common Stock will be
treated as a distribution in redemption of the fractional share interest,
subject to the limitations of Section 302 of the Code. The receipt by CBSI, and
delivery to Cascade and Fife, of such opinion is a condition to consummation of
each Merger. See "THE MERGER(S)--Certain Federal Income Tax Matters."

Accounting Treatment of the Merger(s)

It is anticipated that the Merger(s) will be accounted for as a pooling of
interests by CBSI under generally accepted accounting principles. Each Merger
Agreement provides that, as a condition to CBSI's obligation to consummate each
Merger, CBSI must receive a letter from its independent auditors, Deloitte &
Touche LLP, to the effect that the Merger will qualify for pooling of interests
accounting treatment. See "THE MERGER(S)--Accounting Treatment of Merger."

Trading Market

The CBSI Common Stock is quoted on the Nasdaq National Market under the
symbol COLB and is registered as a class with the Commission under the Exchange
Act. Accordingly, CBSI is required to file certain periodic and annual reports
with the Commission and make information about CBSI available to its
shareholders and the public. Neither Cascade nor Fife are subject to the
information and reporting requirements of the Exchange Act, and neither the
Cascade Common Stock nor the Fife Common Stock is actively traded or listed on
any market system.

Comparison of Shareholders' Rights

Shareholders of Cascade and Fife who receive shares of CBSI Common Stock in
exchange for their shares of Cascade Common Stock or Fife Common Stock will be
governed, with respect to their rights as shareholders, by CBSI's Articles of
Incorporation and Bylaws, and by Washington law. Prior to the Cascade Merger,
the rights of Cascade's shareholders are determined under Cascade's Articles of
Incorporation and Bylaws, and under Washington law. Prior to the Fife Merger,
the rights of Fife's shareholders are determined under Fife's Articles

8
<PAGE>

of Incorporation and Bylaws, and under Washington Law. For a discussion of
certain material differences in the rights of shareholders of CBSI, Cascade and
Fife and an explanation of certain possible anti-takeover effects of certain
provisions in CBSI's Articles of Incorporation and Bylaws, see "COMPARISON OF
CERTAIN RIGHTS OF HOLDERS OF CASCADE, FIFE AND CBSI COMMON STOCK."

STOCK PRICE AND DIVIDEND INFORMATION

CBSI. The CBSI Common Stock is quoted on the Nasdaq National Market under the
symbol COLB. The following table sets forth for the periods indicated the high
and low sale prices for the CBSI Common Stock as reported on the Nasdaq
National Market:

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First quarter............................................... $12 $ 9 1/8
Second quarter.............................................. 12 1/2 9 7/8
Third quarter............................................... 12 3/8 11 1/8
Fourth quarter.............................................. 12 3/4 11 1/4
1996
First quarter............................................... $14 3/4 $11 1/2
Second quarter.............................................. 16 1/2 13
Third quarter............................................... 16 14 1/4
Fourth quarter.............................................. 17 1/4 14 1/2
1997
First quarter............................................... $18 1/4 $15 1/2
Second quarter.............................................. 20 5/8 14 3/4
Third quarter............................................... 25 3/4 19 3/4
Fourth quarter (Through October 3, 1997).................... 24 5/16 22 1/2
</TABLE>

At October 15, 1997, there were holders of record of the CBSI Common
Stock.

CBSI does not currently pay cash dividends on its Common Stock and does not
intend to do so for the foreseeable future. It is not presently anticipated
that CBSI will conduct significant operations independent of Columbia Bank and
therefore CBSI does not expect to have any significant source of income other
than dividends from Columbia Bank, if any. Consequently, the ability of CBSI to
pay dividends to its shareholders will be dependent upon the ability of
Columbia Bank to pay dividends to CBSI.

Applicable federal and Washington state regulations restrict capital
distributions by institutions such as Columbia Bank, including dividends. Such
restrictions are tied to the institution's capital levels after giving effect
to such distributions. For the foreseeable future, it is CBSI's intent to
retain earnings to support the growth of its business. See "SUPERVISION AND
REGULATION."

9
<PAGE>

CASCADE. No broker makes a market in Cascade Common Stock, and trading has
not otherwise been extensive. The trades that have occurred cannot be
characterized as amounting to an established public trading market. Cascade
Common Stock is traded by individuals on a personal basis and is not listed on
any exchange or traded on the over-the-counter market, and the prices reported
reflect only the transactions known to management. Due to the limited
information available, the following data may not accurately reflect the actual
market value of Cascade Common Stock. The following data include trades between
individual investors, as reported to Cascade as its own transfer agent.

<TABLE>
<CAPTION>
CASCADE COMMON
STOCK PRICES*
NUMBER OF SHARES ----------------
PERIOD REPORTED AS TRADED* HIGH LOW CASH DIVIDENDS PAID
------ ------------------- ------- ------- -------------------
<S> <C> <C> <C> <C>
1997................ 414 $ 20 $ 20 --
1996................ 2,100 20 20 --
1995................ 254 20 20 --
</TABLE>
- --------
* Reflects a 100% stock dividend effected as of March 18, 1997 as a two for one
stock split.

As of October 15, 1997, there were 262 shareholders of record of Cascade
Common Stock.

FIFE. No broker makes a market in Fife Common Stock, and trading has not
otherwise been extensive. The trades that have occurred cannot be characterized
as amounting to an established public trading market. Fife Common Stock is
traded by individuals on a personal basis and is not listed on any exchange or
traded on the over-the-counter market, and the prices reported reflect only the
transactions known to management. Due to the limited information available, the
following data may not accurately reflect the actual market value of Fife
Common Stock. The following data include trades between individual investors,
as reported to Fife as its own transfer agent.

<TABLE>
<CAPTION>
CASCADE COMMON
STOCK PRICES*
NUMBER OF SHARES ----------------
PERIOD REPORTED AS TRADED* HIGH LOW CASH DIVIDENDS PAID
------ ------------------- ------- ------- -------------------
<S> <C> <C> <C> <C>
1997................ 7,300 $ 27 $ 19 --
1996................ 7,554 20 16 --
1995................ 6,520 16 16 --
</TABLE>
- --------
* Reflects a two-for-one stock split effective as of December 31, 1996.

As of October 15, 1997, there were 154 shareholders of record of Fife Common
Stock.

10
<PAGE>

EQUIVALENT PER SHARE PRICE. The following table sets forth the last reported
sale price of CBSI Common Stock on June 27, 1997, and July 29, 1997, the last
trading day preceding public announcement of the Cascade and Fife Merger
Agreements, respectively, and on October 15, 1997, the last practicable day
prior to the mailing of this Joint Proxy Statement/Prospectus. The equivalent
per share price of Cascade Common Stock and Fife Common Stock was determined by
multiplying the last reported sale price of a share of CBSI Common Stock at
each specified date (i) in the case of Cascade by the exchange ratio of 2.27
shares of CBSI Common Stock for each share of Cascade Common Stock and (ii) in
the case of Fife by an assumed exchange ratio (made for the purposes of this
calculation only) of 1.45 shares of CBSI Common Stock for each share of Fife
Common Stock based on an assumed CBSI Common Stock price of $22.00 per share.
These assumptions are made solely for the purpose of calculating the pro forma
data and are not intended to be, nor should they be, interpreted as a
representation or approximation of the actual Fife Exchange Ratio. For a
discussion of the manner in which the actual Fife Exchange Ratio will be
calculated, see "THE MERGER(S)--Terms of the Merger(s)--Fife."

<TABLE>
<CAPTION>
EQUIVALENT
CBSI CASCADE PRICE PER FIFE EQUIVALENT
COMMON COMMON CASCADE COMMON PRICE PER
STOCK STOCK (1) SHARE STOCK(1) FIFE SHARE
------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
June 27, 1997................ $20.63 $20.00 $46.82 $20.25 $29.91
July 29, 1997................ 23.38 20.00 53.06 21.00 33.89
October 15, 1997............. 24.38 20.00 55.34 21.00 35.35
</TABLE>
- --------
(1) The value of the Cascade Common Stock and the Fife Common Stock as set
forth in this table reflects the value of the last trade between individual
investors as reported to Cascade and Fife, respectively, as of the date of
this Joint Proxy Statement Prospectus.

The market price for CBSI Common Stock will fluctuate between the date of
this Joint Proxy Statement/Prospectus and the Effective Date, which will be at
least one month. The market value per share of the CBSI Common Stock that
Cascade and Fife shareholders ultimately receive in the Mergers could be more
or less than its market value on the date of this Joint Proxy
Statement/Prospectus. No assurance can be given concerning the market price of
CBSI Common Stock before or after the Effective Date.

11
<PAGE>

COMPARATIVE PER COMMON SHARE DATA

The following table presents unaudited selected per common share data for
CBSI on a historical and pro forma combined basis and for Cascade and Fife, in
each case on a historical and pro forma equivalent basis, after giving effect
to the Mergers on a pooling of interests basis. For a description of the
pooling of interests method of accounting with respect to the Mergers and
related effects on the historical financial statements of CBSI, see "THE
MERGER(S)--Accounting Treatment of the Merger(s)." The pro forma combined
financial data are not necessarily indicative of actual or future operating
results or the financial position that would have occurred had the Merger(s)
become effective prior to the periods indicated or will occur upon the
consummation of the Cascade Merger or the Fife Merger. This data should be read
in conjunction with the financial statements and other financial and pro forma
financial information with respect to CBSI, Cascade and Fife included elsewhere
in this Joint Proxy Statement/Prospectus or incorporated herein by reference.
The data is not necessarily indicative of the results of the future operations
of the combined entity or the actual results that could have occurred had the
Merger(s) become effective prior to the periods indicated.

CASCADE MERGER*

<TABLE>
<CAPTION>
PRO FORMA CASCADE
CBSI CASCADE COMBINED PRO FORMA
HISTORICAL HISTORICAL CORPORATION(3) EQUIVALENT(3)
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
BOOK VALUE (1)
PERIODS ENDED:
June 30, 1997............ $11.33 $20.20 $10.99 $24.95
December 31, 1996........ 10.83 19.12 10.54 23.93
EARNINGS PER SHARE(2)
PERIODS ENDED:
June 30, 1997............ $ 0.51 $ 1.13 $ 0.51 $ 1.16
December 31, 1996........ 0.88 1.88 0.87 1.97
December 31, 1995........ 0.75 1.72 0.75 1.70
December 31, 1994........ (0.17) 0.87 (0.09) (0.20)
CASH DIVIDENDS DECLARED
PERIODS ENDED:
June 30, 1997............ -- -- -- --
December 31, 1996........ -- -- -- --
December 31, 1995........ -- -- -- --
December 31, 1994........ -- -- -- --
</TABLE>
- --------
* Does not include effect of Fife Merger.
(1) Book value per share is calculated by dividing the total actual historical
and pro forma equity as of the date indicated by the actual historical and
pro forma number of shares outstanding as of the same date.
(2) Earnings per share is calculated by dividing total actual historical and
pro forma net income for the periods ended by the actual historical and pro
forma weighted average number of shares of common stock for the period
indicated. The pro forma equivalent net income per share of Cascade Common
Stock represents the pro forma combined net income per share multiplied by
the Cascade Exchange Ratio.
(3) The pro forma combined book value per share of CBSI Common Stock is based
upon the historical total combined common shareholder's equity for CBSI and
Cascade divided by total pro forma common shares of the combined entities
assuming conversion of the outstanding Cascade Common Stock at a ratio of
2.27 shares of CBSI Common Stock for each share of Cascade Common Stock.
The data presented assumes 330,000 outstanding shares of Cascade Common
Stock, which does not include 11,400 shares subject to options. The
aggregate number of shares of CBSI Common Stock assumed to be issued in the
Cascade Merger is 749,100. See "THE MERGERS--Terms of the Mergers". The pro
forma equivalent book value per share of Cascade Common Stock represents
the pro forma combined amount multiplied by the Cascade Exchange Ratio.

12
<PAGE>

FIFE MERGER*

<TABLE>
<CAPTION>
PRO FORMA FIFE
CBSI FIFE COMBINED PRO FORMA
HISTORICAL HISTORICAL CORPORATION(3) EQUIVALENT(3)
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
BOOK VALUE(1)
PERIODS ENDED:
June 30, 1997............ $11.33 $15.85 $11.23 $16.28
December 31, 1996........ 10.83 14.63 10.79 15.65
EARNINGS PER SHARE(2)
PERIODS ENDED:
June 30, 1997............ $ 0.51 $ 1.45 $ 0.54 $ 0.78
December 31, 1996........ 0.88 2.15 0.92 1.33
December 31, 1995........ 0.75 1.81 0.79 1.15
December 31, 1994........ (0.17) 1.16 (0.10) (0.15)
CASH DIVIDENDS DECLARED
PERIODS ENDED:
June 30, 1997............ -- -- -- --
December 31, 1996........ -- -- -- --
December 31, 1995........ -- -- -- --
December 31, 1994........ -- -- -- --
</TABLE>
- --------
* Does not include effects of Cascade Merger.
(1) Book value per share is calculated by dividing the total actual historical
and pro forma equity as of the date indicated by the actual historical and
pro forma number of shares outstanding as of the same date.
(2) Earnings per share is calculated by dividing total actual historical and
pro forma net income for the periods ended by the actual historical and pro
forma weighted average number of shares of common stock for the period
indicated. The pro forma equivalent net income per share of Fife Common
Stock represents the pro forma combined net income per share multiplied by
the assumed Fife Exchange Ratio described in note (3) below.
(3) The pro forma combined book value per share of CBSI Common Stock is based
upon the historical total combined common shareholders' equity for CBSI and
Fife divided by total pro forma common shares of the combined entities
assuming conversion of the outstanding Fife Common Stock at an assumed
exchange ratio (made for purposes of this calculation only) of 1.45. The
assumed exchange ratio is based upon an assumed price for CBSI Common Stock
of $22.00 per share, which is the lowest price of CBSI Common Stock since
the date of public announcement of the Fife Merger and the highest price at
which the exchange ratio is adjusted. This assumption is made solely for
the purpose of calculating the pro forma data and is not intended to be a
representation or approximation of the Fife Exchange Ratio. The data
presented assumes 202,920 outstanding shares of Fife Common Stock, which
does not include 24,000 shares subject to options. The aggregate number of
shares of CBSI Common Stock assumed to be issued in the Fife Merger is
294,234. See "THE MERGER(S)--Terms of the Merger(s)." The pro forma
equivalent book value per share of Fife Common Stock represents the pro
forma combined amount multiplied by the Fife Exchange Ratio of 1.45.

13
<PAGE>

CASCADE AND FIFE MERGERS

<TABLE>
<CAPTION>
CBSI COMMON STOCK
-------------------------
PRO FORMA
COMBINED
HISTORICAL CORPORATION(3)
---------- --------------
<S> <C> <C>
BOOK VALUE(1)
PERIODS ENDED:
June 30, 1997..................................... $11.33 $10.92
December 31, 1996................................. 10.83 10.52
EARNINGS PER SHARE(2)
PERIODS ENDED:
June 30, 1997..................................... $ 0.51 $ 0.53
December 31, 1996................................. 0.88 0.91
December 31, 1995................................. 0.75 0.78
December 31, 1994................................. (0.17) (0.03)
CASH DIVIDENDS DECLARED
PERIODS ENDED:
June 30, 1997..................................... -- --
December 31, 1996................................. -- --
December 31, 1995................................. -- --
December 31, 1994................................. -- --
</TABLE>
- --------
(1) Book value per share is calculated by dividing the total actual historical
and pro forma equity as of the date indicated by the actual historical and
pro forma number of shares outstanding as of the same date.
(2) Earnings per share is calculated by dividing total actual historical and
pro forma net income for the periods ended by the actual historical and pro
forma weighted average number of shares of common stock for the period
indicated. The pro forma equivalent net income per share of Cascade Common
Stock represents the pro forma combined net income per share multiplied by
the Cascade Exchange Ratio. The pro forma equivalent net income per share
of Fife Common Stock represents the pro forma combined net income per share
multiplied by the assumed exchange ratio described in note (3) below.
(3) The pro forma combined book value per share of CBSI Common Stock is based
upon the historical total combined shareholders' equity for CBSI, Cascade
and Fife divided by the total pro forma common shares of the combined
entities assuming conversion of the outstanding Cascade Common Stock at a
ratio of 2.27 shares of CBSI Common Stock for each share of Cascade Common
Stock and assuming conversion of the outstanding Fife Common Stock at an
assumed exchange ratio (made for purposes of this calculation only) of
1.45. The assumed Fife exchange ratio is based upon an assumed price for
CBSI Common Stock of $22.00 per share, which is the lowest price of CBSI
Common Stock since the date of public announcement of the Fife Merger and
the highest price at which the exchange ratio is adjusted. This assumption
is made solely for the purpose of calculating the pro forma data and is not
intended to be a representation or approximation of the Fife Exchange
Ratio.

14
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table sets forth selected historical and pro forma financial
data for CBSI, Cascade and Fife, and selected unaudited pro forma combined
financial data giving effect to the Merger(s) on a pooling of interests basis
for the periods specified. Because each of the Merger(s) is a separate and
independent transaction, alternative combinations involving Cascade and CBSI,
Fife and CBSI, and the three entities together are provided for your
information. The pro forma combined financial data are not necessarily
indicative of actual or future operating results or the financial position that
would have occurred or will occur upon the consummation of the Merger(s). The
data has been derived in part from, and should be read in conjunction with, the
financial statements and notes thereto and other fiscal information with regard
to CBSI, Cascade and Fife set forth elsewhere in this Joint Proxy
Statement/Prospectus or incorporated herein by reference, and such data are
qualified in their entirety by reference thereto. All adjustments that the
respective managements of CBSI, Cascade and Fife believe to be necessary for a
fair presentation of the data have been included and are of a normal recurring
nature. The June 30, 1997 and 1996 ratios have been annualized.

15
<PAGE>

COLUMBIA BANKING SYSTEM, INC.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 13,524 $ 9,495 $ 20,544 $ 16,561 $ 11,580 $ 6,424 $ 4,660
Provision for loan
losses................ 1,606 760 1,420 1,250 1,000 502 170
Noninterest Income..... 4,325 2,473 5,308 3,991 2,996 2,043 1,021
Noninterest Expense.... 12,163 9,368 20,855 16,547 14,036 10,656 4,488
Provision for income
taxes................. 1,194 -- -- -- -- -- --
Net income (loss)...... 2,886 1,840 3,577 2,755 (614) (2,439) 1,023
Net income (loss) per
share................. $ 0.51 $ 0.49 $ 0.88 $ 0.75 $ (0.17) $ (1.01) $ 0.84
Average common shares
outstanding........... 5,639 3,745 4,059 3,671 3,655 2,416 1,213
PERFORMANCE RATIOS:
Net interest margin.... 4.83% 4.55% 4.48% 4.78% 4.54% 3.69% 3.79%
Efficiency ratio....... 72.40 78.30 78.30 80.50 96.30 125.90 79.00
Return on average
assets................ 0.95 0.82 0.73 0.74 (0.22) (1.28) 0.74
Return on average
equity................ 9.53 11.36 9.68 9.25 (2.12) (12.76) 11.16
BALANCE SHEET DATA:
Total assets........... $655,060 $481,612 $588,916 $425,206 $319,072 $235,944 $158,694
Loans, net of unearned
fees.................. 541,388 401,554 446,095 353,093 268,996 181,016 120,797
Total Deposits......... 549,923 402,914 493,222 361,875 268,692 165,339 118,014
Federal Home Loan Bank
advances.............. 37,000 37,000 32,000 25,000 17,000 32,000 18,000
Shareholders' equity... 62,263 33,783 58,960 31,967 28,861 29,801 11,641
Book value per share... $ 11.33 $ 9.24 $ 10.83 $ 8.86 $ 8.04 $ 8.32 $ 7.86
Equity to assets
ratio................. 9.51% 7.01% 10.01% 7.52% 9.05% 12.63% 7.34%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. 0.22% 0.19% 0.50% 0.13% 0.18% 0.95% 0.62%
Allowance for loan
losses to loans....... 1.04 1.10 1.01 1.06 1.01 1.10 1.25
Allowance for loan
losses to
nonperforming loans... 476.98 592.08 200.00 807.76 546.57 115.48 202.77
Nonperforming assets to
total assets.......... 0.23 0.15 0.39 0.89 1.17 2.13 2.34
OTHER DATA:
Number of banking
offices............... 18 14 16 13 9 8 4
Number of full time
equivalent employees.. 278 218 247 201 161 169 109
</TABLE>

16
<PAGE>

CASCADE BANCORP, INC.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 1,857 $ 1,567 $ 3,245 $ 2,868 $ 2,292 $ 1,632 $ 1,170
Provision for loan
losses................ 70 66 119 84 65 84 113
Noninterest Income..... 389 412 850 664 464 456 232
Noninterest Expense.... 1,654 1,530 3,091 2,655 2,339 1,718 1,070
Provision for income
taxes................. 149 115 267 225 111 98 49
Net income (loss)...... 373 268 618 568 241 188 170
Net income (loss) per
share................. $ 1.13 $ 0.81 $ 1.88 $ 1.72 $ 0.87 $ 0.70 $ 0.72
Average common shares
outstanding........... 330 330 330 330 278 270 237
PERFORMANCE RATIOS:
Net interest margin.... 4.84% 4.75% 4.73% 5.13% 4.91% 4.54% 4.52%
Efficiency ratio....... 73.64 77.31 74.15 74.07 84.10 81.93 76.30
Return on average
assets................ 0.88 0.74 0.81 0.92 0.47 0.48 0.61
Return on average
equity................ 11.71 9.34 10.48 10.72 5.43 5.03 5.40
BALANCE SHEET DATA:
Total assets........... $ 87,011 $ 76,759 $84,773 $70,033 $56,773 $45,694 $34,144
Loans, net of unearned
fees.................. 55,226 46,643 54,835 45,776 35,731 29,042 22,462
Total Deposits......... 76,150 68,623 73,724 62,910 50,862 41,574 30,349
Federal Home Loan Bank
advances.............. 2,000 -- 2,000 -- -- -- --
Shareholders' equity... 6,665 5,928 6,310 5,676 5,041 3,832 3,644
Book value per share... 20.20 17.96 19.12 17.20 15.28 14.19 13.50
Equity to assets
ratio................. 7.66% 7.72% 7.44% 8.10% 8.88% 8.39% 10.67%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. 0.09% 0.02% 0.25% 0.03% -- % -- % -- %
Allowance for loan
losses to loans....... 1.00 1.01 0.94 0.93 0.97 0.98 1.00
Allowances for loan
losses to
nonperforming loans... 11.48 42.81 17.76 30.36 -- -- --
Nonperforming assets to
total assets.......... 0.06 0.01 0.69 0.02 -- -- --
OTHER DATA:
Number of banking
offices............... 3 3 3 3 3 3 1
Number of full time
equivalent employees.. 39 38 35 32 28 29 14
</TABLE>

17
<PAGE>

BANK OF FIFE

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 882 $ 734 $ 1,555 $ 1,273 $ 937 $ 573 $ 100
Provision for loan
losses................ 32 17 96 48 42 49 28
Noninterest Income..... 100 61 152 111 70 49 7
Noninterest Expense.... 505 390 959 777 686 504 264
Provision for income
taxes................. 149 130 212 191 45 -- --
Net income (loss)...... 296 258 440 368 234 69 (185)
Net income (loss) per
share................. $ 1.45 $ 1.26 $ 2.15 $ 1.81 $ 1.16 $ 0.34 $ (0.92)
Average common shares
outstanding........... 204 205 205 203 202 201 200
PERFORMANCE RATIOS:
Net interest margin.... 5.87% 5.72% 5.72% 6.38% 6.57% 7.12% 6.74%
Efficiency ratio....... 51.32 49.06 56.12 56.21 68.12 81.03 246.73
Return on average
assets................ 1.83 1.97 1.54 1.73 1.52 0.77 (11.71)
Return on average
equity................ 19.13 19.36 15.81 15.69 11.64 3.72 (20.04)
BALANCE SHEET DATA:
Total assets........... $ 33,399 $ 27,067 $32,833 $24,820 $18,520 $12,192 $ 5,387
Loans, net of unearned
fees.................. 23,896 20,555 22,221 19,188 13,348 8,390 2,900
Total Deposits......... 29,877 24,018 29,558 22,114 16,318 10,265 3,564
Federal Home Loan Bank
advances.............. -- -- -- -- -- -- --
Shareholders' equity... 3,216 2,789 3,028 2,551 2,128 1,893 1,812
Book value per share... 15.85 13.60 14.63 12.43 10.48 9.38 9.04
Equity to assets
ratio................. 9.63% 10.30% 9.22% 10.28% 11.49% 15.53% 33.64%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. -- % -- % -- % -- % -- % -- % -- %
Allowance for loan
losses to loans....... 1.22 0.89 1.18 0.87 0.89 0.92 0.97
Allowance for loan
losses to
nonperforming loans... -- -- -- -- -- -- --
Nonperforming assets to
total assets.......... -- -- -- -- -- -- --
OTHER DATA:
Number of banking
offices............... 1 1 1 1 1 1 1
Number of full time
equivalent employees.. 12 9 12 10 9 8 6
</TABLE>

18
<PAGE>

PRO FORMA COMBINED SELECTED FINANCIAL DATA--

COLUMBIA BANKING SYSTEM, INC. AND CASCADE BANCORP CONSOLIDATED

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 15,381 $ 11,062 $ 23,789 $ 19,429 $ 13,872 $ 8,056 $ 5,830
Provision for loan
losses................ 1,676 826 1,539 1,334 1,065 586 283
Noninterest Income..... 4,714 2,885 6,158 4,655 3,460 2,499 1,253
Noninterest Expense.... 13,817 10,898 23,946 19,202 16,375 12,374 5,558
Provision for income
taxes................. 1,343 115 267 225 111 98 49
Net income (loss)...... 3,259 2,108 4,195 3,323 (373) (2,251) 1,193
Net income (loss) per
share................. 0.51 0.47 0.87 0.75 (0.09) (0.74) 0.68
Average common shares
outstanding........... 6,388 4,494 4,809 4,420 4,285 3,029 1,750
PERFORMANCE RATIOS:
Net interest margin.... 4.83% 4.60% 4.26% 4.82% 4.59% 3.83% 3.92%
Efficiency ratio....... 72.55 78.14 77.73 79.56 94.34 117.13 78.47
Return on average
assets................ 0.95 0.82 0.74 0.76 (0.11) (0.98) 0.72
Return on average
equity................ 9.74 11.12 9.79 9.46 (1.13) (9.84) 9.84
BALANCE SHEET DATA:
Total assets........... $741,771 $558,371 $673,689 $495,239 $375,845 $281,638 $192,838
Loans, net of unearned
fees.................. 596,614 448,197 500,930 398,869 304,727 210,058 143,259
Total Deposits......... 626,073 471,537 566,946 424,785 319,554 206,913 148,363
Federal Home Loan Bank
advances.............. 39,000 37,000 34,000 25,000 17,000 32,000 18,000
Shareholders' equity... 68,628 39,711 65,270 37,643 33,902 33,633 15,285
Book value per share... $ 10.99 $ 9.01 $ 10.54 $ 8.64 $ 7.81 $ 8.02 $ 7.30
Equity to assets
ratio................. 9.26% 7.11% 9.69% 7.60% 9.02% 11.94% 7.93%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. 0.21% 0.17% 0.48% 0.12% 0.16% 0.82% 0.53%
Allowance for loan
losses to loans....... 1.03 1.09 1.00 1.05 1.00 1.08 1.23
Allowance for loan
losses to
nonperforming loans... 503.27 645.77 209.82 869.38 616.13 132.00 232.41
Nonperforming assets to
total assets.......... 0.23 0.14 0.43 0.76 0.99 1.79 1.93
OTHER DATA:
Number of banking
offices............... 21 17 19 16 12 11 5
Number of full time
equivalent employees.. 317 256 282 233 189 198 123
</TABLE>

19
<PAGE>

PRO FORMA COMBINED SELECTED FINANCIAL DATA--

COLUMBIA BANKING SYSTEM, INC. AND BANK OF FIFE

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 14,406 $ 10,229 $ 22,099 $ 17,834 $ 12,517 $ 6,997 $ 4,760
Provision for loan
losses................ 1,638 777 1,516 1,298 1,042 551 198
Noninterest Income..... 4,425 2,534 5,460 4,102 3,066 2,092 1,028
Noninterest Expense.... 12,668 9,758 21,814 17,324 14,722 11,160 4,752
Provision for income
taxes................. 1,343 130 212 191 45 0 0
Net income (loss)...... 3,182 2,098 4,017 3,123 (380) (2,370) 838
Net income (loss) per
share................. 0.54 0.52 0.92 0.79 (0.10) (0.88) 0.56
Average common shares
outstanding........... 5,936 4,042 4,356 3,966 3,949 2,708 1,503
PERFORMANCE RATIOS:
Net interest margin.... 4.89% 4.64% 4.55% 4.86% 4.65% 3.84% 3.78%
Efficiency ratio....... 71.18 76.46 76.93 78.98 94.47 122.79 82.10
Return on average
assets................ 1.00 0.89 0.78 0.79 (0.13) (1.19) 0.60
Return on average
equity................ 10.00 12.03 10.11 9.72 (1.23) (11.30) 7.70
BALANCE SHEET DATA:
Total assets........... $687,989 $508,679 $621,749 $450,026 $337,592 $248,136 $164,081
Loans, net of unearned
fees.................. 565,284 422,109 468,316 372,281 282,344 189,406 123,697
Total Deposits......... 579,800 426,932 522,780 383,989 285,010 175,604 121,578
Federal Home Loan Bank
advances.............. 37,000 37,000 32,000 25,000 17,000 32,000 18,000
Shareholders' equity... 65,009 36,572 61,988 34,518 30,989 31,694 13,453
Book value per share... $ 11.23 $ 9.25 $ 10.79 $ 8.83 $ 7.97 $ 8.18 $ 7.59
Equity to assets
ratio................. 9.47% 7.19% 9.97% 7.67% 9.18% 12.77% 8.20%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. 0.21% 0.18% 0.48% 0.12% 0.18% 0.91% 0.61%
Allowance for loan
losses to loans....... 1.04 1.09 1.02 1.05 1.00 1.09 1.27
Allowance for loan
losses to
nonperforming loans... 501.78 616.51 211.68 843.75 570.56 119.94 206.46
Nonperforming assets to
total assets.......... 0.21 0.15 0.37 0.84 1.10 2.03 2.27
OTHER DATA:
Number of banking
offices............... 19 15 17 14 10 9 5
Number of full time
equivalent employees.. 290 227 259 211 170 177 115
</TABLE>

20
<PAGE>

PRO FORMA COMBINED SELECTED FINANCIAL DATA--COLUMBIA BANKING
SYSTEM, INC., CASCADE BANCORP CONSOLIDATED AND BANK OF FIFE

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 16,263 $ 11,796 $ 25,344 $ 20,702 $ 14,809 $ 8,629 $ 5,930
Provision for loan
losses................ 1,708 843 1,635 1,382 1,107 635 311
Noninterest Income..... 4,814 2,946 6,310 4,766 3,530 2,548 1,260
Noninterest Expense.... 14,322 11,288 24,905 19,979 17,061 12,878 5,822
Provision for income
taxes................. 1,492 245 479 416 156 98 49
Net income (loss)...... 3,555 2,366 4,635 3,691 (139) (2,182) 1,008
Net income (loss) per
share................. 0.53 0.49 0.91 0.78 (0.03) (0.66) 0.49
Average common shares
outstanding........... 6,685 4,791 5,105 4,715 4,579 3,320 2,040
PERFORMANCE RATIOS:
Net interest margin.... 4.88% 4.65% 4.33% 4.89% 4.68% 3.95% 3.91%
Efficiency ratio....... 71.48 76.57 76.57 78.29 92.90 115.13 80.97
Return on average
assets................ 0.99 0.87 0.78 0.81 (0.04) (0.92) 0.60
Return on average
equity................ 10.15 11.66 10.16 9.85 (0.40) (8.82) 7.21
BALANCE SHEET DATA:
Total assets........... $774,700 $585,438 $706,522 $520,059 $394,365 $293,830 $198,225
Loans, net of unearned
fees.................. 620,510 468,752 523,151 418,057 318,075 218,448 146,159
Total Deposits......... 655,950 495,555 596,504 446,899 335,872 217,178 151,927
Federal Home Loan Bank
advances.............. 39,000 37,000 34,000 25,000 17,000 32,000 18,000
Shareholders' equity... 71,374 42,500 68,298 40,194 36,030 35,526 17,097
Book value per share... $ 10.92 $ 9.04 $ 10.52 $ 8.63 $ 7.77 $ 7.91 $ 7.17
Equity to assets
ratio................. 9.24% 7.26% 9.67% 7.73% 9.14% 12.09% 8.63%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. 0.20% 0.16% 0.46% 0.11% 0.16% 0.79% 0.52%
Allowance for loan
losses to loans....... 1.04 1.08 1.01 1.04 1.00 1.08 1.23
Allowance for loan
losses to
nonperforming loans... 527.10 669.84 220.82 904.17 640.12 136.46 236.10
Nonperforming assets to
total assets.......... 0.22 0.13 0.41 0.73 0.94 1.71 1.88
OTHER DATA:
Number of banking
offices............... 22 18 20 17 13 12 6
Number of full time
equivalent employees.. 329 265 294 243 198 206 129
</TABLE>

21
<PAGE>

SPECIAL MEETING OF CASCADE SHAREHOLDERS

DATE, TIME, AND PLACE

The Cascade Special Meeting will be held on Thursday, November 20, 1997, at
7:30 p.m., local time, at Cascade's principal office located at 25-16th Avenue
East, Auburn, Washington.

PURPOSE OF THE MEETING

The purposes of the Cascade Special Meeting are as follows: (i) to consider
and vote upon approval of the Cascade Merger Agreement; and (ii) to act upon
such matters, if any, as may properly come before the Cascade Special Meeting.

SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE

The Cascade Board has fixed the close of business on October 15, 1997 as the
Cascade Record Date for determining the holders of shares of Cascade Common
Stock entitled to vote at the Meeting. At the close of business on the Cascade
Record Date, there were 330,000 shares of Cascade Common Stock issued and
outstanding held by approximately 262 holders of record. See "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBSI, CASCADE AND
FIFE." Holders of record of Cascade Common Stock on the Record Date are
entitled to one vote per share, and are also entitled to exercise dissenters'
rights if certain procedures are followed. See "THE MERGER--Dissenters' Rights
of Appraisal" and Appendix C.

VOTE REQUIRED

The affirmative vote of two-thirds ( 2/3) of all shares of Cascade Common
Stock outstanding on the Cascade Record Date is required to approve the
Cascade Merger Agreement. Cascade's shareholders are entitled to one vote for
each share of Cascade Common Stock held. The presence of a majority of the
outstanding shares of Cascade Common Stock in person or by proxy is necessary
to constitute a quorum of shareholders for the Cascade Special Meeting. For
this purpose, abstentions and broker nonvotes (i.e., proxies from brokers or
nominees indicating that such person has not received instructions from the
beneficial owners or other persons entitled to vote shares as to a matter with
respect to which the broker or nominees do not have discretionary power to
vote) are counted in determining the shares present at a meeting. For voting
purposes, however, only shares affirmatively voted for the approval of the
Merger Agreement, and neither abstentions nor broker nonvotes, will be counted
as favorable votes in determining whether the Merger Agreement is approved by
the holders of Cascade Common Stock. As a consequence, abstentions and broker
nonvotes will have the same effect as votes against approval of the Merger
Agreement.

As of the Cascade Record Date, Cascade's directors and executive officers
and their affiliates owned and were entitled to vote 154,896 shares at the
Meeting, representing approximately forty-seven percent (47%) of the
outstanding shares of Cascade Common Stock. Each Cascade director has agreed
to vote all shares of Cascade Common Stock held or controlled by him in favor
of approval of the Cascade Merger.

VOTING, SOLICITATION, AND REVOCATION OF PROXIES

If the enclosed proxy is duly executed and received in time for the Cascade
Special Meeting, it will be voted in accordance with the instructions given.
If no instruction is given, it is the intention of the persons named in the
proxy to vote the shares represented by the proxy FOR THE APPROVAL OF THE
MERGER AGREEMENT AND IN THE PROXY'S DISCRETION ON ANY OTHER MATTER COMING
BEFORE THE MEETING, unless otherwise directed by the proxy. Any proxy given by
a shareholder may be revoked before its exercise by written notice to the
Secretary of Cascade, or by a subsequently dated proxy, or in open meeting
before the shareholder vote is taken. The shares represented by properly
executed, unrevoked proxies will be voted in accordance with the instructions
in the proxy. Shareholders are entitled to one vote for each share of Cascade
Common Stock held on the Cascade Record Date.

22
<PAGE>

The proxy for the Cascade Special Meeting is being solicited on behalf of
the Cascade Board. Cascade will bear the cost of solicitation of proxies from
its shareholders. In addition to using the mails, proxies may be solicited by
personal interview, telephone, and wire. Banks, brokerage houses, other
institutions, nominees, and fiduciaries will be requested to forward their
proxy soliciting material to their principals and obtain authorization for the
execution of proxies. Officers and other employees of Cascade may solicit
proxies personally. Cascade is not expected to pay any compensation for the
solicitation of proxies, but will, upon request, pay the standard charges and
expenses of banks, brokerage houses, other institutions, nominees, and
fiduciaries for forwarding proxy materials to and obtaining proxies from their
principals.

SPECIAL MEETING OF FIFE SHAREHOLDERS

DATE, TIME, AND PLACE

The Fife Special Meeting will be held on Thursday, November 20, 1997, at
5:30 p.m., local time, at Fife's office located at 5501 Pacific Highway East,
Fife, Washington.

PURPOSE OF THE MEETING

The purposes of the Fife Special Meeting are as follows: (i) to consider and
vote upon approval of the Fife Merger Agreement; and (ii) to act upon such
matters, if any, as may properly come before the Fife Special Meeting.

SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE

The Fife Board has fixed the close of business on October 15, 1997 as the
Fife Record Date for determining the holders of shares of Fife Common Stock
entitled to vote at the Fife Special Meeting. At the close of business on the
Fife Record Date, there were 213,920 shares of Fife Common Stock issued and
outstanding held by approximately 154 holders of record. See "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBSI, CASCADE AND
FIFE." Holders of record of Fife Common Stock on the Fife Record Date are
entitled to one vote per share, and are also entitled to exercise dissenters'
rights if certain procedures are followed. See "THE MERGER--Dissenters' Rights
of Appraisal" and Appendix D.

VOTE REQUIRED

The affirmative vote of two-thirds ( 2/3) of all shares of Fife Common Stock
outstanding on the Fife Record Date is required to approve the Fife Merger
Agreement. Fife's shareholders are entitled to one vote for each share of Fife
Common Stock held. The presence of a majority of the outstanding shares of
Fife Common Stock in person or by proxy is necessary to constitute a quorum of
shareholders for the Fife Special Meeting. For this purpose, abstentions and
broker nonvotes (i.e., proxies from brokers or nominees indicating that such
person has not received instructions from the beneficial owners or other
persons entitled to vote shares as to a matter with respect to which the
broker or nominees do not have discretionary power to vote) are counted in
determining the shares present at a meeting. For voting purposes, however,
only shares affirmatively voted for the approval of the Fife Merger Agreement,
and neither abstentions nor broker nonvotes, will be counted as favorable
votes in determining whether the Fife Merger Agreement is approved by the
holders of Fife Common Stock. As a consequence, abstentions and broker
nonvotes will have the same effect as votes against approval of the Merger
Agreement.

As of the Fife Record Date, Fife's directors and executive officers and
their affiliates owned and were entitled to vote 106,490 shares at the Fife
Special Meeting, representing approximately forty-seven percent (47%) of the
outstanding shares of Fife Common Stock. Each Fife director has agreed to vote
all shares of Fife Common Stock held or controlled by him or her in favor of
approval of the Fife Merger.

23
<PAGE>

VOTING, SOLICITATION, AND REVOCATION OF PROXIES

If the enclosed proxy is duly executed and received in time for the Fife
Special Meeting, it will be voted in accordance with the instructions given.
If no instruction is given, it is the intention of the persons named in the
proxy to vote the shares represented by the proxy FOR THE APPROVAL OF THE
MERGER AGREEMENT AND IN THE PROXY'S DISCRETION ON ANY OTHER MATTER COMING
BEFORE THE MEETING, unless otherwise directed by the proxy. Any proxy given by
a shareholder may be revoked before its exercise by written notice to the
Secretary of Fife, or by a subsequently dated proxy, or in open meeting before
the shareholder vote is taken. The shares represented by properly executed,
unrevoked proxies will be voted in accordance with the instructions in the
proxy. Shareholders are entitled to one vote for each share of Fife Common
Stock held on the Fife Record Date.

The proxy for the Fife Special Meeting is being solicited on behalf of the
Fife Board. Fife will bear the cost of solicitation of proxies from its
shareholders. In addition to using the mails, proxies may be solicited by
personal interview, telephone, and wire. Banks, brokerage houses, other
institutions, nominees, and fiduciaries will be requested to forward their
proxy soliciting material to their principals and obtain authorization for the
execution of proxies. Officers and other employees of Fife may solicit proxies
personally. Fife is not expected to pay any compensation for the solicitation
of proxies, but will, upon request, pay the standard charges and expenses of
banks, brokerage houses, other institutions, nominees, and fiduciaries for
forwarding proxy materials to and obtaining proxies from their principals.

24
<PAGE>

BACKGROUND OF AND REASONS FOR THE MERGER(S)

CASCADE

Background of the Merger

Since its opening in June 1990, CCB has experienced strong asset growth,
primarily realized from the Auburn-Kent market area. Increases of 21% and 23%
were attained in 1996 and 1995, respectively, resulting in current total
assets of the bank exceeding $87.0 million. The bank was initially capitalized
at $2.5 million. The growth which CCB has experienced necessitated additional
stock offerings of $1.0 million each in March 1992 and September 1994. Cascade
was formed in February 1995 to provide the company with the option of
borrowing funds to support growth.

Minimal start-up costs were incurred with CCB's opening and monthly
profitability was achieved within the first year of operation. Net profits
consistently increased in subsequent years, though the rate of increase was
negatively impacted by the costs associated with rapid growth and the opening
of two branch locations. The need to retain earnings in CCB's capital account
precluded the payment of cash dividends to the shareholders. A stock split in
the form of a 100% stock dividend was declared in March 1997. That action
increased the outstanding number of shares to 330,000, held by approximately
262 shareholders of record. Very limited trading has occurred in the stock.

In September 1996, the Cascade Board held a planning retreat at which
alternative strategies for community banks were discussed, including critical
issues facing smaller community banks. Continuing consolidations in the
banking business were noted together with increasing competition from both
bank and non-bank sources. The Cascade Board concluded that Cascade would
continue to expand through de novo branching, though the Board realized that
borrowings to supplement bank capital would be necessary in the near term. The
Board agreed that all options should remain open on possible discussions with
other financial institutions concerning merger or acquisition possibilities.

In early 1997, following the hiring of an executive with experience in the
Kent Valley, CBSI completed formulation of its plans to begin aggressively
branching into the Kent Valley and Auburn area. At the time that CBSI began
implementing those plans, Mr. Thomas L. Matson, Chairman of Cascade and CCB,
and Mr. Donald W. Lisko, President and Chief Executive Officer of Cascade and
CCB, met with Mr. W. W. Philip, President and Chief Operating Officer of CBSI
and President and Chief Executive Officer of Columbia Bank, to discuss the
possible combination of those institutions. In view of the interest then shown
by both parties in a possible transaction, serious negotiations were begun in
the spring of 1997 that led to agreement between the parties.

In April 1997, the Cascade Board retained the services of an investment
banker (CFA) to assist in evaluating a possible business combination with
CBSI.

During the month of May 1997, Mr. W. W. Philip and Messrs. Matson and Lisko
met on several occasions to discuss possible terms of a merger transaction. On
May 20, 1997, Cascade's management updated the Cascade Board of Directors
regarding discussions with CBSI and discussed the possibility of a merger
transaction with CBSI. CBSI's Board of Directors met on May 28, 1997 and
authorized management to negotiate a merger agreement with Cascade/CCB.

After the May 28, 1997 CBSI Board of Directors meeting, CBSI management
presented Cascade with proposed terms for a merger transaction. A special
meeting of the Cascade Board was held June 5, 1997 to consider the proposed
terms that would be incorporated in a merger agreement. CBSI proposed that the
merger transaction be priced using either a fixed exchange ratio of 2.27
(based on a CBSI stock price of $18.50 per share) or an exchange ratio that
floated based on the price of CBSI Common Stock for a brief period prior to

25
<PAGE>

Closing within a range of $17 and $20, at the option of Cascade. Cascade's
Board determined that the fixed exchange ratio was in the best interests of
Cascade shareholders. The Cascade Board also established three goals that
should be achieved in any merger: enhanced stockholder value and stock
liquidity, continued employment opportunities for a majority of CCB employees,
and a continued focus on customer service and competitive bank products.

The proposed terms of the merger were incorporated into a Merger Agreement,
with the final terms being substantially similar to the tentative terms
approved at the June 5, 1997 special meeting of the Cascade Board. The Boards
of Directors of Cascade and CBSI unanimously approved the Cascade Merger and
entered into the Cascade Merger Agreement on June 30, 1997.

CBSI's Reasons For The Merger

The CBSI Board believes that the terms of the Merger are fair and in the
best interests of CBSI and its shareholders, that the proposed Merger
constitutes a logical extension of the market area served by CBSI, and that
the Merger would benefit the localities currently served by Cascade by
providing additional lending capacity and additional services which are not
presently offered by Cascade. The Board of Directors of CBSI determined that
the acquisition of Cascade would compliment CBSI's announced intent to expand
into the Auburn-Kent Valley market by providing a vehicle for rapid expansion
of Columbia Bank in that market consistent with maintaining safe and sound
operations. The Merger is a further step in achieving CBSI's goal of creating
a well-capitalized, customer focused, Pacific Northwest commercial banking
institution with a significant presence in selected markets and total assets
in excess of $1.0 billion.

In reaching its determination, the CBSI Board consulted with CBSI's
management, as well as CBSI's legal and accounting advisors and considered a
number of factors, including the following:

. The effectiveness of the Merger in implementing CBSI's announced growth
strategy, including expanding its operations into additional parts of
King County;

. Managements' expectation that the Merger will be at least neutral and
probably accretive to earnings and managements' determination that the
cost of the Merger would be no greater than de novo branching into the
Auburn-Kent Valley market area;

. The CBSI Board's review, based in part on a presentation by CBSI
management regarding its due diligence on Cascade, of the overall
business, operations, earnings and financial condition of Cascade on an
historical and prospective basis and the enhanced opportunities for both
operating efficiencies and cost savings that are expected to result from
the Merger as compared to Cascade and CBSI operating separately, the
enhanced opportunities for growth in the Auburn-Kent Valley area that
the Merger makes possible, and the respective contributions the parties
would bring to the combined institution;

. The provisions of the Cascade Merger Agreement and other documents
executed in connection with the Cascade Merger and in particular, the
pricing, the representations and warranties of Cascade and the agreement
of Cascade directors to execute non-competition agreements;

. The expectation that the Cascade Merger will be tax-free for federal
income tax purposes to CBSI and its shareholders (other than in respect
of cash paid in lieu of fractional share interests) and that the Merger
will be accounted for under a pooling-of-interests method of accounting
and, therefore, will not give rise to goodwill (see "THE MERGER(S)--
Certain Federal Income Tax Matters--Accounting Treatment of Merger(s);"
and

. The current and prospective economic environment facing financial
institutions such as CBSI, including the increased competition among
financial institutions and the accompanying need to increase the
efficiency of operations, including expansion activities.

The CBSI Board did not assign any specific or relative weight to the factors
in its consideration.

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<PAGE>

Cascade's Reasons For The Merger

The Cascade Board believes that the terms of the Merger, which are the
product of arms-length negotiations between representatives of Cascade and
CBSI, are fair and in the best interests of Cascade and its shareholders. In
the course of reaching its determination, the Cascade Board consulted with
legal counsel with respect to the legal duties of the Cascade Board, the terms
of the Merger Agreement and the issues related thereto; with its accountants
with respect to certain financial aspects of the transaction; with its
financial advisor with respect to the financial aspects and fairness of the
transaction; and with senior management regarding, among other things,
operational and due diligence matters.

At its meeting on June 30, 1997, the Cascade Board unanimously determined
that the Merger is fair to and in the best interests of Cascade and its
shareholders, and recommended that the Merger Agreement be submitted to the
shareholders of Cascade for approval. The Cascade Board considered the
fairness opinion of CFA, and a number of additional factors. The material
factors considered by the Cascade Board are as follows:

. Cascade shareholder value would be significantly enhanced by the value
of CBSI Common Stock being issued in the Merger;

. CBSI stock is traded in the over-the-counter market and quoted on the
Nasdaq National Market, thus creating a far more liquid security for
Cascade shareholders;

. The Merger is structured as a tax-free exchange of stock, permitting
Cascade shareholders the opportunity to continue to invest in a
community banking organization;

. CBSI's financial condition, business and prospects and the economic
prospects of its markets appear to be attractive;

. The Merger would facilitate the delivery of additional services to
Cascade customers;

. The combined organization will be able to offer larger loans to
customers due to higher legal lending limits;

. The combined organization is expected to provide increased opportunities
to employees; and

. The Merger is expected to receive regulatory approval and is not
conditioned upon the approval of any shareholder group other than
Cascade.

The Cascade Board did not ascribe relative or specific weights to any factor
in its evaluation of the Merger.

Opinion of Columbia Financial Advisors, Inc.

CFA has delivered a written opinion to the Cascade Board to the effect that,
as of the date of this Joint Proxy Statement/Prospectus, the consideration to
be received by Cascade common stockholders pursuant to the terms of the Merger
Agreement is fair to such stockholders from a financial point of view (the
"CFA Opinion"). The Cascade Exchange Ratio has been determined by Cascade and
CBSI through negotiations. The CFA Opinion is directed only to the fairness,
from a financial point of view, of the consideration to be received and does
not constitute a recommendation to any Cascade stockholder as to how such
shareholder should vote at the Special Meeting.

Cascade retained CFA as its exclusive financial advisor pursuant to an
engagement letter dated June 5, 1997 in connection with the Merger. CFA is an
investment banking firm that is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions in the
Pacific Northwest. The Cascade Board selected CFA to act as Cascade's
exclusive financial advisor based on CFA's experience in merger(s) and
acquisitions and in securities valuation generally.

27
<PAGE>

On June 30, 1997, CFA issued its opinion to the Cascade Board that, in CFA's
opinion as investment bankers, the terms of the Merger as provided in the
Merger Agreement are fair, from a financial view point, to Cascade and its
shareholders. THE FULL TEXT OF THE UPDATED CFA OPINION DATED THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND LIMITS ON ITS REVIEW, IS ATTACHED HERETO AS APPENDIX
E. THE SUMMARY OF THE CFA OPINION (WHICH INCLUDES A SUMMARY OF ALL MATERIAL
STUDIES AND ANALYSES PERFORMED BY CFA) IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. CASCADE SHAREHOLDERS ARE URGED TO READ THE ENTIRE CFA
OPINION.

In rendering its opinion to Cascade, CFA reviewed, among other things,
historical financial data of Cascade, certain internal financial data and
assumptions of Cascade prepared for financial planning and budgeting purposes
furnished by the management of Cascade and, to the extent publicly available,
the financial terms of certain change of control transactions involving
Northwest community banks. CFA discussed with Cascade's management the
financial condition, current operating results, and business outlook for
Cascade. CFA also reviewed certain publicly available information concerning
CBSI and certain financial and securities data of CBSI and companies deemed
similar to CBSI. CFA discussed with CBSI's management the financial condition,
current operating results, and business outlook for CBSI and CBSI's plans
relating to Cascade. In rendering its opinion, CFA relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by it and did not attempt to verify or to make any
independent evaluation or appraisal of the assets of Cascade or CBSI nor was
it furnished with any such appraisals. Cascade did not impose any limitations
on the scope of the CFA investigation in arriving at its opinion.

CFA analyzed the total purchase price on a cash-equivalent fair market value
basis using standard evaluation techniques (as discussed below), including
comparable sales multiples, net present value analysis, and net asset value
based on certain assumption of projected growth, earnings and dividends and a
range of discount rates from 16% to 18%.

Net Asset Value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes liquidation on the
date of appraisal with the recognition of investment securities gains or
losses, real estate appreciation or depreciation, adjustments to the loan loss
reserve, discounts to the loan portfolio and changes in the net value of other
assets. As such, it is not the best evaluation approach when valuing a going
concern because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect prevailing
market prices and yields (which is often of limited accuracy due to the lack
of readily available data), it still results in a liquidation value. In
addition, since this approach fails to account for the values attributable to
the going concern such as the interrelationship among Cascade's assets and
liabilities, customer relations, market presence, image and reputation, staff
expertise and depth, little weight is given by CFA to the net asset value
approach to valuation.

Market Value is generally defined as the price, established on an "arms-
length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The "hypothetical" market value for a small bank with a thin market for
its common stock is normally determined by comparison to the average price to
stockholders equity, price to earnings, and price to total assets, adjusting
for significant differences in financial performance criteria and for any lack
of marketability or liquidity of the buyer. The market value in connection
with the evaluation of control of a bank is determined by the previous sales
of small banks in the state or region. In valuing a business enterprise, when
sufficient comparable trade data are available, the market value approach
deserves greater weighting than the net asset value approach and similar
weight as the investment value approach as discussed below.

28
<PAGE>

considered the market approach and has evaluated price to stockholders' equity
and price to earnings multiples and the price to total assets percentage for
transactions involving Washington and Oregon banking organizations with total
assets less than $100 million that sold for 100% common stock from January
1988 to June 1997.

Comparable Sales Multiples. CFA calculated a "Merger Consideration-Adjusted
Book Value" for Cascade's March 31, 1997 stockholders' equity and the
estimated September 30, 1997 stockholders' equity adjusted for the price to
stockholders' equity ratios for a sample of Northwest banking institutions
with assets below $100 million that sold between January 1988 through June
1997 and a sample of Northwest banking institutions with total assets below
$100 million that sold between January 1994 and June 1997. The calculations
are $35.40 and $37.66 per share, respectively, for the March 31, 1997
stockholders' equity for the two samples. For the estimated September 30, 1997
stockholders' equity, the calculations are $37.63 and $40.04, respectively.
For Cascade's 1996 net income and twelve months prior to March 31, 1997, the
calculations are $25.08 and $25.92, respectively. This summary of the material
results of these analyses indicates that the proposed transaction has a total
purchase price whose ratios exceed those of Comparable Sales Multiples and
supports the CFA conclusion that the proposed transaction is fair, from a
financial point of view.

Transaction Value as a Percentage of Total Assets. CFA calculated the
percentage of total assets that the transaction represents as a price level
indicator. The transaction value as a percentage of total assets facilitates a
truer price level comparison with comparable banking organizations, regardless
of the differing levels of stockholders equity and earnings. In this instance,
a transaction value of $42.00 per share results in a transaction value as a
percentage of total assets of 16.44%. The median price as a percentage of
total assets for a sample of Northwest banking institutions with assets below
$100 million that sold between January 1988 through June 1997 and a sample of
Northwest banking institutions with total assets below $100 million which sold
between 1994 and 1997 of 18% and 18%, respectively. This summary of the
material results of this analysis indicates that the proposed transaction has
a total purchase price whose ratios exceed those of Transaction Value as a
Percentage of Total Assets and supports the CFA conclusion that the proposed
transaction is fair, from a financial point of view.

Investment Value is sometimes referred to as the income or earnings value.
One investment value method frequently used estimates the present value of an
institution's future earnings or cash flow. This method is discussed below.

Net Present Value Analysis. The investment or earnings value of any banking
organization's stock is an estimate of the present value of future benefits,
usually earnings, dividends, or cash flow, that will accrue to the stock. An
earnings value is calculated using an annual future earning stream over a
period of time of not less than five years and the residual or terminal value
of the earnings stream after five years, using Cascade's estimates of future
growth and an appropriate capitalization or discount rate. CFA's calculations
were based on an analysis of the banking industry, Cascade's earnings
estimates for 1997-2001, historical levels of growth and earnings, and the
competitive situation in Cascade's market area. Using discount rates of 16%
and 18%, acceptable discount rates considering the risk-return relationship
most investors would demand for an investment of this type as of the valuation
date, the "Net Present Value of Future Earnings" provided a range of $43.14 to
$37.06 per share. This summary of the material results of this analysis
indicates that the proposed transaction has a total purchase price which
exceeds those derived from Net Present Value Analysis and supports the CFA
conclusion that the proposed transaction is fair, from a financial point of
view.

When the net asset value, market value and investment value approaches are
subjectively weighed, using the appraiser's experience and judgment, it is
CFA's opinion that the proposed transaction is fair, from a financial point of
view. These analyses collectively indicate that the proposed transaction is
fair, from a financial point of view.

Pursuant to the terms of the Engagement Letter, Cascade has agreed to pay
CFA a fee of $32,000. In addition, Cascade has agreed to reimburse CFA for its
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel, and to indemnify CFA against certain liabilities.

29
<PAGE>

Recommendation of the Cascade Board

THE CASCADE BOARD UNANIMOUSLY RECOMMENDS THAT THE CASCADE SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE MERGER AGREEMENT.

FIFE

Background of the Merger

Fife commenced operations in 1992. The primary focus of Fife was to meet the
banking needs of small to medium sized businesses located in the local Fife
community. The Bank became profitable within the first year of operations and
has enjoyed progressive earnings gains and strong asset growth since then. By
the end of 1996, Fife had $32.8 million in total assets and total loans of
$22.2 million. Also by the end of 1996, Fife had acquired, according to
management's estimate, over 50% of the total loans of the four commercial
banks located in the City of Fife. Capital has increased consistent with the
growth of the bank and deposit growth has funded loan growth. The bank has
experienced no material loan problems or charge offs to date. In November
1996, the bank relocated from a 2200 square foot branch building to a 7,800
square foot, two-story facility on Pacific Highway in Fife.

In early 1997, management of CBSI met with Director James Manza and
expressed an interest in leasing the old Bank of Fife branch office space
owned by Director Manza's family, indicating Columbia Bank's intent to begin
operations in Fife. Columbia Bank's management inquired whether Fife would be
interested in merging Fife into Columbia Bank. At a Fife Board meeting in
March 1997, the Board determined not to sell the bank.

In May 1997 when the Board was informed that Columbia Bank had entered into
an intent to lease the former Fife branch office space, the Board determined
that it was in the best interests of Fife and its shareholders to enter into
discussions regarding a possible merger of Fife into Columbia Bank. During the
month of June 1997, Mr. W.W. Philip met with Director Manza and Fife President
Mr. James Davis on several occasions to discuss possible terms of a merger
transaction. In late June 1997, CBSI management presented Fife with proposed
terms for a merger transaction. A special meeting of the Fife Board was held
on June 25, 1997 to consider the proposed terms that would be incorporated
into a merger agreement. The proposed terms were approved by the Fife Board.
The proposed terms of the merger were incorporated into a Merger Agreement,
with the final terms being substantially similar to the tentative terms
approved at the June 25, 1997 Fife Board meeting. The Boards of Directors of
Fife and CBSI unanimously approved the Fife Merger and entered into the Fife
Merger Agreement on July 30, 1997.

CBSI's Reasons for the Merger

The CBSI Board believes that the terms of the Merger are fair and in the
best interests of CBSI and its shareholders and that the proposed Merger will
accelerate CBSI's growth in a market that it has planned on serving. CBSI also
believes the Merger will benefit the localities currently served by Fife by
providing additional lending capacity and additional services which are not
presently offered by Fife. The Merger is a further step in achieving CBSI's
goal of creating a well-capitalized, customer focused, Pacific Northwest
commercial banking institution with a significant presence in selected markets
and total assets in excess of $1.0 billion.

In reaching its determination, the CBSI Board consulted with CBSI's
management, as well as CBSI's legal and accounting advisors and considered a
number of factors, including the following:

. The effectiveness of the Merger in implementing CBSI's announced growth
strategy, including expanding its operation in Pierce County;

. Management's expectation that the Merger will be at least neutral, and
probably accretive, to earnings and management's determination that the
cost of the Merger would be no greater than de novo branching into the
Fife market area;

30
<PAGE>

. The CBSI Board's review, based in part on a presentation by CBSI
management regarding its due diligence on Fife, of the overall business,
operations, earnings and financial condition of Fife on an historical
and prospective basis and the enhanced opportunities for both operating
efficiencies and cost savings that are expected to result from the
Merger as compared to Fife and CBSI operating separately, the enhanced
opportunities for growth in the Fife area that the Merger makes
possible, and the respective contributions the parties would bring to
the combined institution;

. The provisions of the Fife Merger Agreement and other documents executed
in connection with the Fife Merger and in particular the pricing, the
representations and warranties of Fife and the agreement of Fife
directors to execute non-competition agreements;

. The expectation that the Fife Merger will be tax-free for federal income
tax purposes to CBSI and its shareholders (other than in respect of cash
paid in lieu of fractional share interests) and that the Merger will be
accounted for under a pooling-of-interests method of accounting and,
therefore, will not give rise to goodwill (see "THE MERGER(S)--Certain
Federal Income Tax Matters--Accounting Treatment of Merger(s);" and

The CBSI Board did not assign any specific or relative weight to the factors
in its consideration.

Fife's Reasons For The Merger

The Fife Board believes that the terms of the Merger, which are the product
of arms-length negotiations between representatives of Fife and CBSI, are fair
and in the best interests of Fife and its shareholders. In the course of
reaching its determination, the Fife Board consulted with legal counsel with
respect to the legal duties of the Fife Board, the terms of the Merger
Agreement and the issues related thereto; with its accountants with respect to
certain financial aspects of the transaction; with its financial advisor with
respect to the financial aspects and fairness of the transaction; and with
senior management regarding, among other things, operational and due diligence
matters.

Prior to executing the Merger Agreement, Fife was approached informally by
two smaller community banks regarding the possible combination of Fife with
such banks. The Fife Board considered and rejected these overtures, since each
would have been a merger of equals, neither would have provided Fife
shareholders with liquid stock, and Fife shareholders would not have received
a premium in either proposed transaction.

At its meeting on July 30, 1997, the Fife Board unanimously determined that
the Merger is fair to and in the best interests of Fife and its shareholders,
and recommended that the Merger Agreement be submitted to the shareholders of
Fife for approval. The Fife Board considered the fairness opinion of CFA, and
a number of additional factors. The material changes considered by the Fife
Board are as follows:

. Fife shareholder value would be significantly enhanced by the value of
CBSI Common Stock being issued in the Merger;

. CBSI stock is traded on the over-the-counter market and quoted on the
Nasdaq National Market, thus creating a far more marketable and liquid
security for Fife shareholders;

. The Merger is structured as a tax-free exchange of stock, permitting
Fife shareholders the opportunity to continue to invest in a community
banking organization;

. CBSI's financial condition, businesses and prospects and the economic
prospects of its markets appear to be attractive;

. The Merger would facilitate the delivery of additional services to Fife
customers;

. The combined organization would be able to offer larger loans to
customers due to higher legal lending limits;

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<PAGE>

. The combined organization is expected to provide increased opportunities
to employees; and

. The Merger is expected to receive regulatory approval and is not
conditioned upon the approval of any shareholder group other than Fife.

The Fife Board did not ascribe relative or specific weights to any factor in
its evaluation of the Merger.

Opinion of Columbia Financial Advisors, Inc.

CFA has delivered a written opinion to the Fife Board to the effect that, as
of the date of this Joint Proxy Statement/Prospectus, the consideration to be
received by Fife common stockholders pursuant to the terms of the Merger
Agreement is fair to such stockholders from a financial point of view. The
Fife Exchange Ratio has been determined by Fife and CBSI through negotiations.
The CFA Opinion is directed only to the fairness, from a financial point of
view, of the Consideration to be received and does not constitute a
recommendation to any Fife stockholder as to how such shareholder should vote
at the Special Meeting.

Fife retained CFA as its exclusive financial advisor pursuant to an
engagement letter dated July 14, 1997 in connection with the Merger. CFA is an
investment banking firm that is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions in the
Pacific Northwest. The Fife Board selected CFA to act as Fife's exclusive
financial advisor based on CFA's experience in mergers and acquisitions and in
securities valuation generally.

On July 30, 1997, CFA issued its Opinion to the Fife Board that, in its
opinion as investment bankers, the terms of the Merger as provided in the
Merger Agreement are fair, from a financial view point, to Fife and its
shareholders. THE FULL TEXT OF THE UPDATED CFA OPINION DATED THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND LIMITS ON ITS REVIEW, IS ATTACHED HERETO AS APPENDIX
F. THE SUMMARY OF THE CFA OPINION IN THIS JOINT PROXY STATEMENT/PROSPECTUS
(WHICH INCLUDES A SUMMARY OF ALL MATERIAL STUDIES AND ANALYSES PERFORMED BY
CFA) IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. FIFE SHAREHOLDERS ARE URGED TO READ THE ENTIRE CFA OPINION.

In rendering its opinion to Fife, CFA reviewed, among other things,
historical financial data of Fife, certain internal financial data and
assumptions of Fife prepared for financial planning and budgeting purposes
furnished by the management of Fife and, to the extent publicly available, the
financial terms of certain change of control transactions involving Northwest
community banks. CFA discussed with Fife's management the financial condition,
current operating results, and business outlook for Fife. CFA also reviewed
certain publicly available information concerning CBSI and certain financial
and securities data of CBSI and companies deemed similar to CBSI. CFA
discussed with CBSI's management the financial condition, current operating
results, and business outlook for CBSI and CBSI's plans relating to Fife. In
rendering its opinion, CFA relied, without independent verification, on the
accuracy and completeness of all financial and other information reviewed by
it and did not attempt to verify or to make any independent evaluation or
appraisal of the assets of Fife or CBSI nor was it furnished any such
appraisals. Fife did not impose any limitations on the scope of the CFA
investigation in arriving at its opinion.

CFA analyzed the total Purchase Price on a cash equivalent fair market value
basis using standard evaluation techniques (as discussed below) including
comparable sales multiples, net present value analysis, and net asset value
based on certain assumption of projected growth, earnings and dividends and a
range of discounts rates from 16% to 18%.

Net Asset Value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes the liquidation on
the date of appraisal with the recognition of the investment securities gains
or losses, real estate appreciation or depreciation, adjustments to the loan
loss reserve, discounts to the loan portfolio and changes in the net value of
other assets. As such, it is not the best evaluation approach when valuing a
going concern because it is based on historical costs and varying accounting
methods. Even if

32
<PAGE>

the assets and liabilities are adjusted to reflect prevailing market prices
and yields (which is often limited accuracy due to the lack of readily
available data), it still results in a liquidation value. In addition, since
this approach fails to account for the values attributable to the going
concern such as the interrelationship among Fife's assets and liabilities,
customer relations, market presence, image and reputation, staff expertise and
depth, little weight is given by CFA to the net asset value approach to
valuation.

Market Value is generally defined as the price, established on an "arms-
length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The "hypothetical" market value for a small bank with a thin market for
its common stock is normally determined by comparison to the average price to
stockholders equity, price to earnings, and price to total assets, adjusting
for significant differences in financial performance criteria and for any lack
of marketability or liquidity of the buyer. The market value in connection
with the evaluation of control of a bank is determined by the previous sales
of small banks in the state or region. In valuing a business enterprise, when
sufficient comparable trade data are available, the market value approach
deserves greater weighting that the net asset value approach and similar
weight as the investment value approach as discussed below.

CFA maintains a comprehensive data base concerning prices paid for banking
institutions in the Northwest, particularly Washington and Oregon banking
institutions, during 1988 through 1997. This data base provides comparable
pricing and financial performance data for banking institutions sold or
acquired. Organized by different peer groups, these data present medians of
financial performance and purchase price levels, thereby facilitating a valid
comparative purchase price analysis. In analyzing the transaction value of
Fife, CFA has considered the market approach and has evaluated price to
stockholders equity and price to earnings multiples and the price to total
assets percentage for transactions involving Oregon and Washington banking
organizations with total assets less than $100 million that sold for 100%
common stock from January 1988 to July 1997.

Comparable Sales Multiples. CFA calculated a "Merger Consideration--Adjusted
Book Value" for Fife's June 30, 1997 stockholders' equity and the estimated
December 1997 stockholders equity adjusted for the price to stockholders'
equity ratios for a sample of Northwest banking institutions with assets below
$100 million which sold between January 1988 through July 1997 and a sample of
Northwest banking institutions with total assets below $100 million which sold
between January 1994 and July 1997. The calculations are $27.90 and $31.89 per
share, respectively, for the June 30, 1997 stockholders' equity for the two
samples. For the estimated December 31, 1997 stockholders' equity, the
calculations are $28.24 and $32.27, respectively. For Fife's 1996 net income
and twelve months prior to June 30, 1997, the calculations are $28.45 and
$38.71, respectively. This summary of the material results of these analyses
indicates that the proposed transaction has a total purchase price whose
ratios exceed those of Comparable Sales Multiples and supports the CFA
conclusion that the proposed transaction is fair, from a financial point of
view.

Transaction Value as a Percentage of Total Assets. CFA calculated the
percentage of total assets which the transaction represents as a price level
indicator. The transaction value as a percentage of total assets facilitates a
truer price level comparison with comparable banking organizations, regardless
of the differing levels of stockholders' equity and earnings. In this
instance, a transaction value of $31.89 per share results in a transaction
value as a percentage of total assets of 22.18%. The median price as a
percentage of total assets for a sample of Northwest banking institutions with
assets below $100 million which sold between January 1988 through July 1997
and a sample of Northwest banking institutions with total assets below $100
million which sold between 1994 and 1997 of 16% and 18%, respectively. This
summary of the material results of this analysis indicates that the proposed
transaction has a total purchase price whose ratios exceed those of
Transaction Value as a Percentage of Total Assets and supports the CFA
conclusion that the proposed transaction is fair, from a financial point of
view.

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<PAGE>

Net Present Value Analysis. The investment or earnings value of any banking
organization's stock is an estimate of the present value of future benefits,
usually earnings, dividends, or cash flow, which will accrue to the stock. An
earnings value is calculated using an annual future earning stream over a
period of time of not less than five years and the residual or terminal value
of the earnings stream after five years, using Fife's estimates of future
growth and an appropriate capitalization or discount rate. CFA's calculations
were based on an analysis of the banking industry, Fife's earnings estimates
for 1997-2001, historical levels of growth and earnings, and the competitive
situation in Fife's market area. Using discount rates of 16%, 18% and 20%,
acceptable discount rates considering the risk-return relationship most
investors would demand for an investment of this type as of the valuation
date, the "Net Present Value of Future Earnings" provided a range of $26.42 to
$34.75 per share. This summary of the material results of this analysis
indicates that the proposed transaction has a total purchase price which
exceeds those derived from Net Present Value Analysis and supports the CFA
conclusion that the proposed transaction is fair, from a financial point of
view.

Pursuant to the terms of the Engagement Letter, Fife has agreed to pay CFA a
fee of $20,000. In addition, Fife has agreed to indemnify CFA against certain
liabilities.

Recommendation of the Fife Board

THE FIFE BOARD UNANIMOUSLY RECOMMENDS THAT THE FIFE SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT.

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<PAGE>

THE MERGER(S)

GENERAL

The following description of the material terms of the Mergers is qualified
in its entirety by reference to the Merger Agreements. All Cascade and Fife
shareholders are urged to read the respective Merger Agreement carefully.
Cascade and Fife shareholders are being asked to approve the respective Merger
in accordance with the terms of the respective Merger Agreement.

TERMS OF THE MERGER(S)

CASCADE. Under the terms of the Cascade Merger Agreement, Cascade will merge
into CBSI, with CBSI being the surviving entity (Merger I) and CCB will be
merged with and into Columbia Bank, with Columbia Bank surviving as the
wholly-owned subsidiary of CBSI (Merger II). Cascade and CCB would cease to
exist. On consummation of the Merger, all Cascade Common Stock outstanding
immediately prior to the Merger (except for Dissenting Shares) will, by virtue
of the Merger and without any action on the part of any holder of shares of
Cascade Common Stock, be converted into 2.27 shares of CBSI Common Stock. As a
result of the Merger, Cascade shareholders will become shareholders of CBSI.
See "--Dissenters' Rights of Appraisal--Cascade."

The Merger will close and become effective on the Effective Date (as
described in the Merger Agreement, within five business days after the
fulfillment or waiver of each condition set forth in the Merger Agreement),
unless extended by the parties. Closing is anticipated by early December 1997.
If closing does not occur by March 31, 1998, either Cascade or CBSI may
terminate the Merger Agreement. See "--Conditions to the Merger(s)."

CBSI will not issue certificates for fractional shares of CBSI Common Stock.
Each Cascade shareholder who is otherwise entitled to receive a fractional
share, will receive cash in lieu thereof in an amount based on the Exchange
Ratio and will have no other rights with respect to such fractional interest.

FIFE. Under the terms of the Fife Merger Agreement, Fife will merge into
Columbia Bank, with Columbia Bank as the surviving wholly-owned subsidiary of
CBSI. Fife would cease to exist. As a result, Fife shareholders, other than
those who duly exercise dissenters' rights, would become shareholders of CBSI.
See "--Dissenters' Rights of Appraisal--Fife."

In the Fife Merger, each share of Fife Common Stock outstanding prior to the
Effective Date (other than Dissenting Shares) will be converted into shares of
CBSI Common Stock at the Fife Exchange Ratio which is based on the Average
Closing Price. The precise number of shares of CBSI Common Stock to be issued
in exchange for each such share of Fife Common Stock will be calculated by
dividing the Purchase Price by the Average Closing Price, and by further
dividing the quotient so obtained by the aggregate number of shares of Fife
Common Stock that are issued and outstanding or subject to unexercised options
on the Effective Date.

The terms "Purchase Price" and "Average Closing Price" are defined in the
Fife Merger Agreement. "Purchase Price" means an amount equal to (a) two times
the sum of shareholders' equity of Fife at June 30, 1997 plus the amount added
to such shareholders' equity upon exercise of outstanding options, plus (b)
the amount of Fife's net income between June 30, 1997 and the Effective Date.
"Average Closing Price" means the average of the closing sales prices per
share of CBSI Common Stock for the twenty consecutive trading days ending five
days prior to the Effective Date, except that if such average is less than
$18.00, then the Average Closing Price will be $18.00, and if such average is
more than $22.00, then the Average Closing Price will be $22.00.

For example, if all outstanding options to purchase Fife Common Stock are
exercised prior to the Effective Date and Fife's net income between June 30,
1997 and the Effective Date is $50,000, then the number of shares of CBSI
Common Stock to be issued in exchange for each share of Fife Common Stock will
be between 1.45

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and 1.77 depending upon the Average Closing Price. If the Average Closing
Price is $22.00 or more, 1.45 shares of CBSI Common Stock will be issued in
exchange for each share of Fife Common Stock. If the Average Closing Price is
$18.00 or less, 1.77 shares of CBSI Common Stock will be issued in exchange
for each share of Fife Common Stock. Under the Merger Agreement, Fife has the
right to terminate the Merger if the average Daily Sales Price over the
Pricing Period is below the "floor" ($18.00). If Fife exercises this
provisional right to terminate the Merger, CBSI may elect to remove the
limitation otherwise imposed by the "floor" as permitted by the Merger
Agreement. See "--Termination of the Merger Agreement--Decline in Value of
CBSI Stock."

The Fife Merger will close and become effective on the Effective Date (as
described in the Merger Agreement, within five business days after the
fulfillment or waiver of each condition set forth in the Fife Merger
Agreement), unless extended by the parties. Closing is anticipated by early
December 1997. If closing does not occur before April 30, 1998, either Fife or
CBSI may terminate the Merger Agreement. See "--Conditions to the Merger(s)."

CBSI will not issue certificates for fractional shares of CBSI Common Stock.
Each Fife shareholder who is otherwise entitled to receive a fractional share,
will receive cash in lieu thereof in an amount equal to the product of such
fraction multiplied by the Average Closing Price of CBSI Common Stock, and
such Fife shareholder will have no other rights with respect to such
fractional shares or other shares.

EXCHANGE OF STOCK CERTIFICATES

On and after the Effective Date, certificates representing Cascade Common
Stock and Fife Common Stock will be deemed to represent only the right to
receive CBSI Common Stock or cash as provided in the Merger Agreements. Upon
surrender to the Exchange Agent designated by CBSI, Cascade and Fife, of
certificates that, before the Effective Date, represented shares of Cascade
Common Stock or Fife Common Stock, together with a properly executed
transmittal letter form and any other required documents, the holder
surrendering the certificates will be entitled to receive certificates
representing the number of shares of CBSI Common Stock, and cash, if any, to
which he or she is entitled in accordance with the terms of the Merger
Agreements. DO NOT SEND IN YOUR CERTIFICATES AT THIS TIME. Cascade and Fife
shareholders will receive written instructions and the required letter of
transmittal after the respective Merger is effective.

All CBSI Common Stock issued pursuant to the Merger Agreements will be
deemed issued as of the Effective Date. No distributions or dividends paid
upon shares of CBSI Common Stock after the consummation of the Merger(s) will
be paid to holders of Cascade Common Stock or Fife Common Stock who are
entitled under the respective Merger Agreement to receive CBSI Common Stock
until such holders have surrendered the certificates formerly representing
shares of Cascade Common Stock or Fife Common Stock, at which time any
accumulated dividends and distributions since the Effective Date, without
interest, will be paid.

EMPLOYEE BENEFIT PLANS

The Merger Agreements confirm CBSI's intention to allow the Fife and
Cascade/CCB employees who continue as employees of CBSI/Columbia Bank after
the Merger(s) to participate in certain CBSI employee benefit plans. Cascade's
and Fife's employee benefit plans will be terminated as soon as practical
after the Merger(s), and the employee interests in those plans will be
transferred to or merged into CBSI's employee benefit plans.

MECHANICS OF THE MERGER(S)

On the Effective Date of the Merger(s) all business, assets, and liabilities
formerly carried on or owned by Cascade will be transferred to and vested in
CBSI and all business, assets, and liabilities formerly carried on or owned by
CCB and Fife will be transferred and vested in Columbia Bank. Cascade will
cease to have a corporate existence separate from CBSI, and CCB and Fife will
cease to have a corporate existence separate from Columbia Bank.

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CONDUCT PENDING CONSUMMATION OF THE MERGER(S)

The Merger Agreements provide that, until the Merger(s) are effective,
Cascade will, and will cause CCB to, and Fife will, conduct its business only
in the ordinary and usual course, and use all reasonable efforts to preserve
its present business organization, retain the services of its present
management, and preserve the goodwill of all parties with whom it has business
dealings. The Merger Agreements also provide that, unless CBSI otherwise
consents in writing, Cascade and Fife will refrain from engaging in various
activities such as effecting any stock split or other recapitalization,
disposing of assets or making material commitments, acquiring real property
without conducting an environmental evaluation, and entering into transactions
or incurring any expenses that are not in the ordinary course of business.

CONDITIONS TO THE MERGER(S)

Consummation of each Merger is subject to various conditions. No assurance
can be provided as to whether these conditions will be satisfied or waived by
the appropriate party. Accordingly, there can be no assurance that either
Merger will be completed. In the event that conditions to the Cascade Merger
remain unsatisfied and the Merger has not been effected on or before March 31,
1998, the Cascade Merger Agreement may be terminated by either party to the
Cascade Merger Agreement. In the event the conditions to the Fife Merger
remain unsatisfied and the Merger has not been effected on or before April 30,
1998, the Fife Merger Agreement may be terminated by either party to the Fife
Merger Agreement.

The Cascade Merger can occur only if the holders of the shares of Cascade
Common Stock approve the transaction. The Fife Merger can occur only if the
holders of the shares of Fife Common Stock approve the transaction. In
accordance with Cascade's and Fife's Articles of Incorporation and Washington
law, approval of the Cascade Merger and the Fife Merger requires the
affirmative vote by the holders of a two-thirds ( 2/3) of all shares
outstanding of Cascade Common Stock and Fife Common Stock, respectively. In
addition, approval of each Merger (or confirmation that it will not exercise
authority) is required from the FRB, the FDIC and the Washington Director.

Certain conditions must be satisfied or events must occur before the parties
will be obligated to complete the Merger(s). Each party's obligations under
each Merger Agreement are conditioned on satisfaction of certain conditions.
Some of these conditions are as follows: (a) the representations and
warranties of each party are true in all material respects (as of Closing),
and each party has complied with its covenants in the Merger Agreement; (b) no
Material Adverse Effect has occurred with respect to a party; (c) each party's
Board and Cascade and Fife's shareholders have approved the respective Merger;
(d) the parties have provided one another with the counsel, tax, accounting
treatment, and fairness opinions required by the respective Merger Agreements;
(e) the Commission has declared the effectiveness of the Registration
Statement for the shares of CBSI Common Stock to be issued in the Merger(s);
(f) Cascade and CCB and Fife have met certain financial condition
requirements; (g) no action or proceeding has been commenced or is threatened
by any governmental agency to restrain or prohibit or invalidate the
Merger(s); (h) not more than ten percent (10%) of the Cascade Common Stock and
the Fife Common Stock will be Dissenting Shares at Closing; and (i) all
appropriate regulatory agencies have approved the Merger(s).

As a condition to the execution of the Merger Agreements, each member of the
Board of Cascade (other than Mr. Lisko, who is a party to a separate
employment agreement with CCB which was ratified by CBSI), and Messers. Gerald
Barkshire, Gary Garrison, Nat Luppino, James Manza, Albert Meier, Robert
Oldright and Michael Porter, members of the Fife Board, will execute a
Director Non-Competition Agreement with CBSI. The Director Non-Competition
Agreement prohibits these directors for three years after the Effective Date
of the respective Merger from competing with CBSI or any of its subsidiaries
within Pierce, King or Thurston Counties, in the case of Cascade Directors,
and within Pierce County in the case of Fife Directors.

Either CBSI or Cascade, or CBSI or Fife, may waive the other party's
conditions, except those that are required by law (such as receipt of
regulatory and shareholder approval). Either CBSI or Cascade, or CBSI or Fife,
may also grant extended time to the other party to perform an obligation or
satisfy a condition.

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AMENDMENT OF THE MERGER AGREEMENT(S)

The Merger Agreements may be amended or supplemented at any time by written
agreement of the parties, whether before or after the Special Meetings. To the
extent permitted under applicable law, the parties may make any amendment or
supplement without further approval of Cascade's or Fife's shareholders, as
the case may be, except amendments which would reduce the amount or change the
form of consideration that the shareholders of Cascade or Fife, as the case
may be, will receive in the respective Merger transaction.

TERMINATION OF THE MERGER AGREEMENT(S)

The Merger Agreements contain several provisions entitling either Cascade or
CBSI or Fife or CBSI to terminate the respective Merger Agreement under
certain circumstances. The following briefly describes these provisions:

LAPSE OF TIME. If the Merger has not been consummated by March 31, 1998, in
the case of Cascade, or April 30, 1998, in the case of Fife, then at any time
after that date, either CBSI or Cascade, or CBSI or Fife, may terminate the
respective Merger Agreement if failure of the parties to consummate the Merger
by that date was not due to the terminating party's breach of its obligations,
representations, or warranties under the Merger Agreement.

MUTUAL CONSENT. The parties may terminate the respective Merger Agreement at
any time before Closing, whether before or after approval by Cascade's or
Fife's shareholders, by mutual consent.

DECLINE IN VALUE OF CBSI STOCK. Fife has certain rights, tied to a reduction
in value of CBSI Common Stock, to terminate the Fife Merger Agreement during
the four trading days before the Effective Date of the Fife Merger. In
determining whether to elect to terminate the Fife Merger Agreement in these
circumstances, the Fife Board will take into account, consistent with its
fiduciary duties, all relevant facts and circumstances existing at the time,
including, without limitation, the market for financial institution stocks in
general, the relative value of CBSI Common Stock in the market, and the advice
of its financial advisors and legal counsel. By approving the Fife Merger
Agreement, shareholders of Fife would be permitting the Fife Board to
determine, in the exercise of its fiduciary duties, to proceed with the Fife
Merger even though the Average Closing Price of CBSI Common Stock is less than
$18.00. This termination right of Fife under this provision is subject to
CBSI's right to avoid termination by increasing the number of CBSI shares Fife
shareholders will receive.

IMPOSSIBILITY. Either CBSI or Cascade may terminate the Cascade Merger
Agreement, and Fife or CBSI may terminate the Fife Merger Agreement, if
certain conditions of the Merger Agreement are rendered impossible to satisfy
or if certain material breaches are made with respect to the representations,
warranties, covenants and agreements contained in the respective Merger
Agreement.

ALLOCATION OF COSTS UPON TERMINATION. If either Merger Agreement is
terminated, CBSI, Cascade and Fife, as applicable, will each pay their own
out-of-pocket costs incurred in connection with the transaction, and, with
certain specific exceptions, will have no other liability to any other party.

INTERESTS OF CERTAIN PERSONS IN THE MERGER(S)

Certain members of the Cascade and Fife Boards and management may be deemed
to have interests in the Merger, in addition to their interests as
shareholders of Cascade and Fife. The Cascade and Fife Boards were aware of
these factors and considered them, among other matters, in approving the
Merger Agreements and the transactions contemplated thereby.

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Bank. The agreement has a term of three years beginning on the effective date
of the Cascade Merger. It provides for an annual salary of $94,000 and the
grant at the close of business on the Effective Date of the Cascade Merger of
an incentive stock option to purchase at market value on the date of grant
5,000 shares of CBSI Common Stock. The agreement provides for payment to Mr.
Lisko of two and one-half years' salary in the event of a change in control of
CBSI. It also provides for a payment of salary through the term of the
agreement in the event of termination of employment without cause. The
employment agreements with Mr. Bray and Mr. Plummer, Senior Officers of
Cascade, have two year terms and provide for payment of salary through the
term of the agreement in the event of termination of employment without cause
and a payment of one years' salary in the event of a change in control of
CBSI. The annual salary provided for Mr. Bray is $63,000, and the annual
salary for Mr. Plummer is $65,000. The employment agreements with Mr. Clemmer
and Ms. Ehli, Giffin, Long and Van Lant provide for payment of salary
(totaling in the aggregate approximately $231,000) through the one year term
of the agreement in the event of termination of employment without cause. The
salaries and benefits to be provided to each of the aforementioned persons are
substantially similar to those provided to them prior to Cascade entering into
the Cascade Merger Agreement.

As a condition to the Fife Merger Agreement, Fife has agreed to take all
necessary steps to terminate or satisfy existing severance agreements with Mr.
Davis, President of Fife, and Messrs. Hixenbaugh and Mason, Senior Officers of
Fife. The severance agreement for Mr. Davis provides for payment of one years'
salary (approximately $94,000) in the event of a change in control of Fife.
Mr. Hixenbaugh's severance agreement provides for payment of two years' salary
(approximately $135,000) in the event of a change in control of Fife, and Mr.
Mason's severance agreement provides for payment of twenty-five percent (25%)
of one years' salary (approximately $14,000) in the event of change in control
of Fife.

AGREEMENTS RELATING TO REAL PROPERTY. In connection with the Cascade Merger,
CBSI has agreed to buy the main office of Cascade and the land on which the
South Auburn branch office is located, both of which are owned by a
partnership (Cascade Investment Properties) comprised substantially of
directors of Cascade. The purchase price for the property will be $1.6 million
which the parties believe is substantially similar to the price Cascade
Investment Properties would have obtained had they sold the properties to a
person or entity not a party to the Cascade Merger.

In connection with the Fife Merger, CBSI has entered into an Option
Agreement with Rocco Associates, a partnership comprised of members of Fife
director James Manza's family. The Option Agreement grants CBSI the right to
acquire the property located at 1507-54th Avenue, Fife, Washington, which was
the location of Bank of Fife prior to relocating to its current location, for
a purchase price of $320,000.

INDEMNIFICATION. The Cascade and Fife Merger Agreements provide that CBSI
will maintain the indemnification rights with respect to matters occurring
before the Effective Date of the Merger(s) for officers and directors of
Cascade and Fife previously provided by Cascade's and Fife's Articles of
Incorporation and Bylaws, and for a period of six years after the Effective
Date of the Merger(s), will use reasonable efforts to cause to be maintained
in effect director and officer liability insurance substantially similar to
that maintained by Cascade and Fife with respect to matters occurring before
the Effective Date of the Merger(s).

CERTAIN FEDERAL INCOME TAX MATTERS

The Merger(s) are intended to qualify as a tax-free reorganization under
Section 368(a) of the Code for federal income tax purposes. Gordon, Thomas,
Honeywell, Malanca, Peterson & Daheim P.L.L.C. has delivered its opinions,
dated October 6, 1997, to the effect that the respective Merger will
constitute a tax-free reorganization for federal tax purposes. Such opinion
will not bind the Internal Revenue Service or preclude the Internal Revenue
Service from adopting a contrary position. The opinion is based upon facts and
assumptions

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and representations and assurances made by Cascade, Fife and CBSI. The Federal
income tax discussion set forth below may not apply to particular categories
of holders of Cascade Common Stock or Fife Common Stock subject to special
treatment under the federal income tax laws, such as foreign holders or
holders whose stock may have been acquired as compensation. In addition, there
may be relevant state, local or other tax consequences, none of which are
described below. Shareholders are urged to consult their advisors to determine
the specific personal tax consequences of the respective Merger, including the
applicability and effect of foreign, state, local, and other tax laws.

The Gordon, Thomas, Honeywell opinions for the Cascade and Fife Mergers
address the material tax consequences of the Mergers and state that:

1. The mergers of Cascade with and into CBSI, CCB with and into Columbia
Bank and Fife with and into Columbia Bank, will constitute tax-free
reorganizations.

2. No gain or loss will be recognized by either Cascade, CCB, Fife or
CBSI as a result of the Mergers.

3. The tax basis and holding period for the Cascade, CCB and Fife assets
that are received by CBSI and Columbia Bank in the Mergers will be the same
as the tax basis and holding period of the assets held immediately before
the exchange by Cascade, CCB and Fife, respectively.

4. No gain or loss will be recognized by holders of Cascade Common Stock
or Fife Common Stock upon the receipt of CBSI Common Stock in exchange for
Cascade Common Stock or Fife Common Stock pursuant to the Mergers.

5. The tax basis of the CBSI Common Stock received in the Mergers by
Cascade and Fife shareholders will be the same as the tax basis of the
shares of Cascade Common Stock and Fife Common Stock surrendered in the
exchange, reduced by any basis allocable to a fractional share interest in
the CBSI Common Stock for which cash is received. The holding period for
the shares of CBSI Common Stock received in the Mergers will include the
holding period of Cascade and Fife shares exchanged, provided that Cascade
and Fife shares were held as capital assets at the time of the Mergers.

6. Gain or loss will be recognized by Cascade and Fife shareholders who
receive cash in lieu of fractional shares of CBSI Common Stock, or who
exercise dissenters' rights and receive cash for their shares. The amount
of such gain or loss generally will be the difference between the cash
received and the basis of the shares or fractional share interests
surrendered in the exchange. Subject to satisfaction of Section 302 of the
Code, such gain or loss will be a capital gain or loss provided that the
shares of Cascade Common Stock and Fife Common Stock surrendered were
capital assets at the time of surrender, and will be long-term capital gain
or loss if such shares of Cascade or Fife have been held for more than one
year. Under the Taxpayer Relief Act of 1997, net long term capital gains on
capital assets held more than 18 months may be eligible for taxation at
lower rates than in effect for such gains prior to adoption of the Act.

ACCOUNTING TREATMENT OF THE MERGER(S)

Consummation of the Merger(s) is conditioned upon receipt by CBSI of a
letter from Deloitte & Touche LLP, CBSI's current independent auditors, to the
effect that the Merger(s) will qualify for "pooling of interests" accounting
treatment if consummated in accordance with the terms of the Merger
Agreement(s). Under the pooling of interests method of accounting, the
historical basis of the assets and liabilities of CBSI, Cascade and Fife will
be combined at the Effective Date of the Merger(s) and carried forward at
their previously recorded amounts, and the shareholders' equity accounts of
CBSI, Cascade and Fife will be combined on CBSI's consolidated balance sheet.
Income and other financial statements of CBSI issued after consummation of the
Merger(s) will be restated retroactively to reflect the consolidated
operations of CBSI, Cascade and Fife as if the Merger(s) had taken place prior
to the periods covered by such financial statements. No recognition of
goodwill arising from Merger(s) is required of CBSI, Cascade or Fife under the
pooling of interests accounting method.

The pro forma combined financial information contained in this Joint Proxy
Statement/Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger(s). See "PRO FORMA COMBINED
FINANCIAL STATEMENTS," including the related Notes.

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DISSENTERS' RIGHTS OF APPRAISAL

CASCADE. Under Washington corporate law (RCW 23B.13), a shareholder of
Cascade may exercise "dissenters' rights" and receive the fair value of his or
her shares in cash, if certain procedures are followed. To exercise these
rights, a Cascade shareholder must (i) deliver to Cascade, before the vote on
approval of the Merger is taken, written notice of intent to demand payment
for his or her shares if the Merger is effected, and (ii) not vote in favor of
the Merger. Following consummation of the Merger, CBSI will send a Dissenters'
Notice to each Cascade shareholder who has properly perfected his or her
dissenters' rights. A dissenting shareholder must also follow the procedures
set forth in the Dissenters' Notice. The Dissenters' Notice will include
instructions to completing the exercise of dissenters' rights, including that
the dissenting shareholder must (1) make written demand for payment of the
fair value of his or her shares in the form sent to the shareholder by the
corporation along with the Dissenters' Notice (this notice will prescribe a
time period within which the demand must be made), (2) certify that beneficial
ownership of his or her Cascade Common Stock shares was acquired before the
date set forth in the Dissenters' Notice, and (3) surrender his or her stock
certificates representing shares of the Cascade Common Stock in accordance
with the Dissenters' Notice. A shareholder who exercises and perfects
dissenters' rights is entitled to receive the fair value of his or her shares
in cash. Such value may be higher or lower than the value of CBSI Common Stock
issuable pursuant to the Merger Agreement.

A vote against the Merger will not in and of itself satisfy the requirements
of the Washington statute; a shareholder who does not deliver to Cascade prior
to the Cascade Special Meeting a written notice of the shareholder's intent to
demand payment for the fair value of the shares of Cascade Common Stock held
will lose the right to exercise dissenters' rights. In addition, any
shareholder electing to exercise dissenters' right must either vote against
the Merger or abstain from voting. The failure of a shareholder of Cascade to
comply strictly with the statutory requirements win result in a loss of
dissenters' rights. A copy of the relevant statutory provisions is attached as
Appendix C and Cascade shareholders are urged to refer to this Appendix for a
complete statement concerning dissenters' rights. The foregoing summary of
such rights is qualified in its entirety by reference to such Appendix C.

FIFE. Under Washington banking law, shareholders of Fife have the right to
dissent from the fife Merger, and, assuming the proper approval of the Fife
Merger Agreement, to receive the "value" of their shares in cash by complying
with the provisions of RCW 30.49.090, a copy of which is attached as Appendix
D hereto. The following summary of dissenter's rights, and the procedure for
exercising such rights, is qualified in its entirety by reference to these
statutes set forth in Appendix D.

Any Fife shareholder desiring to dissent and receive payment for the "value"
of his or her shares must vote against the Fife Merger. The dissenting
shareholder must also make written demand to Columbia Bank as the resulting
bank within thirty (30) days after the Effective Date of the Fife Merger. The
shareholder's demand must be accompanied by the surrender of his or her stock
certificates. Fife shareholders will not receive further notification of the
last date by which such written demand must be made. Merely voting against the
Fife Merger is not sufficient statutory notice of a shareholder's desire to
dissent, and, furthermore, the failure of a shareholder to vote against the
resolution will constitute a waiver of dissenters' rights.

Any dissenting shareholder who complies with the statutory requirements will
have the right to be paid the appraised value of his or her Fife Common Stock,
ascertained as of the date of the Special Meeting. The appraised value shall
be determined by three appraisers, as follows: One appraiser shall be selected
by the owners of two-thirds of the dissenting shares, one by the Board of
Directors of Columbia Bank as the resulting bank, and the third by the two so
chosen. The valuation agreed upon by any two appraisers shall govern. The
dissenting shareholders shall bear, on a pro rata basis based on the number or
dissenting shares owned, the cost of the appraisal performed by their
appraiser and one-half of the cost of the third appraisal. Columbia Bank shall
bear the cost of the appraisal performed by its appraiser and one-half of the
cost of the third appraisal. If the appraisal is not completed within ninety
(90) days after the Effective Date, the Washington Director shall cause an
appraisal to be made which shall be final and binding on all parties. In such
case, the cost of the Washington

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Director's appraisal shall be born equally by dissenting shareholders and
Columbia Bank, with the dissenting shareholders to share their half of the
cost on a pro rata basis based on the number of dissenting shares owned.

Fife and CBSI are of the view that a shareholder may not dissent as to less
than all of the shares registered in his or her name, except that a
shareholder holding, as a fiduciary, shares registered in his or her name for
the benefit of more than one beneficiary may dissent as to less than all of
the shares registered in his or her name, if dissent is made by a beneficiary
as to all of the shares held for that beneficiary by the fiduciary.

RESALES OF STOCK RECEIVED IN THE MERGER(S) BY CASCADE AND FIFE AFFILIATES

The CBSI Common Stock to be issued in the Merger(s) will be transferable
free of restrictions under the Securities Act, except for shares received by
persons, including directors and executive officers of Cascade and Fife, who
may be deemed to be "affiliates" of Cascade or Fife, as that term is used in
(i) paragraphs (c) and (d) of Rule 145 under the Securities Act and/or (ii)
Accounting Series Releases 130 and 135, as amended, of the Commission.
Affiliates may not sell their shares of CBSI Common Stock acquired pursuant to
the Merger(s), except (a) pursuant to an effective registration statement
under the Securities Act covering those shares, (b) in compliance with Rule
145, or (c) in the opinion of counsel reasonably satisfactory to CBSI,
pursuant to other applicable exemptions from the registration requirements of
the Securities Act. Commission guidelines further indicate that the pooling of
interests method of accounting will generally not be challenged on the basis
of sales by affiliates of the acquiring or acquired company if such affiliates
do not dispose of any of the shares of the acquiring or acquired company they
owned before the consummation of a merger or shares of the acquiring
corporation they receive in connection with the merger during the period
beginning 30 days before the merger and ending when financial results covering
at least 30 days of post-merger operations of the combined organization have
been published. CBSI has obtained customary agreements with all directors,
officers, and affiliates of Cascade and Fife, under the terms of which such
persons have represented that they will not dispose of their shares of CBSI
received in the Merger or the shares of capital stock of Cascade, Fife or CBSI
held by them before the Merger, except (i) in compliance with the Securities
Act and the rules and regulations promulgated thereunder, and (ii) in a manner
that would not adversely affect the ability of CBSI to treat the Merger(s) as
a pooling of interests for financial reporting purposes. This Joint Proxy
Statement/Prospectus does not cover any resales of the CBSI Common Stock
received by affiliates of Cascade or Fife.

NO SOLICITATION

If (i) there is an Acquisition Proposal prior to the Cascade Shareholder
vote on the Cascade Merger or the Fife Shareholder vote on the Fife Merger,
(ii) the Merger(s) are not approved by two-thirds of the outstanding shares of
Cascade and Fife Common Stock at the Special Meeting(s) (and approved by
Cascade as the sole shareholder of CCB); and (iii) prior to January 1, 1999,
in the case of Cascade, and February 1, 1999, in the case of Fife, as the case
may be, such party is acquired by a third party, then unless the
representations and warranties of CBSI in the Merger Agreement(s) were false
in any material respect as of the date of the Special Meeting(s) or CBSI was
in material default of its covenants in the Agreement(s) as of such date,
Cascade and Fife must promptly pay CBSI $500,000 and $200,000, respectively.

EXPENSES

CBSI, Fife and Cascade will each pay their own expenses in connection with
the Merger Agreements and the transactions contemplated thereby, except that
printing expenses for this Joint Proxy Statement/Prospectus will be shared by
all parties.

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PRO FORMA COMBINED FINANCIAL STATEMENTS

The following pro forma combined financial statements give effect to the
Merger(s) of CBSI and Cascade and Columbia Bank and Fife on a pooling of
interests basis. The unaudited pro forma combined balance sheets are presented
on the basis that the Merger(s) took place on June 30, 1997. The unaudited
condensed pro forma combined statements of income are presented on the basis
that the Merger(s) were consummated as of the beginning of the first period
presented.

These pro forma combined financial statements should be read in conjunction
with the historical financial statements and the related notes thereto for
CBSI, Cascade and Fife included or incorporated into this Joint Proxy
Statement/Prospectus by reference. See "AVAILABLE INFORMATION," "INFORMATION
INCORPORATED BY REFERENCE" and the CBSI 1996 1O-K, the CBSI June 1997 1O-Q and
the CBSI 1997 Proxy. See also CBSI's Current Report on Form 8-K/A dated March
14, 1997 which discloses a change in CBSI's independent accountant.

The pro forma statements of income are not necessarily indicative of
operating results which would have been achieved had the Merger(s) been
consummated as of the beginning of the first period presented and should not
be construed as representative of future results.

43
<PAGE>

COLUMBIA BANKING SYSTEM, INC.
AND
CASCADE BANCORP AND BANK OF FIFE

PRO FORMA COMBINED BALANCE SHEET

JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRO FORMA COMBINED
CBSI COMBINED CBSI,
AND CBSI AND CASCADE &
CBSI CASCADE CASCADE FIFE FIFE FIFE
-------- ------- --------- ------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks.................. $ 30,111 $ 4,821 $ 34,632 $ 1,361 $ 31,002 $ 35,523
Interest-earning depos-
its with banks......... 10,724 3,800 14,524 3,392 14,116 17,916
Securities held to matu-
rity................... -- 10,914 10,914 -- -- 10,914
Securities available for
sale................... 47,435 8,706 56,141 3,656 51,091 59,797
Loans held for sale..... 3,279 3,279 3,279 3,279
Loans................... 541,388 55,226 596,614 23,896 565,284 620,510
Less: allowance for
loan losses........... 5,614 551 6,165 292 5,906 6,457
-------- ------- -------- ------- -------- --------
Loans, net............ 535,774 54,675 590,449 23,604 559,378 614,053
Interest Receivable..... 3,882 546 4,428 223 4,105 4,651
Premises and equipment,
net.................... 19,718 2,572 22,290 1,072 20,790 23,362
Real estate owned....... 301 200 501 -- 301 501
Other................... 3,836 777 4,613 91 3,927 4,704
-------- ------- -------- ------- -------- --------
Total Assets.......... $655,060 $87,011 $741,771 $33,399 $687,989 $774,700
======== ======= ======== ======= ======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Deposits:
Noninterest-bearing.... 97,282 13,449 110,731 5,291 102,573 116,022
Interest-bearing....... 452,641 62,701 515,342 24,586 477,227 539,928
-------- ------- -------- ------- -------- --------
Total Deposits........ 549,923 76,150 626,073 29,877 579,800 655,950
Federal Home Loan Bank
advances............... 37,000 2,000 39,000 -- 37,000 39,000
Other borrowings........ -- 1,642 1,642 -- -- 1,642
Other liabilities....... 5,874 554 6,428 306 6,180 6,734
-------- ------- -------- ------- -------- --------
Total liabilities..... $592,797 $80,346 $673,143 $30,183 $622,980 $703,326
Shareholders' equity:
Common stock............ 60,832 4,546 65,378 2,044 62,876 67,422
Retained earnings....... 1,438 2,109 3,247 1,171 2,139 3,948
Unrealized gains
(losses) on securities
available for sale..... (7) 10 3 1 (6) 4
-------- ------- -------- ------- -------- --------
Total shareholders'
equity............... 62,263 6,665 68,628 3,216 65,009 71,374
-------- ------- -------- ------- -------- --------
Total Liabilities and
Shareholders' Equity... $655,060 $87,011 $741,771 $33,399 $687,989 $774,700
======== ======= ======== ======= ======== ========
</TABLE>

44
<PAGE>

PRO FORMA COMBINED STATEMENTS OF INCOME

SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRO FORMA COMBINED
CBSI COMBINED CBSI,
AND CBSI AND CASCADE &
CBSI CASCADE CASCADE FIFE FIFE FIFE
---------- -------- ---------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................... $ 21,965 $ 2,680 $ 24,645 $ 1,312 $ 23,277 $ 25,957
Securities held to
maturity............... -- 364 364 -- -- 364
Securities available for
sale................... 1,454 230 1,684 100 1,554 1,784
Deposits with banks..... 609 104 713 93 702 806
---------- -------- ---------- -------- ---------- ----------
Total interest income... 24,028 3,378 27,406 1,505 25,533 28,911
INTEREST EXPENSE
Deposits................ 9,676 1,418 11,094 623 10,299 11,717
Federal Home Loan Bank
advances............... 828 62 890 -- 828 890
Other borrowings........ -- 41 41 -- -- 41
---------- -------- ---------- -------- ---------- ----------
Total interest expense.. 10,504 1,521 12,025 623 11,127 12,648
---------- -------- ---------- -------- ---------- ----------
NET INTEREST INCOME..... 13,524 1,857 15,381 882 14,406 16,263
Provision for loan
losses................. 1,606 70 1,676 32 1,638 1,708
---------- -------- ---------- -------- ---------- ----------
Net interest income
after provision for
loan losses............ 11,918 1,787 13,705 850 12,768 14,555
NONINTEREST INCOME
Service charges and
other fees............. 1,646 193 1,839 88 1,734 1,927
Mortgage banking........ 295 -- 295 -- 295 295
Gain on sale of loans... 1,035 -- 1,035 -- 1,035 1,035
Credit card fees and
other.................. 1,349 196 1,545 12 1,361 1,557
---------- -------- ---------- -------- ---------- ----------
Total noninterest
income................. 4,325 389 4,714 100 4,425 4,814
NONINTEREST EXPENSE
Compensation and
employee benefits...... 5,272 749 6,021 281 5,553 6,302
Occupancy............... 1,800 411 2,211 49 1,849 2,260
Professional Services... 225 38 263 22 247 285
Advertising and
promotion.............. 502 36 538 5 507 543
Printing and supplies... 300 54 354 14 314 368
Regulatory assessments.. 86 7 93 9 95 102
Data processing......... 536 120 656 39 575 694
Gains on, and net cost
of, real estate owned.. 84 -- 84 -- 84 84
Other................... 3,358 241 3,599 85 3,443 3,684
---------- -------- ---------- -------- ---------- ----------
Total noninterest
expense................ 12,163 1,654 13,817 505 12,668 14,322
---------- -------- ---------- -------- ---------- ----------
Income before income
taxes.................. 4,080 522 4,602 445 4,525 5,047
Provision for income
taxes.................. 1,194 149 1,343 149 1,343 1,492
---------- -------- ---------- -------- ---------- ----------
NET INCOME.............. $ 2,886 $ 373 $ 3,259 $ 296 $ 3,182 $ 3,555
========== ======== ========== ======== ========== ==========
Average Common Shares
Outstanding............ 5,639,346 330,000 6,388,446 204,349 5,935,645 6,684,745
Net Income Per Share.... $ 0.51 $ 1.13 $ 0.51 $ 1.45 $ 0.54 $ 0.53
</TABLE>

45
<PAGE>

PRO FORMA COMBINED STATEMENTS OF INCOME

SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRO FORMA COMBINED
CBSI COMBINED CBSI,
AND CBSI AND CASCADE &
CBSI CASCADE CASCADE FIFE FIFE FIFE
---------- -------- ---------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................... $ 16,943 $ 2,338 $ 19,281 $ 1,119 $ 18,062 $ 20,400
Securities held to matu-
rity................... -- 311 311 -- -- 311
Securities available for
sale................... 826 140 966 75 901 1,041
Deposits with banks..... 328 133 461 74 402 535
---------- -------- ---------- -------- ---------- ----------
Total interest income.. 18,097 2,922 21,019 1,268 19,365 22,287
INTEREST EXPENSE
Deposits................ 7,593 1,329 8,922 534 8,127 9,456
Federal Home Loan Bank
advances............... 884 -- 884 -- 884 884
Other borrowings........ 125 26 151 -- 25 151
---------- -------- ---------- -------- ---------- ----------
Total interest ex-
pense................. 8,602 1,355 9,957 534 9,136 10,491
---------- -------- ---------- -------- ---------- ----------
NET INTEREST INCOME..... 9,495 1,567 11,062 734 10,229 11,796
Provision for loan loss-
es..................... 760 66 826 17 777 843
---------- -------- ---------- -------- ---------- ----------
Net interest income
after provision for
loan losses............ 8,735 1,501 10,236 717 9,452 10,953
NONINTEREST INCOME
Service charges and
other fees............. 1,148 163 1,311 50 1,198 1,361
Mortgage banking........ 308 -- 308 -- 308 308
Credit card fees and
other.................. 1,017 249 1,266 11 1,028 1,277
---------- -------- ---------- -------- ---------- ----------
Total noninterest in-
come.................. 2,473 412 2,885 61 2,534 2,946
NONINTEREST EXPENSE
Compensation and
employee benefits...... 3,627 658 4,285 183 3,810 4,468
Occupancy............... 1,616 336 1,952 54 1,670 2,006
Professional Services... 278 31 309 18 296 327
Advertising and promo-
tion................... 374 12 386 4 378 390
Printing and supplies... 192 50 242 10 202 252
Regulatory assessments.. 184 6 190 7 191 197
Data processing......... 363 192 555 35 398 590
Other................... 2,734 245 2,979 79 2,813 3,058
---------- -------- ---------- -------- ---------- ----------
Total noninterest ex-
pense................. 9,368 1,530 10,898 390 9,758 11,288
---------- -------- ---------- -------- ---------- ----------
Income before income
taxes.................. 1,840 383 2,223 388 2,228 2,611
Provision for income
taxes.................. 115 115 130 130 245
---------- -------- ---------- -------- ---------- ----------
NET INCOME............. $ 1,840 $ 268 $ 2,108 $ 258 $ 2,098 $ 2,366
========== ======== ========== ======== ========== ==========
Average Common Shares
Outstanding............ 3,744,603 330,000 4,493,703 205,148 4,042,068 4,791,168
Net Income Per Share.... $ 0.49 $ 0.81 $ 0.47 $ 1.26 $ 0.52 $ 0.49
</TABLE>

46
<PAGE>

PRO FORMA COMBINED STATEMENTS OF INCOME

TWELVE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRO FORMA COMBINED
CBSI COMBINED CBSI,
AND CBSI AND CASCADE &
CBSI CASCADE CASCADE FIFE FIFE FIFE
---------- -------- ---------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................... $ 36,048 $ 4,823 $ 40,871 $ 2,369 $ 38,417 $ 43,240
Securities held to matu-
rity................... -- 702 702 -- -- 702
Securities available for
sale................... 1,878 316 2,194 166 2,044 2,360
Fed funds sold and
deposits with banks.... 1,136 273 1,409 174 1,310 1,583
---------- -------- ---------- -------- ---------- ----------
Total interest income.. 39,062 6,114 45,176 2,709 41,771 47,885
INTEREST EXPENSE
Deposits................ 16,469 2,747 19,216 1,154 17,623 20,370
Federal Home Loan Bank
advances............... 1,865 73 1,938 -- 1,865 1,938
Other borrowings........ 184 49 233 -- 184 233
---------- -------- ---------- -------- ---------- ----------
Total interest ex-
pense................. 18,518 2,869 21,387 1,154 19,672 22,541
---------- -------- ---------- -------- ---------- ----------
NET INTEREST INCOME..... 20,544 3,245 23,789 1,555 22,099 25,344
Provision for loan loss-
es..................... 1,420 119 1,539 96 1,516 1,635
---------- -------- ---------- -------- ---------- ----------
Net interest income
after provision for
loan losses............ 19,124 3,126 22,250 1,459 20,583 23,709
NONINTEREST INCOME
Service charges and
other fees............. 2,381 331 2,712 125 2,506 2,837
Mortgage banking........ 636 65 701 -- 636 701
Other fees and income... 2,291 454 2,745 27 2,318 2,772
---------- -------- ---------- -------- ---------- ----------
Total noninterest in-
come.................. 5,308 850 6,158 152 5,460 6,310
NONINTEREST EXPENSE
Compensation and
employee benefits...... 8,437 1,354 9,791 494 8,931 10,285
Occupancy............... 3,388 714 4,102 146 3,534 4,248
Professional Services... 574 58 632 39 613 671
Advertising and promo-
tion................... 772 26 798 8 780 806
Printing and supplies... 414 112 526 21 435 547
Regulatory assessments.. 323 3 326 16 339 342
Data processing......... 807 345 1,152 70 877 1,222
Other................... 5,528 479 6,007 165 5,693 6,172
SAIF special assess-
ment................... 612 -- 612 -- 612 612
---------- -------- ---------- -------- ---------- ----------
Total noninterest ex-
pense................. 20,855 3,091 23,946 959 21,814 24,905
---------- -------- ---------- -------- ---------- ----------
Income before income
taxes.................. 3,577 885 4,462 652 4,229 5,114
Provision for income
taxes.................. 267 267 212 212 479
---------- -------- ---------- -------- ---------- ----------
NET INCOME............. $ 3,577 $ 618 $ 4,195 $ 440 $ 4,017 $ 4,635
========== ======== ========== ======== ========== ==========
Average Common Shares
Outstanding............ 4,059,400 330,000 4,808,500 204,592 4,356,058 5,105,158
Net Income Per Share.... $ 0.88 $ 1.88 $ 0.87 $ 2.15 $ 0.92 $ 0.91
</TABLE>

47
<PAGE>

PRO FORMA COMBINED STATEMENTS OF INCOME

TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRO FORMA COMBINED
CBSI COMBINED CBSI,
AND CBSI AND CASCADE &
CBSI CASCADE CASCADE FIFE FIFE FIFE
---------- -------- ---------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................... $ 30,038 $ 4,163 $ 34,201 $ 1,812 $ 31,850 $ 36,013
Securities held to matu-
rity................... 1,078 413 1,491 -- 1,078 1,491
Securities available for
sale................... 290 297 587 118 408 705
Deposits with banks..... 314 203 517 150 464 667
---------- -------- ---------- -------- ---------- ----------
Total interest income.. 31,720 5,076 36,796 2,080 33,800 38,876
INTEREST EXPENSE
Deposits................ 13,385 2,177 15,562 807 14,192 16,369
Federal Home Loan Bank
advances............... 1,503 -- 1,503 -- 1,503 1,503
Other borrowings........ 271 31 302 -- 271 302
---------- -------- ---------- -------- ---------- ----------
Total interest ex-
pense................. 15,159 2,208 17,367 807 15,966 18,174
---------- -------- ---------- -------- ---------- ----------
NET INTEREST INCOME..... 16,561 2,868 19,429 1,273 17,834 20,702
Provision for loan loss-
es..................... 1,250 84 1,334 48 1,298 1,382
---------- -------- ---------- -------- ---------- ----------
Net interest income
after provision for
loan losses............ 15,311 2,784 18,095 1,225 16,536 19,320
NONINTEREST INCOME
Service charges and
other fees............. 1,895 335 2,230 101 1,996 2,331
Mortgage banking........ 394 68 462 -- 394 462
Gains (losses) on sales
of securities available
for sale............... (8) -- (8) -- (8) (8)
Gains on sales of loans,
net.................... 39 -- 39 -- 39 39
Other................... 1,671 261 1,932 10 1,681 1,942
---------- -------- ---------- -------- ---------- ----------
Total noninterest in-
come.................. 3,991 664 4,655 111 4,102 4,766
NONINTEREST EXPENSE
Compensation and
employee benefits...... 7,339 1,155 8,494 395 7,734 8,889
Occupancy............... 2,845 554 3,399 102 2,947 3,501
Professional Services... 436 41 477 30 466 507
Advertising and promo-
tion................... 634 25 659 7 641 666
Printing and supplies... 375 68 443 19 394 462
Regulatory assessments.. 482 75 557 29 511 586
Data processing......... 615 333 948 65 680 1,013
Gains on, and net cost
of, real estate owned.. (400) -- (400) -- (400) (400)
Other................... 4,221 404 4,625 130 4,351 4,755
---------- -------- ---------- -------- ---------- ----------
Total noninterest ex-
pense................. 16,547 2,655 19,202 777 17,324 19,979
---------- -------- ---------- -------- ---------- ----------
Income before income
taxes.................. 2,755 793 3,548 559 3,314 4,107
Provision for income
taxes.................. -- 225 225 191 191 416
---------- -------- ---------- -------- ---------- ----------
NET INCOME............. $ 2,755 $ 568 $ 3,323 $ 368 $ 3,123 $ 3,691
========== ======== ========== ======== ========== ==========
Average Common Shares
Outstanding............ 3,671,311 330,000 4,420,411 203,026 3,965,699 4,714,799
Net Income Per Share.... $ 0.75 $ 1.72 $ 0.75 $ 1.81 $ 0.79 $ 0.78
</TABLE>

48
<PAGE>

PRO FORMA COMBINED STATEMENTS OF INCOME

TWELVE MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRO FORMA COMBINED
CBSI COMBINED CBSI,
AND CBSI AND CASCADE &
CBSI CASCADE CASCADE FIFE FIFE FIFE
---------- -------- ---------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................... $ 18,990 $ 3,033 $ 22,023 $ 1,176 $ 20,166 $ 23,199
Securities held to
maturity............... 1,127 420 1,547 -- 1,127 1,547
Securities available for
sale................... 205 80 285 34 239 319
Deposits with banks..... 334 198 532 118 452 650
---------- -------- ---------- -------- ---------- ----------
Total interest income.. 20,656 3,731 24,387 1,328 21,984 25,715
INTEREST EXPENSE
Deposits................ 7,304 1,426 8,730 391 7,695 9,121
Federal Home Loan Bank
advances............... 1,160 -- 1,160 -- 1,160 1,160
Other borrowings........ 612 13 625 -- 612 625
---------- -------- ---------- -------- ---------- ----------
Total interest
expense............... 9,076 1,439 10,515 391 9,467 10,906
---------- -------- ---------- -------- ---------- ----------
NET INTEREST INCOME..... 11,580 2,292 13,872 937 12,517 14,809
Provision for loan
losses................. 1,000 65 1,065 42 1,042 1,107
---------- -------- ---------- -------- ---------- ----------
Net interest income
after provision for
loan losses............ 10,580 2,227 12,807 895 11,475 13,702
NONINTEREST INCOME
Service charges and
other fees............. 1,242 251 1,493 54 1,296 1,547
Mortgage banking........ 782 86 868 -- 782 868
Gains (losses) on sales
of securities available
for sale............... -- -- -- -- -- --
Gains on sales of loans,
net.................... -- -- -- -- -- --
Other................... 972 127 1,099 16 988 1,115
---------- -------- ---------- -------- ---------- ----------
Total noninterest
income................ 2,996 464 3,460 70 3,066 3,530
NONINTEREST EXPENSE
Compensation and
employee benefits...... 6,219 1,045 7,264 341 6,560 7,605
Occupancy............... 2,802 502 3,304 94 2,896 3,398
Professional Services... 427 63 490 28 455 518
Advertising and
promotion.............. 508 29 537 7 515 544
Printing and supplies... 397 64 461 17 414 478
Regulatory assessments.. 475 99 574 35 510 609
Data processing......... 463 270 733 62 525 795
Gains on, and net cost
of, real estate owned.. (314) -- (314) -- (314) (314)
Other................... 3,059 267 3,326 102 3,161 3,428
---------- -------- ---------- -------- ---------- ----------
Total noninterest
expense............... 14,036 2,339 16,375 686 14,722 17,061
---------- -------- ---------- -------- ---------- ----------
Income before income
taxes.................. (460) 352 (108) 279 (181) 171
Provision for income
taxes.................. -- 111 111 45 45 156
---------- -------- ---------- -------- ---------- ----------
Income (loss) from
continuing operation... (460) 241 (219) 234 (226) 15
========== ======== ========== ======== ========== ==========
Extraordinary loss on
extinguishment of
debt, net............. (154) -- (154) -- (154) (154)
========== ======== ========== ======== ========== ==========
NET INCOME (LOSS)...... $ (614) $ 241 $ (373) $ 234 $ (380) $ (139)
========== ======== ========== ======== ========== ==========
Average Common Shares
Outstanding............ 3,655,210 277,560 4,285,271 202,370 3,948,647 4,578,708
Net Income Per Share.... $ (0.17) $ 0.87 $ (0.09) $ 1.16 $ (0.10) $ (0.03)
</TABLE>

49
<PAGE>

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

1. ADJUSTMENTS

The pro forma combined balance sheet reflects the issuance of 749,100 shares
of CBSI Common Stock, no par value, to Cascade Bancorp shareholders using the
exchange ratio of 2.27, and the issuance of 294,234 shares of CBSI Common
Stock to Bank of Fife shareholders using the exchange ratio of 1.45, in
addition to the 5,494,186 shares already outstanding to CBSI's shareholders.
These shares were derived by using the respective company's outstanding shares
at June 30, 1997 not including shares subject to exercise of stock options.

The issuance of shares for the Bank of Fife Merger was based on an Exchange
Ratio of 1.45. The estimated number of shares to be issued using an assumed
Exchange Ratio of 1.77 would be 359,168 based on June 30, 1997 financial
information.

The issuance of shares for the Cascade Merger was based on the Cascade
Exchange Ratio of 2.27.

2. TRANSACTION COSTS

The total costs to be incurred by the parties in the Mergers is estimated to
be $770,000 ($300,000 relating to the Cascade Merger and $470,000 relating to
the Fife Merger). These expenses, which include legal, accounting, printing
and other related expenses, will be charged against net income of the combined
organization in the period incurred. The effect of the expenses has not been
reflected in the Pro Forma Combined Financial Statements.

3. EARNINGS PER SHARE

Earnings per share computations are based on the weighted average common
shares outstanding during the years noted. The number of shares used in
calculating earnings per share have been restated to reflect all stock
dividends and stock splits paid. Pro forma earnings per share data may vary
due to potential changes in the exchange ratio. See "SUMMARY--Comparative Per
Common Share Data."

50
<PAGE>

INFORMATION CONCERNING CBSI

CBSI is a bank holding company headquartered in Tacoma, Washington. CBSI
conducts a full-service commercial banking business through its wholly owned
subsidiary bank, Columbia Bank. A broad range of commercial banking services
are offered by CBSI through its 18 branch office network in the Tacoma
metropolitan area and contiguous parts of the Puget Sound region of
Washington, as well as the Longview and Woodland communities in southwestern
Washington.

CBSI was reorganized and additional management was added in 1993 in order to
take advantage of commercial banking business opportunities resulting from
increased consolidation of banks in CBSI's principal market area, primarily
through acquisitions by out-of-state holding companies, and the resulting
dislocation of customers. Management believes the ongoing consolidation among
financial institutions in Washington has created significant gaps in the
ability of large banks operating in Washington to serve certain customers,
particularly the CBSI's target customer base of small and medium-sized
businesses, professionals and other individuals. CBSI's business strategy is
to provide its customers with the financial sophistication and breadth of
products of a regional bank while retaining the appeal and service level of a
community bank. Management of CBSI believes that as a result of CBSI's strong
commitment to highly personalized relationship-oriented customer service, its
varied products, its strategic branch locations and the long-standing
community presence of its managers, lending officers and branch personnel, it
is well positioned to attract new customers and to increase its market share
in lending and deposits. Since the reorganization, CBSI has experienced rapid
growth and has greatly expanded its commercial lending activities. CBSI has
grown from four branch offices at January 1, 1993 to its present 18 branch
offices and has regulatory approval to open 4 additional branch offices in its
market area. Between January 1, 1993 and June 30, 1997, CBSI increased its
consolidated assets to $655.0 million from $158.6 million, its loans to $541.4
million from $120.8 million and its deposits to $549.9 million from $118.0
million. While accomplishing this expansion, CBSI's asset quality ratios have
improved. At June 30, 1997, CBSI's nonperforming assets constituted 0.23% of
total assets, as compared to 0.39%, 0.89% and 1.17% at December 31, 1996, 1995
and 1994, respectively. Although CBSI incurred anticipated losses in the four
quarters following its 1993 reorganization, CBSI has been profitable in each
of the last twelve quarters ending June 30, 1997.

CBSI's goal over the next several years is to create a well-capitalized,
customer focused, Pacific Northwest commercial banking institution with a
significant presence in selected markets and total assets in excess of $1.0
billion. CBSI intends to effect this growth strategy through a combination of
growth at its existing branch offices, new branch openings (usually following
the hiring of an experienced branch manager and/or lending officer with strong
community ties and banking relationships) and acquisitions. In particular,
CBSI anticipates continued expansion in Pierce County and expansion into
additional parts of neighboring King County and Thurston County (the location
of the state capitol, Olympia). In order to fund its commercial and consumer
lending activities and to allow for increased contract with customers, CBSI is
establishing a branch system catering primarily to retail depositors,
supplemented by business banking customer deposits and other borrowings. CBSI
believes this mix of funding sources will enable it to expand its commercial
lending activities rapidly while attracting a stable core deposit base.

In order to support its strategy of growth, without compromising its
personalized banking approach or its commitment to asset quality, CBSI has
made significant investments in experienced branch, lending and administrative
personnel and has incurred significant costs related to its branch expansion.
Although the Company's expense ratios have improved since 1993, management
anticipates that the ratios will remain relatively high by industry standards
for the foreseeable future due to CBSI's aggressive growth strategy and
emphasis on convenience and personal service.

CBSI utilizes the extensive banking experience of the senior executives and
other key personnel of CBSI to pursue its personal service-oriented approach
to banking. CBSI's principal executives are A.G. Espe, its Chairman, and W.W.
Philip, its President. Both executives have extensive experience in managing
larger and

51
<PAGE>

medium-sized commercial banking organizations in the Northwest and were
instrumental in executing internal and acquisition-based growth strategies for
Alaska Pacific Bancorporation, Inc. and Key Pacific Bancorp (in the case of
Mr. Espe) and Puget Sound Bancorp (in the case of Mr. Philip). Mr. Espe has
over 30 years of experience in the commercial banking business. During his
tenure at Key Pacific Bancorp, Mr. Espe was responsible for numerous mergers
and acquisitions in several western states, including Washington, totaling
more than $4 billion in total assets. Prior to 1985, Mr. Espe founded and
managed Alaska Pacific Bancorporation, Inc., a bank holding company with total
assets in excess of $600 million at the time it was acquired by KeyCorp. Under
the leadership of Mr. Philip, Puget Sound Bancorp had the largest deposit
market share of any financial institution in Pierce County prior to its
acquisition in 1993. Mr. Philip has over 40 years of experience in commercial
banking business and managed the growth of Puget Sound Bancorp from
approximately $200 million in 1971, when he became President, to approximately
$4.9 billion prior to its acquisition in January 1993. In addition, all of
CBSI's senior lending officers and branch managers had significant experience
with other Washington banking organizations prior to joining CBSI.

Financial and other information regarding CBSI, including information
relating to CBSI's directors and executive officers, are set forth in the CBSI
1996 10-K, the CBSI 1997 10-Qs and the CBSI 1997 Proxy incorporated by
reference herein. See "INFORMATION INCORPORATED BY REFERENCE," "AVAILABLE
INFORMATION," the CBSI 1996 1O-K, the CBSI 1997 10-Qs and the CBSI 1997 Proxy.

52
<PAGE>

INFORMATION CONCERNING CASCADE

BUSINESS

Cascade was organized under Washington law in February 1995 under an
Agreement and Plan of Exchange pursuant to which shareholders of CCB became
shareholders of Cascade. Cascade is registered with the FRB as a bank holding
company under the BHCA, and has no significant operations separate from CCB.
The principal offices of Cascade are located at 25-16th Street N.E., Auburn,
Washington.

CCB is a state-chartered bank organized under Washington law in 1990. It
engages in commercial banking activities from its main office located at 25-
16th Street N.E., Auburn, Washington. CCB offers commercial banking services,
primarily to small and medium sized businesses, professionals and retail
customers, including commercial loans, accounts receivable and inventory
financing, consumer installment loans, acceptance of deposits, and personal
savings and checking accounts.

At June 30, 1997, CCB had assets of approximately $87.0 million, loans of
approximately $55.2 million and deposits of approximately $76.2 million.

COMPETITION

Competition in the banking industry is significant and has intensified with
interest rate deregulation. Furthermore, competition from outside the
traditional banking system from investment banking firms, insurance companies
and related industries offering bank-like products has widened the competition
for deposits and loans.

The banking industry in CCB's primary market area is characterized by well-
established branches of large banks with headquarters located generally
outside the primary market area.

CCB's traditional competition for deposits comes from commercial banks,
savings and loan associations, credit unions, and money market funds, many of
which have more locations or offer higher rates of interest than CCB.
Competition for funds also comes from issuers of corporate and governmental
securities, insurance companies, mutual funds, and other financial
intermediaries. Other than with respect to large certificates of deposit, CCB
competes for deposits by offering a variety of deposit accounts at rates
generally competitive with similar financial institutions in the area. CCB's
principal competitive advantage with respect to the larger state-wide
financial institutions is its status as a local community bank, offering
products and services tailored to the needs of the community.

In competing for deposits, CCB is subject to some limitations not applicable
to non-bank competitors. Legislation enacted in the 1980s authorized banks to
offer deposit instruments with rates competitive with money market funds, but
subject to restrictions not applicable to those funds. Legislation has also
made non-bank financial institutions more effective competitors. Savings and
loan associations and credit unions are now permitted to offer checking
accounts and to make commercial loans with certain limitations.

CCB's competition for loans comes primarily from the same financial
institutions with which it competes for deposits. CCB competes for loan
originations primarily through the level of interest rates and loan fees
charged, the variety of commercial and mortgage loan products offered, and the
efficiency and quality of services provided to borrowers. Factors that affect
loan competition include the availability of lendable funds, local and
national economic conditions, current interest rate levels, and loan demand.

The branches of the major banks and savings and loan associations have
competitive advantages over CCB in that they have high public visibility and
are able to maintain advertising and marketing activity on a much larger scale
than CCB can economically maintain. Because single-borrower lending limits
imposed by law are dependent on the capital of the institution, the branches
of larger institutions with substantial capital bases are also at an advantage
with respect to applications for loans that are in excess of CCB's legal
lending limits.

53
<PAGE>

At present, there are five commercial banks, five thrifts and six credit
unions operating in CCB's market area that offer some of the services offered
by CCB, and that may be in direct competition for the customers CCB seeks to
attract. Because of the extensive experience of management of CCB in its trade
area and the business contacts of management and the directors, management
believes that CCB has been able to compete effectively for business.

FACILITIES

The principal offices of Cascade are located at the main office of CCB at
25-16th Street N.E., Auburn, Washington. The main office building and the 1.13
acre property on which the building is located are owned by a partnership
consisting of the members of the Board of Directors of the Bank (the "Building
Partnership"). CCB operates a South Auburn branch facility at 4101 A Street
S.E., Auburn, Washington. The property for the South Auburn branch is also
owned by the Building Partnership, but the building is owned by CCB.

CCB leases the main office site from the Building Partnership pursuant to a
20-year lease, which was entered into in June 1990. The building is 10,000
square feet, and monthly rent has been approximately $9,000. The South Auburn
branch contains approximately 1,600 square feet and is located on land leased
from the Building Partnership for $1,750 monthly rent pursuant to a 20-year
lease, that was entered into in March 1993.

CCB owns the premises and land for its Kent branch at 504 West Meeker
Street, Kent, Washington.

EMPLOYEES

At August 31, 1997, CCB had 38 full-time equivalent employees. Cascade has
no employees separate from those of CCB. The employees are not represented by
a union organization or other collective bargaining group, and management
considers its relations with the employees to be very good.

LEGAL PROCEEDINGS

CCB is from time to time a party to various legal proceedings arising in the
ordinary course of it's business. Management believes that there is no
threatened or pending proceedings against Cascade or CCB which, if determined
adversely, would have a material effect on the business or financial position
of either, respectively.

54
<PAGE>

CASCADE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General. The company operates three branches in suburban communities in and
around Auburn, Kent, and South King County. The company's primary source of
revenue is derived from providing loans to customers, who are predominately
small and middle-market businesses and middle-income individuals.

SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Overview. Total assets of $87.0 million at June 30, 1997 represents a 13.3%
increase over total assets of $76.8 million at June 30, 1996. Most of the
growth is a result of increases in loans and deposits.

Net income. For the six months ended June 30, 1997 and 1996, Cascade's net
income was $373,000 and $268,000 respectively an increase of $105,000 or 39.2%
in 1997 compared with 1996. The increase in earnings is due in part to
increased net interest income and operating efficiencies resulting from
improvements in data processing and check processing operations which were
implemented during the second quarter of 1996. Earnings per share for the two
periods ended June 30, 1997 and 1996 were $1.13 and $.81, respectively.

Non-Interest Expenses. Non-interest expenses for the periods ended June 30,
1997 and 1996 increased $124,000, or 8.1% from 1996 to 1997. The increase in
expenses was primarily compensation expense due to the Bank's asset growth of
over 13%.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995

Overview. Total assets of $84.8 million at December 31, 1996, represent a
21% increase over assets of $70.0 million at December 31, 1995. Most of the
growth is a result of increases in loans and deposits.

Net income. For the years ended December 31, 1996 and 1995, net income was
$618,000 and $568,000, respectively an increase of $50,000 or 8.8% from 1995
to 1996. The growth in earnings for the period is considered modest when
considering the growth in total assets over the same period. An increase in
total revenue (net interest income plus noninterest income) to $4.1 million
from $3.5 million in 1996, or 17.1%, was offset by increased compensation
expenses and costs associated with the conversion to a new data processing
operation during 1996. Earnings per share for the two years ended 1996 and
1995 were $1.88 and $1.72, respectively.

Non-Interest Expenses. Non-interest expenses for the year ended December 31,
1996 increased $436,000, or 16.4% from 1995. The 1996 increase is primarily to
increased personnel and occupancy costs associated with the new data
processing operation.

LOAN QUALITY, LIQUIDITY, CAPITAL

Provision for Loan Losses. The allowance for loan losses represents
management's current estimate of amounts required to absorb losses on existing
loans. The allowance of $551,000 at June 30, 1997 is an increase of $36,000 or
7.0% from the December 31, 1996 allowance of $515,000. The allowance
represents 1.00% of total loans at June 30, 1997. The $515,000 allowance at
December 31, 1996 is an increase of $90,000 or 21.2% from the 1995 allowance
of $425,000. The allowance represents .94% of loans at December 31, 1996, as
compared to .93% at December 31, 1995.

Determination of the appropriate allowance level is based on, among other
things, an analysis of historical loss experience based on volumes and types
of loans, volumes and trends in delinquencies and non-accrual loans, trends in
portfolio volume, results of internal and independent external credit reviews,
and anticipated economic conditions in the Bank's market area. The Bank
determines the adequacy of its loan loss reserves through a formula taking
into consideration non-performing loans, special mention credits and
substandard loans. Provisions are added to the allowance in amounts deemed
sufficient to establish and maintain a reserve equal to

55
<PAGE>

2% for special mention credits, 15% for substandard loans, 50 % for loans with
doubtful collectibility, and 100% for loans which appear to be total loss.
Based on this analysis, management considers the allowance for possible loan
losses to be adequate for the periods indicated.

Liquidity and Sources of Funds. The Bank's primary sources of funds are
advances from the Federal Home Loan Bank of Seattle (FHLB), sales of
"available for sale" securities, customer deposits, loan repayments,
maturities of investment securities, and net income. Scheduled loan repayments
are relatively stable sources of funds while deposit inflows and unscheduled
loan prepayments are not. Deposit inflows and unscheduled loan prepayments are
influenced by general interest rate levels, interest rates on other
investments, competition, economic conditions and other factors.

Total deposits were $76.2 million at June 30, 1997, up from $73.7 million at
December 31, 1996, which were up from $62.9 million at December 31, 1995. The
bank does not accept brokered deposits. A concerted effort has been made to
attract deposits in the market area Cascade serves through competitive pricing
and delivery of quality products.

Management anticipates that the Bank will continue relying on advances from
the Federal Home Loan Bank of Seattle (FHLB), sales of "available for sale"
securities, customer deposits, loan repayments, maturities of investment
securities, and net income to provide liquidity. Although deposit balances
have shown historical growth, such balances may be influenced by changes in
the banking industry, interest rates available on other investments, general
economic conditions, competition and other factors. Borrowings may be used on
a short-term basis to compensate for reductions in other sources of funds.
Borrowings may also be used on a long-term basis to support expanded lending
activities and to match maturities or repricing intervals on assets. The
sources of such funds will most likely be borrowings from the FHLB.

Capital. The primary capital-to-asset leverage ratio for the Bank was 7.66%
at June 30, 1997, as compared to 7.44% at December 31, 1996, and 8.31% at
December 31, 1995. In 1989, the federal banking regulators adopted risk based
capital guidelines under which one of four risk weights is applied to balance
sheet assets, each with different capital requirements based on the credit
risk of the asset. Risk-adjusted capital-to-asset ratios were 10.50% at June
30, 1997, 10.2% and 11.6% at December 31, 1996 and 1995 respectively. At June
30, 1997, the Bank met all regulatory capital requirements and was considered
"well capitalized" per regulatory risk based capital guidelines.

LENDING

The Bank's policy is to originate loans primarily in its local market area.
The bank's loan underwriting policies focus on assessment of each borrower's
ability to service and repay the debt, and the availability of collateral that
can be used to secure the loan. Depending on the nature of the borrower and
the purpose and amount of the loan, the Bank's loans may be secured by a
variety of collateral, including business assets, real estate, and personal
assets. Many business loans may also be dependent upon the personal guarantees
of owners of the business. The banks loans are generally classified by the
ability of the borrower to repay and the principal asset pledged as collateral
to secure the loan.

The Bank's commercial and industrial loans consist primarily of secured
revolving operating lines of credit and business term loans. Commercial real
estate loans include loans for various purposes where the primary collateral
is commercial real estate. Real estate construction loans include loans made
in connection with custom and "spec" (build to sell) construction of
residential and commercial buildings and loans made to borrowers who build
residential and commercial buildings for resale. The majority of loans within
the Bank's portfolio have terms of five years or less or have adjustable
interest rates. Such rates are principally tied to the prime rate, or to a
similar extent, a treasury-base index.

Consumer installment loans and other loans, while representing a smaller
percentage of total outstanding loans, include home equity loans, auto loans,
and VISA credit cards.

56
<PAGE>

Types of Loans. The following table sets forth the composition of the Bank's
loan portfolio by type of loan as of the date indicated. The composition of
Cascade's loans at June 30, 1997 and for the years ended December 31, 1996 and
1995 was as follows (excluding deferred fees):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
JUNE 30, 1997 1996 1995
------------------ ------------------ -------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $18,658 33.76% $17,468 31.83% $13,629 29.73%
Commercial real estate.. 16,379 29.63 15,891 28.95 11,082 24.18
Real estate-construc-
tion................... 6,931 12.54 7,816 14.24 8,417 18.36
Real estate-mortgage.... 5,419 9.80 5,632 10.27 5,209 11.36
Installment............. 6,508 11.77 6,698 12.20 6,128 13.37
Credit cards and over-
drafts................. 1,380 2.50 1,377 2.51 1,374 3.00
======= ====== ======= ====== ======= ======
$55,275 100.00% $54,882 100.00% $45,839 100.00%
</TABLE>

Loan Maturities and Sensitivities to Changes in Interest Rates. The
following table shows the maturity analysis of loans with predetermined
interest rates (fixed) outstanding by type as of June 30, 1997. In addition,
the table shows the amount of all loans which will reprice according to their
sensitivity to changes in interest rates.

<TABLE>
<CAPTION>
AFTER 1, BUT
LOANS WITHIN 1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
- ----- ------------- -------------- ------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial................. $ 3,800 $ 6,005 $2,233 $12,038
Commercial real estate..... 1,184 7,465 2,355 11,004
Real estate-construction... 91 860 -- 951
Real estate-mortgage....... 3,162 8,315 677 12,155
Installments, credit
cards..................... 977 4,038 46 5,061
------- ------- ------ -------
Total loans with predeter-
mined interest rates
(fixed)................... $ 9,214 $26,683 $5,311 $41,209
Total loans with floating
or adjusted interest rates
(variable)................ 14,066 -- -- 14,066
======= ======= ====== =======
Total...................... $23,280 $26,683 $5,311 $55,275
</TABLE>

Risk Elements. The following table states as of June 30, 1997 and for the
years ended December 31, 1996 and 1995 non-accrual and past due loans.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
JUNE 30, 1997 1996 1995
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual Loans............................... $ 55 $ 29 $ 14
Accruing loans past due 90 days or more......... -- 111 2,181
</TABLE>

Interest income on non-accrual loans that would have been recorded in the
period ended June 30, 1997 was $6,000 and $3,000 for the period ended December
31, 1996. Past due loans continue to be minimal.

Non-Performing Loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the collectibility of the loan or the unpaid
interest, or when payment of principal or interest is contractually 90 days
past due, unless the loan is well secured and in the process of collection.
Upon such discontinuance, the loan is placed on non accrual status and any
accrued but unpaid interest is charged against income in that period. Accrual
of interest is resumed only when the borrower demonstrates an ability to make
scheduled payments of both principal and interest.

57
<PAGE>

At June 30, 1997, there were no commitments to lend additional funds to
borrowers whose loans were classified as non-accrual. The Bank is not aware of
any loans that continue to accrue interest at June 30, 1997, that management
reasonably expects will have a materially negative impact on future operating
results. The Bank's management is not aware of any information concerning any
material loans, other than those discussed as risk elements above that causes
it to have doubts as to the ability of the borrowers to comply with terms of
the loans.

At June 30, 1997 the bank had $55,000 in non-accrual loans representing
9.98% of the allowance for possible loan losses compared to $29,000 or 5.63%
of the allowance at December 31, 1996, and no non-accrual loans at December
31, 1995.

SUMMARY OF LOAN LOSS EXPERIENCE

Analysis of Allowance for Loan Losses. The Bank maintains the allowance for
loan losses at a level sufficient to provide for estimated loan losses based
on evaluation of known and inherent risks in the loan portfolio. Management
determines the adequacy of the allowance based on reviews of individual
credits, recent loss experience, current economic conditions, the risk
characteristics of classified loans, and other pertinent factors. Credits
deemed uncollectible are charged to the allowance. Provisions for credit
losses and recoveries on loans previously charged off are added to the
allowance. The following is an analysis of the activity in the allowance for
loan losses for the period ended June 30, 1997 and the years ended December
31, 1996 and 1995.

<TABLE>
<CAPTION>
YEARS ENDED
FOR THE PERIOD DECEMBER 31,
ENDED ----------------
JUNE 30, 1997 1996 1995
-------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period............ $ 515 $ 425 $ 345
Charge-offs:.............................. (34) (29) (4)
Recoveries:............................... -- -- --
Net (Charge-offs)......................... (34) (29) (4)
Provision charged to operations........... 70 119 84
------- ------- -------
Balance at end of period.................. $ 551 $ 515 $ 425
Ratio of net (charge-offs) to average
outstanding during period................ (.06%) (.06%) (.01%)
Average loans outstanding during the peri-
od....................................... $54,124 $47,939 $40,185
</TABLE>

Asset and Liability Management. The Bank's results of operations depend
substantially on net interest income. Interest income and interest expense are
affected by general economic conditions, competition in the market place,
market interest rates and repricing and maturity characteristics of the Bank's
assets and liabilities. Exposure to interest rate risk is primarily a function
of differences between the maturity and repricing schedules of assets
(principally loans and investment securities) and liabilities (principally
deposits). Assets and liabilities are described as interest sensitive for a
given period of time when they mature or can reprice within that period. The
difference between the amount of interest sensitive assets and interest
sensitive liabilities if referred to as the interest sensitivity "GAP" for any
given period.

Certain shortcomings are inherent in the interest sensitivity GAP method of
analysis presented in the following table. For example, although certain
assets and liabilities may have similar repricing characteristics, they may
react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates.

58
<PAGE>

The following table sets forth the dollar amount of interest sensitive
assets and interest sensitive liabilities at June 30, 1997 and difference
between them for the maturity or repricing periods indicated.

<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING WITHIN
--------------------------------------------------
AFTER 1 BUT
WITHIN 1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
------------- -------------- ------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans...................... $ 23,280 $26,683 $5,311 $55,274
Investment securities...... 3,072 15,348 1,200 19,620
Federal funds and interest
bearing balances with
banks..................... 3,800 -- -- 3,800
-------- ------- ------ -------
Total interest-earnings as-
sets...................... $ 30,152 $42,031 $6,511 $78,694
======== ======= ====== =======
INTEREST-EARNING LIABILI-
TIES:
Interest bearing demand de-
posits.................... $ 14,152 $ -- $ -- $14,152
Savings deposits........... 11,969 -- -- 11,969
Time deposits.............. 23,971 12,610 -- 36,581
Other borrowings........... 1,642 2,000 -- 3,642
-------- ------- ------ -------
Total interest bearing lia-
bilities.................. $ 51,734 $14,610 -- $66,344
======== ======= ====== =======
Net interest rate sensitiv-
ity gap................... $(21,582) $27,421 $6,511 $12,350
</TABLE>

INVESTMENT ACTIVITIES

Investments classified as held-to-maturity are accounted for at amortized
cost and the bank has the positive intent and ability to hold those securities
to maturity. Unrealized gains and losses on investment securities classified
as available-for-sale are excluded from earnings and reported, net of federal
income taxes, as a separate component of stockholders' equity.

The Bank's investment policy is approved by its Board. It has been the
policy of the Bank to maintain relatively high levels of liquidity to meet
loan funding and deposit outflow requirements. The following table sets forth
the investment securities portfolio of the Bank.

Analysis of Investment Securities. The amortized cost and estimated market
values of investments in debt securities are as follows as of June 30, 1997:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE-SECURITIES:
U.S. Treasury Securities and
obligations of U.S. government
agencies and corporations........... $ 6,995 $ 11 $-- $ 7,006
State and municipal securities....... 130 3 -- 133
Other debt securities................ 989 2 -- 991
------- ---- ---- -------
$ 8,114 $ 16 $-- $ 8,130
======= ==== ==== =======
HELD-TO-MATURITY SECURITIES:
U.S. Treasury Securities and obliga-
tions of U.S. government............ $ 7,740 $-- $(59) $ 7,681
State and municipal securities....... 2,679 17 -- 2,696
Other debt securities................ 495 -- (1) 494
------- ---- ---- -------
$10,914 $ 17 $(60) $10,871
======= ==== ==== =======
</TABLE>

59
<PAGE>

Maturity Distribution of Investment Securities. The scheduled maturities of
investment securities at June 30, 1997 were as follows:

<TABLE>
<CAPTION>
DUE IN DUE AFTER ONE DUE AFTER FIVE
ONE YEAR YEAR THROUGH YEARS THROUGH
OR LESS FIVE YEARS FIFTEEN YEARS TOTAL
-------- ------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
$3,054 $15,349 $1,200 $19,603
</TABLE>

60
<PAGE>

INFORMATION CONCERNING FIFE

BUSINESS

Fife is a state-chartered bank organized in 1992 under Washington law. Fife
has one office which is located at 5501 Pacific Highway East, Fife,
Washington.

Fife was organized to meet a perceived need for the services of a local
community bank with a commitment to service to the local businesses and
residents. Fife offers commercial banking services, primarily to small- and
medium-size businesses, professionals and retail customers. Such services
include commercial loans, accounts receivable and inventory financing,
consumer installment loans, acceptance of deposits, and personal savings and
checking accounts.

At June 30, 1997, Fife had assets of approximately $33.4 million, loans of
approximately $23.9 million and deposits of approximately $29.9 million.

COMPETITION

The banking industry in Fife's primary market area is characterized by well-
established branches of large banks with headquarters located generally
outside the primary market area.

Fife's traditional competition for deposits comes from commercial banks,
savings and loan associations, credit unions, and money market funds, many of
which have more locations or offer higher rates of interest than Fife.
Competition for funds also comes from issuers of corporate and governmental
securities, insurance companies, mutual funds, and other financial
intermediaries. Other than with respect to large certificates of deposit, Fife
competes for deposits by offering a variety of deposit accounts at rates
generally competitive with similar financial institutions in the area. Fife's
principal competitive advantage with respect to the larger state-wide
financial institutions is its status as a local community bank, offering
products and services tailored to the needs of the community.

In competing for deposits, Fife is subject to certain limitations not
applicable to non-bank competitors. Legislation enacted in the 1980s
authorized banks to offer deposit instruments with rates competitive with
money market funds, but subject to restrictions not applicable to those funds.
Legislation has also made non-bank financial institutions more effective
competitors. Savings and loan associations and credit unions are now permitted
to offer checking accounts and to make commercial loans with certain
limitations.

Fife's competition for loans comes primarily from the same financial
institutions with which it competes for deposits. Fife competes for loan
originations primarily through the level of interest rates and loan fees
charged, the variety of commercial and mortgage loan products offered, and the
efficiency and quality of services provided to borrowers. Factors that affect
loan competition include the availability of lendable funds, local and
national economic conditions, current interest rate levels, and loan demand.

The branches of the major banks and savings and loan associations have
competitive advantages over Fife in that they have high public visibility and
are able to maintain advertising and marketing activity on a much larger scale
than Fife can economically maintain. Because single-borrower lending limits
imposed by law are dependent on the capital of the institution, the branches
of larger institutions with substantial capital bases are also at an advantage
with respect to applications for loans that are in excess of Fife's legal
lending limits.

At present, there are five commercial banks, one thrift and three credit
unions operating in Fife's market area that offer some of the services offered
by Fife, and that may be in direct competition for the customers Fife

61
<PAGE>

seeks to attract. Because of the extensive experience of management of Fife in
its trade area and the business contacts of management and the directors,
management believes that Fife has been able to compete effectively for
business.

FACILITIES

The main office of Fife is located at 5501 Pacific Highway East, Fife,
Washington. The 7,800 square foot office building and 1.2 acre property on
which the building is located is owned by Fife.

EMPLOYEES

As of June 30, 1997, Fife had twelve full-time equivalent employees. The
employees are not represented by a union organization or other collective
bargaining group, and management considers its relations with the employees to
be very good.

LEGAL PROCEEDINGS

Fife is from time to time a party to various legal proceedings arising in
the ordinary course of its business. Management believes that there is no
threatened or pending proceedings against Fife which, if determined adversely,
would have a material effect on its business or financial position.

62
<PAGE>

FIFE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General. The company operates one office in Fife, Washington. The company's
primary source of revenue is derived from providing loans to customers, who
are predominately small and middle-market businesses and middle-income
individuals.

SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Overview. Total assets of $33.4 million as of June 30, 1997 represents a
23.2% increase over total assets of $27.1 million as of June 30, 1996. This
growth is attributed to continued strong loan demand funded through growth of
core deposits.

Net income. For the six months ended June 30, 1997 and 1996, Fife's net
income was $296,000 and $258,000 respectively. Income for the six months ended
June 30, 1997 increased $38,000 or 14.7% over the same period in 1996. The
increase in earnings is due to increased net interest income achieved
primarily from loan production. Earnings per share for the two periods ended
June 30, 1997 and 1996 were $1.45 and $1.26, respectively, adjusted for a 2
for 1 stock split effective December 31, 1996.

Non-Interest Expenses. Noninterest expenses for the six months ended June
30, 1997 and 1996 increased $115,000 or 29.5%. The increase in expenses is due
primarily to costs associated with the Bank's asset growth of over 23%. Also
contributing to the increased expenses was increased compensation expense of
approximately $98,000 due to the growth of Fife and relocation expenses to new
banking facilities.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995

Overview. Total assets of $32.8 million at December 31, 1996, represents a
32.3% increase over assets of $24.8 million at December 31, 1995. This growth
is attributed to strong loan demand funded through growth of core deposits.

Net income. For the years ended December 31, 1996 and 1995, net income was
$440,000 and $368,000, respectively, an increase of $72,000, or 19.6%, from
1995 to 1996. Total revenue (net interest income plus noninterest income)
increased to $1.7 million in 1996 from $1.4 million in 1995, an increase of
21.4%. The growth in revenue resulted from an increase in loans and deposits
and the resulting increase in net interest income. Net interest margins
remained well above peer group performance due to effective management of the
pricing of loan and deposit products. Earnings per share for the two years
ended 1996 and 1995 were $2.15 and $1.81, respectively, adjusted for the 2 for
1 stock split effective December 31, 1996.

Non-Interest Expenses. Non-interest expenses for the year ended December 31,
1996 increased $182,000, or 23.4% over the year ending 1995. The 1996 increase
is attributed to the 32.3% growth in assets achieved in 1996 and to increased
costs associated with the purchase and relocation of the banking offices
occurring in November 1996.

LOAN QUALITY, LIQUIDITY, CAPITAL

Provision for Loan Losses. The allowance for loan losses represents
management's current estimate of amounts required to absorb losses on existing
loans. The allowance of $292,000 at June 30, 1997 is an increase of $29,000 or
11.0% from the December 31, 1996 allowance of $263,000. The allowance
represents 1.22% of total loans at June 30, 1997. The $263,000 allowance at
December 31, 1996 is an increase of $96,000 or 57.4% from the 1995 allowance
of $167,000. The allowance represents 1.18% of loans at December 31, 1996, as
compared to .87% at December 31, 1995.

Determination of the appropriate allowance level is based on, among other
things, an analysis of various factors including historical loss experience
based on volumes and types of loans, volumes and trends in

63
<PAGE>

delinquencies and non-accrual loans, trends in portfolio volume, results of
internal and independent external credit reviews, and anticipated economic
conditions in the Bank's market area. The Bank determines the adequacy of its
loan loss reserves through a formula taking into consideration non-performing
loans, special mention credits and substandard loans. Fife has had negligible
loan loss experience in its 5 year history and therefore has used loan loss
history as compiled by the Federal Deposit Insurance Corporation. Bank
management reviews all loans classified as Other Assets Especially Mentioned,
Substandard, Doubtful or Loss on a monthly basis and sets reserve levels
commensurate with management's assessment of the risk to loss and the loans
classification. Based on this analysis, management considers the allowance for
possible loan losses to be adequate for the periods indicated.

Liquidity and Sources of Funds. The Bank's primary sources of funds are
customer deposits, loan repayments, maturities of investment securities, net
income, advances from the Federal Home Loan Bank of Seattle (FHLB), and short
term Federal Funds purchased from correspondent banks. Scheduled loan
repayments are relatively stable sources of funds while deposit inflows and
unscheduled loan prepayments are not. Deposit inflows and unscheduled loan
prepayments are influenced by general interest rate levels, interest rates on
other investments, competition, economic conditions and other factors.

Total deposits at June 30, 1997, December 31, 1996 and December 31, 1995
were $29.9 million, $29.6 million and $22.1 million respectively. Deposit
growth from December 31, 1995 to June 30, 1997 was 35.29%. The bank does not
accept brokered deposits. A concerted effort has been made to attract deposits
in the market area it serves through competitive pricing and delivery of
quality products.

Management anticipates that the Bank will continue relying on customer
deposits, loan repayments, maturities of investment securities, net income,
FHLB borrowings, and short term Federal Funds Purchased from correspondent
banks to provide liquidity. Although deposit balances have shown historical
growth, such balances may be influenced by changes in the banking industry,
interest rates available on other investments, general economic conditions,
competition and other factors. Borrowings may be used on a short-term basis to
compensate for reductions in other sources of funds. Borrowings may also be
used on a long-term basis to support expanded lending activities and to match
maturities or repricing intervals on assets. The sources of such funds will
most likely be borrowings from the FHLB.

Capital. The primary capital-to-asset leverage ratio for the Bank was 9.63%
at June 30, 1997, as compared to 9.44% at December 31, 1996, and 10.74% at
December 31, 1995. In 1989, the federal banking regulators adopted risk based
capital guidelines under which one of four risk weights is applied to balance
sheet assets, each with different capital requirements based on the credit
risk of the asset. Risk-adjusted capital-to-asset ratios were 13.98% at June
30, 1997, 13.95% and 12.56% at December 31, 1996 and 1995 respectively. As of
June 30, 1997, the Bank was considered "well capitalized" per regulatory risk
based capital guidelines.

LENDING

64
<PAGE>

terms of five years or less or have adjustable interest rates. Such rates are
principally tied to the prime rate as published in the Wall Street Journal.

Consumer installment loans and other loans, while representing a smaller
percentage of total outstanding loans, include home equity loans, auto loans,
boat loans and revolving personal lines of credit.

Types of Loans. The following table sets forth the composition of the Bank's
loan portfolio by type of loan as of the date indicated. The composition of
loans at June 30, 1997 and for the years ended December 31, 1996 and 1995 was
as follows:

<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans........ $ 8,130 34.02% $ 7,508 33.79% $ 6,282 32.74%
Commercial real estate.. 5,946 24.89 6,433 28.95 5,771 30.08
Real estate secured 1-4
family................. 5,638 23.59 4,346 19.56 4,407 22.96
Real estate construc-
tion................... 2,629 11.00 2,123 9.55 1,564 8.15
Consumer loans.......... 1,525 6.38 1,409 6.34 1,145 5.97
All other loans......... 28 0.12 402 1.81 19 0.10
------- ------ --------- -------- --------- --------
Total................. $23,896 100.00% $ 22,221 100.00% $ 19,188 100.00%
======= ====== ========= ======== ========= ========
</TABLE>

Loan Maturities and Sensitivities to Changes in Interest Rates. The
following table shows the maturity analysis of loans with predetermined
interest rates (fixed) outstanding by type as of June 30, 1997. In addition,
the table shows the amount of all variable rate loans which will reprice or
mature in the corresponding periods.

<TABLE>
<CAPTION>
GREATER THAN 1,
BUT WITHIN 5 GREATER THAN 5
WITHIN 1 YEAR YEARS YEARS TOTAL
------------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans......... $ 933 $2,606 $-- $ 3,539
Commercial real estate... 391 1,512 -- 1,903
Real estate secured 1-4
family.................. 369 484 129 982
Real estate construc-
tion.................... 349 79 -- 428
Consumer loans........... 213 1,096 29 1,338
All other loans.......... 23 -- -- 23
Total loans with
predetermined interest
rates (fixed rate)...... 2,278 5,777 158 8,213
Variable rate loans...... 12,561 3,122 -- 15,683
------- ------ ---- -------
Total.................. $14,839 $8,899 $158 $23,896
======= ====== ==== =======
</TABLE>

Risk Elements. The following table states as of June 30, 1997 and for the
years ended December 31, 1996 and 1995 non-accrual and past due loans.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
JUNE 30, 1997 1996 1995
------------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Past due 30 to 89 days............................. $524 $ 371 $ 27
Past due 90 days or more and still accruing inter-
est............................................... -- -- --
Non-accrual........................................ -- -- --
</TABLE>

65
<PAGE>

days past due, unless the loan is well secured and in the process of
collection. Upon such discontinuance, the loan is placed on non accrual status
and any accrued but unpaid interest is charged against income in that period.
Accrual of interest is resumed only when the borrower demonstrates an ability
to make scheduled payments of both principal and interest.

SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
PERIOD ENDING --------------------
JUNE 30, 1997 1996 1995
------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period............. $ 263 $ 167 $ 119
Charge-offs................................ -- (3) --
Recoveries................................. -- 3 --
Net Charge-offs............................ -- -- --
Provision charged to Operations............ 29 96 48
Balance at end of period................... 292 263 167
Ratio of net charge-offs to average
outstanding loans during period........... -- .01% --
Average loans outstanding during period.... $23,847 $ 22,143 $ 17,128
</TABLE>

66
<PAGE>

<TABLE>
<CAPTION>
1 YEAR&
1 YEAROR LESS THAN GREATER THAN
LESS 5 YEARS 5 YEARS TOTAL
-------- --------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Loans............................. $14,838 $8,900 $ 158 $23,896
Investments....................... 1,949 501 1,206 3,656
Fed Funds & Due From Banks Inter-
est Bearing...................... 3,203 189 -- 3,392
------- ------ ------ -------
Total Earning Assets.............. $19,990 $9,590 $1,364 $30,944
======= ====== ====== =======
LIABILITIES:
Interest Bearing Demand Deposits.. $ 808 $ -- $ -- $ 808
Savings Deposits.................. 5,539 -- -- 5,539
Time Deposits..................... 15,313 2,926 -- 18,239
Total Interest Bearing Liabili-
ties............................. $21,660 $2,926 $ -- $24,586
------- ------ ------ -------
Net Interest Rate Sensitivity
GAP.............................. $(1,670) $6,664 $1,364 $ 6,358
======= ====== ====== =======
</TABLE>

INVESTMENT ACTIVITIES

As of June 30, 1997, Bank of Fife classified all of its investment
securities as "Available for Sale." Unrealized gains and losses on investment
securities classified as available-for-sale are excluded from earnings and
reported, net of federal income taxes, as a separate component of
stockholders' equity.

The Bank's investment policy is approved by its Board. It has been the
policy of the Bank to maintain relatively high levels of liquidity to meet
loan funding and deposit outflow and other Liquidity needs. The following
table sets forth the investment securities portfolio of the Bank.

Analysis of Investment Securities. The amortized cost and estimated market
values of investments in debt securities are as follows as of June 30, 1997

<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Government Sponsored Agencies.... $3,292 $ 2 $-- $ 3,294
Securities Issued by State & Political
Subdivisions General Obligation
Bonds................................ 260 -- -- 260
Equity Securities..................... 102 -- -- 102
------ ---- ---- -------
TOTAL................................. $3,654 $ 2 $-- $ 3,656
====== ==== ==== =======
</TABLE>

Maturity Distribution of Investment Securities. The scheduled maturities of
investment securities at June 30, 1997 were as follows:

<TABLE>
<CAPTION>
MATURING IN MATURING IN MATURING IN
1 YEAR OR LESS 1 TO 5 YEARS 5 TO 15 YEARS TOTAL
-------------- ------------ ------------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
$1,949 $501 $1,206 $3,656
</TABLE>

67
<PAGE>

MANAGEMENT OF RESULTING COMPANY

DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of CBSI will remain the same after the
Merger(s) as they were prior to the Merger(s), except that Mr. Matson,
Chairman of Cascade and CCB, will become a director of CBSI. Mr. Matson has
been the President and owner of Tom Matson Dodge, Inc. since 1963.

The following table sets forth certain information with respect to the
directors and executive officers of CBSI, including Mr. Matson who will become
director. All directors hold office until the next annual meeting of
shareholders of CBSI or until their successors are elected and qualified.
Executive officers are elected generally to serve at the discretion of CBSI's
Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
A.G. Espe............ 60 Director, Chairman of the Board and Chief Executive
Officer of the CBSI; Chairman of the Board of
Columbia Bank
W.W. Philip.......... 70 Director, President and Chief Operating Officer of
the CBSI; President and Chief Executive Officer of
Columbia Bank
Melanie J. Dressell.. 45 Executive Vice President--Retail Banking of Columbia
Bank
H.R. Russell......... 43 Executive Vice President--Senior Credit Officer of
Columbia Bank
Donald A. Andersen... 52 Senior Vice President--Senior Loan Production
Officer of Columbia Bank
Julie A. Healy....... 42 Senior Vice President, Operations Manager of
Columbia Bank
Gary R. Schminkey.... 40 Senior Vice President, Chief Financial Officer of
CBSI and Columbia Bank
Evans Q. Whitney..... 54 Senior Vice President, Human Resources Director of
the CBSI and Columbia Bank
W. Barry Connoley.... 55 Director(1)
Richard S. DeVine.... 70 Director(2)
Jack Fabulich........ 69 Director(2)
Jonathan Fine........ 43 Director(1)
John P. Folsom....... 53 Director(2)
Margel S. Gallagher.. 49 Director(1)
John A. Halleran..... 68 Director(1)
Thomas Matson........ 59 Director(3)
John H. Powell....... 73 Director(1)
Robert E. Quoidbach.. 72 Director(2)
Donald Rodman........ 59 Director(2)
Frank H. Russell..... 67 Director(1)
Sidney R. Snyder..... 71 Director(2)
James M. Will, Jr.... 50 Director(2)
</TABLE>
- --------
(1) Serves as a member of the Audit Committee.
(2) Serves as a member of the Personnel and Compensation Committee.
(3) To be added as a director of CBSI after the Effective Date of the Cascade
Merger.

The business experience of each of the existing directors and executive
officers during the last five years is set forth below. The following also
sets forth the term of service of each executive officer at, and the year each
director first became a director of, (i) CBSI; (ii) its predecessor
corporation; (iii) its former subsidiary, Columbia Savings Bank (which was
merged into Columbia Bank in 1994); or (iv) its current subsidiary, Columbia
Bank.

A.G. Espe has been Chairman of the Board of CBSI since September 1990 and
Chief Executive Officer of CBSI since March 1993. Mr. Espe, who is also
Chairman of the Board of Columbia Bank and of Northrim Bank (located in
Anchorage, Alaska), has extensive banking and business experience. From 1985
to 1989, Mr. Espe served as Chairman of the Board, President and Chief
Executive Officer of Key Pacific Bancorp. See "INFORMATION CONCERNING CBSI."

68
<PAGE>

W.W. Philip has been a director of CBSI since July 1993. He became President
and Chief Operating Officer of CBSI and President and Chief Executive Officer
of Columbia Bank in August 1993 when CBSI's reorganization was completed and
CBSI began operations in Tacoma. Until his retirement in December 1992, Mr.
Philip was Chairman of the Board and Chief Executive Officer of Puget Sound
Bancorp ("PSB") since its inception in 1981 and was Chairman of the Board and
Chief Executive Officer of Puget Sound National Bank prior to and after the
inception of PSB, having served with that institution for more than 40 years.
See "INFORMATION CONCERNING CBSI."

Melanie J. Dressel joined Columbia Bank as Senior Vice President--Private
Banking in June 1993. Ms. Dressel served as Senior Vice President and directed
the private banking division of Puget Sound National Bank for nearly five
years and was employed by Bank of California for over 14 years.

H.R. Russell joined Columbia Bank as Senior Vice President--Commercial Loans
in October 1993. Mr. Russell was employed by Puget Sound National Bank and its
successor institution for nearly 14 years, having served as Vice President--
Commercial Loan Officer from 1991 to 1993.

Donald A. Andersen joined Columbia Bank as Senior Vice President--Commercial
Loans in January 1995. Mr. Andersen was employed by Puget Sound National Bank
and its successor institution for nearly 25 years, having served as Vice
President--Commercial Loan Officer from 1991 to 1995.

Julie A. Healy joined Columbia Bank as Senior Vice President--Operations in
June 1993. Ms. Healy was employed by Puget Sound National Bank for nearly 12
years, having served as Vice President--Operations from 1991 to 1993.

Gary R. Schminkey joined Columbia Bank as Vice President and Controller in
March 1993. He was appointed Senior Vice President--Chief Financial Officer of
Columbia Bank and CBSI in 1994. Mr. Schminkey was employed by PSB, Puget Sound
National Bank and its successor institution for nearly 10 years, having served
from 1991 to 1993 as Assistant Vice President--Assistant Controller for PSB
and during that same period as Vice President--Accounting and Finance for
Puget Sound National Bank and its successor institution.

Evans Q. Whitney joined Columbia Bank as Senior Vice President--Human
Resources in March 1993. Mr. Whitney is also the Senior Vice President--Human
Resources of CBSI. Mr. Whitney was employed by PSB and Puget Sound National
Bank for nearly 27 years, having served as Senior Vice President--Human
Resources for PSB and Puget Sound National Bank from 1991 to 1993.

W. Barry Connoley has been a director since 1993. Since 1986, Mr. Connoley
has been President and Chief Executive Officer of MultiCare Medical Center,
Tacoma, Washington.

Richard S. DeVine has been a director since 1993. Since 1992, Mr. DeVine has
served as President of Chinook Resources, Inc. (timber acquisition and sales).
Mr. DeVine currently serves as Chairman of Raleigh Schwarz & Powell, Inc.
(insurance brokers), Tacoma, Washington, having served as President of that
company from 1976 to 1990.

Jack Fabulich has served as a director since 1993. He currently is Chairman
of Parker Paint Manufacturing Co., Inc., Tacoma, Washington, having served as
President from 1982 to 1993. Since 1976, he has also served as Commissioner of
the Port of Tacoma and is currently the President of the Port of Tacoma.

Jonathan Fine has been a director since 1993. From 1986 until December 1992,
Mr. Fine served as Senior Vice President and Treasurer of PSB. From January
1993 until April 1996, Mr. Fine was a private investor. Mr. Fine is currently
the Chief Operating Officer of the American Red Cross, Seattle--King County
Chapter.

John P. Folsom has been a director since April 1997. Mr. Folsom has over 25
years of experience as a senior executive of insurance brokerage firms. Since
1990, Mr. Folsom has served as President and Chief Executive Officer of
Raleigh, Schwarz & Powell, Inc. (insurance brokers), Tacoma, Washington.

69
<PAGE>

Margel S. Gallagher has served as a director since 1993. Since 1982 she has
served as President of Viva Imports, Ltd., (retail women's clothing), Tacoma
and Seattle, Washington.

John A. Halleran has served as a director since 1992. During the past five
years, Mr. Halleran, who is retired, has been a private investor. Prior to
that time he was a general contractor with headquarters in Bellevue,
Washington.

John H. Powell has been a director since 1991. Since 1950, Mr. Powell has
been the co-owner of Sound Oil Company, a heating oil dealer in Bellevue,
Washington. He is also a director of NorCap, L.L.C. Mr. Powell was Chairman of
the Board of Bank of Seattle, Seattle, Washington, from 1976 to 1983.

Robert E. Quoidbach has served as a director since 1988. Since 1990 Mr.
Quoidbach, who is retired, has been a private investor and tree farmer. Prior
to that time he was an industrial contractor in Longview, Washington.

Donald Rodman has served as a director since 1991. Since 1961, he has been
the owner and an executive officer of Rodman Realty, Inc., Longview,
Washington.

Frank H. Russell has served as a director since 1993. Since 1985, he has
been President of Professional Services Unified, Inc., a full-facility
service, including food service, janitorial and electronic access systems in
Tacoma, Washington. Mr. Russell is also the President of Quality Meal
Expediters (food catering) headquartered in Tacoma, Washington.

Sidney R. Snyder has been a director since 1988. He also served as a
director of Columbia Savings Bank from 1988 until April 1994. Mr. Snyder has
been the owner of Sid's Food Market in Seaview, Washington since 1953 and of
Midtown Market in Long Beach, Washington since 1982. Mr. Snyder is the
Chairman of the Board and a principal shareholder of Bank of the Pacific in
Long Beach, Washington. Mr. Snyder has been a member of the Washington State
Senate since 1990.

James M. Will, Jr. has served as a director since 1993. Since 1969, he has
served as President of Titus-Will Enterprises, Tacoma, Washington (formerly
known as TAM Manufacturing Co.).

Compensation of directors and officers of CBSI and a description of certain
transactions of CBSI with its directors and executive officers are set forth
in the CBSI 1996 10-K, the CBSI 1997 Proxy and the CBSI 1997 10-Qs
incorporated by reference herein. See "INFORMATION INCORPORATED BY REFERENCE",
"AVAILABLE INFORMATION", the CBSI 1996 10-K, the CBSI 1997 Proxy and the CBSI
1997 10-Qs.

70
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF CBSI, CASCADE AND FIFE

Information regarding beneficial ownership of the CBSI Common Stock is set
forth in the CBSI 1997 Proxy, which is incorporated herein by reference. See
"INFORMATION INCORPORATED BY REFERENCE," "AVAILABLE INFORMATION" and the CBSI
1997 Proxy.

The following table sets forth certain information regarding beneficial
ownership of the Cascade Common Stock and the Fife Common Stock at June 30,
1997 by (i) each director and executive officer, (ii) all directors and
executive officers as a group, and (iii) each person known by Cascade and Fife
to be the beneficial owner of more than 5% of the outstanding shares of
Cascade Common Stock or Fife Common Stock, respectively:

CASCADE

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED BEFORE PERCENT OF CLASS
NAME AND ADDRESS(1) THE MERGER BEFORE THE MERGER(2)
------------------- ------------------- --------------------
<S> <C> <C>
Donald W. Lisko...................... 12,050 3.7%
Thomas L. Matson..................... 26,550 8.0%
Geoffrey W. Hill..................... 19,656 6.0%
Ford W. Kiene........................ 23,000(3) 7.0%
Richard W. Lackey.................... 860 *
Frederick W. Poe..................... 14,400(4) 4.4%
James B. Schack...................... 24,720 7.5%
L. Kenneth Schoenfeld................ 17,400(5) 5.3%
Cyril H. Van Selus................... 12,284 3.7%
Eugene H. Bray....................... 640 *
E. Richard Plummer................... 690 *
Jeanne Y. Rasmussen.................. 4,680 1.42%
John Titus & Kusuman Titus........... 30,000 8.9%
All directors and executive officers
as a group (12 persons)............. 156,930 47.5%
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise noted, the address for all of the named persons is 25-
16th Avenue N.E., Auburn, Washington 98002.
(2) Unless otherwise indicated, represents shares over which each individual
exercises sole voting or investment power. Includes 9,600 shares issuable
to executive officers under options exercisable within 60 days.
(3) Includes 3,000 shares held by City Beverages, Inc., of which Mr. Kiene is
the President, Chief Executive Officer and owner.
(4) Includes 2,400 shares held by Poe Construction, Inc., of which Mr. Poe is
the President and owner.
(5) Includes 4,800 shares held by the Ruth Clayburgh Trust, for which Mr.
Schoenfeld is a trustee with voting and investment power.

71
<PAGE>

FIFE

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED BEFORE PERCENT OF CLASS
NAME AND ADDRESS(1) THE MERGER BEFORE THE MERGER(2)
------------------- ------------------- --------------------
<S> <C> <C>
Gerald Barkshire..................... 7,332(3) 3.6%
James L. Davis....................... 13,604 6.5%
George Dill.......................... 10,166 5.0%
Arthur P. Folden..................... 2,342 1.2%
Gary Garrison........................ 10,428 5.1%
Aaron Hixenbaugh..................... 4,802 2.3%
Nat Luppino.......................... 8,662 4.3%
Ronald Mason......................... 3,250 1.6%
James Manza.......................... 13,586(4) 6.7%
Albert Meier......................... 12,132 6.0%
Henry Ness........................... 1,062 *
Robert Oldright...................... 12,962(5) 6.4%
Michael Porter....................... 6,162 3.0%
All directors and executive officers
as a group (13 persons)............. 106,490 47%
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise noted, the address for all of the named persons is 5501
Pacific Highway East, Fife, Washington 98424.
(2) Unless otherwise indicated, represents shares over which each individual
exercises sole voting or investment power. Includes 24,000 shares issuable
to directors and executive officers under options exercisable within 60
days.
(3) Includes 1,000 shares held by Barkshire Panel Systems, Inc. Profit Sharing
Plan and Trust, of which Mr. Barkshire is a trustee.
(4) Includes 13,086 shares held by Rocco & Associates, a general partnership,
in which Mr. Manza is a general partner.
(5) Includes 6,500 shares owned by members of Mr. Oldright's immediate family
and over which Mr. Oldright exercises voting and investment power.

Mr. Matson, who will become a director of CBSI after the Effective Date of
the Cascade Merger, beneficially owns 26,550 shares or 7.8% of Cascade Common
Stock which, after applying the 2.27 Cascade Exchange Ratio would equate to
60,268 shares, or less than one percent, of CBSI Common Stock.

72
<PAGE>

SUPERVISION AND REGULATION

The following generally refers to certain statutes and regulations affecting
the banking industry. These references provide brief summaries only and are
not intended to be complete. These references are qualified in their entirety
by the referenced statutes and regulations. In addition, some statutes and
regulations which apply to and regulate the operation of the banking industry
might exist which are not referenced below. Changes in applicable statutes and
regulations may have a material effect on the business of CBSI, Cascade and
their respective subsidiaries.

CBSI AND CASCADE

General

As bank holding companies, CBSI and Cascade are subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places them under the
supervision of the FRB. In general, the BHCA limits the business of bank
holding companies to owning or controlling banks and engaging in other
activities related to banking. Certain recent legislation designed to expand
interstate branching and relax federal restrictions on interstate banking may
expand opportunities for bank holding companies (for additional information
see below under the heading "Columbia Bank, CCB and Fife--Interstate Banking
and Branching"). However, the full impact of this legislation on CBSI and
Cascade is unclear at this time.

Holding Company Structure

FRB REGULATION. A bank holding company must obtain the approval of the FRB:
(1) before acquiring direct or indirect ownership or control of any voting
shares of any bank if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting shares of such bank; (2)
before merging or consolidating with another bank holding company; and (3)
before acquiring substantially-all of the assets of any additional banks.

CBSI and Cascade file annual and certain interim reports as may be required
from time to time by the FRB. In addition, the FRB performs periodic
examinations of CBSI and Cascade.

HOLDING COMPANY CONTROL OF NON-BANKS. With certain exceptions, the BHCA
prohibits bank holding companies from acquiring direct or indirect ownership
or control of voting shares in any company which is not a bank or a bank
holding company unless the FRB determines that the activities of such company
are so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making such determinations, the FRB considers
whether the performance of such activities by a bank holding company would
offer advantages to the public that would outweigh possible adverse effects.
For example, the FRB has by regulation determined activities such as, among
others, operating an industrial loan company, industrial bank, savings
association, mortgage company, finance company, trust company, credit card
company or factoring company, performing certain data processing operations,
leasing personal or real property, subject to certain exceptions, and
providing investment and financial advice, are so closely related to banking
as to be a proper incident thereto within the meaning of the BHCA. On the
other hand, activities such as real estate brokerage and syndication, land
development, property management, underwriting of life insurance not related
to credit transactions, and with certain exceptions, securities underwriting
and equity finding, are not so closely related to banking as to be a proper
incident thereto within the meaning of the BHCA. In the future, the FRB may
from time to time add to or delete from the list of activities permissible for
bank holding companies.

TRANSACTIONS WITH AFFILIATES. CBSI and Columbia Bank, and likewise Cascade
and CCB, are deemed affiliates within the meaning of the Federal Reserve Act,
which restricts transactions between affiliates. Covered transactions include,
subject to specific exceptions, loans by bank subsidiaries to affiliates,
investments by bank subsidiaries in securities issued by an affiliate, the
taking of such securities as collateral, and the purchase of assets by a bank
subsidiary from an affiliate.

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SUPPORT OF BANK SUBSIDIARIES. Under FRB policy, a bank holding company is
expected to act as a source of financial and managerial strength to, and
commit resources to support, each of its subsidiary banks. Any capital loans a
bank holding company makes to its subsidiary banks are subordinate to deposits
and to certain other indebtedness of those subsidiary banks. The Crime Control
Act of 1990 provides that, in the event of a bank holding company's
bankruptcy, the bankruptcy trustee will assume any commitment the bank holding
company has made to a federal bank regulatory agency to maintain the capital
of a subsidiary bank and this obligation will be entitled to a priority of
payment.

TIE-IN ARRANGEMENTS. CBSI, Cascade and their respective bank subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, sale or lease of property or furnishing of services.
For example, with certain exceptions, neither CBSI, Cascade nor their bank
subsidiaries may condition an extension of credit to a customer on either (1)
a requirement that the customer obtain additional services provided by it or
(2) an agreement by the customer to refrain from obtaining other services from
a competitor.

STATE LAW RESTRICTIONS. As Washington corporations, CBSI and Cascade are
subject to certain limitations and restrictions under applicable Washington
corporate law. For example, state law restrictions in Washington include
limitations and restrictions relating to: indemnification of directors,
distributions to shareholders, transactions involving directors, officers or
interested shareholders, maintenance of books, records, and minutes, and
observance of certain corporate formalities.

SECURITIES REGISTRATION AND REPORTING. The CBSI Common Stock is registered
as a class with the Commission under the Exchange Act and thus is subject to
the periodic reporting and proxy solicitation requirements and the insider-
trading restrictions of that Act. The periodic reports and other information
filed by CBSI under that Act can be inspected and copied at or obtained from
the Washington, D.C., office of the Commission. In addition, the securities
issued by CBSI are subject to the registration requirements of the Securities
Act and applicable state securities laws unless exemptions are available.

Control Transactions

The Change in Bank Control Act of 1978, as amended, prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
FRB has been given 60 days' prior written notice of the proposed acquisition,
and within that time period, the FRB has not issued a notice disapproving the
proposed acquisition or extending for up to another 30 days the period during
which such a disapproval may be issued. An acquisition may be made before the
expiration of the disapproval period if the FRB issues written notice of its
intent not to disapprove the action. Under a rebuttal presumption established
by the FRB, the acquisition of 10% or more of a class of voting stock of a
bank holding company with a class of securities registered under Section 12 of
the Exchange Act would, under the circumstances set forth in the presumption,
constitute the acquisition of control.

In addition, any company would be required to obtain the approval of the FRB
under the BHCA before acquiring 25% (5% if the company is a bank holding
company) or more of the outstanding shares of CBSI or Cascade, or to otherwise
obtain control over CBSI or Cascade.

COLUMBIA BANK, CCB AND FIFE

GENERAL. Despite some recent legislative initiatives to reduce regulatory
burdens, banking remains a highly regulated industry. Legislation enacted from
time to time may increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other financial and non-financial institutions. Proposals to change the laws
and regulations governing the operations and taxation of banks and other
financial institutions are frequently made in Congress, in state legislatures,
and before various bank regulatory agencies. In addition, there continue to be
proposals in Congress to restructure the banking system.

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Some of the significant areas of bank regulation, including significant
federal legislation affecting state-chartered banks, are generally discussed
below.

REGULATION OF STATE BANKS. Washington State banks are subject to primary
regulation and examination by the Washington Director, and are also subject to
supervision, examination, and regulation by the FDIC.

Applicable federal and state statutes and regulations governing a bank's
operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, merger(s) and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The FDIC has authority to prohibit banks
under their supervision from engaging in what they consider to be an unsafe
and unsound practice in conducting their business. Depository institutions are
also affected significantly by the actions of the FRB as it attempts to
control the money supply and credit availability in order to influence the
economy.

DIVIDENDS. Dividends paid to CBSI by Columbia Bank are a material source of
CBSI's cash flow. Likewise, dividends paid to Cascade by CCB are a material
source of Cascade's cash flow. Various federal and state statutory provisions
limit the amount of dividends that Columbia Bank and CCB are permitted to pay
to CBSI and Cascade, respectively, without regulatory approval. FRB policy
further limits the circumstances under which bank holding companies may
declare dividends.

If, in the opinion of the FDIC, a depository institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the institution,
could include the payment of dividends), the FDIC may require, after notice
and hearing, that such institution cease and desist from such practice. In
addition, the FDIC and the FRB have issued policy statements which provide
that insured banks and bank holding companies should generally pay dividends
only out of current operating earnings.

Washington state regulations restrict capital distributions by institutions
such as Columbia Bank, CCB, and Fife, including dividends. Such restrictions
are tied to the institution's capital levels after giving effect to such
distributions.

REGULATION OF MANAGEMENT. Federal law: (1) sets forth circumstances under
which officers or directors of a bank may be removed by the institution's
federal supervisory agency, (2) places restraints on lending by a bank to its
executive officers, directors, principal shareholders, and their related
interests; and (3) prohibits management personnel of a bank from serving as a
director or in other management positions of another financial institution
whose assets exceed a specified amount or which has an office within a
specified geographic area.

CONTROL OF FINANCIAL INSTITUTIONS. No person may acquire "control" of a bank
unless the appropriate federal agency has been given 60 days prior written
notice and within that time the agency has not disapproved the acquisition.
Substantial monetary penalties may be imposed for violation of the change in
control or other provisions of banking laws. Washington banking laws further
require that 30 days before the acquisition of control, defined as direct or
indirect ownership, control or power to vote 25% or more of the outstanding
stock of a bank, the acquiring party must file with the Washington Director an
application containing certain specified information. Acquisitions of control
in violation of the statute are deemed void.

FIRREA. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") became effective on August 9, 1989. Among other things, FIRREA
(1) phased in significant increases in the FDIC insurance premiums paid by
commercial banks; (2) created two deposit insurance pools within the FDIC, one
to insure commercial bank and savings bank deposits and the other to insure
savings association deposits; (3) for the first time, permitted bank holding
companies to acquire healthy savings associations; (4) permitted commercial
banks that meet certain housing-related asset requirements to secure advances
and other federal services from their local Federal Home Loan Banks; and (5)
greatly enhanced the regulators' enforcement powers by removing procedural
barriers and sharply increasing the civil and criminal penalties for violating
statutes and regulations.

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FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted into law in late 1991. As required by FDICIA, numerous
regulations have been adopted by federal bank regulatory agencies, including
the following: (1) federal bank regulatory authorities have established five
different capital levels for banks and, as a general matter, enable banks with
higher capital levels to engage in a broader range of activities; (2) the FRB
has issued regulations requiring standardized disclosures with respect to
interest paid on deposits; (3) the FDIC has imposed restrictions on the
acceptance of brokered deposits by weaker banks; (4) the FDIC has implemented
risk-based deposit insurance premiums; and (5) the FDIC has issued regulations
requiring state-chartered banks to comply with certain restrictions with
respect to equity investments and activities in which the banks act as a
principal.

FDICIA recapitalized the Bank Insurance Fund ("BIF") and required the FDIC
to maintain the BIF and Savings Association Insurance Fund ("SAIF") at 1.25%
of insured deposits by increasing deposit insurance premiums as necessary to
maintain such ratio. FDICIA also required federal bank regulatory authorities
to prescribe, by December 1, 1993, (1) non-capital standards of safety and
soundness; (2) operational and managerial standards for banks; (3) asset and
earnings standards for banks and bank holding companies addressing such areas
as classified assets, capital, and stock price; and (4) standards for
compensation of executive officers and directors of banks. However, this
provision was modified by recent legislation to allow federal regulatory
agencies to implement these standards through either guidelines or
regulations.

INTERSTATE BANKING AND BRANCHING. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking Act") provides banks
with greater opportunities to merge with other institutions and to open
branches nationwide. The Interstate Banking Act also allows a bank holding
company whose principal operations are in one state to apply to the FRB for
approval to acquire a bank that is headquartered in a different state. States
cannot "opt out" but may impose minimum time periods, not to exceed five
years, for the target bank's existence.

The Interstate Banking Act also allows bank subsidiaries of bank holding
companies to establish "agency" relationships with their depository
institution affiliates. In an agency relationship, a bank can accept deposits,
renew time deposits, close and service loans, and receive payments for a
depository institution affiliate. States cannot "opt out."

In addition, the Interstate Banking Act allows banks whose principal
operations are located in different states to apply to federal regulators to
merge. This provision took effect June 1, 1997, unless states enacted laws to
either (i) authorize such transactions at an earlier date or (ii) prohibit
such transactions entirely. The Interstate Banking Act also allows banks to
apply to establish de novo branches in states in which they do not already
have a branch office. This provision took effect June 1, 1997, but (i) states
must enact laws to permit such branching and (ii) a bank's primary federal
regulator must approve any such branch establishment. The Washington
legislature passed legislation that allowed, subject to certain conditions,
merger(s) or other combinations, relocations of banks' main office and
branching across state lines in advance of the June 1, 1997 date established
by federal law.

CAPITAL ADEQUACY REQUIREMENTS. The FRB, the FDIC, and the OCC (collectively,
the "Federal Banking Agencies") have established uniform capital requirements
for all commercial banks. Bank holding companies are also subject to certain
minimum capital requirements. A bank that does not achieve and maintain
required capital levels may be subject to supervisory action through the
issuance of a capital directive to ensure the maintenance of adequate capital
levels. In addition, banks are required to meet certain guidelines concerning
the maintenance of an adequate allowance for loan and lease losses.

The Federal Banking Agencies' "risk-based" capital guidelines establish a
systematic, analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations,
takes off-balance sheet exposures into explicit account in assessing capital
adequacy, and minimizes disincentives to holding liquid, low-risk assets. The
risk-based ratio is determined by allocating assets and specified off-balance
sheet commitments into several categories, with high levels of capital being
required

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for the categories perceived as representing greater risk. The risk weights
assigned to assets and credit equivalent amounts of off-balance sheet items
are based primarily on credit risk. Other types of exposure, such as interest
rate, liquidity and funding risks, as well as asset quality problems, are not
factored into the risk-based ratio. Such risks, however, will be taken into
account in determining a final assessment of an organization's capital
adequacy. Under these new regulations, banks were required to achieve a
minimum total risk-based capital ratio of 8% and a minimum Tier I risk-based
capital ratio of 4%.

The Federal Banking Agencies also have adopted leverage ratio standards that
require commercial banks to maintain a minimum ratio of core capital to total
assets (the "Leverage Ratio") of 3%. Any institution operating at or near this
level is expected to have well-diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity and good earnings,
and in general, to be a strong banking organization without any supervisory,
financial or operational weaknesses or deficiencies. Any institutions
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels (e.g., an additional cushion of at least 100 to 200 basis points,
depending upon the particular circumstances and risk profile).

Regulations adopted by the Federal Banking Agencies require such agencies to
take certain "prompt corrective action" when a bank fails to meet certain
capital requirements. The regulations establish and define five capital levels
at which an institution is deemed to be "well-capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically, undercapitalized." In order to be "well-capitalized,' an
institution must maintain, at least 10% total risk based capital, 6% Tier 1
risk-based capital, and a 5% Leverage Ratio. Increasingly severe restrictions
are imposed on the payment of dividends and management fees, asset growth and
other aspects of the operations of institutions that fall below the category
of "adequately capitalized" (which requires at least 8% total risk-based
capital, 4% Tier I risk-based capital, and a 4% Leverage Ratio).
Undercapitalized institutions are required to develop and implement capital
plans acceptable to the appropriate federal regulatory agency. Such plans must
require that any company that controls the undercapitalized institution must
provide certain guarantees that the institution will comply with the Plan
until it is adequately capitalized. As of the date of this Joint Proxy
Statement/Prospectus, neither Columbia Bank, CCB nor Fife were subject to any
regulatory order, agreement, or directive with respect to meeting a specific
capital level for any capital measure.

The minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as stand-by letters of credit) required
by the FRB for bank holding companies is 8%. At least one-half of the total
capital must be Tier I capital; the remainder may consist of Tier 2 capital.
Bank holding companies are also subject to minimum Leverage Ratio guidelines.
These guidelines provide for a minimum Leverage Ratio of 3% for bank holding
companies meeting certain specified criteria, including achievement of the
highest supervisory rating. All other bank holding companies are required to
maintain a Leverage Ratio which is at least 100 to 200 basis points higher (4%
to 5%). These guidelines provide that banking organizations experiencing
internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.

FDIC INSURANCE. Generally, customer deposit accounts in bank are insured by
the FDIC for up to a maximum amount of $100,000. The FDIC has adopted a risk-
based insurance assessment system. Under this system, depository institutions,
such as Columbia Bank, CCB and Fife, are required to pay assessments to their
respective insurance fund (BIF or SAIF) based upon the institution's risk
classification, with a minimum assessment of $2,000 annually.

The risk classification is based on an assignment of the institution by the
FDIC to one of three capital groups and to one of three supervisory subgroups.
The capital groups are "well capitalized," "adequately capitalized," and
"undercapitalized." The three supervisory subgroups are Group "A" (for
financially sound institutions with only a few minor weaknesses), Group "B"
(for those institutions with weaknesses which, if uncorrected, could cause
substantial deterioration of the institution and increase risk to the deposit
insurance fund), and Group "C" (for those institutions with a substantial
probability of loss to the fund absent effective corrective action).

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Columbia Bank, CCB and Fife are currently deemed well capitalized and all in
Group "A", qualifying for the lowest assessment classification, presently set
at zero for both the BIF and the SAIF.

Columbia Bank's deposits are insured through both the BIF and SAIF. At June
30, 1997, approximately $189.0 million or 34% of CBSI's deposits were deemed
to be SAIF-insured under an allocation formula that applies because certain
deposits were previously acquired from a savings bank in a so-called Oakar
transaction. Formerly, the FDIC's annual assessment rate for deposits ranged
from 0.23% to 0.31% of insured deposits for the SAIF and 0.0% to 0.27% of
insured deposits for the BIF, depending on an institution's risk
classification. Legislation was recently enacted to resolve the difference in
rates between the BIF and the SAIF. Pursuant to this legislation, the FDIC
lowered SAIF assessment rates to a range of 0.04% to 0.31% and then through
application of an adjustment factor further reduced SAIF assessment rates to
an effective range of 0.0% to 0.27%. These rates essentially became effective
October 1, 1996 for certain institutions like Columbia Bank. The legislation
also resulted in a one-time special assessment of $612,000 for Columbia Bank.
The special assessment, which is tax deductible, was recognized during the
third quarter of 1996. Moreover, the legislation requires assessments on both
SAIF and BIF members in order to service bonds issued in connection with the
government resolution of the savings and loan crisis. The FDIC has estimated
that beginning on January 1, 1997 through December 31, 1999, an annual
assessment of approximately 0.064% of covered deposits and 0.013% of covered
deposits will be assessed upon SAIF- and BIF-insured deposits, respectively,
and from January 1, 2000 through December 31, 2017, the assessment rate will
be 0.024% of covered deposits for all insured institutions. If the deposit
insurance funds are merged on January 1, 1999 pursuant to the legislation,
then the uniform assessment rate to service the bonds will apply from that
date forward.

COMMUNITY REINVESTMENT ACT ("CRA"). The Federal Banking Agencies have each
adopted regulations and examination procedures to ensure that a bank is
helping to meet the credit needs of all segments of its communities, including
low-and-moderate-income neighborhoods.

At its most recent CRA examination, Columbia Bank received a rating of
"satisfactory;" CCB received a rating of "outstanding;" and Fife received a
rating of "satisfactory."

OTHER DEVELOPMENTS. In addition to the changes to the BIF and SAIF
assessment rates implemented by the legislation which was recently passed as
part of the 1996 Omnibus spending bill (see "Recent Developments"), various
regulatory relief provisions were enacted. The new legislation includes, among
other things, changes to (i) the Truth in Lending Act and the Real Estate
Settlement Procedures Act to coordinate and simplify the two laws' disclosure
requirements; (ii) eliminate civil liability for violations of the Truth in
Savings Act after five years; and (iii) streamline the application process for
a number of bank holding company and bank applications; (iv) establish a
privilege from discovery in any civil or administrative proceeding or bank
examination for any fair lending self-test results conducted by, or on behalf
of, a financial institution in certain circumstances; (v) repeal the FDICIA
requirement that independent public accountants attest to compliance with
designated safety and soundness regulations; (vi) impose a continuous
regulatory review of regulations to identify and eliminate outdated and
unnecessary rules; and (vii) various other miscellaneous provisions to reduce
bank regulatory burden.

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COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
CBSI, CASCADE, AND FIFE COMMON STOCK

The Washington Business Corporation Act, as amended ("WBCA"), and CBSI's
Articles of Incorporation and Bylaws, both as amended and restated, govern the
rights of CBSI shareholders and will govern the rights of Cascade and Fife
shareholders who become shareholders of CBSI through the Merger. The rights of
Cascade shareholders are currently governed by the WBCA, and by Cascade's
Articles of Incorporation, as amended, and bylaws. The rights of Fife
shareholders are currently governed by Title 30 of the Revised Code of
Washington, as amended, (the "Banking Act"), and by Fife's Articles of
Incorporation and bylaws. The following is a brief summary of certain
differences between the rights of Cascade and Fife shareholders and CBSI
shareholders' rights. This summary does not purport to be complete and is
qualified by the documents and statutes referenced and by other applicable
law.

GENERAL

Under its Articles of Incorporation, CBSI's authorized capital stock
consists of 11,000,000 common stock shares, no par value and 2,000,000
preferred stock shares, no par value.

Cascade's authorized capital stock consists of 2,000,000 common stock shares
with $1.00 per share par value and 100,000 preferred stock shares with a $1.00
per share par value.

Fife's authorized capital stock consists of 1,000,000 common stock shares
with a $0.50 per share par value and 100,000 preferred stock shares with a
$1.00 per share par value.

The following is a more detailed description of CBSI's, Cascade's and Fife's
capital stock.

PREFERRED STOCK

As of June 30, 1997, neither CBSI, Cascade nor Fife had any shares of
preferred stock issued. Both CBSI's and Cascade's boards are authorized,
without further shareholder action, to issue preferred stock shares with such
designations, preferences and rights as each respective board may determine.
With the approval of the Washington Director, Fife's board is authorized,
without further shareholder action, to issue preferred stock shares with such
attributes as the Fife board may determine.

COMMON STOCK

As of June 30, 1997, there were 5,494,186 shares of CBSI Common Stock issued
and outstanding, in addition to options for the purchase of 374, 139 shares of
CBSI Common Stock under CBSI's employee and director stock option plan.

As of June 30, 1997, there were 330,000 shares of Cascade Common Stock
issued and outstanding, in addition to options for the purchase of 11,400
shares of Cascade Common Stock under Cascade's employee stock option plan.

As of June 30, 1997, there were 202,920 shares of Fife Common Stock issued
and outstanding, in addition to options for the purchase of 24,000 shares of
Fife Common Stock under Fife's employee and director stock option plans.

DIVIDEND RIGHTS

Dividends may be paid on CBSI Common Stock and Cascade Common Stock as and
when declared by the respective boards of CBSI or Cascade out of funds legally
available for the payment of dividends. Each respective board may issue
preferred stock that is entitled to such dividend rights as such board may
determine, including priority over the Common Stock in the payment of
dividends. The ability of CBSI and Cascade to pay

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dividends basically depends on the amount of dividends paid to each by its
respective subsidiaries. Accordingly, the dividend restrictions imposed on the
subsidiaries by statute or regulation may effectively limit the amount of
dividends CBSI and Cascade can pay (see "SUPERVISION AND REGULATION--Columbia
Bank, CCB and Fife; Dividends"). Under the WBCA, the boards of CBSI and
Cascade are barred from making any dividend payment if, after giving effect to
such payment, either respective company is either unable to pay its debts as
they become due in the usual course of business, or such company's total
assets would be less than the sum of its total liabilities, as more fully
provided in the WBCA.

The Banking Act restricts the ability of Fife to pay dividends. Without the
approval of the Washington Director, Fife may not declare or pay any dividend
in an amount greater than its retained earnings. The Banking Act also grants
to the Washington Director discretion to require any bank to suspend the
payment of dividends until all requirements that may have been made by the
Washington Director shall have been complied with. Fife's ability to pay
dividends may also be limited by the FDIC's safety and soundness regulations.
(See "SUPERVISION AND REGULATION--Columbia Bank, CCB and Fife--Dividends").

VOTING RIGHTS

All voting rights are currently vested in the holders of CBSI Common Stock,
Cascade Common Stock, and Fife Common Stock, respectively, each share being
entitled to one vote.

CBSI's, Cascade's, and Fife's articles each provide that shareholders do not
have cumulative voting rights in the election of directors. As discussed
above, the respective boards of CBSI, Cascade and Fife are each authorized to
determine the voting rights of any preferred stock that may be issued.

PREEMPTIVE RIGHTS

Neither the holders of CBSI Common Stock, Cascade Common Stock, nor Fife
Common Stock have pre-emptive rights to subscribe for any additional
securities that may be issued.

LIQUIDATION RIGHTS

If CBSI is liquidated, the holders of CBSI Common Stock are entitled to
share, on a pro rata basis, CBSI's remaining assets after provision for
liabilities. The CBSI board is authorized to determine the liquidation rights
of any preferred stock that may be issued, including priority over the
liquidation rights of holders of CBSI Common Stock.

Similarly, if Cascade is liquidated, the holders of Cascade Common Stock are
entitled to share, pro rata, Cascade's remaining assets after provision for
liabilities. The Cascade board is authorized to determine the liquidation
rights of any preferred stock that may be issued, including priority over the
liquidation rights of holders of Cascade Common Stock.

Shareholders of Fife Common Stock are entitled to share equally and ratably
in the assets remaining after all debts and liabilities are provided for, and
after satisfaction of any liquidation preferences with respect to any
preferred stock.

ASSESSMENTS

All outstanding shares of CBSI Common Stock and of Cascade Common Stock are
fully paid and non-assessable.

The Banking Act authorizes the Washington Director to levy an assessment on
Fife's stock to make good on any offense or delinquency. The amount shall be
pro rata and stockholders are subject to forfeiture of their stock if they
fail to pay. Currently, all outstanding shares of Fife Common Stock are fully
paid and non-assessable.

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BOARD OF DIRECTORS

CBSI's bylaws provide that each member of its board serves for a one-year
term (or until the next annual shareholders' meeting and until the director's
successor is elected and qualified). CBSI's board must consist of at least
five (5), but no more than twenty-five (25) directors; the CBSI board sets the
exact number by resolution. CBSI's bylaws provide that each member of its
board serves for a one-year term (or until the next annual shareholders'
meeting and until the director's successor is elected and qualified). Any
person who has not attained the age of seventy-five before the meeting of
shareholders at which elected (or who had not attained that age by the date of
the last annual meeting of shareholders, if appointed) may become a director
of CBSI. Currently, the CBSI board has fifteen (15) directors. CBSI's
shareholders, by an affirmative majority vote, may remove any director from
office with or without cause before his or her term expires.

Cascade's bylaws provide that each member of its board serves for a one-year
term (or until the next annual shareholders' meeting and until the director's
successor is elected and qualified). Cascade's board must consist of at least
five (5), but no more than fifteen (15) directors; the Cascade board sets the
exact number by resolution. Currently, the Cascade board has eight (8)
directors. Cascade shareholders, by an affirmative majority vote, may remove
any director from office with or without cause before his or her term expires.

Fife's bylaws provide that each member of its board serves for a one-year
term (or until the next annual shareholders' meeting and until the director's
successor is elected and qualified). The Fife board must consist of at least
five (5), but no more than fifteen (15) directors; the Fife board sets the
exact number by resolution. Currently, the Fife board has eleven (11)
directors. A Fife director may not be removed without cause before his or her
term expires, unless three-fourths of the shareholders entitled to vote on the
matter vote in favor of removal.

INDEMNIFICATION AND LIMITATION OF LIABILITY

CBSI's Articles of Incorporation provide, among other things, for the
indemnification of directors, and authorize the board of directors to pay
reasonable expenses incurred by, or to satisfy a judgment or fine against, a
current or former director in connection with any personal legal liability
incurred by the individual while acting for CBSI within the scope of his or
her employment and which were not the result of conduct finally adjudged to be
"egregious" conduct. "Egregious" conduct is defined as intentional misconduct,
a knowing violation of law or participation in any transaction from which the
person will personally receive a benefit in money, property or services to
which that person is not legally entitled. The Articles also include a
provision that limits the liability of directors from any personal liability
to CBSI or its shareholders for conduct not found to have been egregious.
CBSI's Articles of Incorporation provide for indemnification of its directors
to the fullest extent permissible under the WBCA.

Similarly, Cascade's Articles of Incorporation provide for the
indemnification of Cascade directors to the fullest extent permissible under
the WBCA. Cascade's Articles of Incorporation provide, among other things, for
the indemnification of directors, and authorize the board to pay reasonable
expenses incurred by, or to satisfy a judgment or fine against, a current or
former director with any personal legal liability incurred by the individual
while acting for Cascade within the scope of his or her employment and which
were not in the result of conduct finally adjudged to be "egregious" conduct.
"Egregious" conduct is defined as intentional misconduct, a knowing violation
of law or participation in any transaction from which the person will
personally receive a benefit in money, property or services to which that
person is not legally entitled. Cascade's Articles also include a provision
that limits the liability of directors from any personal liability to Cascade
or its shareholders for conduct not to have been found egregious.

Neither Fife's Articles or nor Bylaws contain such indemnification or
limitation of liability provisions.

AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS

Under the WBCA, the Articles of Incorporation of CBSI, as a "public"
company, may be amended upon the affirmative vote of the holders of a majority
of CBSI's outstanding voting stock. The CBSI board may make

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certain amendments, as listed in the WBCA, to the Articles of Incorporation
without shareholder approval. Either the shareholders or CBSI's board, by a
majority vote, may amend CBSI's Bylaws.

Since Cascade is not a "public" company, Cascade's Articles of Incorporation
may be amended only upon the affirmative vote of the holders of two-thirds of
Cascade's outstanding voting stock. The Cascade board may make certain
amendments, as listed in the WBCA, to the Articles of Incorporation without
shareholder approval. Either the shareholders or the Cascade board may amend
Cascade's Bylaws.

Pursuant to the Banking Act, Fife's Articles of Incorporation may be amended
upon the affirmative vote of the holders of two-thirds of Fife's outstanding
voting stock. Certain amendments to Fife's Articles of Incorporation, as
listed in the Banking Act, may be made by Fife's board without shareholder
approval. Either the shareholders or the Fife board may amend Fife's Bylaws.

REPURCHASE OF SHARES

Under the WBCA, a corporation may acquire shares of its own stock.
Therefore, both CBSI and Cascade may, under applicable state law, repurchase
shares of their own capital stock.

With the prior approval of the Washington Director and the FDIC, Fife may
purchase shares of its own capital stock.

DISSENTERS' RIGHTS

Under the WBCA, a shareholder is entitled to dissent from, and, upon
perfection of the shareholder's appraisal right, to obtain the fair market
value of his or her shares in the event of certain corporate actions,
including certain merger(s), share exchanges, sales of substantially all
assets of the corporation, and certain amendments to the corporation's
articles of incorporation that materially and adversely affect shareholder
rights. CBSI's and Cascade's shareholders are, therefore, entitled to exercise
dissenters' rights in connection with the proposed Merger.

The Banking Act provides that any shareholder of Fife who votes against a
merger proposal shall be entitled to receive the appraised value of his or her
shares as of the date of the meeting of shareholders to approve the merger,
provided that the merger is consummated. Fife's shareholders are therefore
entitled to exercise dissenters' rights in connection with the proposed
Merger.

VOTING ON SALES OF ASSETS, MERGERS AND DISSOLUTIONS

Under the WBCA, unless the articles of incorporation provide for a lesser
vote (but not less than a majority), approval by at least two-thirds of the
outstanding shares entitled to vote or two-thirds of each voting group is
required for merger(s), sales of all or substantially all assets, and
dissolutions. Separate voting by voting groups is required (i) on a plan of
share exchange, and (ii) on a plan of merger, if the plan contains provisions
that would require separate voting if contained in an amendment to articles of
incorporation. Neither CBSI's nor Cascade's Articles of Incorporation reduce
the shareholder vote otherwise required under the WBCA for merger(s), asset
sales, and dissolutions to less than two-thirds of the outstanding shares
entitled to vote or of each voting group.

The Banking Act requires approval by the Washington Director and the holders
of two-thirds of Fife's outstanding voting stock for merger(s) and
consolidations. Upon receipt of written permission from the Washington
Director, a state bank may go into voluntary liquidation by a vote of
stockholders owning two-thirds of its capital stock. For the purpose of
voluntary liquidation, a state bank may transfer its assets and liabilities to
another bank or trust company, by a vote of shareholders owning two-thirds of
its capital stock, but only with the written consent of the Washington
Director.

82
<PAGE>

POTENTIAL "ANTI-TAKEOVER" PROVISIONS

CBSI's, Cascade's, and Fife's Articles of Incorporation and the WBCA and the
Banking Act contain certain provisions which may limit or prevent certain
acquisitions. These provisions are briefly summarized below.

CBSI'S ARTICLES OF INCORPORATION. CBSI's Articles of Incorporation include
certain provisions that could make more difficult the acquisition of CBSI by
means of a tender offer, a proxy contest, merger or otherwise. These
provisions include: (1) certain non-monetary factors that the CBSI board may
consider when evaluating a takeover offer (discussed in more detail below);
and (2) a requirement that any Business Combination (as defined in the
Articles) be approved by the affirmative vote of not less than 66 2/3% of the
total shares attributable to persons other than a Control Person (as defined
in the Articles), unless certain conditions are met, as discussed below.

In addition, the authorization of preferred stock, which is intended as
primarily as a financing tool and not as a defense against takeovers, may
potentially used by management to make more difficult uninvited attempts to
acquire control of CBSI (e.g., by diluting the ownership interest of a
substantial shareholder, increasing the amount of consideration necessary for
a shareholder to obtain control, or selling authorized but unissued shares to
friendly third parties).

CBSI's Articles of Incorporation allow the CBSI board to consider non-
monetary factors in evaluating certain takeover bids. Specifically, the
Articles allow the CBSI board, in determining what is in the best interests of
CBSI and its shareholders, to consider all relevant factors, including the
effects on its employees, customers, suppliers, and other constituents of CBSI
and its subsidiaries and on the communities which CBSI and its subsidiaries
are obligated.

The requirement for "supermajority" approval of certain Business
Combinations is not required if CBSI's board of directors has approved the
transaction or if certain other conditions concerning non-discrimination among
shareholders and receive of fair value are satisfied.

The "supermajority" approval requirement for certain transactions,
permitting the consideration of non-monetary factors in evaluating takeover
proposals, and the availability of CBSI's preferred stock for issuance without
shareholder approval, may have the effect of lengthening the time required for
a person to acquire control of CBSI through a tender offer, proxy contest or
otherwise, may deter any potential unfriendly offers or other efforts to
obtain control of CBSI. This could deprive CBSI's shareholders of
opportunities to realize a premium for their CBSI Common Stock, even in
circumstances where such action was favored by a majority of CBSI's
shareholders.

In addition to the provisions contained in CBSI's Articles of Incorporation,
the WCBA also requires prior approval by a majority of the board of directors
of a target company in certain acquisition transactions. The WCBA prohibits
corporations that have a class of voting stock registered with the Commission
pursuant to Section 12 of the Securities Exchange Act of 1934, such as CBSI,
from engaging in any Significant Business Transactions (defined to include
merger(s) or consolidations; certain sales, leases, exchanges, mortgages,
pledges, transfers, or other dispositions or encumbrances of assets;
termination of five percent (5%) or more of a corporation's employees;
issuances or redemptions of stock; sales of assets, liquidation, or
dissolution of a corporation; reclassifications of a corporation's securities;
and allowing an acquiring person or other affiliate or associate to receive
any disproportionate benefit as a shareholder) for a period of five (5) years
after a person or group acquires ten percent (10%) or more of a corporation's
outstanding voting stock, unless the acquisition is approved in advance by
majority vote of the board of directors. This provision will not apply to a
person who "inadvertently" acquires ten percent (10%) of the shares, if such
person divests itself as soon as practicable of sufficient shares to fall
below the ten percent (10%) threshold. Any acquisition that violates this
statute is deemed to be void and the proposed acquiror's certificate of
authority to transact business in Washington is revoked.

CASCADE'S ARTICLES OF INCORPORATION. Similar to CBSI's Articles of
Incorporation, Cascade's Articles include a provision permitting the board of
directors consideration of non-monetary factors in evaluating takeover
proposals, and provide for the availability of preferred stock for issuance
without shareholder approval.

83
<PAGE>

In addition, Cascade's Articles contain a "fair price" provision which
generally provides that certain corporate transactions involving interested
shareholders must be approved by the affirmative vote of the holders of two-
thirds of the shares entitled to vote. Shares owned by interested shareholders
are not entitled to vote in connection with such business combinations, but
are counted for the purposes of quorum requirements. An "interested
shareholder" is a person, including affiliates of such person, who
beneficially owns twenty percent (20%) or more of the outstanding shares of
Cascade. The two-thirds vote requirement is not applicable if a majority of
Cascade's directors (not counting the votes of certain directors affiliated
with an interested shareholder) either (i) approves the transaction; or (ii)
determines that the fair market value of the consideration to be received by
non-interested shareholders is not less than the highest price paid by any
interested shareholder within two (2) years before the transaction.

FIFE'S ARTICLES OF INCORPORATION. Similar to CBSI's Articles of
Incorporation, Fife's Articles include a provision permitting the board of
directors consideration of non-monetary factors in evaluating takeover
proposals, and provide for the availability of preferred stock for issuance
without shareholder approval.

In addition, Fife's Articles contain "fair price" provisions nearly
identical to those contained in Cascade's articles, as discussed above.

CERTAIN LEGAL MATTERS

The validity of the CBSI Common Stock to be issued in the Merger(s) will be
passed upon for CBSI by its counsel, Gordon, Thomas, Honeywell, Malanca,
Peterson & Daheim, P.L.L.C., a professional corporation, Seattle/Tacoma,
Washington. Gordon, Thomas, Honeywell also will give an opinion concerning
certain tax matters related to the Merger(s).

EXPERTS

The consolidated financial statements of CBSI as of December 31, 1996, 1995
and 1994, and for each of the three years in the period ended December 31,
1996, incorporated by reference into this Joint Proxy Statement/Prospectus,
have been so incorporated in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on authority of said firm as experts in
auditing and accounting.

The financial statements of Cascade and Fife included in this Joint Proxy
Statement/Prospectus and in the Registration Statement have been audited by
Knight Vale & Gregory, Inc. P.S., independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.

OTHER MATTERS

The Cascade and Fife Boards are not aware of any business to come before the
Special Meetings other than those matters described above in this Joint Proxy
Statement/Prospectus. However, if any other matters should properly come
before the Special Meetings, it is intended that proxies in the accompanying
form will be voted in respect thereof in accordance with the judgment of the
persons voting the proxies.

84
<PAGE>

GLOSSARY OF KEY TERMS

BHCA........................... Bank Holding Company Act of 1956, as amended.

Cascade........................ Cascade Bancorp, a Washington bank holding
company.

Cascade Common Stock........... Cascade's Common Stock, $1.00 par value per
share.

Cascade Merger................. The merger of Cascade with and into CBSI in
accordance with the Cascade Merger Agreement.

Cascade Merger Agreement....... The Plan and Agreement of Reorganization and
Merger, dated as of June 30, 1997, among
CBSI, Cascade, Columbia Bank and CCB.

Cascade Record Date............ October 15, 1997

CBSI........................... Columbia Banking System, Inc., a Washington
bank holding company.

CBSI Common Stock.............. CBSI's Common Stock, no par value.

CCB............................ Cascade Community Bank, a Washington State
chartered commercial bank.

CFA............................ Columbia Financial Advisors, Inc., Cascade
and Fife's financial advisors.

Closing........................ Closing of the Merger(s) contemplated in the
Merger Agreement(s).

Code........................... Internal Revenue Code of 1986, as amended.

Columbia Bank.................. Columbia State Bank, a Washington state
chartered commercial bank.

Commission..................... Securities and Exchange Commission.

Dissenting Shares.............. Those shares of Cascade Common Stock or Fife
Common Stock as to which shareholders have
perfected their dissenters' rights pursuant
to RCW 23B.13, in the case of Cascade, or RCW
30.49, in the case of Fife.

Effective Date................. The date Closing of the Merger(s) will occur.

Exchange Act................... Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated
thereunder.

Exchange Agent................. Individual designated by CBSI, Cascade and
Fife to handle the exchange of Cascade Common
Stock and Fife Common Stock for CBSI Common
Stock or cash (in the case of holders that
would otherwise be entitled to a fractional
share of CBSI Common Stock).

FDIC...........................
Federal Deposit Insurance Corporation.

85
<PAGE>

Fife........................... Bank of Fife, a Washington state chartered
commercial bank.

Fife Common Stock.............. Fife's Common Stock, $0.50 par value per
share.

Fife Merger.................... The merger of Fife with and into Columbia
Bank in accordance with the Fife Merger
Agreement.

Fife Merger Agreement.......... The Plan and Agreement of Reorganization and
Merger, dated as of July 30, 1997, among
CBSI, Columbia Bank and Fife.

Fife Record Date............... October 15, 1997.

FRB............................ Board of Governors of the Federal Reserve
System.

GAAP........................... Generally accepted accounting principles,
consistently applied.

Joint Proxy Joint Proxy Statement/Prospectus which is to
Statement/Prospectus........... be mailed to Cascade's and Fife's
shareholders, together with any amendments
and supplements to such Joint Proxy
Statement/Prospectus.

RCW............................ Revised Code of Washington.

Registration Statement......... Registration Statement on Form S-4, of which
this Joint Proxy Statement/Prospectus forms a
part, filed by CBSI with the Commission for
the purpose of registering shares of CBSI
Common Stock to be issued in the Merger(s).

Regulatory Approvals........... The required regulatory approvals of the
Merger(s) by the FRB, the FDIC and the
Washington Director.

Securities Act................. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

Washington Director............ The Director of the Washington State
Department of Financial Institutions.

WBCA........................... The Washington Business Corporations Act.

86
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CASCADE BANCORP:
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-4
Consolidated Statements of Shareholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes of Consolidated Financial Statements................................. F-7
BANK OF FIFE:
Independent Auditors' Report............................................... F-19
Balance Sheets............................................................. F-20
Statements of Income....................................................... F-21
Statements of Shareholders' Equity......................................... F-22
Statements of Cash Flows................................................... F-23
Notes to Financial Statements.............................................. F-24
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
CASCADE BANCORP, INC. AND SUBSIDIARY
Auburn, Washington

We have audited the accompanying consolidated balance sheet of CASCADE
BANCORP, INC. AND SUBSIDIARY as of December 31, 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CASCADE
BANCORP, INC. AND SUBSIDIARY as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and
1995, in conformity with generally accepted accounting principles.

Knight, Vale & Gregory, Inc., P.S.

Tacoma, Washington
January 16, 1997

F-2
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 3).................... $ 4,821 $ 3,998
Interest bearing deposits in banks.................. 2,250 1,491
Federal funds sold.................................. 1,550 1,300
Securities available for sale (Note 4).............. 8,706 7,933
Securities held to maturity (Note 4)................ 10,914 11,621
Loans (Note 5)...................................... 55,226 54,835
Less allowance for credit losses (Note 5)........... 551 515
------- -------
Net loans........................................... 54,675 54,320
Bank premises and equipment (Note 6)................ 2,572 2,352
Foreclosed real estate.............................. 200 444
Cash value of life insurance........................ 541 522
Accrued interest receivable......................... 546 566
Other assets........................................ 236 226
------- -------
Total assets........................................ $87,011 $84,773
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Demand............................................ $13,449 $12,030
Savings, NOW and money market..................... 26,120 25,584
Time (Note 7)..................................... 36,581 36,110
------- -------
Total deposits...................................... 76,150 73,724
Securities sold under repurchase agreements......... 1,642 2,126
Long-term debt (Note 8 )............................ 2,000 2,000
Accrued interest payable............................ 443 454
Other liabilities................................... 111 159
------- -------
Total liabilities................................... 80,346 78,463
======= =======
Commitments and Contingencies (Note 10)............... -- --
SHAREHOLDERS' EQUITY
Preferred stock (par value $1); 100,000 shares
authorized; none issued............................ -- --
Common stock (par value $1); 1,000,000 shares
authorized; 330,000 and 165,000 shares issued (Note
11)................................................ 330 165
Surplus............................................. 4,216 4,381
Retained earnings (Note 13)......................... 2,109 1,736
Net unrealized gains on securities available for
sale, net of tax of $7 and $14..................... 10 28
------- -------
Total shareholders' equity.......................... 6,665 6,310
------- -------
Total liabilities and shareholders' equity.......... $87,011 $84,773
======= =======
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 AND 1996, AND
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------- ---------------
1997 1996 1996 1995
----------- ----------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest Income
Loans................................ $ 2,680 $ 2,338 $ 4,823 $ 4,163
Federal funds sold and deposits in
banks............................... 104 133 273 203
Securities available for sale........ 230 140 316 297
Securities held to maturity.......... 364 311 702 413
------- ------- ------- -------
Total interest income................ 3,378 2,922 6,114 5,076
------- ------- ------- -------
Interest Expense
Deposits............................. 1,418 1,329 2,747 2,177
Borrowed funds....................... 41 26 73 31
Long-term debt....................... 62 -- 49 --
------- ------- ------- -------
Total interest expense............... 1,521 1,355 2,869 2,208
------- ------- ------- -------
Net interest income.................. 1,857 1,567 3,245 2,868
------- ------- ------- -------
Provision for Credit Losses (Note 5)... 70 66 119 84
Net interest income after provision
for credit losses................... 1,787 1,501 3,126 2,784
------- ------- ------- -------
Non-Interest Income
Service charges on deposit accounts.. 193 163 331 335
Origination fees on real estate loans
brokered............................ -- -- 65 68
Other................................ 196 249 454 261
------- ------- ------- -------
Total non-interest income............ 389 412 850 664
------- ------- ------- -------
Non-Interest Expenses
Salaries and employee benefits (Note
11)................................. 749 658 1,354 1,155
Occupancy and equipment.............. 411 336 714 554
Other non-interest expenses.......... 494 536 1,023 946
------- ------- ------- -------
Total non-interest expenses.......... 1,654 1,530 3,091 2,655
------- ------- ------- -------
Income before income taxes........... 522 383 885 793
Income Taxes (Note 9).................. 149 115 267 225
------- ------- ------- -------
Net income........................... $ 373 $ 268 $ 618 $ 568
======= ======= ======= =======
Average Number of Common Shares
Outstanding........................... 330,000 330,000 330,000 330,000
Net income per share................. $ 1.13 $ .81 $ 1.88 $ 1.72
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997, AND
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES)
ON SECURITIES
PREFERRED COMMON RETAINED AVAILABLE
STOCK STOCK SURPLUS EARNINGS FOR SALE TOTAL
--------- ------ ------- -------- -------------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... $-- $165 $4,381 $ 550 $(55) $5,041
Net income.............. -- -- -- 568 -- 568
Change in unrealized
gains on securities
available for sale, net
of tax................. -- -- -- -- 67 67
---- ---- ------ ------ ---- ------
Balance, December 31,
1995................. -- 165 4,381 1,118 12 5,676
Net income.............. -- -- -- 618 -- 618
Change in unrealized
gains on securities
available for sale, net
of tax................. -- -- -- -- 16 16
---- ---- ------ ------ ---- ------
Balance, December 31,
1996................. -- 165 4,381 1,736 28 6,310
Net income (unaudited).. -- -- -- 373 -- 373
100% stock dividend
(unaudited) (Note 14).. -- 165 (165) -- -- --
Change in unrealized
gains (losses) on
investments available
for sale (unaudited)... -- -- -- -- (18) (18)
---- ---- ------ ------ ---- ------
Balance, June 30, 1997
(unaudited).......... $-- $330 $4,216 $2,109 $ 10 $6,665
==== ==== ====== ====== ==== ======
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996, AND
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------- ------------------
1997 1996 1996 1995
----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income....................... $ 373 $ 268 $ 618 $ 568
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for credit losses.... 70 66 119 84
Deferred income taxes
(benefit)..................... -- -- (31) 10
Depreciation and amortization.. 177 147 303 184
(Increase) decrease in accrued
interest receivable........... 20 (95) (176) (89)
Increase (decrease) in accrued
interest payable.............. (11) 67 53 156
Other--net..................... (80) (287) (62) 82
------- ------- -------- --------
Net cash provided by operating
activities...................... 549 166 824 995
------- ------- -------- --------
Cash Flows from Investing
Activities
(Increase) decrease in interest
bearing deposits with banks..... (759) (1,527) (158) 728
Net (increase) decrease in
Federal funds sold.............. (250) (475) 1,025 (945)
Purchases of securities held to
maturity........................ (694) (2,958) (3,014) (6,952)
Purchases of securities available
for sale........................ (1,296) (2,520) (7,311) (14)
Proceeds from maturities of
securities held to maturity..... 1,406 385 1,471 4,585
Proceeds from maturities of
securities available for sale... 500 2,000 3,750 1,000
Increase in loans made to
customers, net of principal
collections..................... (427) (877) (9,517) (10,058)
Purchase of premises and
equipment....................... (408) (586) (1,404) (289)
Purchase of officer's life
insurance....................... -- (495) (495) --
Proceeds from sale of assets..... 260 -- -- --
------- ------- -------- --------
Net cash used in investing
activities...................... (1,668) (7,053) (15,653) (11,945)
------- ------- -------- --------
Cash Flows from Financing
Activities
Net increase in demand deposits,
NOW accounts and savings
accounts........................ 1,955 1,409 5,070 4,373
Net increase in time deposit
accounts........................ 471 4,301 5,744 7,675
Increase (decrease) in securities
sold under repurchase
agreements...................... (484) 946 1,366 179
Increase in long-term debt....... -- -- 2,000 --
------- ------- -------- --------
Net cash provided by financing
activities...................... 1,942 6,656 14,180 12,227
------- ------- -------- --------
Net increase (decrease) in cash
and due from banks.............. 823 (231) (649) 1,277
======= ======= ======== ========
Cash and Due from Banks
Beginning of period.............. 3,998 4,647 4,647 3,370
------- ------- -------- --------
End of period.................... $ 4,821 $ 4,416 $ 3,998 $ 4,647
------- ------- -------- --------
Supplemental Disclosures of Cash
Flow Information
Cash payments for:
Interest....................... $ 1,532 $ 1,288 $ 2,816 $ 2,052
Income taxes................... 255 305 376 21
Supplemental Schedule of Noncash
Investing Activities
Fair value adjustment of
securities available for sale,
net of tax...................... $ (18) $ (16) $ 16 $ 67
Transfer of securities from held
to maturity to available for
sale............................ -- -- -- 3,250
Transfer of loans to foreclosed
real estate..................... -- -- 444 --
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Cascade
Bancorp, Inc. (the Company) and its wholly owned subsidiary, Cascade Community
Bank (the Bank). All significant intercompany transactions and balances have
been eliminated.

Nature of Operations

The Company operates three branches in suburban communities in and around
Auburn and South King County. The Company's primary source of revenue is
providing loans to customers, who are predominately small and middle-market
businesses and middle-income individuals.

Financial Statement Presentation

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet, and revenues and
expenses for the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for credit losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for credit losses and the valuation of foreclosed real estate, management
obtains independent appraisals for significant properties.

Certain prior year amounts have been reclassified to conform to the 1996
presentation.

Securities Available for Sale

Securities available for sale consist of debt and certain equity securities
not classified as trading or as securities held to maturity. Securities
available for sale are reported at fair value. Unrealized gains and losses,
net of the related deferred tax effect, are reported as a net amount in a
separate component of shareholders' equity. Realized gains and losses on
securities available for sale, determined using the specific identification
method, are included in earnings. Amortization of premiums and accretion of
discounts are recognized in interest income over the period to maturity.

Securities Held to Maturity

Debt securities for which the Company has the positive intent and ability to
hold to maturity are reported at cost, adjusted for amortization of premiums
and accretion of discounts, which are recognized in interest income over the
period to maturity.

Loans

Loans are stated at the amount of unpaid principal, reduced by deferred loan
fees and an allowance for credit losses. Interest on loans is accrued daily
based on the principal amount outstanding.

The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued interest
is reversed against current income. If management determines that the ultimate
collectibility of principal is in doubt, cash receipts on nonaccrual loans are
applied to reduce the principal income.

F-7
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Loan origination and commitment fees and certain direct loan origination
costs are deferred and amortized as an adjustment of the yield of the related
loan.

Allowance for Credit Losses

The allowance for credit losses is increased by provisions charged to
operations and reduced by loans charged off, net of recoveries. The allowance
is based on management's periodic evaluation of potential losses in the loan
portfolio after consideration of historical loss experience, adverse
situations that may affect the borrowers' ability to repay, the estimated
value of any underlying collateral, economic conditions, the results of
examination of individual loans, the evaluation of the overall portfolio by
senior credit personnel and federal and state regulatory agencies, and other
risks inherent in the portfolio.

When management determines that it is possible that a borrower will be
unable to repay all amounts due according to the terms of the loan agreement,
including scheduled interest payments, the loan is considered impaired. The
amount of impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or when the
primary source of repayment is provided by real estate collateral, at the fair
value of the collateral less estimated selling costs. The amount of impairment
and any subsequent charges are recorded through the provision for credit
losses as an adjustment to the allowance for credit losses.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated
depreciation, which is computed on a straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
terms of the respective leases or the estimated useful lives of the
improvements, whichever is less. Gains or losses on dispositions are reflected
in earnings.

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, foreclosure are to
be sold and recorded at the lower of the recorded amount of the loan, or the
fair value of the properties less estimated costs of disposal. Any write-down
to fair value at the time of transfer to other real estate owned is charged to
the allowance for credit losses. Properties are evaluated regularly to ensure
that the recorded amounts are supported by their current fair values, and that
valuation allowances to reduce the carrying amounts to fair value less
estimated costs to dispose are recorded as necessary. Additions to or
reductions from valuation allowances are recorded in income.

Income Taxes

Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.

The Bank provides for income taxes on a separate return basis and remits to
the Company amounts currently payable.

Cash and Cash Equivalents

The Company considers all amounts included in the balance sheet caption
"Cash and due from banks" to be cash equivalents.

F-8
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Net Income Per Share

Net income per share of common stock has been computed on the basis of the
weighted average number of shares of common stock outstanding.

Recent Accounting Pronouncements

In June 1996, the Financial Accounting Standards Board issued Statement No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS No. 125), which establishes accounting
and reporting standards based on consistent application of a financial
components approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
satisfied. The Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The Statement is effective for years beginning after December 15,
1996 and may not be applied retroactively. The effective date for certain
provisions of SFAS No. 125 were postponed until years beginning after December
31, 1997. The Company has not assessed the impact of SFAS No. 125 on its
future operations.

NOTE 2--ACCOUNTING CHANGES

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123). Under SFAS No. 123, stock-based compensation is measured either
using the intrinsic value method as prescribed by Accounting Principles Board
Opinion No. 25 or the fair value method described in SFAS No. 123. Companies
choosing the intrinsic value method are required to disclose the pro forma
impact of the fair value method on net income and earnings per share. The
Company implemented SFAS No. 123 using the intrinsic value method, which had
no effect on its financial position or results of operations.

NOTE 3--RESTRICTED ASSETS

Federal Reserve Board regulations require that the Company maintain certain
minimum reserve balances on deposit with the Federal Reserve Bank. The average
amounts of such balances for the years ended December 31, 1996 and 1995 were
approximately $738,000 and $595,000, respectively.

F-9
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--DEBT AND EQUITY SECURITIES

Debt and equity securities have been classified according to management's
intent. The carrying amount of securities and their approximate fair values at
December 31 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
December 31, 1996
U.S. Government and agency
securities.......................... $ 6,989 $53 $19 $ 7,023
State and municipal securities....... 130 3 -- 133
FHLMC preferred stock................ 250 8 -- 258
Federal Home Loan Bank stock......... 273 -- -- 273
Other securities..................... 249 -- 3 246
------- --- --- -------
$ 7,891 $64 $22 $ 7,933
======= === === =======
December 31, 1995
U.S. Government and agency
securities.......................... $ 3,750 $14 $ 6 $ 3,758
State and municipal securities....... 130 4 -- 134
FHLMC preferred stock................ 250 8 -- 258
Federal Home Loan Bank stock......... 182 -- -- 182
------- --- --- -------
$ 4,312 $26 $ 6 $ 4,332
======= === === =======
SECURITIES HELD TO MATURITY
December 31, 1996
U.S. Government and agency
securities.......................... $ 8,484 $15 $56 $ 8,443
State and municipal securities....... 2,482 31 2 2,511
Other securities..................... 655 1 -- 656
------- --- --- -------
$11,621 $47 $58 $11,610
======= === === =======
December 31, 1995
U.S. Government and agency
securities.......................... $ 6,731 $40 $25 $ 6,746
State and municipal securities....... 2,275 20 7 2,288
Other securities..................... 1,063 4 5 1,062
------- --- --- -------
$10,069 $64 $37 $10,096
======= === === =======
</TABLE>

The scheduled maturities of debt securities held to maturity and available
for sale at December 31, 1996 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
SECURITIES HELD SECURITIES AVAILABLE
TO MATURITY FOR SALE
----------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- ------------ ----------
<S> <C> <C> <C> <C>
Due in one year or less.............. $ 1,654 $ 1,643 $ 500 $ 503
Due from one year to five years...... 8,806 8,799 6,368 6,402
Due from five to ten years........... 1,161 1,168 500 497
------- ------- ---------- ----------
$11,621 $11,610 $ 7,368 $ 7,402
======= ======= ========== ==========
</TABLE>

Securities, carried at approximately $7,025,000 and $2,000,000 at December
31, 1996 and 1995, respectively, were pledged to secure public deposits, long-
term debt and for other purposes required or permitted by law.

F-10
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--LOANS

Loans at December 31 consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Commercial.................................................... $17,468 $13,629
Real estate:
1-4 family residential...................................... 8,422 7,675
Construction................................................ 7,816 8,417
Commercial.................................................. 15,891 11,082
Consumer...................................................... 5,285 5,036
------- -------
54,882 45,839
Less net deferred loan origination fees....................... (47) (63)
------- -------
Total loans................................................. $54,835 $45,776
======= =======
</TABLE>

Changes in the allowance for credit losses for the years ended December 31
were as follows (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of year........................................ $425 $345
Provision for credit losses......................................... 119 84
Net charge-offs..................................................... (29) (4)
---- ----
Balance at end of year............................................ $515 $425
==== ====
</TABLE>

The recorded investment in impaired loans was $29,000 and $14,000 at
December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, a
specific allocation of $11,000 and $7,000, respectively, of the allowance for
credit losses was made for these impaired loans. The average recorded
investment in impaired loans during the years ended December 31, 1996 and 1995
was $237,000 and $5,000, respectively. Interest income recognized on impaired
loans, which was collected in cash, was insignificant in 1996 and 1995.

At December 31, 1996, there were no commitments to lend additional funds to
borrowers whose loans have been modified. Loans 90 days and over past due
still accruing interest were $83,000 and $2,000 at December 31, 1996 and 1995,
respectively.

Maturity and repricing for the Bank's portfolio at December 31, 1996 are as
follows (dollars in thousands):

<TABLE>
<CAPTION>
FIXED RATE FLOATING RATE
MATURING IN REPRICING IN TOTAL
----------- ------------- -------
<S> <C> <C> <C>
0-90 days................................ $ 4,354 $14,335 $18,689
91-365 days.............................. 10,201 -- 10,201
1 year or more........................... 25,963 -- 25,963
------- ------- -------
$40,518 $14,335 54,853
======= =======
Loans on which the accrual of interest
has been discontinued................... 29
-------
$54,882
=======
</TABLE>

Certain related parties of the Company, principally Company directors and
their associates, were loan customers of the Bank in the ordinary course of
business during 1996 and 1995. Total loans outstanding at

F-11
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

December 31, 1996 and 1995 to key officers and directors were $1,445,000 and
$1,142,000, respectively. During 1996, loan advances totaled $1,149,000 and
loan repayments totaled $846,000 on these loans.

NOTE 6--BANK PREMISES AND EQUIPMENT

The components of Bank premises and equipment at December 31 are (dollars in
thousands):

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Bank premises................................................. $1,541 $ 868
Equipment, furniture and fixtures............................. 1,667 1,032
------ ------
Total cost.................................................. 3,208 1,900
Accumulated depreciation...................................... 856 574
------ ------
Total Bank premises and equipment........................... $2,352 $1,326
====== ======
</TABLE>

The Bank leases its main office facility from a partnership comprised
substantially of directors of the Company. The lease is for a 20-year term,
expiring in 2010, with options to renew for two additional five-year periods.
Rentals are $9,000 per month, or $108,000 annually. Future rents are subject
to increases based on changes in the Consumer Price Index. After the tenth
year of the lease, the Company has the option to purchase the premises based
on the appraised value at the time of purchase.

The Bank also leases two branch sites. The land for the first branch is
leased from the same partnership that owns the main office. The lease is for a
20-year term, expiring in 2013, with options to renew for two additional five-
year periods. Monthly rentals total $21,000 annually through March 1998, at
which time the rent will be increased based on changes in the Consumer Price
Index. The second branch facility is leased for a four-year term, expiring in
1997, with an option to renew for an additional one-year period. Rentals are
$5,000 per month, or $60,000 annually.

Rental expense for leased premises and equipment was $189,000 annually for
1996 and 1995.

Minimum net rental commitments under noncancellable leases having an
original or remaining term of more than one year were as follows at December
31, 1996 (dollars in thousands):

<TABLE>
<S> <C>
Years Ending December 31,
1997................................................................. $ 179
1998................................................................. 129
1999................................................................. 129
2000................................................................. 129
2001................................................................. 129
Thereafter........................................................... 1,154
------
Total minimum payments required...................................... $1,849
======
</TABLE>

NOTE 7--DEPOSITS

The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was approximately $5,611,000 and
$5,009,000 at December 31, 1996 and 1995, respectively.

F-12
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows (dollars in thousands):

<TABLE>
<S> <C>
1997................................................................. $23,329
1998................................................................. 3,997
1999................................................................. 1,489
2000................................................................. 5,145
2001 and thereafter.................................................. 2,150
-------
$36,110
=======
</TABLE>

NOTE 8--LONG-TERM DEBT

Long-term debt at December 31, 1996 represents advances from the Federal
Home Loan Bank bearing interest at 6.14% and maturing in 1998. The Bank has
pledged $2,100,000 of securities as collateral for these borrowings at
December 31, 1996.

NOTE 9--INCOME TAXES

Income taxes are comprised of the following for the years ended December 31
(dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current........................................................... $298 $215
Deferred (benefit)................................................ (31) 10
---- ----
Total income taxes.............................................. $267 $225
==== ====
</TABLE>

The following is a reconciliation between the statutory and the effective
Federal income tax rate for the years ended December 31 (dollars in
thousands):

<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
PERCENT PERCENT
OF PRE-TAX OF PRE-TAX
AMOUNT INCOME AMOUNT INCOME
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Income tax at statutory rates........... $301 34.0% $270 34.0%
Increase (decrease) resulting from:
Tax-exempt income..................... (40) (4.5) (30) (3.8)
Other................................. 6 .7 (15) (1.9)
---- ---- ---- ----
Total income tax expense............ $267 30.2% $225 28.3%
==== ==== ==== ====
</TABLE>

The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31 are (dollars in
thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets
Allowance for credit losses..................................... $138 $ 97
Other........................................................... 11 6
---- ----
Total deferred tax assets..................................... 149 103
==== ====
</TABLE>

F-13
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Liabilities
Depreciation.................................................... $ 82 $ 78
Deferred income................................................. 78 67
Unrealized gains on securities available for sale............... 14 8
---- ----
Total deferred tax liabilities................................ 174 153
---- ----
Net deferred tax liabilities.................................. $ 25 $ 50
==== ====
</TABLE>

NOTE 10--COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance-Sheet Risk

The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheets.

The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of the Bank's commitments at December 31 is as follows (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Commitments to extend credit:
Real estate secured....................................... $ 2,540 $ 3,808
Credit card lines......................................... 2,047 1,836
Other..................................................... 9,141 4,909
------- -------
Total commitments to extended credit.................... 13,728 10,553
------- -------
Standby letters of credit................................. 57 193
------- -------
$13,785 $10,746
======= =======
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank's experience has been that approximately 58% of loan commitments are
drawn upon by customers. The Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the party. Collateral held varies, but may include
accounts receivable, crops, livestock, inventory, property and equipment,
residential real estate, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held
varies as specified above, and is required in instances where the Bank deems
necessary.

F-14
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Bank has agreements with commercial banks for lines of credit totaling
$1,100,000, none of which was used at December 31, 1996, and a credit line
with the Federal Home Loan Bank totaling 10% of assets, $2,000,000 of which
was used at December 31, 1996.

Concentrations of Credit Risk

All of the Bank's loans and commitments to extend credit have been granted
to customers in the Company's market area. The concentrations of credit by
type of loan are set forth in Note 5.

Investments in state and municipal securities involve governmental entities
within Washington State. Standby letters of credit were granted primarily to
commercial borrowers. The Bank, as a matter of practice, generally does not
extend credit to any single borrower or group of related borrowers in excess
of $1,000,000.

NOTE 11--EMPLOYEE BENEFIT PLANS

Stock Option Plan

At December 31, 1996, the Company has a stock option plan, which is
described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for this plan. Accordingly, no compensation cost
has been recognized for this plan.

The plan provides for granting certain key employees options to purchase the
Company's common stock. Under the terms of the plan, options may be either
incentive stock options (as defined in the Internal Revenue Code) or
nonqualified stock options. The option price will be the fair market value at
the date of grant in the case of incentive stock options, or a price
determined by the Board of Directors in the case of nonqualified options.
Pursuant to the plan, up to 30,000 shares of common stock may be optioned.
Options granted have a maximum term of ten years. In 1996 and 1995, no stock
options were granted or exercised. Options vest 20% per year, commencing one
year from the date of grant. At December 31, 1996 and 1995, options to
purchase 11,400 shares were outstanding. Options were exercisable at December
31, 1996 and 1995 for 9,580 shares and 7,300 shares, respectively.

The following information summarizes information about stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$12.50 9,700 4 years $12.50 8,900 $12.50
$15.00 1,700 7 years $15.00 680 $15.00
</TABLE>

401(k) Plan

In March 1994, the Bank adopted a combined 401(k) and profit sharing plan
which covers substantially all employees who have completed one year or more
of service. Contributions by the Bank to this plan are made at the discretion
of the Board of Directors. There were no contributions to the combined 401(k)
and profit sharing plan for the year ending December 31, 1996. Contributions
to the plan in 1995 were $45,000.

Deferred Compensation Plan

In 1996 the Company approved a deferred compensation plan for the Bank's
President. The post-retirement benefits are designed to supplement retirement
benefits from social security. Expenses, including life insurance

F-15
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

premiums, related to this plan totaled $33,000 in 1996. Benefits may be funded
by life insurance policies purchased by the Bank, which had a cash surrender
value of $500,000 at December 31, 1996. Related income on the life insurance
policies was $24,000 in 1996. The liability for future benefits, which is
accrued over the expected time to retirement, was $20,000 at December 31,
1996.

NOTE 12--CONDENSED FINANCIAL INFORMATION--PARENT ONLY

<TABLE>
<CAPTION>
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Condensed Balance Sheets--December 31
Assets
Cash......................................................... $ 3 $ 3
Investment in subsidiary..................................... 6,286 5,645
Organizational costs, net.................................... 21 28
Total assets............................................... $6,310 $5,676
------ ------
Shareholders' Equity........................................... $6,310 $5,676
====== ======
Condensed Statements of Income--Years Ended December 31
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Dividend from Subsidiary....................................... $ -- $ 36
Operating Expense.............................................. (7) (5)
Income (loss) before equity in undistributed income of
subsidiary.................................................. (7) 31
Equity in Undistributed Income of Subsidiary................... 625 537
------ ------
Net income................................................. $ 618 $ 568
====== ======
Condensed Statements of Cash Flows--Years Ended December 31
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Operating Activities
Net income................................................... $ 618 $ 568
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization................................................ 7 5
Equity in undistributed income of subsidiary................ (625) (537)
Increase in other assets.................................... -- (33)
------ ------
Net cash provided by operating activities.................. -- 3
====== ======
Cash
Beginning of year............................................ 3 --
------ ------
End of year.................................................. $ 3 $ 3
====== ======
</TABLE>

NOTE 13--REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines of the
regulatory framework for prompt corrective action, the Bank must meet specific
capital adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

F-16
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of Tier 1 capital (as defined in the regulations) to total
average assets (as defined), and minimum ratios of Tier 1 and total capital
(as defined) to risk-weighted assets (as defined). Under the regulatory
framework for prompt corrective action, the Bank must maintain minimum Tier 1
leverage, Tier 1 risk-based, and total risk-based ratios as set forth in the
table.

As of December 31, 1996, the most recent notification from the Bank's
regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
institution's category.

Actual capital amounts and ratios for the consolidated Company and the Bank
are also presented in the table (dollars in thousands):

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- -------- ----- ----------------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Tier 1 capital (to
average assets)
Consolidated............ $6,261 7.5% $3,338 4.0% N/A N/A
Bank only............... 6,258 7.5 3,337 4.0 $4,172 5.0%
Tier 1 capital (to risk-
weighted assets)
Consolidated............ 6,261 10.2 2,467 4.0 N/A N/A
Bank only............... 6,258 10.2 2,466 4.0 3,699 6.0
Total capital (to risk-
weighted assets)
Consolidated............ 6,776 11.0 4,934 8.0 N/A N/A
Bank only............... 6,773 11.0 4,932 8.0 6,175 10.0
December 31, 1995
Tier 1 capital (to
average assets)
Consolidated............ $5,636 8.3% $2,731 4.0% N/A N/A
Bank only............... 5,634 8.3 2,730 4.0 $3,412 5.0%
Tier 1 capital (to risk-
weighted assets)
Consolidated............ 5,636 11.6 1,952 4.0 N/A N/A
Bank only............... 5,634 11.6 1,950 4.0 2,926 6.0
Total capital (to risk-
weighted assets)
Consolidated............ 6,061 12.4 3,903 8.0 N/A N/A
Bank only............... 6,059 12.4 3,901 8.0 4,876 10.0
</TABLE>

Management believes, as of December 31, 1996, that the Company and the Bank
meet all capital requirements to which they are subject.

Restrictions on Retained Earnings

The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1996,
substantially all of the Bank's retained earnings were unrestricted concerning
the payment of dividends to the Company.

F-17
<PAGE>

CASCADE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--STOCK DIVIDEND--(UNAUDITED)

On March 18, 1997, the Company declared a 100% stock dividend effected as a
2-for-1 stock split. Net income per share for prior periods and stock option
information in Note 11 have been restated to reflect this stock dividend.

F-18
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
BANK OF FIFE
Fife, Washington

We have audited the accompanying balance sheet of BANK OF FIFE as of
December 31, 1996, and the related statements of income, shareholders' equity
and cash flows for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BANK OF FIFE as of
December 31, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.

Knight, Vale & Gregory, Inc., P.S.

Tacoma, Washington
January 13, 1997

F-19
<PAGE>

BANK OF FIFE

BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks............................... $ 1,361 $ 2,196
Interest bearing deposits in banks.................... 1,902 1,745
Federal funds sold.................................... 1,490 2,350
Securities available for sale (Note 3)................ 3,656 3,295
Loans (Note 4)........................................ 23,896 22,221
Less allowance for credit losses (Note 4)............. 292 263
------- -------
Net loans......................................... 23,604 21,958
Premises and equipment (Note 5)....................... 1,072 1,054
Accrued interest receivable........................... 223 207
Other assets.......................................... 91 28
------- -------
Total assets...................................... $33,399 $32,833
======= =======
LIABILITIES
Deposits:
Demand.............................................. $ 5,291 $ 5,388
Savings, NOW and money market....................... 6,347 5,629
Time (Note 6)....................................... 18,239 18,541
------- -------
Total deposits.................................... 29,877 29,558
Accrued interest payable.............................. 24 24
Other liabilities..................................... 282 223
------- -------
Total liabilities................................. 30,183 29,805
------- -------
Commitments and Contingencies (Note 8)................ -- --
SHAREHOLDERS' EQUITY
Preferred stock (par value $1); 100,000 shares
authorized; no shares issued......................... -- --
Common stock (par value: $.50); 1,000,000 shares
authorized; issued and outstanding: 1997--202,920
shares; 1996--206,996 shares; (Note 14).............. 101 104
Surplus............................................... 1,943 1,990
Retained earnings (Note 13)........................... 1,171 926
Net unrealized gain on securities available for sale,
net of tax of $1 in 1997 and $3 in 1996.............. 1 8
------- -------
Total shareholders' equity........................ 3,216 3,028
------- -------
Total liabilities and shareholders' equity........ $33,399 $32,833
======= =======
</TABLE>

See notes to financial statements.

F-20
<PAGE>

BANK OF FIFE

STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 AND 1996, AND
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1996 1995
----------- ----------- ------------ --------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Interest Income
Loans.......................... $ 1,312 $ 1,119 $ 2,369 $ 1,812
Federal funds sold and deposits
in banks...................... 93 74 174 150
Securities available for sale.. 100 75 166 118
-------- -------- -------- --------
Total interest income........ 1,505 1,268 2,709 2,080
-------- -------- -------- --------
Interest Expense--Deposits....... 623 534 1,154 807
Net interest income............ 882 734 1,555 1,273
-------- -------- -------- --------
Provision for Credit Losses (Note
4).............................. 32 17 96 48
-------- -------- -------- --------
Net interest income after
provision for credit losses... 850 717 1,459 1,225
-------- -------- -------- --------
Non-Interest Income
Service charges on deposit
accounts...................... 88 50 125 88
Other operating income......... 12 11 27 23
-------- -------- -------- --------
Total non-interest income.... 100 61 152 111
-------- -------- -------- --------
Non-Interest Expenses
Salaries and employee
benefits...................... 281 183 494 395
Occupancy and equipment........ 49 54 113 102
Other operating expenses....... 175 153 352 280
-------- -------- -------- --------
Total non-interest expenses.. 505 390 959 777
-------- -------- -------- --------
Income before income taxes..... 445 388 652 559
Income Taxes (Note 7)............ 149 130 212 191
-------- -------- -------- --------
Net income................... $ 296 $ 258 $ 440 $ 368
======== ======== ======== ========
Average Number of Common Shares
Outstanding (Note 14)........... 204,349 205,148 204,592 203,026
Net income per share......... $ 1.45 $ 1.26 $ 2.15 $ 1.81
</TABLE>

See notes to financial statements.

F-21
<PAGE>

BANK OF FIFE

STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997, AND
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
PREFERRED COMMON RETAINED ON SECURITIES
STOCK STOCK SURPLUS EARNINGS AVAILABLE FOR SALE TOTAL
--------- ------ ------- -------- ------------------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... $-- $102 $1,926 $ 118 $(18) $2,128
Net income.............. -- -- -- 368 -- 368
Issuance of common stock
(Note 11).............. -- 1 33 -- -- 34
Change in net unrealized
gain on securities
available for sale, net
of tax................. -- -- -- -- 21 21
Balance, December 31,
1995................. -- 103 1,959 486 3 2,551
Net income.............. -- -- -- 440 -- 440
Issuance of common stock
(Note 11).............. -- 1 31 -- -- 32
Change in net unrealized
gain on securities
available for sale, net
of tax................. -- -- -- -- 5 5
Balance, December 31,
1996................. -- 104 1,990 926 8 3,028
Net income (unaudited).. -- -- -- 296 -- 296
Purchase of common stock
(unaudited)............ -- (3) (47) (51) -- (101)
Change in unrealized
gain (loss) on
investments available
for sale (unaudited)... -- -- -- -- (7) (7)
Balance, June 30, 1997
(unaudited).......... $-- $101 $1,943 $1,171 $ 1 $3,216
</TABLE>

See notes to financial statements.

F-22
<PAGE>

BANK OF FIFE

STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996, AND
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------- ----------------
1997 1996 1996 1995
----------- ----------- ------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income......................... $ 296 $ 258 $ 440 $ 368
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for credit losses....... 32 17 96 48
Depreciation and amortization..... 28 24 51 40
Loss on sale of premises and
equipment........................ -- -- 33 --
Deferred federal income tax....... -- -- 19 38
Issuance of common stock.......... -- -- 32 34
Increase in accrued interest
receivable....................... (16) (17) (55) (57)
Increase in accrued interest
payable.......................... -- 5 2 10
Other--net........................ (6) 99 86 (55)
------- ------- ------- -------
Net cash provided by operating
activities...................... 334 386 704 426
------- ------- ------- -------
Cash Flows from Investing Activities
Net (increase) decrease in Federal
funds sold........................ 860 (875) (1,825) 900
(Increase) decrease in interest
bearing deposits in banks......... (157) 12 (561) 248
Purchases of securities available
for sale.......................... (871) (1,809) (3,773) (2,394)
Proceeds from maturities of
securities available for sale..... 500 1,688 2,788 905
Net increase in loans made to
customers, net of principal
collections....................... (1,678) (1,413) (3,077) (5,840)
Additions to premises and
equipment......................... (41) (6) (1,026) (50)
Net proceeds on sale of foreclosed
real estate....................... -- 44 44 --
------- ------- ------- -------
Net cash used in investing
activities...................... (1,387) (2,359) (7,430) (6,231)
------- ------- ------- -------
Cash Flows from Financing Activities
Net increase (decrease) in demand
deposits, NOW and
savings accounts.................. 621 (1,158) 2,896 (1,559)
Net increase (decrease) in time
deposit accounts.................. (302) 3,062 4,548 7,355
Purchase of common stock........... (101) -- -- --
Net cash provided by financing
activities...................... 218 1,904 7,444 5,796
------- ------- ------- -------
Net change in cash and due from
banks........................... (835) (69) 718 (9)
======= ======= ======= =======
Cash and Due from Banks
Beginning of period................ 2,196 1,478 1,478 1,487
------- ------- ------- -------
End of period...................... $ 1,361 $ 1,409 $ 2,196 $ 1,478
------- ------- ------- -------
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest.......................... $ 623 $ 729 $ 1,152 $ 797
Income taxes...................... 180 52 84 168
Supplemental Disclosures of Non-Cash
Investing and
Financing Activities
Issuance of common stock........... $ -- $ -- $ 32 $ 34
Fair value adjustment of securities
available for sale,
net of tax........................ (7) (19) 5 21
Transfer from loans to foreclosed
real estate....................... -- 44 44 --
</TABLE>

See notes to financial statements.

F-23
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Bank of Fife (the Bank) operates one branch located in Fife, Washington. The
Bank's primary source of revenue is providing loans to customers, who are
predominately small and middle-market businesses and middle-income
individuals.

Financial Statement Presentation

The financial statements have been prepared in accordance with generally
accepted accounting principles and practices within the banking industry. In
preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet, and revenues and expenses for the period.
Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change relate to
the determination of the allowance for credit losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.
In connection with the determination of the allowance for credit losses and
the valuation of foreclosed real estate, management obtains independent
appraisals for significant properties.

Certain prior year amounts have been reclassified to conform to the 1996
presentation.

Securities Available for Sale

Securities classified as available for sale consist of debt and certain
equity securities the Bank intends to hold for an indefinite period of time,
but not necessarily to maturity. Securities available for sale are reported at
fair value. Unrealized gains and losses, net of the related deferred tax
effect, are reported as a net amount in a separate component of shareholders'
equity. Realized gains and losses on securities available for sale, determined
using the specific identification method, are included in earnings.
Amortization of premiums and accretion of discounts are recognized in interest
income over the period to maturity.

Declines in the fair value of individual securities available for sale below
their cost that are other than temporary result in write-downs of the
individual securities to their fair value. Such write-downs are included in
earnings as realized losses.

Loans

Loans are stated at the amount of unpaid principal, reduced by an allowance
for credit losses. Interest on loans is accrued daily based on the principal
amount outstanding.

The accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due or
when they are past due 90 days as to either principal or interest. When
interest accrual is discontinued, all unpaid accrued interest is reversed
against current income. If management determines that the ultimate
collectibility of principal is in doubt, cash receipts on nonaccrual loans are
applied to reduce the principal income.

The Bank's policy is to defer loan origination and commitment fees and
certain direct loan origination costs, and to amortize the net amount as an
adjustment of the yield of the related loan.

Allowance for Credit Losses

F-24
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

in the loan portfolio after consideration of historical loss experience,
adverse situations that may affect the borrowers' ability to repay, the
estimated value of any underlying collateral, economic conditions, and other
risks inherent in the portfolio.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation,
which is computed on the straight-line method over the estimated useful lives
of the assets. Leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the improvements, whichever
is less. Gains or losses on dispositions are reflected in earnings.

Income Taxes

Cash and Cash Equivalents

The Bank considers all amounts included in the balance sheet caption "Cash
and Due from Banks" to be cash equivalents.

The Bank maintains its cash in depository institution accounts which, at
times, may exceed federally insured limits. The Bank has not experienced any
losses in such accounts.

Net Income Per Share

Net income per share of common stock has been computed on the basis of the
weighted average number of shares of common stock outstanding.

Recent Accounting Pronouncements

In June 1996, the Financial Accounting Standards Board issued Statement No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS No. 125), which establishes accounting
and reporting standards based on consistent application of a financial
components approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
satisfied. The Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The Statement is effective for the year beginning after December
15, 1996, though the effective date of certain provisions has been postponed
to years beginning after December 31, 1997. The Bank has not assessed the
impact of SFAS No. 125 on its future operations.

F-25
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--ACCOUNTING CHANGES

Effective in 1996, the Bank adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).
Under SFAS No. 123, stock-based compensation is measured either using the
intrinsic value method as prescribed by Accounting Standards Board Opinion No.
25, Accounting for Stock Issued to Employees (APB Opinion No. 25), or the fair
value method described in SFAS No. 123. Companies choosing the intrinsic value
method are required to disclose the pro forma impact of the fair value method
on net income and earnings per share. The Bank implemented SFAS No. 123 using
the intrinsic value method, which had no effect on its financial position or
results of operations. Required pro forma disclosures are included in Note 12.

NOTE 3--DEBT AND EQUITY SECURITIES

Debt and equity securities have been classified as available for sale
according to management's intent. The carrying amount of securities and their
approximate fair values at December 31 were as follows (dollars in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
December 31, 1996
U.S. Government and agency
securities........................... $3,206 $11 $-- $3,217
Federal Home Loan Bank stock.......... 78 -- -- 78
------ --- ---- ------
$3,284 $11 $-- $3,295
====== === ==== ======
December 31, 1995
U.S. Government and agency
securities........................... $2,269 $14 $ 9 $2,274
====== === ==== ======
</TABLE>

The scheduled maturities of debt securities available for sale at December
31, 1996 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ------
<S> <C> <C>
Due from one year to five years............................... $2,399 $2,404
Due from five years to ten years.............................. 807 813
------ ------
$3,206 $3,217
====== ======
</TABLE>

Securities, carried at approximately $200,000 at December 31, 1996 and
$447,000 at December 31, 1995, were pledged to secure public deposits and for
other purposes required or permitted by law.

NOTE 4--LOANS

Loans at December 31 consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Commercial...................................................... $ 7,906 $ 6,282
Real estate:
1-4 family residential........................................ 4,346 4,407
Construction.................................................. 2,123 1,564
Commercial.................................................... 6,433 5,771
Consumer........................................................ 1,413 1,164
------- -------
Total loans................................................. $22,221 $19,188
======= =======
</TABLE>

F-26
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Changes in the allowance for credit losses for the years ended December 31
are as follows (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of year......................................... $167 $119
Provision for credit losses.......................................... 96 48
---- ----
Balance at end of year............................................. $263 $167
==== ====
</TABLE>

There were no impaired loans as of December 31, 1996 or 1995. There were
also no loans past due over 90 days as of December 31, 1996 or 1995.

Maturity and repricing for the Bank's portfolio at December 31, 1996 are as
follows (dollars in thousands):

<TABLE>
<CAPTION>
FIXED FLOATING
RATE RATE
MATURING IN REPRICING IN TOTAL
----------- ------------ -------
<S> <C> <C> <C>
0-90 days...................................... $ 835 $ 8,582 $ 9,417
91-365 days.................................... 1,325 2,540 3,865
1 year or more................................. 5,673 3,266 8,939
------ ------- -------
$7,833 $14,388 $22,221
====== ======= =======
</TABLE>

Certain related parties of the Bank, principally directors and their
associates, were loan customers of the Bank in the ordinary course of business
during 1996 and 1995. Total loans outstanding at December 31, 1996 and 1995 to
key officers and directors were $1,228,000 and $1,355,000, respectively. New
loans made and repayments received in 1996 were $925,000 and $1,052,000,
respectively.

NOTE 5--PREMISES AND EQUIPMENT

The components of premises and equipment at December 31 were as follows
(dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Land............................................................... $ 368 $--
Building........................................................... 611 --
Leasehold improvements............................................. -- 24
Furniture.......................................................... 31 30
Equipment.......................................................... 117 95
------ ----
1,127 149
------ ----
Less accumulated depreciation and amortization..................... 73 56
------ ----
Total premises and equipment..................................... $1,054 $ 93
====== ====
</TABLE>

The Bank purchased and moved into a new main office facility in November
1996. Prior to that time, the Bank leased its building from a director's
partnership under a noncancellable one-year lease, with additional one-year
options to renew through 2001. Total rent expense for that building in 1996
and 1995 was $32,000 and $34,000, respectively.

F-27
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6--DEPOSITS

The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was approximately $5,101,000 and
$4,734,000 at December 31, 1996 and 1995, respectively.

At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows (dollars in thousands):

NOTE 7--INCOME TAXES

Income taxes are comprised of the following for the years ended December 31
(dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current............................................................... $193 $153
Deferred.............................................................. 19 38
---- ----
Total income taxes.................................................. $212 $191
==== ====
</TABLE>

The following is a reconciliation between the statutory and the effective
federal income tax rate for the years ended December 31 (dollars in
thousands):

<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
PERCENT PERCENT
OF PRE-TAX OF PRE-TAX
AMOUNT INCOME AMOUNT INCOME
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Income tax at statutory rates.............. $222 34.0 % $190 34.0%
Miscellaneous increases (decreases)--net... (10) (1.5) 1 .2
---- ---- ---- ----
Total income tax expense................. $212 32.5 % $191 34.2%
==== ==== ==== ====
</TABLE>

Net deferred tax liabilities consist of the following components at December
31 (dollars in thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets
Allowance for credit losses........................................ $ 55 $ 23
Other.............................................................. 2 3
---- ----
Total deferred tax assets........................................ 57 26
==== ====
Deferred Tax Liabilities
Cash basis accounting.............................................. 55 35
Deferred income.................................................... 111 83
Accumulated depreciation........................................... 11 9
Unrealized gain on securities available for sale................... 3 2
---- ----
Total deferred tax liabilities................................... 180 129
==== ====
Net deferred tax liabilities..................................... $123 $103
==== ====
</TABLE>

F-28
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8--COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance-Sheet Risk

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Commitments to extend credit:
Real estate secured............................................ $1,134 $ 969
Other.......................................................... 1,215 1,584
------ ------
Total commitments to extend credit........................... $2,349 $2,553
====== ======
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank's experience has been that approximately 75% of loan commitments are
drawn upon by customers. The Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the party. Collateral held varies, but may include
accounts receivable, inventory, property and equipment, residential real
estate, and income-producing commercial properties.

As of December 31, 1996 and 1995, the Bank had established lines of credit
and borrowing arrangements with various correspondent banks totaling
$4,683,000 and $900,000, respectively. All were unused at December 31, 1996
and 1995.

Because of the nature of its activities, the Bank is subject to various
pending and threatened legal actions which arise in the ordinary course of
business. In the opinion of management, liabilities arising from these claims,
if any, will not have a material effect on the financial position of the Bank.

NOTE 9--EMPLOYEE BENEFITS

In 1995, the Bank established a combined 401(k) and profit sharing plan
which covers substantially all employees who have completed one year or more
of service. Contributions by the Bank to the 401(k) plan are at the discretion
of the Board of Directors, and are based on the employees' contributions.
Contributions to the combined 401(k) and profit sharing plan made for the
years ended December 31, 1996 and 1995 were $10,000 and $5,000, respectively.

NOTE 10--CONCENTRATION OF CREDIT RISK

The Bank has credit risk exposure, including off-balance-sheet credit risk
exposure, related to loans as disclosed in Notes 4 and 8. The Bank's loans are
concentrated to borrowers in its local market area and, as such,

F-29
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

the ultimate collectibility of a substantial portion of the loan portfolio is
susceptible to changes in economic and market conditions in the region. The
Bank generally requires collateral on all real estate exposures and typically
maintains loan-to-value ratios of no greater than 90%.

The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Standby letters of credit were granted
primarily to commercial borrowers. The Bank, as a matter of practice,
generally does not extend credit to any single borrower or group of related
borrowers in excess of $400,000.

NOTE 11--STOCK TRANSACTIONS

Under its directors' compensation policy, the Bank issued seven and five
shares of common stock in 1996 and 1995, respectively, to each director for
every monthly directors' meeting attended. Shares issued to directors under
this policy totaled 924 shares in 1996 and 660 shares in 1995. Total
directors' compensation expense charged to operations, related to the issuance
of stock for 1996 and 1995, was $32,000 and $34,000, respectively.

NOTE 12--BENEFIT PLANS

Stock Option Plans

At December 31, 1996, the Bank has employee and director stock-based option
plans, which are described below. The Bank applies APB Opinion No. 25 and
related interpretations in accounting for these plans. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Bank's
stock option plans been determined based on the fair value at the grant dates
for awards granted in 1996 under these plans, consistent with the method of
SFAS No. 123, the Bank's net income and earnings per share would have been
reduced to these pro forma amounts (dollars in thousands):

<TABLE>
<S> <C>
Net income:
As reported............................................................. $ 440
Pro forma............................................................... 377
Earnings per share:
As reported............................................................. $2.15
Pro forma............................................................... 1.84
</TABLE>

The fair value of each option grant is estimated on the date of grant, based
on the Black-Scholes option-pricing model and using the following weighted-
average assumptions: no dividend yield; risk-free interest rates of 6%; and
expected lives of 10 years for the options. Options granted vest each calendar
year after grant date, at varying percentages a year.

Employee Stock Option Plan

Effective June 1996, the Bank adopted an employee stock option plan whereby
the Bank reserved 30,000 shares of its $.50 par value common stock to be
granted to key employees, as defined in the plan. The exercise price for the
option may not be less than the fair value of the Bank stock at the date of
grant. Options vest over varying terms from four to five years, beginning in
the first year of the grant, and expire on the tenth anniversary of the date
of grant, or in accordance with various termination clauses enumerated within
the plan. Options to purchase 13,000 shares of common stock were outstanding
and 3,500 shares were exercisable at December 31, 1996.

F-30
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Director Stock Option Plan

Effective June 1996, the Company adopted a director stock option plan
whereby the Bank reserved 20,000 shares of its $.50 par value common stock to
be granted to directors. During 1996, 11,000 shares were granted to directors.
Options to purchase 11,000 shares vest ratably over five years, beginning in
the first year of the grant. Options expire on the tenth anniversary of the
date of grant, or in accordance with various termination clauses enumerated
within the plan. Options to purchase 11,000 shares of common stock at $16.00
per share were outstanding and 2,200 shares were exercisable at December 31,
1996.

Employee and Director Stock Option Summary

A summary of the status of the Bank's employee and director stock option
plans as of December 31, 1996, and changes during the year ending on that
date, is presented below:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at beginning of year................................ -- $ --
Granted......................................................... 24,000 16.00
------ ------
Outstanding at end of year.................................... 24,000 16.00
====== ======
Options exercisable at year-end................................. 5,700 16.00
</TABLE>

The weighted average fair value of options granted during the year ended
December 31, 1996 is $7.14.

The following summarizes information about employee and director stock
options outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND
EXERCISABLE WEIGHTED
--------------------------- AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER
PRICES OUTSTANDING LIFE PRICE EXERCISABLE
-------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$16.00 24,000 9 years $16.00 5,700
</TABLE>

NOTE 13--REGULATORY MATTERS

F-31
<PAGE>

BANK OF FIFE

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Bank's actual capital amounts and ratios are also presented in the table
(dollars in thousands):

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ---------------- ----- ----------------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Tier 1 capital (to
average assets)...... $3,020 9.44% $1,280 4.00% $1,600 5.00%
Tier 1 capital (to
risk-weighted
assets).............. 3,020 12.83 941 4.00 1,412 6.00
Total capital (to
risk-weighted
assets).............. 3,283 13.95 1,883 8.00 2,354 10.00
December 31, 1995
Tier 1 capital (to
average assets)...... $2,548 10.74% $ 949 4.00% $1,187 5.00%
Tier 1 capital (to
risk-weighted
assets).............. 2,548 11.79 864 4.00 1,297 6.00
Total capital (to
risk-weighted
assets).............. 2,715 12.56 1,729 8.00 2,161 10.00
</TABLE>

Management believes, as of December 31, 1996, that the Bank meets all
capital requirements to which it is subject.

Restrictions on Retained Earnings

The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1996, none
of the Bank's retained earnings were so restricted.

NOTE 14--STOCK SPLIT AND EARNINGS PER SHARE

On December 31, 1996, the Bank's Board of Directors declared a one-for-one
stock split. The stock's par value was decreased from $1 per share to $.50 per
share. All references in the financial statements to number of shares, per
share amounts, and stock option data have been retroactively restated to
reflect the increased number of common shares outstanding.

F-32
<PAGE>

APPENDIX A

PLAN AND AGREEMENT OF REORGANIZATION AND MERGER

AMONG

COLUMBIA BANKING SYSTEM, INC. AND COLUMBIA STATE BANK AND

CASCADE BANCORP, INC. AND CASCADE COMMUNITY BANK

DATED AS OF JUNE 30, 1997

A-1
<PAGE>

CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DEFINITIONS.................................................................... 1

SECTION 1. TERMS OF TRANSACTION............................................... 6
1.1 Transaction................................................... 6
1.2 Mergers....................................................... 6
1.3 Payment to Dissenting Shareholders............................ 6
1.4 Consideration................................................. 6
1.5 Undelivered Certificates...................................... 8
1.6 Cascade Options............................................... 8

SECTION 2. CLOSING OF TRANSACTION............................................. 8
2.1 Closing....................................................... 8
2.2 Events of Closing............................................. 9
2.3 Place of Closing.............................................. 9
2.4 Procedure..................................................... 9

SECTION 3. REPRESENTATIONS AND WARRANTIES..................................... 9
3.1 Representations and Warranties................................ 9
3.2 Additional Representations and Warranties of Cascade and
CCB........................................................... 14
3.3 Additional Representations and Warranties of CBSI............. 17

SECTION 4. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.......................... 18
4.1 Conduct of Cascade's and CCB's Business Prior to Closing...... 18
4.2 Registration Statement and Submission to Shareholders......... 21
4.3 Submission to Regulatory Authorities.......................... 22
4.5 Public Announcements.......................................... 22
4.6 Consents...................................................... 22
4.7 Further Actions............................................... 22
4.8 Notice........................................................ 23
4.9 Confidentiality............................................... 23
4.10 Affiliate Letters............................................. 24
4.11 Director Agreements Regarding Real Estate..................... 24
4.12 Availability of CBSI's Books, Records and Properties.......... 25

SECTION 5. APPROVALS AND CONDITIONS........................................... 25
5.1 Required Approvals............................................ 25
5.2 Conditions to Obligations of CBSI and Bank.................... 25
5.3 Conditions to Obligations of Cascade and CCB.................. 28
</TABLE>

A-2
<PAGE>

<TABLE>
<S> <C>
SECTION 6. DIRECTORS, OFFICERS AND EMPLOYEES.......................................... 29
6.1 Directors............................................................. 29
6.2 Employees............................................................. 29
6.3 Officers' Employment Contracts........................................ 30
6.4 Employee Benefit Issues............................................... 30

SECTION 7. TERMINATION OF AGREEMENT AND ABANDONMENT OF
TRANSACTION................................................................ 30
7.1 Termination........................................................... 30

SECTION 8. MISCELLANEOUS.............................................................. 31
8.1 Notices............................................................... 31
8.2 Waivers and Extensions................................................ 32
8.3 Construction and Execution in Counterparts............................ 33
8.4 Indemnification of Directors and Executive Officers................... 33
8.5 Survival of Representations, Warranties, and Covenants................ 33
8.6 Attorneys' Fees and Costs............................................. 33
8.7 Governing Law......................................................... 33

SECTION 9. AMENDMENTS................................................................. 34
</TABLE>

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<PAGE>

LIST OF ANNEXES AND EXHIBITS
----------------------------
ANNEXES:
- -------

ANNEX 1 Offices of each Bank
ANNEX 2 CBSI and Cascade Options (Section 3.1.3(ii))
ANNEX 3 CBSI and Cascade Subsidiaries
ANNEX 4 Properties
ANNEX 5 Environmental Matters
ANNEX 6 Material Contracts
ANNEX 7 Asset Classification of CCB (Section 3.2.1(i))
ANNEX 8 Insurance Policies (Section 3.2.4)
ANNEX 9 Cascade Benefit Plans (Section 3.2.6(ii))
ANNEX 10 Form of Affiliate Letter (Section 4.10)

EXHIBITS:
- --------

EXHIBIT A Form of Noncompetition Agreement (pursuant to Section 6.1)

A-4
<PAGE>

PLAN AND AGREEMENT OF REORGANIZATION AND MERGER
-----------------------------------------------
AMONG
-----
COLUMBIA BANKING SYSTEM, INC., COLUMBIA STATE BANK,
---------------------------------------------------
CASCADE BANCORP AND CASCADE COMMUNITY BANK
------------------------------------------

THIS PLAN AND AGREEMENT OF REORGANIZATION AND MERGER (the "Agreement") is
made and entered into as of June 30, 1997, among COLUMBIA BANKING SYSTEM, INC.
("CBSI"), COLUMBIA STATE BANK ("Bank"), CASCADE BANCORP, INC. ("Cascade") and
CASCADE COMMUNITY BANK ("CCB").

PREAMBLE

The management of CBSI, Bank, Cascade and CCB believe that the proposed
Transaction, to be accomplished in the manner set forth in this Agreement, is in
the best interests of the respective corporations and their subsidiaries.

AGREEMENT

In consideration of the mutual agreements set forth in this Agreement,
CBSI, Bank, Cascade and CCB agree as follows:

DEFINITIONS

Terms used in this Agreement will have the following meanings:

"Acquisition Proposal" has the meaning assigned to such term in Section
4.1.9 of this Agreement.

"Agreement" mean this Plan and Agreement of Reorganization and Merger.

"Asset Classification" has the meaning assigned to such term in Section
3.2.1 of this Agreement.

"BHC Act" means the federal Bank Holding Company Act of 1956, as amended.

"Bank" is Columbia State Bank, a Washington state chartered banking
association, which has its head office in Tacoma, Washington, and which is
wholly owned by CBSI.

"Banking Act" means Title 30 of the RCW.

"Business Day" means any day other than a Saturday, Sunday, legal holiday
or a day on which banking institutions located in the State of Washington are
authorized or required by law to remain closed.

A-5
<PAGE>

"Capital" means capital stock, surplus and retained earnings determined in
accordance with GAAP, applied on a consistent basis.

"Cascade" is Cascade Bancorp, Inc., a Washington corporation which has its
principal place of business in Auburn, Washington and which is a bank holding
company registered pursuant to the BHC Act.

"Cascade Common Stock" means the shares of Cascade common stock, $1 par
value per share, issued and outstanding from time to time.

"Cascade Financial Statements" means Cascade's audited consolidated
statements of financial condition as of December 31, 1996, 1995 and 1994, and
the related statements of income, cash flows and shareholders' equity for each
of the years ended December 31, 1996, 1995 and 1994, all as more fully described
in Section 3.1.5, of this Agreement.

"Cascade Option Plan" means the Employee Stock Option Plan adopted on May
14, 1990 for the benefit of employees of Cascade and CCB.

"Cascade Options" means the stock options issued and outstanding on the
date of this Agreement pursuant to the Cascade Option Plan.

"CBSI" is Columbia Banking System, Inc., a Washington corporation which has
its principal place of business in Tacoma, Washington, and which is a bank
holding company registered pursuant to the BHC Act.

"CBSI Common Stock" means the shares of CBSI common stock, no par value per
share.

"CBSI Financial Statements" means CBSI's audited consolidated statements of
financial condition as of December 31, 1996, 1995 and 1994, and the related
statements of income, cash flows and shareholders' equity for each of the years
ended December 31, 1996, 1995 and 1994, all as more fully described in Section
3.1.5 of this Agreement.

"CBSI Options" means the stock options issued and outstanding on the date
of this Agreement pursuant to the CBSI Option Plan.

"CBSI Option Plan" means the employee stock option plan for the benefit of
employees and directors of CBSI and Bank as approved by shareholders on April
23, 1997.

"CCB" is Cascade Community Bank, a Washington state chartered banking
association, which has its head office in Auburn, Washington, and which is
wholly owned by Cascade.

A-6
<PAGE>

"Closing" means the closing of the Transaction contemplated by this
Agreement, which will occur on the Effective Date, as more fully specified in
Section 2.1 of this Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.

"Compensation Plans" has the meaning assigned to such term in Section
3.2.6(ii) of this Agreement.

"Control" with respect to any Person means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting interests, by
contract, or otherwise.

"Corporate Code" means the Washington Business Corporation Act, as amended,
as set forth in Title 23B of the RCW.

"Conversion Number" means the number of shares of CBSI Common Stock into
which each share of Cascade Common Stock is converted in accordance with Section
1.4.1 of this Agreement.

"Core Deposits" means all deposits other than (i) brokered deposits, (ii)
public funds and (iii) certificates of deposit (or equivalents) equal to or in
excess of $100,000.

"Dissenting Shares" means those shares of Cascade Common Stock as to which
shareholders have perfected their dissenters' right pursuant to Chapter 23B.13
of the Corporate Code.

"Director" means the Director of the Department of Financial Institutions
for the State of Washington.

"Effective Date" means the date on which all conditions to Closing have
occurred and on which Merger I takes place, as more fully specified in Section
2.1 of this Agreement.

"Employees" has the meaning assigned to such term in Section 3.2.6(ii) of
this Agreement.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Affiliate" has the meaning assigned to such term in Section
3.2.6(iv) of this Agreement.

"ESI Plan" has the meaning assigned to such term in Section 3.2.6(ix) of
this Agreement.

"Exchange Act" means the federal Securities Exchange Act of 1934, as
amended.

A-7
<PAGE>

"Exchange Agent" means the agent described in Section 1.4.3 of this
Agreement.

"Executive Officers" with respect to any party to this Agreement means the
chief executive officer, chief financial officer, and chief lending officer of
such party.

"FDIC" means the Federal Deposit Insurance Corporation.

"Federal Reserve" means the Board of Governors of the Federal Reserve
System.

"Financial Statements" means the CBSI Financial Statements, the Cascade
Financial Statements, or both, as appropriate.

"GAAP" means generally accepted accounting principles.

"Hazardous Material" means any material so described in Section 3.1.7 of
this Agreement.

"Loan Property" means any property in which the applicable party (or a
Subsidiary of it) holds a security interest for an amount greater than $100,000
and, where required by the context, includes the owner or operator of such
property, but only with respect to such property.

"Material Adverse Effect" with respect to a Person means any condition,
event, change or occurrence that is reasonably likely to have a material adverse
effect upon (a) the condition, financial or otherwise, properties, business or
results of operations of such Person and its subsidiaries, taken as a whole, and
(b) the ability of such Person to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement.

"Merger I" means the merger of Cascade with and into CBSI.

"Merger II" means the merger of CCB with and into Bank.

"Mergers" means Merger I and Merger II.

"OREO" means real property acquired by CCB through foreclosure or deed in
lieu of foreclosure or other realization proceedings.

"Pension Plan" has the meaning assigned to such term in Section 3.2.6(iii)
of this Agreement.

"Person" includes an individual, corporation, partnership, association,
limited liability company, trust or unincorporated organization.

"Plan" has the meaning assigned to such term in Section 3.2.6(i) of this
Agreement.

A-8
<PAGE>

"Properties" with respect to any party to this Agreement means (i)
properties or other assets owned or leased by such party or any of its
Subsidiaries, and (ii) Loan Properties.

"Proxy Statement" has the meaning as defined in Section 4.2.1 of this
Agreement.

"Proxy/Registration Statement" means the Prospectus/Proxy Statement
referred to in Section 4.2.1 of this Agreement, to be provided to each
shareholder of Cascade in connection with their consideration and approval of
the Transaction. The term includes any amendments and supplements to such
Prospectus/Proxy Statement.

"RCW" means the Revised Code of Washington, as amended.

"Registration Statement" has the meaning as defined in Section 4.2.1 of
this Agreement.

"Reports" means CBSI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and any other documents filed subsequent to December 31, 1993
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the federal Securities Act of 1933, as amended.

"Subsequent Cascade Financial Statements" means a consolidated balance
sheet and related consolidated statements of income, cash flows and
shareholders' equity for each fiscal quarter ending after December 31, 1996 and
prior to Closing, all as more fully described in Section 4.1.8 of this
Agreement.

"Subsequent CBSI Financial Statements" means a balance sheet and related
statements of income, statements of cash flows and statements of shareholders'
equity for each fiscal quarter ending after December 31, 1996 and prior to
Closing as required to be filed with the SEC in accordance with applicable
provisions of the Exchange Act and regulations promulgated thereunder.

"Subsidiary" with respect to any party to this Agreement means any Person
controlled by such party.

"Transaction" means the consummation of Merger I and Merger II in
accordance with Section 1.1 of this Agreement.

A-9
<PAGE>

SECTION 1.

TERMS OF TRANSACTION

1.1 TRANSACTION.

Subject to the terms and conditions set forth in this Agreement and in the
Annexes and Exhibits, Cascade will merge with and into CBSI in Merger I and
within a reasonable time following completion of Merger I (as determined by
CBSI), CCB will merge with and into Bank in Merger II.

1.2 MERGERS.

Upon Closing of Merger I, pursuant to the provisions of Chapter 23B.11 of
the Corporate Code, all shares of Cascade Common Stock issued and outstanding
immediately prior to Closing, except for Dissenting Shares, will, by virtue of
the merger and without any action on the part of any holder of shares of Cascade
Common Stock, be converted into the right to receive the consideration described
in Section 1.4 of this Agreement. Cascade and the holders of such shares will
provide to CBSI such certificates or documents as CBSI reasonably may request to
evidence ownership of the shares. Merger II will be effected pursuant to
Chapter 30.49 of the Banking Act and 12 United States Code (USC) 1828(c) and any
related rules and regulations. In Merger II, CCB will be merged into Bank, and
Bank will be the resulting bank and will be liable for all of the liabilities of
CCB. It is the intention of the parties to this Agreement that the Transaction
will qualify as a "reorganization" for federal income tax purposes within the
meaning of Section 368 of the Code.

1.3 PAYMENT TO DISSENTING SHAREHOLDERS.

Dissenting Shares shall have the rights provided by Chapter 23B.13 of the
Corporate Code.

1.4 CONSIDERATION.

Shares of Cascade Common Stock identified in Section 1.2 of this Agreement
will be converted, by virtue of Merger I, into the right to receive CBSI Common
Stock in the amounts and subject to the conditions set forth below.

1.4.1 AMOUNT AND FORM OF CONSIDERATION. Subject to the terms,
conditions and limitations set forth in this Agreement, holders of Cascade
Common Stock will be entitled to exchange their Cascade Common Stock shares for
shares of CBSI Common Stock upon surrender of the holder's certificate or
certificates in accordance with Section 1.4.3 of this Agreement. Each holder,
in exchange for each share of Cascade Common Stock held of record on the
Effective Date, will be entitled to receive 2.27 shares of CBSI Common Stock.

1.4.2 NO FRACTIONAL SHARES. CBSI will not issue fractional shares of
CBSI Common Stock. In lieu of issuing fractional shares, CBSI will pay cash to
each

A-10
<PAGE>

shareholder of Cascade who is otherwise entitled to receive a fractional share
of CBSI Common Stock. Such fractional share interest will not include the right
to vote or receive dividends or any interest on dividends.

1.4.3 SURRENDER OF CERTIFICATES.

(i) CBSI will prepare a form of transmittal letter reasonably
acceptable to Cascade for use by shareholders holding Cascade Common Stock. The
form of transmittal letter will be mailed to shareholders on or about the
Effective Date.

(ii) Until surrendered to an agent designated by CBSI and Cascade to
effect the exchange of Cascade Common Stock for CBSI Common Stock (the "Exchange
Agent") together with a properly completed and executed form of transmittal
letter, each certificate evidencing Cascade Common Stock (other than Dissenting
Shares) will, on and after the Effective Date, be deemed for all corporate
purposes to represent and evidence only the right to receive CBSI Common Stock
in accordance with the provisions of this Section 1.4 of this Agreement. Until
any such certificate evidencing Cascade Common Stock will have been so
surrendered, the holder of such Cascade Common Stock will not have any right to
receive any certificates evidencing CBSI Common Stock. The Exchange Agent will
be authorized to issue CBSI Common Stock for any Cascade Common Stock
certificate which has been lost, stolen or destroyed upon receipt of evidence
satisfactory to CBSI of ownership of the Cascade Common Stock represented by the
missing certificate, and after appropriate indemnification. After the Effective
Date, no holder of a certificate evidencing the shares of Cascade Common Stock
will be entitled to receive any dividends or other distributions otherwise
payable to holders of record of CBSI Common Stock on any date subsequent to the
Effective Date, unless such holder will have surrendered such holder's
certificate(s) evidencing shares of Cascade Common Stock in exchange for CBSI
Common Stock. Upon surrender of such certificates, there will be paid to the
holder so surrendering such certificates the amount, without interest, of any
cash dividends and any other distributions which subsequent to the Effective
Date have been distributed on the whole number of shares of CBSI Common Stock
into which such Cascade Common Stock was converted at the Effective Date.

(iii) If any certificate for CBSI Common Stock is to be issued in a
name other than that in which the certificate(s) for Cascade Common Stock
surrendered in exchange is registered, it will be a condition of such exchange
that the person requesting the exchange will establish the right to receive such
shares and pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of such certificates for CBSI Common Stock in a name
other than registered holder of the certificate surrendered, or will establish
to the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.

1.4.4 ANTI-DILUTION ADJUSTMENT. In the event that, between the date
of this Agreement and the Effective Date, CBSI reclassifies, combines, or
subdivides the CBSI Common Stock, declares or pays any extraordinary dividend or
makes any distribution of shares with respect to the CBSI Common Stock, or makes
or declares

A-11
<PAGE>

any partial or liquidating distribution, or agrees to do any of the foregoing as
of a record date during that time frame, an appropriate adjustment will be made
in the Conversion Number.

1.5 UNDELIVERED CERTIFICATES.

If outstanding certificates for Cascade Common Stock are not surrendered
prior to a date when such payments would otherwise escheat or become the
property of any governmental unit or agency, the unclaimed items will, to the
extent permitted by abandoned property or any other applicable law, become the
property of CBSI (and to the extent not in its possession shall be paid over to
CBSI), free and clear of all claims or interests of any person previously
entitled to such items. Notwithstanding the foregoing, neither CBSI nor any
party to this Agreement will be liable to any holder of Cascade Common Stock for
any amount paid to any governmental unit or agency having jurisdiction over any
such unclaimed items pursuant to the abandoned property or other applicable law
of such jurisdiction, and no interest will be borne on amounts owed to
shareholders for shares of Cascade Common Stock.

1.6 CASCADE OPTIONS.

Upon consummation of Merger I on the Effective Date, without any action on
the part of any person or entity, each Cascade Option remaining outstanding
immediately prior to Closing shall be converted into and become, upon the
election of the holder of such Cascade Option, an option to purchase shares of
CBSI Common Stock on the same terms as are in effect with respect to the Cascade
Option immediately prior to consummation of Merger I, except that (i) each such
converted option will be exercisable solely for shares of CBSI Common Stock,
(ii) the number of shares of CBSI Common Stock subject to such converted option
shall be equal to the number of shares of Cascade Common Stock subject to the
Cascade Option immediately prior to Closing multiplied by the Conversion Number,
the product being rounded, if necessary, up or down to the nearest whole share,
and (iii) the per-share exercise price under each such converted option shall be
adjusted by dividing the per-share exercise price of the Cascade Option by the
Conversion Number, and rounding up to the nearest cent. As soon as practicable
after the Effective Date, CBSI shall take all action necessary to register under
the Securities Act the shares of CBSI Common Stock subject to options resulting
from the conversion of Cascade Options pursuant to this Section 1.6.

SECTION 2.

CLOSING OF TRANSACTION

2.1 CLOSING.

The Closing will occur on the Effective Date. Unless CBSI and Cascade
agree upon another date, the Effective Date will be the date five (5) Business
Days after the fulfillment or waiver of each condition precedent set forth in,
and the granting of each

A-12
<PAGE>

approval (and expiration of any waiting period) required by, Section 5 of this
Agreement. If Closing does not occur on or prior to March 31, 1998, either party
may terminate this Agreement in accordance with Section 7 of this Agreement. The
parties will use their best efforts to cause the Transaction to close by
November 1, 1997.

2.2 EVENTS OF CLOSING.

On the Effective Date, all properly executed documents required by this
Agreement will be delivered to the proper party, in form consistent with this
Agreement. If any party fails to deliver a required document on the Effective
Date or otherwise defaults under this Agreement on or prior to the Effective
Date, then no Transaction will occur unless the adversely affected party (i)
waives the default or (ii) elects to proceed while reserving rights arising due
to the default.

2.3 PLACE OF CLOSING.

Unless CBSI and Cascade agree otherwise, the Closing will occur at the
principal office of CBSI at such time during normal business hours as CBSI and
Cascade may fix.

2.4 PROCEDURE.

Bank will notify the Director and the FDIC of the proposed effective time
for Merger II. On or before the Business Day immediately preceding the Closing,
appropriately prepared and executed articles of merger with respect to Merger I
will be deposited in the office of the Washington Secretary of State, and
appropriately prepared and executed articles of merger with respect to Merger II
and related documents will have been deposited in the offices of the Director.
On the Effective Date, the articles of merger with respect to Merger I will be
filed with the Office of the Washington Secretary of State. Following such
filings, the Director's and FDIC's merger certification letter will become
effective.

SECTION 3.

REPRESENTATIONS AND WARRANTIES

3.1 REPRESENTATIONS AND WARRANTIES.

CBSI represents and warrants to Cascade and Cascade represents and warrants
to CBSI that, except as disclosed in an Annex to this Agreement or otherwise
disclosed in writing by CBSI or Cascade, respectively, concurrently with the
execution of this Agreement:

3.1.1 ORGANIZATION AND GOOD STANDING. It is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington, is a registered bank holding company pursuant to the BHC Act, and
has all requisite power and authority to own and operate its properties and to
carry on its businesses as now conducted. Each of its Subsidiaries is either a
commercial bank or a

A-13
<PAGE>

corporation duly organized, validly existing and in good standing under the laws
of the State of Washington, and has all requisite power and authority to own and
operate its Properties and to carry on its businesses as now conducted. The
locations of all offices, including approved and unopened offices of its
Subsidiaries, are listed in Annex 1.

3.1.2 CORPORATE AUTHORITY. Subject to receipt of required
shareholder approvals of this Agreement, and subject to the required approvals,
consents and waivers of governmental authorities referred to in Section 5.1 of
this Agreement, each of it and its Subsidiaries has all requisite corporate
power and authority to enter into and carry out its obligations pursuant to this
Agreement. The execution, delivery and performance of this Agreement will not
violate any judgment, order, decree, statute, rule or governmental regulation to
which it or any of its Subsidiaries may be subject, or constitute a breach or
violation of or a default under any agreement or instrument to which it or any
of its Subsidiaries is a party or by which it or any of its Subsidiaries may be
bound, which breach or violation or default would have a Material Adverse
Effect. Neither it nor any of its Subsidiaries is in violation of any provision
of its Articles of Incorporation or Bylaws or any agreement or instrument to
which it or any of such Subsidiaries is a party or by which it or any of such
Subsidiaries is bound.

3.1.3 CAPITAL STOCK.

(i) Representations and Warranties by CBSI. The authorized capital
--------------------------------------
stock of CBSI consists of 10,000,000 shares of CBSI Common Stock, and 2,000,000
shares of preferred stock, no par value per share. A total of 5,494,186 shares
of CBSI Common Stock were issued and outstanding as of the date of this
Agreement, all of which were validly issued and are fully paid and
nonassessable. No shares of preferred stock are issued and outstanding. As of
the date of this Agreement, CBSI Options with respect to 326,955 shares of CBSI
Common Stock have been granted and are outstanding, and 593,250 shares of CBSI
Common Stock have been reserved for issuance under the CBSI Option Plan. No
other unissued shares of CBSI Common Stock or any other securities of CBSI, or
any of its subsidiaries, are subject to any warrants, options, conversion
privileges, rights or commitments of any character, kind or nature, except as
set forth in Annex 2, and CBSI has not issued or is obligated to issue any
additional shares of CBSI Common Stock or any other security to any other
person, except as so disclosed. The CBSI Common Stock to be issued to holders
of Cascade Common Stock pursuant to this Agreement, when issued in accordance
with the terms of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and subject to no preemptive rights. Bank's equity
capital at December 31, 1996 consisted of common stock of $1,121,331, additional
paid in capital of $41,999,664 and undivided profits, including capital
reserves, of $6,830,004. At Closing, the Bank's total equity capital, as the
surviving bank, will be equal to the then combined capital structure of the
merging banks.

(ii) Representations and Warranties by Cascade. The authorized
-----------------------------------------
capital stock of Cascade consists of 2,000,000 shares of Cascade Common Stock
and 100,000 shares of preferred stock, par value $1.00 per share. A total of
330,000 shares of Cascade Common Stock are issued and outstanding as of the date
of this Agreement, all

A-14
<PAGE>

of which were validly issued and are fully paid and nonassessable. No shares of
preferred stock are issued and outstanding. As of the date of this Agreement,
Cascade Options with respect to 11,400 shares of Cascade Common Stock have been
granted and are outstanding. CCB's authorized capital stock consists of
1,000,000 shares of common stock, par value $1.00 per share, of which 165,000
shares currently are issued and outstanding, all of which are validly issued to
Cascade, fully paid and nonassessable. No unissued shares of common stock or any
other securities of Cascade or CCB, or any of their Subsidiaries, are subject to
any warrants, options, conversion privileges, rights or commitments of any
character, kind or nature, except as set forth in Annex 2, and neither Cascade
nor CCB has issued or is obligated to issue any additional shares of common
stock or any other security to any other person, except as so disclosed.

3.1.4 SUBSIDIARIES. Except as listed in Annex 3, it does not have
any Subsidiaries. The shares of capital stock of each of its Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X) are owned by it free
and clear of all liens, claims, encumbrances and restrictions on transfer.

3.1.5 FINANCIAL STATEMENTS. Its Financial Statements (i) have been
prepared from the books and records of the entity or entities to which they
relate, (ii) present fairly the financial condition and operating results of
such entity or entities at the times indicated and for the periods covered,
(iii) have been prepared in accordance with GAAP consistently applied through
the periods covered, except as stated therein, and (iv) reflect all material
liabilities, contingent or otherwise, of Cascade and CCB on the respective dates
covered, except as stated therein.

3.1.6 PROPERTIES.

(i) It and each of its Subsidiaries have unencumbered legal title or
contract vendee's interest to their respective owned properties and other assets
reflected in its Financial Statements, except for: (a) those encumbrances
related to real property taxes, local improvement district assessments (if any),
easements, covenants, restrictions and other matters of record which do not
individually or in the aggregate materially adversely affect the use and
enjoyment of the relevant real property; (b) prior mortgage liens on other real
estate owned (to the extent consistent with the terms of the original loan in
connection with which such real estate was acquired); (c) any property and other
assets, not material in aggregate amount, disposed of since December 31, 1996 in
the ordinary course of business; and (d) such defects in title which would not,
individually or in the aggregate, have a Material Adverse Effect. All leases of
real or personal property in which Cascade or CCB has an interest as lessee are
assignable without the consent of any other party.

(ii) All buildings and other facilities used in its business (or that
of any of its Subsidiaries) are adequately maintained and are free from defects
which could materially interfere with the current or future use of such
facilities.

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3.1.7 ENVIRONMENTAL MATTERS.

(i) To the knowledge of its Executive Officers, it and each of its
Subsidiaries. the Loan Properties are, and have been, in compliance with all
applicable laws, rules, regulations, standards and requirements of the United
States Environmental Protection Agency and of state and local agencies with
jurisdiction over pollution or protection of the environment, except for
violations which, individually or in the aggregate, do not or would not result
in a Material Adverse Effect on it.

(ii) To the knowledge of its Executive Officers, neither it nor any of
its Subsidiaries, nor any other Person having an interest in any of its
Properties, has engaged in the unlawful generation, use, manufacture, treatment,
transportation, storage (in tanks or otherwise), or disposal of Hazardous
Material on or from such Properties. With respect to its Properties, there has
not been (a) any unlawful presence, use, generation, handling, treatment,
storage, release, threatened release, migration or disposal of Hazardous
Material, (b) any condition that could result in any use, ownership or transfer
restriction, or (c) any condition of nuisance, any of which, individually or
collectively, would have a Material Adverse Effect on it. Neither it nor any of
its Subsidiaries has received notice of, or has reason to know of, a condition
that could give rise to any private or governmental suit, claim, action,
proceeding or investigation against it or its Properties or against any other
Person as a result of any of the events described in clauses (a), (b), and (c)
of this paragraph. "Hazardous Material" means any chemical, substance,
material, object, condition, waste or combination of the foregoing which is or
may be hazardous or harmful to human health or safety or to the environment due
to its radioactivity, ignitability, corrosivity, reactivity, explosivity,
toxicity, carcinogenicity, infectiousness or other harmful or potentially
harmful properties or effects, including, without limitation, petroleum or
petroleum products, and all of those chemicals, substances, materials, objects,
conditions, wastes or combinations of them which are now or become listed,
defined or regulated in any manner by any federal, state or local law based,
directly or indirectly.

3.1.8 TAXES. All tax returns and reports required by law to be filed
by it and its Subsidiaries have been duly filed, and all taxes, assessments,
fees and other government charges upon it or any of its Subsidiaries or upon any
of their respective properties, assets, income or franchises that are due and
payable have been paid. The federal income portion of such taxes have been paid
in full as indicated in its tax returns for the past five years or adequate
provision has been made for any such taxes on its balance sheet in accordance
with GAAP. No material objections to returns or claims for additional taxes are
being asserted with respect to its federal or state taxes for any prior years,
except for such audits, objections or claims which are being contested in good
faith, by appropriate proceedings and with establishment of appropriate
reserves, and which have been disclosed in writing to the other parties to this
Agreement. There has been no past audit, objection to returns, or claim for
additional taxes except as specified in the foregoing sentence.

3.1.9 ABSENCE OF REGULATORY ACTION. Neither it nor any of its
Subsidiaries is, to the knowledge of its Executive Officers, in violation of any
statute,

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rule or governmental regulation applicable to it (including, without limitation,
the Community Reinvestment Act, Bank Secrecy Act, Truth in Lending Act, Equal
Credit Opportunity Act, and statutes, rules and regulations governing the
reporting of taxpayer identification numbers of its customers). Neither it nor
any of its Subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
is a recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state regulatory authorities,
nor has it been advised by such authorities that they are contemplating issuing
or requesting any such order, agreement, memorandum or similar document or
undertaking.

3.1.10 ALLOWANCE FOR LOAN AND LEASE LOSSES. In the opinion of its
management, the allowance for loan losses shown in its latest Financial
Statements is, and that which will be stated in its Subsequent Financial
Statements prior to Closing will be, adequate to absorb its anticipated loan and
lease losses. In any event, CCB's allowance for loan losses at the Effective
Date will be at least 1% of its then-outstanding loans and leases.

3.1.11 AGREEMENTS. Except for arrangements made in the ordinary
course of business, it and its Subsidiaries are not bound by any material
contract (as defined in Item 601(b)(10) of SEC Regulation S-K) to be performed
after the date hereof that has not been filed with or incorporated by reference
in its Reports, as to CBSI, or delivered to CBSI, as to Cascade. Specifically,
in the case of Cascade, except as so disclosed prior to the date of this
Agreement, as of the date of this Agreement, neither it nor any of its
Subsidiaries is a party to an oral or written (i) agreement not terminable on 30
days or less notice involving the payment of more than $25,000 per annum, in the
case of any such agreement with an individual, or $100,000 per annum, in the
case of any other such agreement, (ii) agreement with any executive officer or
other key employee of it or any of its Subsidiaries the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving it or any of its Subsidiaries of the nature contemplated
by Agreement and which provides for the payment of in excess of $25,000, (iii)
agreement with respect to any executive officer of it or any of its Subsidiaries
providing any term of employment or compensation guarantee extending for a
period longer than one year and for the payment of an amount in excess of
$25,000 per annum, or (iv) agreement or plan, including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.

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Subsidiaries to carry on their respective businesses as they are presently
conducted and the absence of which, individually or in the aggregate, can
reasonably be expected to have a Material Adverse Effect on it. All such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and, to the best knowledge of its Executive Officers, no
suspension or cancellation of any of them is threatened.

3.1.13 KNOWLEDGE AS TO CONDITIONS. It knows of no reason why the
approvals, consents and waivers of governmental authorities referred to in
Section 5.1 of this Agreement should not be obtained.

3.1.14 PROSPECTUS/PROXY STATEMENT. The information to be supplied by
it for inclusion in the Proxy/Registration Statement will not, at the time such
Proxy/Registration Statement becomes effective, at the time it is mailed, and at
the time of the Cascade shareholder meeting called to consider and vote upon the
Transaction, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.

3.1.15 NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, neither
it nor any of its Subsidiaries has incurred any material liability, except in
the ordinary course of their business consistent with past practice, nor has
there been any change in the financial condition (which includes, without
limitation, the condition of assets, franchises, results of operations and
prospects) that has had or may reasonably be expected to have a Material Adverse
Effect on it.

3.1.16 COMPLETENESS OF REPRESENTATIONS. No representation or
warranty made by or with respect to it or its Subsidiaries in this Agreement (or
in the Annexes to this Agreement) contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained in this Agreement (or in such Annexes) or in such representation or
warranty not misleading.

3.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CASCADE AND CCB.

Except as disclosed in an Annex to this Agreement or otherwise disclosed in
writing to CBSI concurrently with the execution of this Agreement, Cascade
represents and warrants to CBSI the following:

3.2.1 ASSET CLASSIFICATION.

(i) Annex 7 sets forth a list, separated by category of classification
or criticism ("Asset Classification"), of the aggregate amounts of loans,
extensions of credit and other assets of it and its Subsidiaries that have been
criticized or classified, and such list is accurate and complete in all material
respects, as of December 31, 1996, except as otherwise expressly noted in such
Annex.

(ii) No amounts of its loans, extensions of credit or other assets
that have been classified or criticized by any representative of any
governmental entity as

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"Other Assets Especially Mentioned," "Substandard," "Doubtful," "Loss" or words
of similar effect are excluded from the amounts disclosed in the Asset
Classification, other than amounts of loans, extensions of credit or other
assets that were paid off or charged off by it or its Subsidiaries before the
date of this Agreement.

3.2.2 CORE DEPOSITS AND CAPITAL. The daily average of CCB's Core
Deposits for the month of June 1997 is not less than 104% of the daily average
of Core Deposits for the month of December 1996. Cascade's Capital is at least
$6,625,000. CCB's Capital is at least $6,625,000.

3.2.3 LITIGATION. No material litigation, proceeding or controversy
before any court or governmental agency is pending, and there is no pending
claim, action or proceeding against it or any of its Subsidiaries, which is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it or to materially hinder or delay consummation of the transactions
contemplated hereby, and, to the best knowledge of its Executive Officers after
reasonable inquiry, no such litigation, proceeding, controversy, claim or action
has been threatened or is contemplated.

3.2.4 INSURANCE. It and each of its Subsidiaries have taken all
requisite action (including the making of claims and the giving of notices)
under their respective directors' and officers' liability insurance policy or
policies in order to preserve all rights under such policies with respect to all
matters known to it (other than matters arising in connection with, and the
transactions contemplated by, this Agreement). Annex 8 lists all directors' and
officers' liability insurance policies and other material insurance policies
maintained by it or its Subsidiaries.

3.2.5 LABOR MATTERS. Neither it nor any of its Subsidiaries is a
party to, or is bound by, any collective bargaining agreement, contract, or
other agreement or understanding with a labor union or labor organization, nor
is it or any of its Subsidiaries the subject of any proceeding asserting that it
or any such Subsidiary has committed an unfair labor practice or seeking to
compel it or such Subsidiary to bargain with any labor organization as to wages
and conditions of employment, nor is there any strike or other labor dispute
involving it or any of its Subsidiaries pending or threatened.

3.2.6 EMPLOYEE BENEFITS.

(i) For purposes of this Agreement, "Plan" or "Plans", individually or
collectively, means any "employee benefit plan," as defined in Section 3(3) of
ERISA, maintained by Cascade or CCB, as the case may be.

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Compensation Plans (and, as applicable, copies of summary plan descriptions,
governmental filings (on Form 5500 series or otherwise), actuarial reports and
reports under Financial Accounting Standards Board Statement No. 106 relating to
such Compensation Plans) covering its current employees or those of its
Subsidiaries (collectively, "Employees"), including Plans and related
amendments, have been made available to the other parties to this Agreement.

(iii) All of its Plans covering Employees (other than "multi-employer
plans" within the meaning of ERISA Sections 3(37) or 4001(a)(3)), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each of its Plans
that is an "employee pension benefit plan" within the meaning of ERISA Section
3(2) ("Pension Plan") and that is intended to be qualified under Section 401(a)
of the Code, has received a favorable determination letter from the Internal
Revenue Service, and Cascade is not aware of any circumstances likely to result
in revocation of any such favorable determination letter. No litigation
relating to its Plans is pending or, to the knowledge of its Executive Officers,
threatened. Neither it nor any of its Subsidiaries has engaged in a transaction
with respect to any Plan that, assuming the taxable period of such transaction
expired as of the date of this Agreement, could subject it or any of its
Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
ERISA Section 502(i).

(iv) No liability under Subtitle C or D of Title IV of ERISA (other
than payment of applicable premiums) has been or is expected to be incurred by
it or any of its Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of ERISA Section 4001(a)(15),
currently or formerly maintained by any of them, or the single-employer plan of
any entity that is considered one employer with it under ERISA Section 4001 or
Section 414 of the Code (an "ERISA Affiliate"). It and its Subsidiaries and
ERISA Affiliates have not incurred and do not expect to incur any material
withdrawal liability with respect to a multi-employer plan under Subtitle I of
Title IV of ERISA (regardless of whether based on contributions of ERISA
Affiliates). Neither it, its Subsidiaries nor any of its ERISA Affiliates has
been notified by any multi-employer plan to which it or any of its subsidiaries
or ERISA Affiliates is contributing, or may be obligated to contribute, that
such multi-employer plan is currently in reorganization or insolvency or that
such multi-employer plan intends to terminate or has been terminated under ERISA
Section 4041A. No notice of a "reportable event" within the meaning of ERISA
Section 4043, for which the 30-day reporting requirement has not been waived,
has been required to be filed for any of its Pension Plans or by any of its
ERISA Affiliates within the 12-month period ending on the date of this
Agreement. Neither it, its Subsidiaries nor any of their respective ERISA
Affiliates has incurred or is aware of any facts that are reasonably likely to
result in any liability under ERISA Sections 4069 or 4204.

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ERISA Section 302. Neither it nor any of its Subsidiaries or its ERISA
Affiliates has provided, or is required to provide, security to any Pension Plan
or to any single-employer plan of an ERISA Affiliate under Code Sections
401(a)(29) or 412(f)(3) or ERISA Sections 306, 307 or 4204.

(vi) Except as disclosed in the Cascade Financial Statements, neither
it nor any of its Subsidiaries has any obligations for retiree health and life
benefits.

(vii) No provision of the documents governing any Plan contains
restrictions on the rights of it or its Subsidiaries to amend or terminate any
Plan without incurring liability under the Plan other than normal liabilities
for benefits.

(viii) Except as disclosed in the Cascade Financial Statements or
otherwise disclosed in this Agreement or in the related Annexes, the Transaction
will not result in (a) vesting, acceleration, or increase of any amounts payable
under any Compensation Plan, (b) any material increase in benefits under any
Compensation Plan or (c) payment of any severance or similar compensation under
any Compensation Plan.

(ix) Cascade's obligations under any existing executive supplemental
retirement Plan ("ESI Plan") will not at any time exceed the value, as reflected
on CCB's books (reported consistent with GAAP), of insurance policies owned by
the CCB on the lives of the officers covered by the ESI Plan.

3.2.7 BROKER'S OR FINDER'S FEES. Except for fees deemed by its board
to be required to obtain a fairness opinion and related advice from a financial
advisor to effect the Transaction, which fees shall not exceed $45,000, no
agent, broker, person or firm acting on behalf of Cascade or CCB, or under its
authority, is or will be entitled to any commission, broker's, finder's or
financial advisory fee in connection with the Transaction.

3.3 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CBSI.

Except as disclosed in an Annex to this Agreement or otherwise disclosed in
writing to Cascade concurrently with the execution of this Agreement, CBSI
represents and warrants to Cascade that none of CBSI's Reports contained or will
contain any untrue statement of a material fact or omitted or will omit to state
a material fact required to be stated in any such Reports or necessary in order
to make the statements in any such Reports, in light of the circumstances under
which they were made, not misleading.

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SECTION 4.

CONDUCT AND TRANSACTIONS PRIOR TO CLOSING

4.1 CONDUCT OF CASCADE'S AND CCB'S BUSINESS PRIOR TO CLOSING.

Cascade and CCB each covenant that, prior to Closing:

4.1.1 AVAILABILITY OF BOOKS, RECORDS AND PROPERTIES.

(i) The books, records, properties, contracts and documents of Cascade
and CCB will be available at all reasonable times to CBSI, Bank and their
counsel, accountants and other representatives. Such items will be open for
inspection, audit and direct verification of loan or deposit balances,
collateral receipts and such other transactions or documentation as CBSI or Bank
deem reasonably relevant to the Transaction. Cascade and CCB will cooperate
fully in such inspection and audit, and will make available all information
reasonably requested by CBSI or Bank.

(ii) Upon request by CBSI or Bank, Cascade and CCB will request that
any third parties involved in the preparation or review of the Cascade Financial
Statements or Cascade Subsequent Financial Statements disclose to CBSI and Bank
the work papers or any similar materials related to such financial statements.

4.1.2 ORDINARY AND USUAL COURSE. Without prior written consent of
CBSI or Bank, Cascade and CCB will conduct their respective business only in the
ordinary and usual course and will not do any of the following:

(i) Effect any stock split or other recapitalization with respect to
Cascade Common Stock or the shares of CCB; issue, pledge or encumber in any way
any shares of such capital stock; or grant any option for shares of such capital
stock.

(ii) Declare or pay any dividend, or make any other distribution,
either directly or indirectly, with respect to Cascade Common Stock or the
shares of CCB.

(iii) Dispose of assets or make any commitment other than in the
ordinary and usual course of business.

(iv) Solicit or accept deposit accounts of a different type from
accounts previously accepted by CCB or at rates materially in excess of rates
previously paid by CCB except to reflect changes in prevailing interest rates,
or incur any indebtedness for borrowed money.

(v) Acquire an ownership interest or a leasehold interest in any real
property, whether by foreclosure or otherwise, without making an appropriate
environmental evaluation in advance of obtaining such interest and without
providing to CBSI such evaluation and at least 30 days' advance notice.

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(vi) Enter into any other transaction or make any expenditure other
than in the ordinary and usual course of its business except for expenses
reasonably related to completion of the Transaction.

(vii) Take any action which would materially and adversely affect or
delay their ability or the ability of CBSI and Bank to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
Transaction or to perform their respective covenants and agreements under this
Agreement.

4.1.3 CONTINUING REPRESENTATION AND WARRANTY. They will not do or
cause to be done anything that would cause any representation or warranty in
Section 3 of this Agreement to be untrue or inaccurate if made at Closing,
except as otherwise contemplated or required by this Agreement or consented to
in writing by CBSI or Bank.

4.1.4 MAINTENANCE OF PROPERTIES. Each will maintain its respective
properties and equipment (and related insurance or its equivalent) in accordance
with good business practice.

4.1.5 PRESERVATION OF BUSINESS ORGANIZATION. Each will use all
reasonable effort to:

(i) Preserve its respective business organization.

(ii) Retain the services of management and employees consistent with
such program for consolidation of redundant employment positions resulting from
the Transaction as shall be developed in cooperation with CBSI.

(iii) Preserve the goodwill of suppliers, customers and others with
whom Cascade and CCB have business relations.

4.1.6 SENIOR MANAGEMENT. Without prior consultation with CBSI or
Bank, neither Cascade nor CCB will make any change with respect to present
management personnel having the rank of vice-president or higher.

4.1.7 COMPENSATION. Cascade and CCB will not permit any increase in
the current or deferred compensation payable or to become payable by Cascade or
CCB to any of its directors, officers, employees, agents or consultants other
than normal increments in compensation in accordance with Cascade's and CCB's
established policies with respect to the timing and amounts of such increments.
Without the prior written approval of CBSI and Bank, and except as provided in
Section 6.3 of this Agreement, Cascade and CCB will not commit to, execute or
deliver any employment agreement with any party not terminable without expense
with two weeks notice.

4.1.8 UPDATE OF FINANCIAL STATEMENTS. Cascade will deliver Subsequent
Cascade Financial Statements to CBSI, as soon as possible and not later than
thirty (30) days following the end of each relevant period. The Subsequent
Cascade Financial Statements:

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(i) Will be prepared from the books and records of Cascade and CCB.

(ii) Will present fairly the financial position and operating results
of Cascade and CCB at the times indicated and for the periods covered.

(iii) Will be prepared in accordance with GAAP (except for the absence
of notes), consistently applied through the periods covered, subject to normal
year-end adjustments.

(iv) Will reflect all material liabilities, contingent or otherwise,
of Cascade and CCB on the respective dates and for the respective periods
covered, except for liabilities not required to be so reflected in accordance
with GAAP.

4.1.9 ACQUISITION PROPOSALS/TERMINATION FEE.

(i) Cascade agrees that neither it nor any of its Subsidiaries shall,
and Cascade shall direct and use its best efforts to cause its directors,
officers, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, initiate, solicit, encourage or take any other action to
facilitate any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to stockholders of Cascade) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or equity securities
of, Cascade or any of its Subsidiaries (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or, except to the extent
legally required for the discharge by the board of directors of its fiduciary
duties as advised in writing by such board's counsel, engage in any negotiations
concerning, or provide any confidential information or data to any Person
relating to, an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. Cascade will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Cascade will take the necessary steps to inform the appropriate
individuals or entitles referred to in the first sentence hereof of the
obligations undertaken in this Section 4.1.9 of this Agreement. Cascade will
notify CBSI immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations are sought to be
initiated or continued with Cascade.

(ii) If (a) there is an Acquisition Proposal prior to the Cascade
shareholder vote on the Transaction; (b) the Transaction is not approved by
holders of at least two-third's of the outstanding shares of Cascade Common
Stock at the shareholder meeting called to vote on the Transaction (and approved
by Cascade as the sole shareholder of CCB), and (c) prior to January 1, 1999,
Control of Cascade is acquired by a third party, by merger, purchase of assets,
acquisition of stock or otherwise, then unless the representations and
warranties of CBSI in the Agreement were false in any material respect as of the
date of such shareholder meeting or CBSI was in material default of its
covenants in the Agreement as of such date, Cascade will

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promptly pay to CBSI the amount of $500,000 as complete reimbursement for its
direct and indirect expenses incurred in proceeding with this Transaction.

4.1.10 STATUS OF TITLE/LEASEHOLD INTERESTS. Cascade and CCB will
provide CBSI and Bank with status of title reports issued by a title insurance
company reasonably satisfactory to CBSI showing unencumbered fee simple title or
vendee's interest to all real property owned by Cascade and CCB, and
unencumbered leasehold interests in all real property leased by Cascade or CCB,
and containing only such exceptions, reservations and encumbrances as may be
consented to in writing by CBSI or are described in clauses (a) through (d) of
Section 3.1.6(i) of this Agreement. With respect to such real property, Cascade
and CCB will also provide to CBSI copies of existing title policies held in
their files, unless Cascade or CCB have reason to know of subsequent changes or
unless CBSI expressly requests an updated policy for any specific piece of
property.

4.1.11 ENVIRONMENTAL ASSESSMENTS. Cascade will obtain Phase I
environmental assessments for any real property on which Cascade or any of its
Subsidiaries maintains an office and, upon request by CBSI, for any
nonresidential OREO. Oral reports of such environmental assessments will be
delivered to CBSI no later than eight (8) weeks, and written reports will be
delivered to CBSI no later than sixteen (16) weeks, following the date of such
request. Cascade will obtain, at CBSI's expense, Phase II environmental
assessments for properties identified by CBSI on the basis of such Phase I
environmental assessments.

4.1.12 DIRECTORS' AND OFFICERS' LIABILITY. Immediately prior to the
Effective Date, Cascade shall notify its directors' and officers' liability
insurers of the Transaction and of all pending or threatened claims, actions,
suits, proceedings or investigations asserted or claimed against any Person
entitled to indemnification pursuant to Section 8.4 of this Agreement and known
to Cascade, or circumstances reasonably deemed by CBSI to be likely to give rise
thereto, in accordance with terms and conditions of the applicable policies.

4.2 REGISTRATION STATEMENT AND SUBMISSION TO SHAREHOLDERS.

4.2.1 PREPARATION OF PROXY/REGISTRATION STATEMENT. As promptly as
practicable after the date of this Agreement, CBSI with the assistance of
Cascade will prepare and file with the SEC a combined proxy and registration
statement (the "Proxy/Registration Statement") on Form S-4 (or on such other
form as shall be appropriate), which shall constitute the proxy statement (the
"Proxy Statement") of Cascade relating to the approval and adoption of the
Transaction and this Agreement by the shareholders of Cascade, and the
registration statement of CBSI with respect to the CBSI Common Stock to be
issued in connection with Merger I (the "Registration Statement"). As promptly
as practicable after comments are received from the SEC on the
Proxy/Registration Statement, CBSI will make all reasonable efforts to cause the
Proxy/Registration Statement to become effective.

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4.2.2 SUBMISSION TO SHAREHOLDERS. Cascade will promptly take the
action necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws to convene a shareholders meeting to consider the
approval of this Agreement and to authorize the transactions contemplated by
this Agreement, such meeting date to be the earliest practical date following
the effective date of the Registration Statement. Cascade will have at least 20
days to solicit proxies.

4.3 SUBMISSION TO REGULATORY AUTHORITIES.

(i) An application (or request for waiver) to the Federal Reserve and
related filings regarding Merger I.

(ii) An application to the FDIC and Director and related filings regarding
Merger II.

(iii) Filings and coordination with the Washington Secretary of State with
respect to Merger I, pursuant to the Corporate Code.

4.4 NASDAQ LISTING. CBSI will use its best efforts to cause the shares of
CBSI Common Stock to be issued in connection with Merger I pursuant to this
Agreement to be approved for listing on the Nasdaq National Market System,
subject only to official notice of issuance.

4.5 PUBLIC ANNOUNCEMENTS.

Subject to written advice of legal counsel with respect to legal
requirements relating to public disclosure of matters related to the subject
matter of this Agreement, the timing and content of any announcements, press
releases or other public statements concerning the Transaction shall occur upon,
and be determined by, the mutual consent of Cascade and CBSI.

4.6 CONSENTS.

Each party to this Agreement will use its best efforts to obtain the
consent or approval of any Person whose consent or approval is required in order
to permit CBSI, Bank, Cascade and CCB to consummate the Transaction.

4.7 FURTHER ACTIONS.

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and other instruments and documents as may be reasonably necessary or
appropriate in order to consummate the Transaction promptly.

4.7.2 POLICIES OF CASCADE. At the request of CBSI, Cascade will use
its best efforts to modify and change its loan and real estate valuation
policies and practices (including loan classifications and levels of reserves)
and its fixed asset amortization and expense procedures prior to the Effective
Date so as to be consistent on a mutually satisfactory basis with those of CBSI
and GAAP. Cascade's and CCB's representations, warranties, covenants and
conditions contained in this Agreement will not be deemed to be untrue or
breached or unfulfilled in any respect for any purpose as a consequence of any
modifications or changes undertaken solely on account of this Section 4.7.2.

4.7.3 APPOINTMENT OF DIRECTOR BY CBSI. CBSI agrees that, following
the Effective Date, it will appoint Cascade's Board Chairman, Thomas L. Matson,
as a director of CBSI and Bank.

4.8 NOTICE.

Cascade and CCB will provide CBSI and Bank with prompt written notice of:

(i) Any events that, individually or in the aggregate, can reasonably be
expected to have a Material Adverse Effect with respect to Cascade or CCB.

(ii) The commencement of any proceeding against Cascade or CCB by or before
any court or governmental agency that, individually or in the aggregate, can
reasonably be expected to have a Material Adverse Effect with respect to Cascade
or CCB.

(iii) Acquisition of an ownership or leasehold interest in any real
property, as specified in Section 4.1.2 of this Agreement.

4.9 CONFIDENTIALITY.

Subject to the requirements of law, each party will keep confidential, and
will exercise its best efforts to cause its representatives to keep
confidential, all information and documents obtained pursuant to this Agreement
unless such information (i) was already known to such party, (ii) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (iii) is disclosed with prior written approval
of the party to which such information pertains or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Agreement is terminated or the transactions contemplated by this Agreement
shall otherwise fail to be consummated, each party to this Agreement shall
promptly cause all copies of documents or extracts thereof containing
information and data as to another party hereto to be returned to the party
which furnished the same.

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<PAGE>

4.10 AFFILIATE LETTERS.

No later than thirty days following the execution and delivery of this
Agreement, Cascade will deliver to CBSI, after consultation with legal counsel,
a list of names and addresses of those persons deemed to be "affiliates" (within
the meaning of SEC Rule 145) of Cascade with respect to the Mergers and for
purposes of qualifying for "pooling-of-interests" accounting treatment. Cascade
will deliver, or cause to be delivered, to CBSI not later than thirty days prior
to the Effective Date, from each of the "affiliates" of Cascade so identified, a
letter dated as of the date of its delivery, in the form of Annex 10.

4.12 DIRECTOR AGREEMENTS REGARDING REAL ESTATE.

4.12.1 ACQUISITION OF REAL ESTATE. The main office of Cascade
(located at 25 - 16th Street N.W., Auburn, Washington) and the land on which
CCB's South Auburn branch office is located (at "A" Street and Ellingson Road,
Auburn, Washington) are both owned by a partnership comprised substantially of
directors of Cascade (the "Partnership"). By their signatures on this
Agreement, each Cascade director who is a partner of the Partnership agrees to
cause the Partnership to sell, and CBSI or Bank agrees to acquire, the
Partnership's real property, with title thereto marketable and free of monetary
encumbrances, at the cash purchase price determined under this Section 4.12.

4.12.2 DETERMINATION OF PURCHASE PRICE/CLOSING PROCEDURES.

(i) Within thirty (30) days after the date of this Agreement, either
CBSI or Bank and the Partnership shall each select an appraiser to prepare a
written appraisal (an "Appraisal") of the fair market value of (a) the real
property (the "Main Office Property") and improvements, less those improvements
paid for by Cascade or CCB, (the "Main Office Improvements") comprising
Cascade's main office, and (b) the real property on which CCB's South Auburn
branch office is located (the "South Auburn Property") (collectively, the
"Partnership Property"). Each of the appraisers selected to determine the fair
market value of the Partnership Property shall be MAI-certified, shall have at
least ten (10) years' experience appraising commercial property in the South
King County areas, and shall be reasonably acceptable to the other party.
Neither party shall unreasonably withhold its acceptance of the appraiser
selected by the other party. Each Appraisal shall be completed within thirty
(30) days following the selection and acceptance of the appraiser, and promptly
following completion, both CBSI or Bank and the Partnership shall provide the
other party with a copy of the Appraisal prepared for it.

(ii) The purchase price of the Partnership Property (the "Purchase
Price") shall be determined as follows. If the average of the two Appraisal
amounts is less than $1,360,000, then the Purchase Price shall be $1,360,000.
If the average of the two Appraisal amounts is greater than $1,360,000 and less
than $1,600,000, then the Purchase Price shall be the average of the two
Appraisal amounts. If the average of

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<PAGE>

the two Appraisal amounts is greater than $1,600,000, then the Purchase Price
shall be $1,600,000.

(iii) After determination of the Purchase Price, the Partnership and
either CBSI or Bank shall select a title company mutually agreeable to the
Partnership and either CBSI or Bank (the "Title Company"), and shall execute
such documents as are required by the Title Company to complete the closing of
the sale of the Partnership Property. The Partnership will provide CBSI and
Bank with status of title reports issued by the Title Company showing
unencumbered fee simple title to each of the properties that constitute the
Partnership Property, containing only such exceptions, reservations and
encumbrances as would allow CBSI to use the Partnership Property for its
intended purpose. The Partnership shall also provide CBSI or the Bank with an
insurance policy or policies issued by the Title Company insuring title as set
forth above. The title insurance policy shall be an ALTA extended owner's
policy with no exceptions other than those set forth above. The closing of the
sale of the Partnership Property shall occur concurrently with the Closing.

4.12.4 FAIR MARKET VALUE. For purposes of preparing the Appraisals,
each appraiser shall determine the fair market value of the Partnership Property
at its then current use.

4.12.5 COST OF APPRAISERS. Each party shall bear the cost of the
appraiser it selects.

4.13. AVAILABILITY OF CBSI'S BOOKS, RECORDS AND PROPERTIES.

CBSI will make available to Cascade true and correct copies of (i) its
Articles of Incorporation and Bylaws and (ii) minutes of the meetings of its
shareholders and its board of directors. At Cascade's request, CBSI will also
provide Cascade with copies of (1) Reports and all other documents filed with
the SEC or banking regulators and (2) CBSI's stock option plans.

SECTION 5.

APPROVALS AND CONDITIONS

5.1 REQUIRED APPROVALS.

The obligations of the parties to this Agreement are subject to the
approval of the Agreement and Transaction by all appropriate regulatory agencies
having jurisdiction with respect to the Transaction.

5.2 CONDITIONS TO OBLIGATIONS OF CBSI AND BANK.

All obligations of CBSI and Bank pursuant to this Agreement are subject to
satisfaction of the following conditions at or before Closing:

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<PAGE>

5.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Cascade and CCB contained in this Agreement or in any certificate
or other instrument delivered in connection with this Agreement will be true and
correct in all material respects at Closing, with the same force and effect as
though such representations and warranties had been made on and as of Closing,
except to the extent that such representations and warranties are by their
express provisions made as of a specified date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date. Cascade and CCB will have delivered to CBSI and Bank
their respective certificates to that effect, executed by the chief executive
officer of Cascade and dated as of Closing.

5.2.2 COMPLIANCE. Cascade and CCB each will have performed and
complied in all material respects with all terms, covenants and conditions of
this Agreement on or before Closing. Cascade and CCB will have delivered to
CBSI and Bank their respective certificates to that effect, executed by the
chief executive officer of Cascade and dated as of Closing.

5.2.3 NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, there
will have been no material damage, destruction or loss (whether or not covered
by insurance) and no other event, individually or in the aggregate, constituting
or reasonably expected by CBSI to constitute a Material Adverse Effect with
respect to Cascade or CCB.

5.2.4 FINANCIAL CONDITION. The following will be true and the
certificates of Cascade and CCB referred to in Subsection 5.2.2 will so state:

(i) Cascade's and CCB's Capital will not be less than $6,600,000 if
the Closing is on November 1, 1997 and $6,650,000 if the Closing is after
November 1, 1997.

(ii) Core Deposits of CCB will not be less than 104% of the daily
average Core Deposits for the month of December 1996. For purposes of this
subsection, Core Deposits will be determined on the basis of the average of the
daily Core Deposit balances of CCB during a 90-day period ending two days prior
to Closing.

(iii) CCB's allowance for possible loan and lease losses will not be
less than 1% of CCB's total outstanding loans and leases, and will be adequate
to absorb CCB's anticipated loan and lease losses.

(iv) The reserves set aside for any contingent liabilities of Cascade
and CCB will be adequate to absorb all reasonably anticipated losses.

5.2.5 NO GOVERNMENTAL PROCEEDINGS. No action or proceeding will have
been commenced or threatened by any governmental agency to restrain or prohibit
or invalidate the Transaction.

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<PAGE>

5.2.6 POOLING ACCOUNTING. CBSI will have received a letter, dated as
of the Effective Date, from Deloitte & Touche LLP, its independent certified
public accountants, to the effect that the Transaction will qualify for pooling-
of-interests accounting treatment if closed and consummated in accordance with
this Agreement.

5.2.7 EXECUTION OF ADDITIONAL AGREEMENTS. The agreements described
in Section 6 of this Agreement will have been executed and delivered to CBSI and
Bank.

5.2.8 LEGAL OPINION. Graham & Dunn, P.C., counsel for Cascade and
CCB, will have delivered to CBSI and Bank an opinion, dated as of Closing, in
form and substance acceptable to CBSI and its counsel.

5.2.10 RECEIPT OF TITLE POLICY. CBSI will have received the title
insurance policy or policies required by Section 4.1.10 of this Agreement.

5.2.11 CORPORATE AND SHAREHOLDER ACTION. Each of the following will
have approved the Transaction:

(i) The Boards of Directors of Cascade and CCB.

(ii) Cascade, as shareholder of CCB.

(iii) The shareholders of Cascade.

5.2.12 TAX OPINION. CBSI and Cascade will have obtained from Gordon,
Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C., counsel for CBSI and
Bank, and delivered to Cascade, an opinion dated as of the date the Proxy
Statement is first mailed to the shareholders of Cascade, addressed to Cascade
and in form and substance reasonably satisfactory to Cascade and to its counsel,
to the effect that consummation of Merger I and Merger II pursuant to this
Agreement will not result in a taxable event for Cascade or CCB, and otherwise
will have the effects specified below:

(a) The Mergers will qualify as reorganizations within the meaning of
Section 368(a)(1)(A) of the Code.

(b) Pursuant to the provisions of Section 354 (a) (1) of the Code, no
gain or loss will be recognized with respect to each stockholder of Cascade who,
pursuant to the provisions of Section 1 of this Agreement, exchanges his or her
shares of Cascade Common Stock solely for shares of CBSI Common Stock.

(c) The payment of cash to a Cascade shareholder in lieu of a
fractional share of CBSI Common Stock will be treated as a distribution in
redemption of the fractional share interest, subject to the limitations of
Section 302 of the Code.

5.2.13 DISSENTING SHAREHOLDERS. Not more than ten percent (10%) of
the Cascade Common Stock will be Dissenting Shares at Closing.

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<PAGE>

5.2.14 AFFILIATE LETTERS. CBSI and Bank will have received the
affiliate list and letters specified in Section 4.10 of this Agreement.

5.2.15 REGISTRATION STATEMENT. The Registration Statement, as it may
have been amended, required in connection with the shares of CBSI Common Stock
to be issued to Cascade shareholders pursuant to Section 1.2 of this Agreement
and as described in Section 1.4 of this Agreement will have become effective,
and no stop order suspending the effectiveness of such Registration Statement
shall have been issued and shall remain in effect, and no proceedings for that
purpose shall have been initiated or threatened by the SEC the basis for which
shall and remain in effect.

5.3 CONDITIONS TO OBLIGATIONS OF CASCADE AND CCB.

All obligations of Cascade and CCB pursuant to this Agreement are subject
to satisfaction of the following conditions at or before Closing:

5.3.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CBSI and Bank contained in this Agreement or in any certificate or
other instrument delivered in connection with this Agreement will be true and
correct in all material respects at Closing, with the same force and effect as
though such representations and warranties had been made on and as of Closing,
except to the extent that such representations and warranties are by their
express provisions made as of a specified date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date. CBSI and Bank will have delivered to Cascade and CCB
their respective certificates to that effect, executed by the chief executive
officer of CBSI and dated as of Closing.

5.3.2 COMPLIANCE. CBSI and Bank each will have performed and complied
with all terms, covenants and conditions of this Agreement on or before Closing.
CBSI and Bank will have delivered to Cascade and CCB their respective
certificates to that effect, executed by the authorized officer of CBSI and
dated as of Closing.

5.3.3 NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, there
will have been no material damage, destruction or loss (whether or not covered
by insurance) and no other event, individually or in the aggregate, constituting
or reasonably expected by Cascade to constitute a Material Adverse Effect with
respect to CBSI or Bank.

5.3.4 NO GOVERNMENTAL PROCEEDINGS. No action or proceeding will have
been commenced or threatened by any governmental agency to restrain or prohibit
or invalidate the Transaction.

5.3.5 FAIRNESS OPINION. Cascade shall have received from its
financial advisor a written fairness opinion, dated on or about the date on
which the Proxy Statement is distributed to Cascade's shareholders, to the
effect that the consideration to be received by Cascade shareholders pursuant to
Section 1.4 of this Agreement is fair to such shareholders from a financial
point of view.

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<PAGE>

5.3.6 LEGAL OPINION. Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C., counsel for CBSI and Bank, will have delivered to Cascade and
CCB an opinion, dated as of Closing, in form and substance acceptable to Cascade
and its counsel.

5.3.7 CORPORATE AND SHAREHOLDER ACTION. Each of the following will
have approved the Transaction:

(i) The Boards of Directors of CBSI and Bank.

(ii) CBSI, as shareholder of Bank.

5.3.8 TAX OPINION. The tax opinion specified in Section 5.2.12 of
this Agreement will have been delivered.

5.3.9 DISSENTING SHAREHOLDERS. Not more than ten percent (10%) of
the shares of Cascade Common Stock will be Dissenting Shares at Closing.

5.3.10 REGISTRATION STATEMENT. The Registration Statement, as it may
have been amended, required in connection with the shares of CBSI Common Stock
to be issued to shareholders pursuant to Section 1.2 of this Agreement and as
described in Section 1.4 of this Agreement, will have become effective, and no
stop order suspending the effectiveness of such Registration Statement shall
have been issued and shall remain in effect, and no proceedings for that purpose
shall have been initiated or threatened by the SEC the basis for which shall
remain in effect.

SECTION 6.

DIRECTORS, OFFICERS AND EMPLOYEES

6.1 DIRECTORS.

The Directors of Cascade and CCB (except Donald W. Lisko, who will be a
party to a separate employment contract) will enter into written agreements, in
the form attached to this Agreement as Exhibit A, providing that, for a period
of three years after Closing, no such person will become involved, directly or
indirectly, as a principal shareholder, director or officer of any financial
institution that competes with CBSI, Bank or any of their affiliates in Pierce,
King or Thurston County.

6.2 EMPLOYEES.

CBSI and Bank intend that their current personnel policies will apply to
any current employees of Cascade and CCB who are retained in the service of CBSI
and Bank after Closing. CBSI and Bank presently intend to allow such employees
to participate in employee benefit plans and stock purchase plans in which
employees of CBSI and Bank generally participate. For purposes of such
participation, current employees will receive credit for prior service with
Cascade and/or CCB for purposes of determining eligibility and vesting, but not
for determining benefit accruals. This

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<PAGE>

expression of intent will not be construed to create a contract of employment
with such employees of Cascade or CCB.

6.3 OFFICERS' EMPLOYMENT CONTRACTS.

At or prior to execution of this Agreement, Donald Lisko, Eugene Bray and
Richard Plummer will enter into employment contracts with CCB, effective as of
the Closing, in a form mutually agreeable to the parties. CCB employees
Clemmer, Ehli, Van Lant, Long and Giffen will also enter into employment
contracts with CCB, effective as of the Closing in a form mutually agreeable to
the parties.

6.4 EMPLOYEE BENEFIT ISSUES.

6.4.1 COMPARABILITY OF BENEFITS. CBSI and Bank confirm to Cascade
and CCB their present intention to provide employees of CCB who become employees
of Bank with employee benefit programs in the aggregate generally not less
favorable to such employees than those presently being provided to employees of
Cascade and CCB and those being provided to employees of CBSI and Bank on the
date of Closing.

6.4.3 TREATMENT OF PAST SERVICE. For purposes of participation,
vesting and benefit accruals in CBSI's other employee benefit programs,
employees of CCB who become employees of Bank will receive credit for prior
service with Cascade and/or CCB for purposes of determining eligibility and
vesting, but not for determining benefit accruals. For a reasonable period
after Closing, not to exceed six months, any non-continuing employee also will
be given an opportunity to apply for open positions with CBSI or any of its
banking subsidiaries, and CBSI and such Subsidiary will use their best efforts
to give prompt notice of job postings to such employees.

6.4.4 NO CONTRACT CREATED. Except as provided in Section 6.3 of this
Agreement, nothing in this Agreement will give any employee a right to
continuing employment.

SECTION 7.

TERMINATION OF AGREEMENT AND ABANDONMENT OF TRANSACTION

7.1 TERMINATION.

This Agreement and the Transaction may be terminated at any time before
Closing, whether before or after approval of this Agreement by the shareholders
of Cascade, CCB and Bank, as follows, and in no other manner:

7.1.1 MUTUAL CONSENT. By mutual consent of the parties to this
Agreement, if the Board of Directors of each such party so determines by a vote
of a majority of the members of its entire Board.

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<PAGE>

7.1.2 SATISFACTION OF CONDITIONS. By Cascade and CCB at any time on
or before March 31, 1998 if any condition set forth in Sections 5.1 or 5.3 of
this Agreement is rendered impossible to be satisfied by such date (other than
as a result of a breach of this Agreement by Cascade or CCB), and by CBSI and
Bank at any time on or before March 31, 1998 if any condition set forth in
Sections 5.1 or 5.2 of this Agreement is rendered impossible to be satisfied by
such date (other than as a result of a breach of this Agreement by CBSI or
Bank).

7.1.3 TRANSACTION NOT CONSUMMATED. By CBSI and Bank or by Cascade
and CCB if the Transaction is not consummated by March 31, 1998, provided that
no party seeking to terminate is then in material breach of any representation,
warranty, covenant or other agreement contained in this Agreement.

7.1.4 BREACH. By Cascade and CCB or by CBSI and Bank in the event of
a material breach of any representation, warranty, covenant or agreement
contained in this Agreement, which breach would result in the failure to satisfy
the closing condition set forth in Sections 5.1, 5.3.1, or 5.3.2, in the case of
Cascade and CCB, or Section 5.1, 5.2.1, or 5.2.2, in the case of CBSI and Bank,
and which breach cannot be cured within 30 days after written notice of such
breach is given by the non-breaching party to the party committing such breach.

7.1.5 REJECTION BY CASCADE SHAREHOLDERS. By Cascade if its
shareholders fail to approve the Transaction by the requisite vote at a duly
held meeting of such shareholders or at any adjournment or postponement of such
meeting.

7.2 COST ALLOCATION UPON TERMINATION.

In connection with the termination of this Agreement, Cascade, CCB, CBSI
and Bank each will pay their own out-of-pocket costs incurred in connection with
this Agreement, and will have no other liability to any other party; provided,
--------
however, that no party to this Agreement shall be relieved or released from any
- -------
liabilities or damages arising out of its intentional or willful breach of any
provision of this Agreement or by a lack of good faith efforts that result in
the failure to perform or fulfill any representation, warranty, covenant or
condition set forth in this Agreement.

SECTION 8.

MISCELLANEOUS

8.1 NOTICES.

Any notice, request, instruction or other document to be given under this
Agreement will be in writing and will be delivered personally or sent by
registered or certified mail, postage prepaid, addressed as follows:

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<PAGE>

<S> <C>
Cascade Bancorp, Inc./ Cascade Cascade Bancorp, Inc.
Community Bank 25 16th Street N.E.
Auburn, WA 98002
Attn: Donald Lisko, President

with a copy to: Steven M. Klein, Esq.
Graham & Dunn, P.C.
1420 Fifth Avenue, 38th Floor
Seattle, WA 98101

Columbia Banking System, Inc./ Columbia Banking System, Inc.
Columbia State Bank 1102 Broadway Plaza
Tacoma, WA 98402
Attn: A.G. Espe, Chairman, and
Chief Executive Officer,
and W.W. Philip, President

with a copy to: J. James Gallagher, Esq.
Gordon, Thomas, Honeywell,
Malanca, Peterson & Daheim, P.L.L.C.
1201 Pacific Avenue, Suite 2200
P.O. Box 1157
Tacoma, WA 98402
</TABLE>

or to such other address or person as any party may designate by written notice
to the other.

8.2 WAIVERS AND EXTENSIONS.

Cascade, CCB, CBSI or Bank may, by, written instrument, extend the time for
the performance of any of the obligations or other acts of any other party, and
may waive:

(i) any inaccuracies of any other party in the representations and
warranties contained in this Agreement or in any document delivered in
connection with this Agreement;

(ii) compliance with any of the covenants of any other party; and

(iii) any other party's performance of any obligations pursuant to this
Agreement and any other condition precedent set out in Section 5 of this
Agreement.

Any waiver or extension pursuant to this Agreement will be executed by the
President of Cascade or CCB, and by an officer of the title of Executive Vice
President or higher of any other party so electing.

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<PAGE>

8.3 CONSTRUCTION AND EXECUTION IN COUNTERPARTS.

Except as otherwise expressly provided here, this Agreement: (i) covers the
entire understanding of CBSI, Bank, Cascade and CCB, and no modification or
amendment of its terms or conditions will be effective unless in writing and
signed by Cascade, CCB, CBSI and Bank or their respective duly authorized
agents; (ii) will not be interpreted by reference to any of the titles or
headings to the Sections or Subsections of this Agreement, which have been
inserted for convenience only and are not deemed a substantive part of this
Agreement; (iii) is deemed to include all amendments to this Agreement, each of
which is made a part of this Agreement by this reference; and (iv) may be
executed in one or more counterparts, each of which will be deemed an original,
but all of which taken together will constitute one and the same document.

8.4 INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.

On and after the Effective Date, CBSI will indemnify and defend those
persons now (or at Closing) acting as directors and executive officers of
Cascade and CCB from and against any and all claims, losses, liabilities, costs,
and expenses (including reasonable attorney fees) arising from any of such
persons' actions in such capacities prior to the Effective Date, to the full
extent that Cascade and/or CCB now are so obligated under applicable law or
under their respective articles of incorporation or bylaws in effect at the date
of this Agreement. For a period of six years after the Effective Date, CBSI
will use reasonable efforts to cause to be maintained in effect (with reputable
and financially sound insurers) director and officer liability insurance
substantially similar to that maintained by Cascade with respect to claims
arising from facts or events which occurred before the Effective Date.

8.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS.

Except for the covenants set forth in Section 4.9 of this Agreement (as to
confidentiality), the representations, warranties and covenants set forth in
this Agreement will not survive Closing or the termination of this Agreement.

8.6 ATTORNEYS' FEES AND COSTS.

In the event of any dispute or litigation with respect to the terms and
conditions or enforcement of rights or obligations arising by reason of this
Agreement or the Transaction, the prevailing party in any such litigation will
be entitled to receipt of its costs and expenses, including reasonable
attorneys' fees.

8.7 GOVERNING LAW.

This Agreement will be governed by and construed in accordance with the
laws of the State of Washington, except to the extent that certain matters may
be governed by federal law.

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<PAGE>

SECTION 9.

AMENDMENTS

Subject to applicable law, this Agreement and the form of any attached
Exhibit or Annex may be amended upon authorization of the boards of directors of
Cascade, CCB, CBSI and Bank, whether before a or after the meeting of
shareholders referred to in Section 4.2 of this Agreement; provided, however,
-------- -------
that after approval by Cascade's shareholders, no amendment will be made
changing the form or reducing the amount of consideration to be received by the
shareholders of Cascade without the further approval of such shareholders.

DATED this 30th day of June, 1997

COLUMBIA BANKING SYSTEM, INC.

By: /s/ W.W. Philip
----------------
Its: President and Chief Operating Officer

Attest:

/s/ Jill Myers
- --------------
Secretary

COLUMBIA STATE BANK

By: /s/ W.W. Philip
---------------
Its: President and Chief Executive Officer

Attest:

/s/ Jill Myers
- --------------
Secretary

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<PAGE>

CASCADE BANCORP, INC.

By: /s/ Donald W. Lisko
-------------------
Its: President and Chief Executive
Officer

Attest:

/s/ Cyril H. Van Selus
- ----------------------
Secretary

CASCADE COMMUNITY BANK

By: /s/ Donald W. Lisko
-------------------
Its: President and Chief Executive
Officer

Attest:

/s/ Cyril H. Van Selus
- ----------------------
Secretary

A-39
<PAGE>

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of June, 1997, before me personally appeared W.W. Philip,
to me known to be the President and Chief Operating Officer of Columbia Banking
System, Inc., the corporation that executed the foregoing instrument, who
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes mentioned there, and who stated on oath
that he or she was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Leslie R. Burton
--------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Tacoma
My Commission expires: 8/29/97

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of June, 1997, before me personally appeared W.W. Philip,
to me known to be the President and Chief Executive Officer of Columbia State
Bank, the corporation that executed the foregoing instrument, who acknowledged
said instrument to be the free and voluntary act and deed of said corporation,
for the uses and purposes mentioned there, and who stated on oath that he or she
was authorized to execute said instrument, and that the seal affixed (if any)
was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Leslie R. Burton
--------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Tacoma
My Commission expires: 8/29/97

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<PAGE>

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of June, 1997, before me personally appeared Donald W.
Lisko, to me known to be the President and Chief Executive Officer of Cascade
Bancorp, Inc. the corporation that executed the foregoing instrument, who
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes mentioned there, and who stated on oath
that he or she was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Carol B. Long
-----------------
NOTARY PUBLIC in and for the State of
Washington, residing at Puyallup
My Commission expires: 4/20/99

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of June, 1997, before me personally appeared Donald W.
Lisko, to me known to be the President and Chief Executive Officer Cascade
Community Bank, the corporation that executed the foregoing instrument, who
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes mentioned there, and who stated on oath
that he or she was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Carol B. Long
-----------------
NOTARY PUBLIC in and for the State of
Washington, residing at Puyallup
My Commission expires: 4/20/99

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<PAGE>

APPROVAL BY DIRECTORS OF CASCADE BANCORP, INC.

The undersigned, all of the members of the Board of Directors of Cascade
Bancorp, Inc. ("Cascade"), approve the foregoing Agreement and, except as
otherwise required by applicable law, including without limitation their
fiduciary duties to Cascade's shareholders, agree to (a) vote their shares in
favor of the transactions contemplated by the Agreement, (b) recommend to the
shareholders of Cascade that they approve the Agreement, (c) comply with Section
6.1 of the Agreement, and (d) refrain from any actions or omissions inconsistent
with such transactions.

/s/ Thomas L. Matson /s/ L. Kenneth Schoenfeld
- -------------------- -------------------------
Thomas L. Matson L. Kenneth Schoenfeld

/s/ Donald W. Lisko /s/ Cyril H. Van Selus
- ------------------- ----------------------
Donald W. Lisko Cyril H. Van Selus

/s/ Geoffrey W. Hill /s/ Ford W. Kiene
- -------------------- -----------------
Geoffrey W. Hill Ford W. Kiene

/s/ Fred W. Poe /s/ James B. Schack
- --------------- -------------------
Fred W. Poe James B. Schack

A-42
<PAGE>

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of June, 1997, before me personally appeared: Thomas L.
Matson, Donald W. Lisko, Geoffrey W. Hill, Ford W. Kiene, Fred W. Poe, James B.
Schack, L. Kenneth Schoenfeld and Cyril H. Van Selus, to me known to be the
directors of Cascade Bancorp, Inc. the corporation that executed the foregoing
instrument, who acknowledged said instrument to be the free and voluntary act
and deed of said corporation, for the uses and purposes mentioned there, and who
stated on oath that he or she was authorized to execute said instrument, and
that the seal affixed (if any) was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Carol B. Long
-----------------
NOTARY PUBLIC in and for the State of
Washington, residing at Puyallup
My Commission expires: 4/20/99

A-43
<PAGE>

APPROVAL BY DIRECTORS OF CASCADE COMMUNITY BANK

The undersigned, all of the members of the Board of Directors of Cascade
Community Bank, approve the foregoing Agreement, agree to vote their shares in
favor of the Transaction contemplated by the Agreement, agree to recommend to
the shareholders of Cascade Community Bank that they approve the Agreement, and
agree to comply with Section 6.1 of the Agreement; subject only to their
fiduciary duty to Cascade Community Bank shareholders.

/s/ Thomas L. Matson /s/ Fred W. Poe
- -------------------- ---------------
Thomas L. Matson Fred W. Poe

/s/ L. Kenneth Schoenfeld /s/ Cyril H. Van Selus
- ------------------------- ----------------------
L. Kenneth Schoenfeld Cyril H. Van Selus

/s/ Donald W. Lisko /s/ Richard W. Lackey
- ------------------- ---------------------
Donald W. Lisko Richard W. Lackey

/s/ Ford W. Kiene
- -----------------
Ford W. Kiene

A-44
<PAGE>

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of June, 1997, before me personally appeared: Thomas L.
Matson, L. Kenneth Schoenfeld, Cyril H. Van Selus, Donald W. Lisko, Richard W.
Lackey, Ford W. Kiene, Fred W. Poe to me known to be the directors of Cascade
Community Bank, the corporation that executed the foregoing instrument, who
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes mentioned there, and who stated on oath
that he or she was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Carol B. Long
-----------------
NOTARY PUBLIC in and for the State of
Washington, residing at Puyallup
My Commission expires: 4-20-99

A-45
<PAGE>

APPENDIX B

PLAN AND AGREEMENT OF REORGANIZATION AND MERGER

AMONG

COLUMBIA BANKING SYSTEM, INC. AND COLUMBIA STATE BANK AND

BANK OF FIFE

DATED AS OF JULY 30, 1997

B-1
<PAGE>

CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DEFINITIONS........................................................................ 1

SECTION 1. TERMS OF TRANSACTION................................................... 6
1.1 Transaction...................................................... 6
1.2 Merger........................................................... 6
1.3 Payment to Dissenting Shareholders............................... 6
1.4 Consideration.................................................... 7
1.5 Undelivered Certificates......................................... 9
1.6 Fife Options..................................................... 9

SECTION 2. CLOSING OF TRANSACTION................................................. 9
2.1 Closing.......................................................... 9
2.2 Events of Closing................................................ 10
2.3 Place of Closing................................................. 10
2.4 Procedure........................................................ 10

SECTION 3. REPRESENTATIONS AND WARRANTIES......................................... 10
3.1 Representations and Warranties................................... 10
3.2 Additional Representations and Warranties of Fife................ 15
3.3 Additional Representations and Warranties of CBSI................ 18

SECTION 4. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.............................. 18
4.1 Conduct of Fife's Business Prior to Closing...................... 18
4.2 Registration Statement and Submission to Shareholders............ 22
4.3 Submission to Regulatory Authorities............................. 23
4.5 Public Announcements............................................. 23
4.6 Consents......................................................... 23
4.7 Further Actions.................................................. 23
4.8 Notice........................................................... 24
4.9 Confidentiality.................................................. 24
4.10 Affiliate Letters................................................ 24
4.11 Availability of CBSI's Books, Records and Properties............. 24

SECTION 5. APPROVALS AND CONDITIONS............................................... 25
5.1 Required Approvals............................................... 25
5.2 Conditions to Obligations of CBSI and Bank....................... 25
5.3 Conditions to Obligations of Fife................................ 27

SECTION 6. DIRECTORS, OFFICERS AND EMPLOYEES...................................... 28
6.1 Directors........................................................ 28
6.2 Employees........................................................ 29
</TABLE>

B-2
<PAGE>

<S> <C>
6.3 Employee Benefit Issues................................... 29

SECTION 7. TERMINATION OF AGREEMENT AND ABANDONMENT
OF TRANSACTION.................................................. 29
7.1 Termination............................................... 29

SECTION 8. MISCELLANEOUS................................................... 31
8.1 Notices................................................... 31
8.2 Waivers and Extensions.................................... 31
8.3 Construction and Execution in Counterparts................ 32
8.4 Indemnification of Directors and Executive Officers....... 32
8.5 Survival of Representations, Warranties, and Covenants.... 32
8.6 Attorneys' Fees and Costs................................. 32
8.7 Governing Law............................................. 33

SECTION 9. AMENDMENTS....................................................... 33
</TABLE>

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<PAGE>

LIST OF ANNEXES AND EXHIBITS
----------------------------
ANNEXES:
- -------

ANNEX 1 Offices of each Bank
ANNEX 2 CBSI and Fife Options (Section 3.1.3(ii))
ANNEX 3 CBSI and Fife Subsidiaries
ANNEX 4 Properties
ANNEX 5 Environmental Matters
ANNEX 6 Material Contracts
ANNEX 7 Asset Classification of Fife (Section 3.2.1(i))
ANNEX 8 Insurance Policies (Section 3.2.4)
ANNEX 9 Fife Benefit Plans (Section 3.2.6(ii))
ANNEX 10 Form of Affiliate Letter (Section 4.10)

EXHIBITS:
- --------

EXHIBIT A Form of Noncompetition Agreement (pursuant to Section 6.1)

B-4
<PAGE>

THIS PLAN AND AGREEMENT OF REORGANIZATION AND MERGER (the "Agreement") is
made and entered into as of July 30, 1997, among COLUMBIA BANKING SYSTEM, INC.
("CBSI"), COLUMBIA STATE BANK ("Bank"), and BANK OF FIFE ("FIFE").

PREAMBLE

The management of CBSI, Bank, and Fife believe that the proposed
Transaction, to be accomplished in the manner set forth in this Agreement, is in
the best interests of the respective corporations and their subsidiaries.

AGREEMENT

In consideration of the mutual agreements set forth in this Agreement,
CBSI, Bank, and Fife agree as follows:

DEFINITIONS

Terms used in this Agreement will have the following meanings:

"Acquisition Proposal" has the meaning assigned to such term in Section
4.1.9 of this Agreement.

"Agreement" means this Plan and Agreement of Reorganization and Merger.

"Asset Classification" has the meaning assigned to such term in Section
3.2.1 of this Agreement.

"Average Closing Price" means the average (rounded to the nearest penny) of
each Daily Sales Price of CBSI Common Stock for the twenty trading days ending
five trading days prior to the Effective Date, provided that if this average is
less than $18.00, the Average Closing Price will be $18.00, and if this average
is more than $22.00, the Average Closing Price will be $22.00.

"BHC Act" means the federal Bank Holding Company Act of 1956, as amended.

"Bank" is Columbia State Bank, a Washington state chartered banking
association, which has its head office in Tacoma, Washington, and which is
wholly owned by CBSI.

"Banking Act" means Title 30 of the RCW.

B-5
<PAGE>

"Base Equity Capital" means the Shareholders' Equity of Fife at June 30,
1997, adjusted as described in Section 1.4.1.

"Business Day" means any day other than a Saturday, Sunday, legal holiday
or a day on which banking institutions located in the State of Washington are
authorized or required by law to remain closed.

"Capital" means capital stock, surplus and retained earnings determined in
accordance with GAAP, applied on a consistent basis.

"Cascade" is Cascade Bancorp, Inc., a Washington corporation which has its
principal place of business in Auburn, Washington, and which is a bank holding
company registered pursuant to the BHC Act.

"Cascade Agreement" is the Plan and Agreement of Reorganization and Merger
entered into in connection with the Cascade Transaction.

"Cascade Community Bank" is a Washington state chartered banking
association, which has its head office in Auburn, Washington, and which is
wholly owned by Cascade.

"Cascade Options" means the stock options issued and outstanding on the
date of this Agreement pursuant to the Cascade Option Plan.

"Cascade Option Plan" means the Employee Stock Option Plan adopted on May
14, 1990 for the benefit for employees of Cascade and Cascade Community Bank.

"Cascade Transaction" means the pending merger of Cascade into CBSI and of
Cascade Community Bank into the Bank in accordance with the terms and conditions
of the Plan and Agreement of Reorganization and Merger entered into by those
parties as of June 30, 1997.

"CBSI Common Stock" means the shares of CBSI common stock, no par value per
share.

"CBSI Options" means the stock options issued and outstanding on the date
of this Agreement pursuant to the CBSI Option Plan.

B-6
<PAGE>

"CBSI Option Plan" means the stock option plan for the benefit of employees
and directors of CBSI and Bank as approved by shareholders on April 23, 1997.

"Closing" means the closing of the Transaction contemplated by this
Agreement, which will occur on the Effective Date, as more fully specified in
Section 2.1 of this Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.

"Compensation Plans" has the meaning assigned to such term in Section
3.2.6(ii) of this Agreement.

"Conversion Number" means the number of shares of CBSI Common Stock into
which each share of Fife Common Stock is converted in accordance with Section
1.4.2 of this Agreement.

"Core Deposits" means all deposits other than (i) brokered deposits, (ii)
public funds and (iii) certificates of deposit (or equivalents) equal to or in
excess of $100,000.

"Daily Sales Price" means for any trading day, the arithmetic average
(unrounded) of the closing bid and asked prices of CBSI Common Stock as reported
on the NASDAQ National Market System.

"Dissenting Shares" means those shares of Fife Common Stock as to which
shareholders have perfected their dissenters' right pursuant to Chapter 30.49 of
the Banking Act.

"Director" means the Director of the Department of Financial Institutions
for the State of Washington.

"Effective Date" means the date on which all conditions to Closing have
occurred and on which the Merger takes place, as more fully specified in Section
2.1 of this Agreement.

"Employees" has the meaning assigned to such term in Section 3.2.6(ii) of
this Agreement.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Affiliate" has the meaning assigned to such term in Section
3.2.6(iv) of this Agreement.

B-7
<PAGE>

"ESI Plan" has the meaning assigned to such term in Section 3.2.6(ix) of
this Agreement.

"Exchange Act" means the federal Securities Exchange Act of 1934, as
amended.

"Exchange Agent" means the agent described in Section 1.4.6 of this
Agreement.

"Executive Officers" with respect to any party to this Agreement means the
chief executive officer, chief financial officer, and chief lending officer of
such party.

"FDIC" means the Federal Deposit Insurance Corporation.

"Federal Reserve" means the Board of Governors of the Federal Reserve
System.

"Fife" is Bank of Fife, a Washington state chartered banking association,
which has its head office in Fife, Washington.

"Fife Common Stock" means the shares of Fife common stock, $.50 par value
per share, issued and outstanding from time to time.

"Fife Financial Statements" means Fife's audited consolidated statements of
financial condition as of December 31, 1996, 1995 and 1994, and the related
statements of income, cash flows and shareholders' equity for each of the years
ended December 31, 1996, 1995 and 1994, all as more fully described in Section
3.1.5, of this Agreement.

"Fife Option Plans" means the Employee Stock Option Plan and the Director
Stock Option Plan, each dated as of June 19, 1996, for the benefit of employees
and directors, respectively, of Fife.

"Fife Options" means the stock options issued and outstanding on the date
of this Agreement pursuant to the Fife Option Plans.

"Financial Statements" means the CBSI Financial Statements, the Fife
Financial Statements, or both, as appropriate.

"GAAP" means generally accepted accounting principles.

"Hazardous Material" means any material so described in Section 3.1.7 of
this Agreement.

"Joint Proxy Statement" has the meaning as defined in Section 4.2.1 of this
Agreement.

"Joint Proxy Statement/Registration Statement" means the Prospectus/Joint
Proxy Statement referred to in Section 4.2.1 of this Agreement, to be provided
to each

B-8
<PAGE>

shareholder of Fife in connection with their consideration and approval
of the Transaction. The term includes any amendments and supplements to such
Prospectus/Joint Proxy Statement.

"Merger" means the merger of Fife with and into the Bank.

"OREO" means real property acquired by Fife through foreclosure or deed in
lieu of foreclosure or other realization proceedings.

"Pension Plan" has the meaning assigned to such term in Section 3.2.6(iii)
of this Agreement.

"Person" includes an individual, corporation, partnership, association,
limited liability company, trust or unincorporated organization.

"Plan" has the meaning assigned to such term in Section 3.2.6(i) of this
Agreement.

"Properties" with respect to any party to this Agreement means (i)
properties or other assets owned or leased by such party or any of its
Subsidiaries, and (ii) Loan Properties.

"Purchase Price" means the aggregate consideration that holders of Fife
Common Stock will be entitled to receive from CBSI in connection with the
Transaction, as calculated in accordance with Section 1.4.1 of this Agreement.

"RCW" means the Revised Code of Washington, as amended.

"Registration Statement" has the meaning as defined in Section 4.2.1 of
this Agreement.

"SEC" means the Securities and Exchange Commission.

B-9
<PAGE>

"Securities Act" means the federal Securities Act of 1933, as amended.

"Shareholder's Equity" means the equity capital account of a party computed
at a date specified in accordance with GAAP.

"Subsequent Fife Financial Statements" means a consolidated balance sheet
and related consolidated statements of income, cash flows and shareholders'
equity for each fiscal quarter ending after December 31, 1996 and prior to
Closing, all as more fully described in Section 4.1.8 of this Agreement.

"Subsidiary" with respect to any party to this Agreement means any Person
controlled by such party.

"Transaction" means the consummation of the Merger in accordance with
Section 1.2 of this Agreement.

SECTION 1.

TERMS OF TRANSACTION

1.1 TRANSACTION.

Subject to the terms and conditions set forth in this Agreement and in the
Annexes and Exhibits, Fife will merge with and into the Bank in the Merger.

1.2 MERGER.

Upon Closing of the Merger, all shares of Fife Common Stock issued and
outstanding immediately prior to Closing, except for Dissenting Shares, will, by
virtue of the Merger and without any action on the part of any holder of shares
of Fife Common Stock, be converted into the right to receive the consideration
described in Section 1.4 of this Agreement. Fife and the holders of such shares
will provide to CBSI such certificates or documents as CBSI reasonably may
request to evidence ownership of the shares. The Merger will be effected
pursuant to Chapter 30.49 of the Banking Act and 12 United States Code (USC)
1828(c) and any related rules and regulations. In the Merger, Fife will be
merged into Bank, and Bank will be the resulting bank and will be liable for all
of the liabilities of Fife. It is the intention of the parties to this
Agreement that the Transaction will qualify as a "reorganization" for federal
income tax purposes within the meaning of Section 368 of the Code.

B-10
<PAGE>

1.3 PAYMENT TO DISSENTING SHAREHOLDERS.

Dissenting Shares shall have the rights provided by Chapter 30.49 of the
Banking Act.

1.4 CONSIDERATION.

Shares of Fife Common Stock identified in Section 1.2 of this Agreement
will be converted, by virtue of the Merger, into the right to receive CBSI
Common Stock in the amounts and subject to the conditions set forth below.

1.4.1 AMOUNT OF CONSIDERATION. Except as otherwise provided in
Section 1.3, holders of Fife Common Stock will be entitled to receive from CBSI
in connection with the Transaction the number of shares of CBSI Common Stock as
calculated in accordance with Subsection 1.4.2. The aggregate consideration to
be paid by CBSI for all outstanding shares of Fife Common Stock (the "Purchase
Price") shall be (a) two times the sum of Shareholders' Equity of Fife at June
30, 1997 plus the amount added to such Shareholders' Equity upon exercise of
options outstanding ("Base Equity Capital") plus (b) the amount of Fife net
income which increases the Base Equity Capital prior to Closing.

1.4.2 FORM OF CONSIDERATION. Subject to the terms, conditions and
limitations set forth in this Agreement, holders of Fife Common Stock will be
entitled to exchange their Fife Common Stock shares for shares of CBSI Common
Stock upon surrender of the holders' certificate or certificates in accordance
with Section 1.4.6. Each holder, in exchange for each share of Fife Common
Stock held of record on the Effective Date, will be entitled to receive the
number of shares of CBSI Common Stock calculated by dividing the Purchase Price
by the Average Closing Price, and by further dividing the number so reached by
the aggregate number of shares of Fife Common Stock that on the Effective Date
are issued and outstanding or subject to unexercised options ("Conversion
Number").

1.4.3 AVERAGE CLOSING PRICE. For the purpose of this Agreement, the
"Average Closing Price" means the average (rounded to the nearest penny) of each
Daily Sales Price of CBSI Common Stock for the twenty trading days ending five
trading days prior to the Effective Date, provided that if this average is less
than $18.00, the Average Closing Price will be $18.00, and if this average is
more than $22.00, the Average Closing Price will be $22.00.

1.4.4 DAILY SALES PRICE. For the purposes of this Agreement, "Daily
Sales Price" means for any trading day the arithmetic average (unrounded) of the
closing bid and asked prices of CBSI Common Stock in the over-the-counter market
as such prices are reported by the automated quotation system of the National
Association of Securities Dealers, Inc. or in the absence of this source, by any
other source on which CBSI and Fife mutually agree.

1.4.5 NO FRACTIONAL SHARES. CBSI will not issue fractional shares of
CBSI Common Stock. In lieu of issuing fractional shares, CBSI will pay cash to
each

B-11
<PAGE>

shareholder of Fife who is otherwise entitled to receive a fractional share of
CBSI Common Stock in an amount equal to the product of such fraction times the
Average Closing Price. Such fractional share interest will not include the right
to vote or receive dividends or any interest on dividends.

1.4.6 SURRENDER OF CERTIFICATES.

(i) CBSI will prepare a form of transmittal letter reasonably
acceptable to Fife for use by shareholders holding Fife Common Stock. The form
of transmittal letter will be mailed to shareholders on or about the Effective
Date.

(ii) Until surrendered to an agent designated by CBSI and Fife to
effect the exchange of Fife Common Stock for CBSI Common Stock (the "Exchange
Agent") together with a properly completed and executed form of transmittal
letter, each certificate evidencing Fife Common Stock (other than Dissenting
Shares) will, on and after the Effective Date, be deemed for all corporate
purposes to represent and evidence only the right to receive CBSI Common Stock
in accordance with the provisions of this Section 1.4 of this Agreement. Until
any such certificate evidencing Fife Common Stock will have been so surrendered,
the holder of such Fife Common Stock will not have any right to receive any
certificates evidencing CBSI Common Stock. The Exchange Agent will be
authorized to issue CBSI Common Stock for any Fife Common Stock certificate
which has been lost, stolen or destroyed upon receipt of evidence satisfactory
to CBSI of ownership of the Fife Common Stock represented by the missing
certificate, and after appropriate indemnification. After the Effective Date, no
holder of a certificate evidencing the shares of Fife Common Stock will be
entitled to receive any dividends or other distributions otherwise payable to
holders of record of CBSI Common Stock on any date subsequent to the Effective
Date, unless such holder will have surrendered such holder's certificate(s)
evidencing shares of Fife Common Stock in exchange for CBSI Common Stock. Upon
surrender of such certificates, there will be paid to the holder so surrendering
such certificates the amount, without interest, of any cash dividends and any
other distributions which subsequent to the Effective Date have been distributed
on the whole number of shares of CBSI Common Stock into which such Fife Common
Stock was converted at the Effective Date.

(iii) If any certificate for CBSI Common Stock is to be issued in a
name other than that in which the certificate(s) for Fife Common Stock
surrendered in exchange is registered, it will be a condition of such exchange
that the person requesting the exchange will establish the right to receive such
shares and pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of such certificates for CBSI Common Stock in a name
other than registered holder of the certificate surrendered, or will establish
to the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.

1.4.7 ANTI-DILUTION ADJUSTMENT. In the event that, between the date
of this Agreement and the Effective Date, CBSI reclassifies, combines, or
subdivides the CBSI Common Stock, declares or pays any extraordinary dividend or
makes any distribution of shares with respect to the CBSI Common Stock, or makes
or declares

B-12
<PAGE>

any partial or liquidating distribution, or agrees to do any of the foregoing as
of a record date during that time frame, an appropriate adjustment will be made
in the Conversion Number.

1.5 UNDELIVERED CERTIFICATES.

If outstanding certificates for Fife Common Stock are not surrendered prior
to a date when such payments would otherwise escheat or become the property of
any governmental unit or agency, the unclaimed items will, to the extent
permitted by abandoned property or any other applicable law, become the property
of CBSI (and to the extent not in its possession shall be paid over to CBSI),
free and clear of all claims or interests of any person previously entitled to
such items. Notwithstanding the foregoing, neither CBSI nor any party to this
Agreement will be liable to any holder of Fife Common Stock for any amount paid
to any governmental unit or agency having jurisdiction over any such unclaimed
items pursuant to the abandoned property or other applicable law of such
jurisdiction, and no interest will be borne on amounts owed to shareholders for
shares of Fife Common Stock.

1.6 FIFE OPTIONS.

Upon consummation of the Merger on the Effective Date, without any action
on the part of any person or entity, each Fife Option remaining outstanding
immediately prior to Closing shall be converted into and become, upon the
election of the holder of such Cascade Option, an option to purchase shares of
CBSI Common Stock on the same terms as are in effect with respect to the Fife
Option immediately prior to consummation of the Merger, except that (i) each
such converted option will be exercisable solely for shares of CBSI Common
Stock, (ii) the number of shares of CBSI Common Stock subject to such converted
option shall be equal to the number of shares of Fife Common Stock subject to
the Fife Option immediately prior to Closing multiplied by the Conversion
Number, the product being rounded, if necessary, up or down to the nearest whole
share and (iii) the per-share exercise price under each such converted option
shall be adjusted by dividing the per-share exercise price of the Fife Option
by the Conversion Number, and rounding up to the nearest cent. As soon as
practicable after the Effective Date, CBSI shall take all action necessary to
register under the Securities Act the shares of CBSI Common Stock subject to
options resulting from the conversion of Fife Options pursuant to this Section
1.6

SECTION 2.

CLOSING OF TRANSACTION

2.1 CLOSING.

The Closing will occur on the Effective Date. Unless CBSI and Fife agree
upon another date, the Effective Date will be the date five (5) Business Days
after the fulfillment or waiver of each condition precedent set forth in, and
the granting of each approval (and expiration of any waiting period) required
by, Section 5 of this

B-13
<PAGE>

Agreement. If Closing does not occur on or prior to April 30, 1998, either party
may terminate this Agreement in accordance with Section 7 of this Agreement. The
parties will use their best efforts to cause the Transaction to close by
December 15, 1997.

2.2 EVENTS OF CLOSING.

2.3 PLACE OF CLOSING.

Unless CBSI and Fife agree otherwise, the Closing will occur at the
principal office of CBSI at such time during normal business hours as CBSI and
Fife may fix.

2.4 PROCEDURE.

Bank will notify the Director and the FDIC of the proposed effective time
for the Merger. On or before the Business Day immediately preceding the
Closing, appropriately prepared and executed articles of merger with respect to
the Merger and related documents will have been deposited in the offices of the
Director. On the Effective Date, the Director's and FDIC's merger certification
letter will become effective.

SECTION 3.

REPRESENTATIONS AND WARRANTIES

3.1 REPRESENTATIONS AND WARRANTIES.

CBSI represents and warrants to Fife and Fife represents and warrants to
CBSI that, except as disclosed in an Annex to this Agreement or otherwise
disclosed in writing by CBSI or Fife, respectively, concurrently with the
execution of this Agreement:

3.1.1 ORGANIZATION AND GOOD STANDING. CBSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington, and is a registered bank holding company pursuant to the BHC Act.
Fife is a commercial bank validly existing and in good standing under the laws
of the State of Washington. Each has all requisite power and authority to own
and operate its properties and to carry on its businesses as now conducted. Each
of its Subsidiaries is either a commercial bank or a corporation duly organized,
validly existing and in good standing under the laws of the State of Washington,
and has all requisite power and authority to own and operate its Properties and
to carry on its businesses as now

B-14
<PAGE>

conducted. The locations of all offices, including approved and unopened offices
of its Subsidiaries, are listed in Annex 1.

3.1.3 CAPITAL STOCK.

(i) Representations and Warranties by CBSI. The authorized capital
--------------------------------------
stock of CBSI consists of 10,000,000 shares of CBSI Common Stock, and 2,000,000
shares of preferred stock, no par value per share. A total of 5,498,186 shares
of CBSI Common Stock were issued and outstanding as of the date of this
Agreement, all of which were validly issued and are fully paid and
nonassessable. No shares of preferred stock are issued and outstanding. As of
the date of this Agreement, CBSI Options with respect to 321,455 shares of CBSI
Common Stock have been granted and are outstanding, and 593,250 shares of CBSI
Common Stock have been reserved for issuance under the CBSI Option Plan. Upon
closing of the Cascade Transaction, which is expected to occur before or at
approximately the same date as the Merger, CBSI will issue up to 749,100 shares
of CBSI Common Stock to shareholders of Cascade and will become obligated to
issue up to 25,878 additional shares of CBSI Common Stock upon exercise of CBSI
Options to be exchanged for currently outstanding Cascade Options. No other
unissued shares of CBSI Common Stock or any other securities of CBSI, or any of
its subsidiaries, are subject to any warrants, options, conversion privileges,
rights or commitments of any character, kind or nature, except as set forth in
Annex 2, and CBSI has not issued and is not obligated to issue any additional
shares of CBSI Common Stock or any other security to any other person, except as
so disclosed. The CBSI Common Stock to be issued to holders of Fife Common
Stock pursuant to this Agreement, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and subject to no preemptive rights. Bank's equity capital at
June 30, 1997 consisted of common stock of $1,121,331, additional paid in
capital of $41,999,664 and undivided profits, including capital reserves, of
$9,919,400. At Closing, the Bank's total equity capital, as the surviving
bank, will be equal to the then combined capital structure of the merging banks.

B-15
<PAGE>

(ii) Representations and Warranties by Fife. The authorized capital
--------------------------------------
stock of Fife consists of 1,000,000 shares of Fife Common Stock, par value $0.50
per share, and 100,000 shares of preferred stock, par value $1.00 per share. A
total of 202,920 shares of Fife Common Stock are issued and outstanding as of
the date of this Agreement, all of which were validly issued and are fully paid
and nonassessable. No shares of preferred stock are issued and outstanding. As
of the date of this Agreement, Fife Options with respect to 24,000 shares of
Fife Common Stock have been granted and are outstanding. No unissued shares of
common stock or any other securities of Fife, or any of its Subsidiaries, are
subject to any warrants, options, conversion privileges, rights or commitments
of any character, kind or nature, except as set forth in Annex 2, and Fife has
not issued or is not obligated to issue any additional shares of common stock or
any other security to any other person, except as so disclosed.

3.1.4 SUBSIDIARIES. Except as listed in Annex 3, it does not have
any Subsidiaries. The shares of capital stock of each of its Significant
Subsidiaries (as defined in Rule 1-02 of SEC Regulation S-X) are owned by it
free and clear of all liens, claims, encumbrances and restrictions on transfer.

3.1.5 FINANCIAL STATEMENTS. Its Financial Statements (i) have been
prepared from the books and records of the entity or entities to which they
relate, (ii) present fairly the financial condition and operating results of
such entity or entities at the times indicated and for the periods covered,
(iii) have been prepared in accordance with GAAP consistently applied through
the periods covered, except as stated therein, and (iv) reflect all material
liabilities, contingent or otherwise, of Fife on the respective dates covered,
except as stated therein.

3.1.6 PROPERTIES.

(i) It and each of its Subsidiaries have unencumbered legal title or
contract vendee's interest to their respective owned properties and other assets
reflected in its Financial Statements, except for: (a) those encumbrances
related to real property taxes, local improvement district assessments (if any),
easements, covenants, restrictions and other matters of record which do not
individually or in the aggregate materially adversely affect the use and
enjoyment of the relevant real property; (b) prior mortgage liens on other real
estate owned (to the extent consistent with the terms of the original loan in
connection with which such real estate was acquired); (c) any property and other
assets, not material in aggregate amount, disposed of since December 31, 1996 in
the ordinary course of business; and (d) such defects in title which would not,
individually or in the aggregate, have a Material Adverse Effect. All leases of
real or personal property in which Fife has an interest as lessee are assignable
without the consent of any other party.

3.1.7 ENVIRONMENTAL MATTERS.

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(i) To the knowledge of its Executive Officers, it and each of its
Subsidiaries and the Loan Properties are, and have been, in compliance with all
applicable laws, rules, regulations, standards and requirements of the Untied
States Environmental Protection Agency and of state and local agencies with
jurisdiction over pollution or protection of the environment, except for
violations which, individually or in the aggregate, do not or would not result
in a Material Adverse Effect on it.

3.1.9 ABSENCE OF REGULATORY ACTION. Neither it nor any of its
Subsidiaries is, to the knowledge of its Executive Officers, in violation of any
statute, rule or governmental regulation applicable to it (including, without
limitation, the Community Reinvestment Act, Bank Secrecy Act, Truth in Lending
Act, Equal Credit

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Opportunity Act, and statutes, rules and regulations governing the reporting of
taxpayer identification numbers of its customers). Neither it nor any of its
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of, federal or state regulatory authorities, nor has it been
advised by such authorities that they are contemplating issuing or requesting
any such order, agreement, memorandum or similar document or undertaking.

3.1.10 ALLOWANCE FOR LOAN AND LEASE LOSSES. In the opinion of its
management, the allowance for loan losses shown in its latest Financial
Statements is, and that which will be stated in its Subsequent Financial
Statements prior to Closing will be, adequate to absorb its anticipated loan and
lease losses. In any event, Fife's allowance for loan losses at the Effective
Date will be at least 1% of its then-outstanding loans and leases.

3.1.11 AGREEMENTS. Except for arrangements made in the ordinary
course of business, it and its Subsidiaries are not bound by any material
contract (as defined in Item 601(b)(10) of SEC Regulation S-K) to be performed
after the date hereof that has not been filed with or incorporated by reference
in its Reports, as to CBSI, or delivered to CBSI, as to Fife. Specifically, in
the case of Fife, except as so disclosed prior to the date of this Agreement, as
of the date of this Agreement, neither it nor any of its Subsidiaries is a party
to an oral or written (i) agreement not terminable on 30 days or less notice
involving the payment of more than $10,000 per annum, in the case of any such
agreement with an individual, or $50,000 per annum, in the case of any other
such agreement, (ii) agreement with any executive officer or other key employee
of it or any of its Subsidiaries the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving it or any of its Subsidiaries of the nature contemplated by Agreement
and which provides for the payment of in excess of $10,000, (iii) agreement with
respect to any executive officer of it or any of its Subsidiaries providing any
term of employment or compensation guarantee extending for a period longer than
one year and for the payment of an amount in excess of $25,000 per annum, or
(iv) agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.

3.1.12 COMPLIANCE WITH LAWS. It and each of its Subsidiaries has all
permits, licenses, certificates of authority, orders, and approvals of, and has
made all filings, applications, and registrations with, federal, state, local,
and foreign governmental or regulatory bodies that are required in order to
permit it or its Subsidiaries to carry on their respective businesses as they
are presently conducted and the absence of which, individually or in the
aggregate, can reasonably be expected to have a Material Adverse Effect on it.
All such permits, licenses, certificates of

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authority, orders and approvals are in full force and effect, and, to the best
knowledge of its Executive Officers, no suspension or cancellation of any of
them is threatened.

3.1.13 KNOWLEDGE AS TO CONDITIONS. It knows of no reason why the
approvals, consents and waivers of governmental authorities referred to in
Section 5.1 of this Agreement should not be obtained.

3.1.14 PROSPECTUS/JOINT PROXY STATEMENT/REGISTRATION STATEMENT. The
information to be supplied by it for inclusion in the Joint Proxy
Statement/Registration Statement will not, at the time such Joint Proxy
Statement/Registration Statement becomes effective, at the time it is mailed,
and at the time of the Fife shareholder meeting called to consider and vote upon
the Transaction, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.

3.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF FIFE.

Except as disclosed in an Annex to this Agreement or otherwise disclosed in
writing to CBSI concurrently with the execution of this Agreement, Fife
represents and warrants to CBSI the following:

3.2.1 ASSET CLASSIFICATION.

(i) Annex 7 sets forth a list, separated by category of classification
or criticism ("Asset Classification"), of the aggregate amounts of loans,
extensions of credit and other assets of it that have been criticized or
classified, and such list is accurate and complete in all material respects, as
of December 31, 1996, except as otherwise expressly noted in such Annex.

(ii) No amounts of its loans, extensions of credit or other assets
that have been classified or criticized by any representative of any
governmental entity as "Other Assets Especially Mentioned," "Substandard,"
"Doubtful," "Loss" or words of similar effect are excluded from the amounts
disclosed in the Asset Classification, other than amounts of loans, extensions
of credit or other assets that were paid off or charged off by it before the
date of this Agreement.

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3.2.2 CORE DEPOSITS AND CAPITAL. The daily average of Fife's Core
Deposits for the month of June 1997 is not less than 106% of the daily average
of Core Deposits for the month of December 1996. As of the date of this
Agreement, Fife's Capital is at least $3,234,500.

3.2.6 EMPLOYEE BENEFITS.

(i) For purposes of this Agreement, "Plan" or "Plans", individually or
collectively, means any "employee benefit plan," as defined in Section 3(3) of
ERISA, maintained by Fife.

(ii) Annex 9 sets forth a list, as of the date of this Agreement, of
(a) all bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, (b) all material employment or
severance contracts and (c) all other material employee benefit plans that cover
employees or former employees of it and its Subsidiaries (its "Compensation
Plans"). True and complete copies of the Compensation Plans (and, as
applicable, copies of summary plan descriptions, governmental filings (on Form
5500 series or otherwise), actuarial reports and reports under Financial
Accounting Standards Board Statement No. 106 relating to such Compensation
Plans) covering its current employees or those of its Subsidiaries

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(collectively, "Employees"), including Plans and related amendments, have been
made available to the other parties to this Agreement.

(iii) All of its Plans covering Employees (other than "multi-employer
plans" within the meaning of ERISA Sections 3(37) or 4001(a)(3)), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each of its Plans
that is an "employee pension benefit plan" within the meaning of ERISA Section
3(2) ("Pension Plan") and that is intended to be qualified under Section 401(a)
of the Code, has received a favorable determination letter from the Internal
Revenue Service, and Fife is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. No litigation relating
to its Plans is pending or, to the knowledge of its Executive Officers,
threatened. Neither it nor any of its Subsidiaries has engaged in a transaction
with respect to any Plan that, assuming the taxable period of such transaction
expired as of the date of this Agreement, could subject it or any of its
Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
ERISA Section 502(i).

(v) All material contributions it or any of its Subsidiaries are or
were required to make under the terms of any of its Plans have been timely made
or have been reflected in its Financial Statements. Neither any of its Pension
Plans nor any single-employer plan of any of its ERISA Affiliates has an
"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or ERISA Section 302. Neither it nor any of its
Subsidiaries or its ERISA Affiliates has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate under Code Sections 401(a)(29) or 412(f)(3) or ERISA Sections 306, 307
or 4204.

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(vi) Except as disclosed in the Fife Financial Statements, neither it
nor any of its Subsidiaries has any obligations for retiree health and life
benefits.

(viii) Except as disclosed in the Fife Financial Statements or
otherwise disclosed in this Agreement or in the related Annexes, the Transaction
will not result in (a) vesting, acceleration, or increase of any amounts payable
under any Compensation Plan, (b) any material increase in benefits under any
Compensation Plan or (c) payment of any severance or similar compensation under
any Compensation Plan.

(ix) Fife's obligations under any existing executive supplemental
retirement Plan ("ESI Plan") will not at any time exceed the value, as reflected
on its books (reported consistent with GAAP), of insurance policies owned by
Fife on the lives of the officers covered by the ESI Plan.

3.2.7 BROKER'S OR FINDER'S FEES. Except for fees deemed by its board
to be required to obtain a fairness opinion and related advice from a financial
advisor to effect the Transaction, which fees shall not exceed $20,000, no
agent, broker, person or firm acting on behalf of Fife, or under its authority,
is or will be entitled to any commission, broker's, finder's or financial
advisory fee in connection with the Transaction.

3.3 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CBSI.

Except as disclosed in an Annex to this Agreement or otherwise disclosed in
writing to Fife concurrently with the execution of this Agreement, CBSI
represents and warrants to Fife that none of CBSI's Reports contained or will
contain any untrue statement of a material fact or omitted or will omit to state
a material fact required to be stated in any such Reports or necessary in order
to make the statements in any such Reports, in light of the circumstances under
which they were made, not misleading.

SECTION 4.

CONDUCT AND TRANSACTIONS PRIOR TO CLOSING

4.1 CONDUCT OF FIFE'S BUSINESS PRIOR TO CLOSING.

Fife covenants that, prior to Closing:

4.1.1 AVAILABILITY OF BOOKS, RECORDS AND PROPERTIES.

(i) Its books, records, properties, contracts and documents will be
available at all reasonable times to CBSI, Bank and their counsel, accountants
and other representatives. Such items will be open for inspection, audit and
direct verification of loan or deposit balances, collateral receipts and such
other transactions or

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documentation as CBSI or Bank deem reasonably relevant to the Transaction. Fife
will cooperate fully in such inspection and audit, and will make available all
information reasonably requested by CBSI or Bank.

(ii) Upon request by CBSI or Bank, Fife will request that any third
parties involved in the preparation or review of the Fife Financial Statements
or Fife Subsequent Financial Statements disclose to CBSI and Bank the work
papers or any similar materials related to such financial statements.

4.1.2 ORDINARY AND USUAL COURSE. Without prior written consent of
CBSI or Bank, Fife will conduct its business only in the ordinary and usual
course and will not do any of the following:

(i) Effect any stock split or other recapitalization with respect to
Fife Common Stock; issue, pledge or encumber in any way any shares of such
capital stock; or grant any option for shares of such capital stock.

(ii) Declare or pay any dividend, or make any other distribution,
either directly or indirectly, with respect to Fife Common Stock.

(iii) Dispose of assets, take any actions to accelerate earnings to an
earlier period than expected based upon prior practice, or make any commitment
other than in the ordinary and usual course of business.

(iv) Solicit or accept deposit accounts of a different type from
accounts previously accepted by Fife or at rates materially in excess of rates
previously paid by Fife except to reflect changes in prevailing interest rates,
or incur any indebtedness for borrowed money.

(vi) Enter into any other transaction or make any expenditure other
than in the ordinary and usual course of its business except for expenses
reasonably related to completion of the Transaction.

(vii) Take any action which would materially and adversely affect or
delay its ability or the ability of CBSI and Bank to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
Transaction or to perform its respective covenants and agreements under this
Agreement.

4.1.3 CONTINUING REPRESENTATION AND WARRANTY. It will not do or cause
to be done anything that would cause any representation or warranty in Section 3
of this Agreement to be untrue or inaccurate if made at Closing, except as
otherwise contemplated or required by this Agreement or consented to in writing
by CBSI or Bank.

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4.1.4 MAINTENANCE OF PROPERTIES. It will maintain its properties and
equipment (and related insurance or its equivalent) in accordance with good
business practice.

4.1.5 PRESERVATION OF BUSINESS ORGANIZATION. It will use all
reasonable effort to:

(i) Preserve its business organization.

(iii) Preserve the goodwill of suppliers, customers and others with
whom Fife has business relations.

4.1.6 SENIOR MANAGEMENT. Without prior consultation with CBSI or
Bank, Fife will not make any change with respect to present management personnel
having the rank of vice-president or higher.

4.1.7 COMPENSATION. Fife will not permit any increase in the current
or deferred compensation payable or to become payable by Fife to any of its
directors, officers, employees, agents or consultants other than normal
increments in compensation in accordance with Fife's established policies with
respect to the timing and amounts of such increments. Without the prior written
approval of CBSI and Bank, Fife will not commit to, execute or deliver any
employment agreement with any party not terminable without expense with two
weeks notice.

4.1.8 UPDATE OF FINANCIAL STATEMENTS. Fife will deliver Subsequent
Fife Financial Statements to CBSI, as soon as possible and not later than thirty
(30) days following the end of each relevant period. The Subsequent Fife
Financial Statements:

(i) Will be prepared from the books and records of Fife.

(ii) Will present fairly the financial position and operating results
of Fife at the times indicated and for the periods covered.

(iii) Will be prepared in accordance with GAAP (except for the absence
of notes), consistently applied through the periods covered, subject to normal
year-end adjustments.

(iv) Will reflect all material liabilities, contingent or otherwise,
of Fife the respective dates and for the respective periods covered, except for
liabilities not required to be so reflected in accordance with GAAP.

4.1.9 ACQUISITION PROPOSALS/TERMINATION FEE.

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(i) Fife agrees that neither it nor any of its Subsidiaries shall, and
Fife shall direct and use its best efforts to cause its directors, officers,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, initiate, solicit, encourage or take any other action to
facilitate any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to stockholders of Fife) with respect
to a merger, consolidation or similar transaction involving, or any purchase of
all or any significant portion of the assets or equity securities of, Fife or
any of its Subsidiaries (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or, except to the extent legally required for
the discharge by the board of directors of its fiduciary duties as advised in
writing by such board's counsel, engage in any negotiations concerning, or
provide any confidential information or data to any Person relating to, an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. Fife will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. Fife will take the
necessary steps to inform the appropriate individuals or entitles referred to in
the first sentence hereof of the obligations undertaken in this Section 4.1.9 of
this Agreement. Fife will notify CBSI immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations are sought to be initiated or continued with Fife.

(ii) If (a) there is an Acquisition Proposal prior to the Fife
shareholder vote on the Transaction; (b) the Transaction is not approved by
holders of at least two-third's of the outstanding shares of Fife Common Stock
at the shareholder meeting called to vote on the Transaction, and (c) prior to
February 1, 1999, Control of Fife is acquired by a third party, by merger,
purchase of assets, acquisition of stock or otherwise, then unless the
representations and warranties of CBSI in the Agreement were false in any
material respect as of the date of such shareholder meeting or CBSI was in
material default of its covenants in the Agreement as of such date, Fife will
promptly pay to CBSI the amount of $200,000 as complete reimbursement for its
direct and indirect expenses incurred in proceeding with this Transaction.

4.1.10 STATUS OF TITLE/LEASEHOLD INTERESTS. Fife will provide CBSI and
Bank with status of title reports issued by a title insurance company reasonably
satisfactory to CBSI showing unencumbered fee simple title or vendee's interest
to all real property owned by it, and unencumbered leasehold interests in all
real property leased by it, and containing only such exceptions, reservations
and encumbrances as may be consented to in writing by CBSI or are described in
clauses (a) through (d) of Section 3.1.6(i) of this Agreement. With respect to
such real property, Fife will also provide to CBSI copies of existing title
policies held in its files, unless Fife has reason to know of subsequent changes
or unless CBSI expressly requests an updated policy for any specific piece of
property.

4.1.11 ENVIRONMENTAL ASSESSMENTS. Fife will obtain Phase I
environmental assessments for any real property on which Fife or any of its
Subsidiaries maintains an office and, upon request by CBSI, for any
nonresidential

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OREO. Oral reports of such environmental assessments will be delivered to CBSI
no later than eight (8) weeks, and written reports will be delivered to CBSI no
later than sixteen (16) weeks, following the date of such request. Fife will
obtain, at CBSI's expense, Phase II environmental assessments for properties
identified by CBSI on the basis of such Phase I environmental assessments.

4.1.12 DIRECTORS' AND OFFICERS' LIABILITY. Immediately prior to the
Effective Date, Fife shall notify its directors' and officers' liability
insurers of the Transaction and of all pending or threatened claims, actions,
suits, proceedings or investigations asserted or claimed against any Person
entitled to indemnification pursuant to Section 8.4 of this Agreement and known
to Fife, or circumstances reasonably deemed by CBSI to be likely to give rise
thereto, in accordance with terms and conditions of the applicable policies.

4.1.13 TERMINATION OF CONTRACTS. Fife will take all necessary steps
to terminate or satisfy any employment contracts or severance agreements, or any
similar agreements or understandings, to which it is a party and, in connection
therewith, will pay or adequately accrue for any expenses or termination or
other fees incurred as a result of such terminations.

4.1.14 PAYMENT OF TRANSACTION COSTS. Fife will pay or adequately
accrue for any expenses incurred by it in connection with the Transaction,
including, but not by way of limitation, all fees of counsel, accountants and
financial advisors.

4.2 REGISTRATION STATEMENT AND SUBMISSION TO SHAREHOLDERS.

4.2.1 PREPARATION OF JOINT PROXY STATEMENT/REGISTRATION STATEMENT. As
promptly as practicable after the date of this Agreement, CBSI with the
assistance of Fife and Cascade will prepare and file with the SEC a combined
proxy and registration statement (the "Joint Proxy Statement/Registration
Statement") on Form S-4 (or on such other form as shall be appropriate), which
shall constitute the joint proxy statement (the "Joint Proxy Statement") of Fife
relating to the approval and adoption of the Transaction and this Agreement by
the shareholders of Fife, of Cascade relating to approval and adoption of the
Cascade Transaction and the Cascade Agreement by the shareholders of Cascade,
and the registration statement of CBSI with respect to the CBSI Common Stock to
be issued in connection with this Transaction and the Cascade Transaction (the
"Registration Statement"). As promptly as practicable after comments are
received from the SEC on the Joint Proxy Statement/Registration Statement, CBSI
will make all reasonable efforts to cause the Joint Proxy Statement/Registration
Statement to become effective.

4.2.2 SUBMISSION TO SHAREHOLDERS. Fife will promptly take the action
necessary in accordance with applicable law and its Articles of Incorporation
and Bylaws to convene a shareholders meeting to consider the approval of this
Agreement and to authorize the transactions contemplated by this Agreement, such
meeting date to be the earliest practical date following the effective date of
the Registration Statement. Fife will have at least 15 days to solicit proxies.

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4.2.3 CLOSING OF TRANSACTION NOT CONDITIONED ON CASCADE TRANSACTION. The
Merger of Fife into the Bank is entirely separate from the Cascade Transaction.
Closing of the Transaction is not conditioned in any manner upon approval or
closing of the Cascade Transaction. The Joint Proxy Statement is being utilized
by the parties as a matter of convenience and as an effective means of
communicating to the shareholders of Fife and Cascade the relevant information
they need to reach a decision on the respective transactions.

4.3 SUBMISSION TO REGULATORY AUTHORITIES.

Representatives of CBSI and Bank will prepare and file with applicable
regulatory agencies, applications for approvals, waivers or other actions deemed
necessary or desirable, in the opinion of their counsel, in order to consummate
the Transaction. CBSI will provide copies of such applications for review by
Fife. These applications are expected to include: an application to the FDIC
and Director and related filings regarding the Merger and coordination with the
Washington Secretary of State with respect to the Merger.

4.4 NASDAQ LISTING. CBSI will use its best efforts to cause the shares of
CBSI Common Stock to be issued in connection with the Merger pursuant to this
Agreement to be approved for listing on the Nasdaq National Market System,
subject only to official notice of issuance.

4.5 PUBLIC ANNOUNCEMENTS.

4.6 CONSENTS.

Each party to this Agreement will use its best efforts to obtain the
consent or approval of any Person whose consent or approval is required in order
to permit CBSI, Bank, and Fife to consummate the Transaction.

4.7 FURTHER ACTIONS.

4.7.1 EFFORTS TO CONSUMMATE THE TRANSACTION. The parties to this
Agreement will use their best efforts in good faith to make all such
arrangements, do or cause to be done all such acts and things, and execute and
deliver all such certificates and other instruments and documents as may be
reasonably necessary or appropriate in order to consummate the Transaction
promptly.

4.7.2 POLICIES OF FIFE. At the request of CBSI, Fife will use its
best efforts to modify and change its loan and real estate valuation policies
and practices (including loan classifications and levels of reserves) and its
fixed asset amortization

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and expense procedures prior to the Effective Date so as to be consistent on a
mutually satisfactory basis with those of CBSI and GAAP. Fife's representations,
warranties, covenants and conditions contained in this Agreement will not be
deemed to be untrue or breached or unfulfilled in any respect for any purpose as
a consequence of any modifications or changes undertaken solely on account of
this Section 4.7.2.

4.8 NOTICE.

Fife will provide CBSI and Bank with prompt written notice of:

(i) Any events that, individually or in the aggregate, can reasonably be
expected to have a Material Adverse Effect.

(ii) The commencement of any proceeding against Fife by or before any court
or governmental agency that, individually or in the aggregate, can reasonably be
expected to have a Material Adverse Effect with respect to Fife.

(iii) Acquisition of an ownership or leasehold interest in any real
property, as specified in Section 4.1.2 of this Agreement.

4.9 CONFIDENTIALITY.

4.10 AFFILIATE LETTERS.

No later than thirty days following the execution and delivery of this
Agreement, Fife will deliver to CBSI, after consultation with legal counsel, a
list of names and addresses of those persons deemed to be "affiliates" (within
the meaning of SEC Rule 145) of Fife with respect to the Merger and for purposes
of qualifying for "pooling-of-interests" accounting treatment. Fife will
deliver, or cause to be delivered, to CBSI not later than thirty days prior to
the Effective Date, from each of the "affiliates" of Fife so identified, a
letter dated as of the date of its delivery, in the form of Annex 10.

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4.11. AVAILABILITY OF CBSI'S BOOKS, RECORDS AND PROPERTIES.

CBSI will make available to Fife true and correct copies of (i) its
Articles of Incorporation and Bylaws and (ii) minutes of the meetings of its
shareholders and its board of directors. At Fife's request, CBSI will also
provide Fife with copies of (1) Reports and all other documents filed with the
SEC or banking regulators and (2) CBSI's stock option plans.

SECTION 5.

APPROVALS AND CONDITIONS

5.1 REQUIRED APPROVALS.

5.2 CONDITIONS TO OBLIGATIONS OF CBSI AND BANK.

All obligations of CBSI and Bank pursuant to this Agreement are subject to
satisfaction of the following conditions at or before Closing:

5.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Fife contained in this Agreement or in any certificate or other
instrument delivered in connection with this Agreement will be true and correct
in all material respects at Closing, with the same force and effect as though
such representations and warranties had been made on and as of Closing, except
to the extent that such representations and warranties are by their express
provisions made as of a specified date, in which case such representations and
warranties shall be true and correct in all material respects as of such date.
Fife will have delivered to CBSI its certificate to that effect, executed by the
chief executive officer of Fife and dated as of Closing.

5.2.2 COMPLIANCE. Fife and its directors each will have performed
and complied in all material respects with all terms, covenants and conditions
of this Agreement on or before Closing. Fife will have delivered to CBSI and
Bank their respective certificates to that effect, executed by the chief
executive officer of Fife and dated as of Closing.

5.2.4 FINANCIAL CONDITION. The following will be true and the
certificate of Fife referred to in Subsection 5.2.2 will so state:

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(i) Fife's Shareholders' Equity will not be less than $3,200,000, not
including capital contributions upon exercise of outstanding Fife Options.

(ii) Core Deposits of Fife will not be less than 106% of the daily
average Core Deposits for the month of December 1996. For purposes of this
subsection, Core Deposits will be determined on the basis of the average of the
daily Core Deposit balances of Fife during a 90-day period ending two days prior
to Closing.

(iii) Fife's allowance for possible loan and lease losses will not be
less than 1% of Fife's total outstanding loans and leases, and will be adequate
to absorb Fife's anticipated loan and lease losses.

(iv) The reserves set aside for any contingent liabilities of Fife
will be adequate to absorb all reasonably anticipated losses.

5.2.5 NO GOVERNMENTAL PROCEEDINGS. No action or proceeding will have
been commenced or threatened by any governmental agency to restrain or prohibit
or invalidate the Transaction.

5.2.7 DIRECTOR EXECUTION OF THIS AND ADDITIONAL AGREEMENTS. This
Agreement will be executed by all directors of Fife, and the agreements
described in Section 6 of this Agreement will have been executed and delivered
to CBSI and Bank by all non-officer directors.

5.2.8 LEGAL OPINION. Graham & Dunn, P.C., counsel for Fife, will
have delivered to CBSI and Bank an opinion, dated as of Closing, in form and
substance acceptable to CBSI and its counsel.

5.2.10 RECEIPT OF TITLE POLICY. CBSI will have received the title
insurance policy or policies required by Section 4.1.10 of this Agreement.

5.2.11 CORPORATE AND SHAREHOLDER ACTION. Each of the following will
have approved the Transaction:

(i) The Board of Directors of Fife.

(ii) The shareholders of Fife.

5.2.12 TAX OPINION. CBSI and Fife will have obtained from Gordon,
Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C., counsel for CBSI and
Bank, and delivered to Fife, an opinion dated as of the date the Joint Proxy
Statement is first mailed to the shareholders of Fife, addressed to Fife and in
form and substance reasonably satisfactory to Fife and to its counsel, to the
effect that consummation of the

B-30
<PAGE>

Merger pursuant to this Agreement will not result in a taxable event for Fife,
and otherwise will have the effects specified below:

(a) The Merger will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code.

(b) Pursuant to the provisions of Section 354 (a) (1) of the Code, no
gain or loss will be recognized with respect to each stockholder of Fife who,
pursuant to the provisions of Section 1 of this Agreement, exchanges his or her
shares of Fife Common Stock solely for shares of CBSI Common Stock.

(c) The payment of cash to a Fife shareholder in lieu of a fractional
share of CBSI Common Stock will be treated as a distribution in redemption of
the fractional share interest, subject to the limitations of Section 302 of the
Code.

5.2.13 DISSENTING SHAREHOLDERS. Not more than ten percent (10%) of
the Fife Common Stock will be Dissenting Shares at Closing.

5.2.14 AFFILIATE LETTERS. CBSI and Bank will have received the
affiliate list and letters specified in Section 4.10 of this Agreement.

5.2.15 REGISTRATION STATEMENT. The Registration Statement, as it may
have been amended, required in connection with the shares of CBSI Common Stock
to be issued to Fife shareholders pursuant to Section 1.2 of this Agreement and
as described in Section 1.4 of this Agreement will have become effective, and no
stop order suspending the effectiveness of such Registration Statement shall
have been issued and shall remain in effect, and no proceedings for that purpose
shall have been initiated or threatened by the SEC the basis for which shall and
remain in effect.

5.3 CONDITIONS TO OBLIGATIONS OF FIFE.

All obligations of Fife pursuant to this Agreement are subject to
satisfaction of the following conditions at or before Closing:

5.3.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CBSI and Bank contained in this Agreement or in any certificate or
other instrument delivered in connection with this Agreement will be true and
correct in all material respects at Closing, with the same force and effect as
though such representations and warranties had been made on and as of Closing,
except to the extent that such representations and warranties are by their
express provisions made as of a specified date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date. CBSI and Bank will have delivered to Fife their
respective certificates to that effect, executed by the authorized officer of
CBSI and dated as of Closing.

5.3.2 COMPLIANCE. CBSI and Bank each will have performed and complied
with all terms, covenants and conditions of this Agreement on or before

B-31
<PAGE>

Closing. CBSI and Bank will have delivered to Fife their respective certificates
to that effect, executed by the authorized officer of CBSI and dated as of
Closing.

5.3.3 NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, there
will have been no material damage, destruction or loss (whether or not covered
by insurance) and no other event, individually or in the aggregate, constituting
or reasonably expected by Fife to constitute a Material Adverse Effect with
respect to CBSI or Bank.

5.3.4 NO GOVERNMENTAL PROCEEDINGS. No action or proceeding will have
been commenced or threatened by any governmental agency to restrain or prohibit
or invalidate the Transaction.

5.3.5 FAIRNESS OPINION. Fife shall have received from its financial
advisor a written fairness opinion, dated on or about the date on which the
Joint Proxy Statement is distributed to Fife's shareholders, to the effect that
the consideration to be received by Fife shareholders pursuant to Section 1.4 of
this Agreement is fair to such shareholders from a financial point of view.

5.3.6 LEGAL OPINION. Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C., counsel for CBSI and Bank, will have delivered to Fife an
opinion, dated as of Closing, in form and substance acceptable to Fife and its
counsel.

5.3.7 CORPORATE AND SHAREHOLDER ACTION. Each of the following will
have approved the Transaction:

(i) The Boards of Directors of CBSI and Bank.

(ii) CBSI, as shareholder of Bank.

5.3.8 TAX OPINION. The tax opinion specified in Section 5.2.12 of
this Agreement will have been delivered.

5.3.9 DISSENTING SHAREHOLDERS. Not more than ten percent (10%) of
the shares of Fife Common Stock will be Dissenting Shares at Closing.

B-32
<PAGE>

SECTION 6.

DIRECTORS, OFFICERS AND EMPLOYEES

6.1 DIRECTORS.

The non-officer directors of Fife will enter into written agreements, in
the form attached to this Agreement as Exhibit A, providing that, for a period
of three years after Closing, no such person will become involved, directly or
indirectly, as a principal shareholder, director or officer of any financial
institution that competes with CBSI, Bank or any of their affiliates in Pierce
County.

6.2 EMPLOYEES.

CBSI and Bank intend that their current personnel policies will apply to
any current employees of Fife who are retained in the service of CBSI and Bank
after Closing. CBSI and Bank presently intend to allow such employees to
participate in employee benefit plans and stock purchase plans in which
employees of CBSI and Bank generally participate. For purposes of such
participation, current employees will receive credit for prior service with Fife
for purposes of determining eligibility and vesting, but not for determining
benefit accruals. This expression of intent will not be construed to create a
contract of employment with such employees of Fife.

6.3 EMPLOYEE BENEFIT ISSUES.

6.3.1 COMPARABILITY OF BENEFITS. CBSI and Bank confirm to Fife their
present intention to provide employees of Fife who become employees of Bank
with employee benefit programs in the aggregate generally not less favorable to
such employees than those presently being provided to employees of Fife and
those being provided to employees of Bank on the date of Closing.

6.3.3 TREATMENT OF PAST SERVICE. For purposes of participation,
vesting and benefit accruals in CBSI's other employee benefit programs,
employees of Fife who become employees of Bank will receive credit for prior
service with Fife for purposes of determining eligibility and vesting, but not
for determining benefit accruals. For a reasonable period after Closing, not to
exceed six months, any non-continuing employee also will be given an opportunity
to apply for open positions with CBSI or any of its banking subsidiaries, and
CBSI and such Subsidiary will use their best efforts to give prompt notice of
job postings to such employees.

6.3.3 NO CONTRACT CREATED. Nothing in this Agreement will give any
employee a right to continuing employment.

B-33
<PAGE>

SECTION 7.

TERMINATION OF AGREEMENT AND ABANDONMENT OF TRANSACTION

7.1 TERMINATION.

This Agreement and the Transaction may be terminated at any time before
Closing, whether before or after approval of this Agreement by the shareholders
of Fife and Bank, as follows, and in no other manner:

7.1.1 MUTUAL CONSENT. By mutual consent of the parties to this
Agreement, if the Board of Directors of each such party so determines by a vote
of a majority of the members of its entire Board.

7.1.2 SATISFACTION OF CONDITIONS. By Fife at any time on or before
March 31, 1998 if any condition set forth in Sections 5.1 or 5.3 of this
Agreement is rendered impossible to be satisfied by such date (other than as a
result of a breach of this Agreement by Fife), and by CBSI and Bank at any time
on or before March 31, 1998 if any condition set forth in Sections 5.1 or 5.2 of
this Agreement is rendered impossible to be satisfied by such date (other than
as a result of a breach of this Agreement by CBSI or Bank).

7.1.3 TRANSACTION NOT CONSUMMATED. By CBSI and Bank or by Fife if
the Transaction is not consummated by March 31, 1998, provided that no party
seeking to terminate is then in material breach of any representation, warranty,
covenant or other agreement contained in this Agreement.

7.1.4 BREACH. By Fife or by CBSI and Bank in the event of a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement, which breach would result in the failure to satisfy the closing
condition set forth in Sections 5.1, 5.3.1, or 5.3.2, in the case of Fife, or
Section 5.1, 5.2.1, or 5.2.2, in the case of CBSI and Bank, and which breach
cannot be cured within 30 days after written notice of such breach is given by
the non-breaching party to the party committing such breach.

7.1.5 REJECTION BY FIFE SHAREHOLDERS. By Fife if its shareholders
fail to approve the Transaction by the requisite vote at a duly held meeting of
such shareholders or at any adjournment or postponement of such meeting.

7.1.6 DECLINE IN VALUE OF CBSI STOCK. By the Board of Directors of
Fife no later than four trading days prior to the Effective Date if the Average
Closing Price is less than $18.00. If Fife exercises its termination right
under this Subsection 7.1.6 it will give immediate written notice to CBSI, and
CBSI, at its option, will have 24 hours to agree to use the actual Average
Closing Price notwithstanding that it is less than $18.00. If CBSI so elects,
it will give immediate written notice to Fife, and no termination will have
occurred under this Subsection 7.1.6.

B-34
<PAGE>

7.2 COST ALLOCATION UPON TERMINATION.

In connection with the termination of this Agreement, Fife, CBSI and Bank
each will pay their own out-of-pocket costs incurred in connection with this
Agreement, and will have no other liability to any other party; provided,
--------
however, that no party to this Agreement shall be relieved or released from any
- -------
liabilities or damages arising out of its intentional or willful breach of any
provision of this Agreement or by a lack of good faith efforts that result in
the failure to perform or fulfill any representation, warranty, covenant or
condition set forth in this Agreement.

SECTION 8.

MISCELLANEOUS

8.1 NOTICES.

<TABLE>
<CAPTION>
<S> <C>
Bank of Fife Bank of Fife
5501 Pacific Highway East
Fife, WA 98424
Attn: James L. Davis, President

with a copy to: Stephen M. Klein, Esq.
Graham & Dunn, P.C.
1420 Fifth Avenue, 38th Floor
Seattle, WA 98101

Columbia Banking System, Inc. Columbia Banking System, Inc.
Columbia State Bank 1102 Broadway Plaza
Tacoma, WA 98402
Attn: A.G. Espe, Chairman, and Chief
Executive Officer, and
W.W. Philip, President

with a copy to: J. James Gallagher, Esq.
Gordon, Thomas, Honeywell, Malanca,
Peterson & Daheim, P.L.L.C.
1201 Pacific Avenue, Suite 2200
P.O. Box 1157
Tacoma, WA 98402
</TABLE>

or to such other address or person as any party may designate by
written notice to the other.

B-35
<PAGE>

8.2 WAIVERS AND EXTENSIONS.

Fife, CBSI or Bank may, by, written instrument, extend the time for the
performance of any of the obligations or other acts of any other party, and may
waive:

(i) any inaccuracies of any other party in the representations and
warranties contained in this Agreement or in any document delivered in
connection with this Agreement;

(ii) compliance with any of the covenants of any other party; and

(iii) any other party's performance of any obligations pursuant to this
Agreement and any other condition precedent set out in Section 5 of this
Agreement.

Any waiver or extension pursuant to this Agreement will be executed by the
President of Fife, and by an officer of the title of Executive Vice President or
higher of any other party so electing.

8.3 CONSTRUCTION AND EXECUTION IN COUNTERPARTS.

Except as otherwise expressly provided here, this Agreement: (i) covers the
entire understanding of CBSI, Bank and Fife, and no modification or amendment of
its terms or conditions will be effective unless in writing and signed by Fife,
CBSI and Bank or their respective duly authorized agents; (ii) will not be
interpreted by reference to any of the titles or headings to the Sections or
Subsections of this Agreement, which have been inserted for convenience only and
are not deemed a substantive part of this Agreement; (iii) is deemed to include
all amendments to this Agreement, each of which is made a part of this Agreement
by this reference; and (iv) may be executed in one or more counterparts, each of
which will be deemed an original, but all of which taken together will
constitute one and the same document.

8.4 INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.

On and after the Effective Date, CBSI will indemnify and defend those
persons now (or at Closing) acting as directors and executive officers of Fife
from and against any and all claims, losses, liabilities, costs, and expenses
(including reasonable attorney fees) arising from any of such persons' actions
in such capacities prior to the Effective Date, to the full extent that Fife now
is so obligated under applicable law or under its articles of incorporation or
bylaws in effect at the date of this Agreement. For a period of six years after
the Effective Date, CBSI will use reasonable efforts to cause to be maintained
in effect (with reputable and financially sound insurers) director and officer
liability insurance substantially similar to that maintained by Fife with
respect to claims arising from facts or events which occurred before the
Effective Date.

B-36
<PAGE>

8.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS.

8.6 ATTORNEYS' FEES AND COSTS.

8.7 GOVERNING LAW.

This Agreement will be governed by and construed in accordance with the
laws of the State of Washington, except to the extent that certain matters may
be governed by federal law.

SECTION 9.

AMENDMENTS

Subject to applicable law, this Agreement and the form of any attached
Exhibit or Annex may be amended upon authorization of the boards of directors of
Fife, CBSI and Bank, whether before a or after the meeting of shareholders
referred to in Section 4.2 of this Agreement; provided, however, that after
-------- -------
approval by Fife's shareholders, no amendment will be made changing the form or
reducing the amount of consideration to be received by the shareholders of Fife
without the further approval of such shareholders.

DATED this 30th day of July, 1997

COLUMBIA BANKING SYSTEM, INC.

By: /s/ A.G. Espe
-----------------
Its: Chairman and Chief Executive Officer

Attest:

/s/ Jill L. Myers
- ---------------------------
Secretary

COLUMBIA STATE BANK

B-37
<PAGE>

By: /s/ A.G. Espe
---------------------
Its: Chairman

Attest:

/s/ Jill L. Myers
- --------------------------
Secretary

B-38
<PAGE>

BANK OF FIFE

By: /s/ James L. Davis
---------------------
Its: President and Chief Executive Officer

Attest:

/s/ James Manza
- ----------------------------
Secretary

B-39
<PAGE>

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of July, 1997, before me personally appeared A.G. Espe, to
me known to be the Chairman and Chief Executive Officer of Columbia Banking
System, Inc., the corporation that executed the foregoing instrument, who
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes mentioned there, and who stated on oath
that he or she was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Margaret I. Schmidt
--------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Sumner
---------
My Commission expires: 9/3/00
--------

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of July, 1997, before me personally appeared A.G. Espe, to
me known to be the Chairman of Columbia State Bank, the corporation that
executed the foregoing instrument, who acknowledged said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
mentioned there, and who stated on oath that he or she was authorized to execute
said instrument, and that the seal affixed (if any) was the official seal of
said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Margaret I. Schmidt
--------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Sumner
---------
My Commission expires: 9/3/00
--------

B-40
<PAGE>

STATE OF WASHINGTON )
)ss
COUNTY OF PIERCE )

On this 30th day of July, 1997, before me personally appeared James L.
Davis, to me known to be the President and Chief Executive Officer of Bank of
Fife the corporation that executed the foregoing instrument, who acknowledged
said instrument to be the free and voluntary act and deed of said corporation,
for the uses and purposes mentioned there, and who stated on oath that he or she
was authorized to execute said instrument, and that the seal affixed (if any)
was the official seal of said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ R. W. Mason
------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Tacoma
--------
My Commission expires: 9/24/00
---------

B-41
<PAGE>

APPROVAL BY DIRECTORS OF BANK OF FIFE

The undersigned, all of the members of the Board of Directors of Bank of
Fife, approve the foregoing Agreement, agree to vote their shares in favor of
the Transaction contemplated by the Agreement, agree to recommend to the
shareholders of Bank of Fife that they approve the Agreement, and agree to
comply with Section 6.1 of the Agreement; subject only to their fiduciary duty
to Bank of Fife shareholders.

<S> <C>
/s/ Henry Ness /s/ Arthur Folden
- ---------------------------------- ---------------------------------

/s/ Michael Porter /s/ Nat Luppino
- ---------------------------------- ---------------------------------

/s/ James Manza /s/ Gary Garrison
- ---------------------------------- ---------------------------------

/s/ Robert Oldright /s/ Gerald Barkshire
- ---------------------------------- ----------------------------------

/s/ James L. Davis /s/ Albert Meier
- ---------------------------------- ----------------------------------

/s/ George Dill
- ----------------------------------
</TABLE>

B-42
<PAGE>

STATE OF WASHINGTON )
) ss.
COUNTY OF PIERCE )

On this 30th day of July, 1997, before me personally appeared: Gerald
Barkshire, James L. Davis, George Dill, Arthur Folden, Gary Garrison, Nat
Luppino, James Manza, Albert Meier, Henry Ness, Robert Oldright and Michael
Porter to me known to be the directors of Bank of Fife, the corporation that
executed the foregoing instrument, who acknowledged said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
mentioned there, and who stated on oath that he or she was authorized to execute
said instrument, and that the seal affixed (if any) was the official seal of
said corporation.

IN WITNESS OF THE FOREGOING, I have set my hand and official seal to this
document as of the day and year first written above.

/s/ Elizabeth Peterson
-------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Spanaway
-----------
My Commission expires: 7/15/00
---------

B-43
<PAGE>

APPENDIX C

23B.13.010. Definitions
- ------------------------

As used in this chapter:

(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.

(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.

(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.

(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.

(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

23B.13.020. Right to dissent
- -----------------------------

(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:

(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW

C-1
<PAGE>

23B.11.030, 23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a subsidiary that
is merged with its parent under RCW 23B.11.040;

(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;

(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;

(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if the
fractional share so created to be acquired for cash under RCW 23B.06.040; or

(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.

(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.

(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:

(a) The proposed corporate action is abandoned or rescinded;

(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or

C-2
<PAGE>

23B.13.030. Dissent by nominees and beneficial owners
- ------------------------------------------------------

(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.

(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:

(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and

(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such shareholder
has power to direct the vote.

23B.13.200. Notice of dissenters' rights
- -----------------------------------------

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.

(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.

23B.13.210. Notice of intent to demand payment
- -----------------------------------------------

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.

C-3
<PAGE>

(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.

23B.13.220. Dissenters' notice
- -------------------------------

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.

(2) The dissenters' notice must be sent within ten day after the effective
date of the corporate action, and must:

(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

(b) Inform holders of uncertified shares to what extent transfer of the
shares will be restricted after the payment demand is received;

(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;

(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
the notice in subsection (1) of this section is delivered; and

(e) Be accompanied by a copy of this chapter.

23B.13.230. Duty to demand payment
- -----------------------------------

(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.

(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.

C-4
<PAGE>

(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.

23B.13.240. Share restrictions
- -------------------------------

(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.

(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.

23B.13.250. Payment
- --------------------

(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.

(2) The payment must be accompanied by:

(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;

(b) An explanation of how the corporation estimated the fair value of the
shares;

(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and

(e) A copy of this chapter.

C-5
<PAGE>

23B.13.260. Failure to take action
- -----------------------------------

(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.

(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.

23B.13.270. After-acquired shares
- ----------------------------------

(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.

(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.

23B.13.280. Procedure if shareholder dissatisfied with payment or offer
- ------------------------------------------------------------------------

(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:

(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;

(b) The corporation fails to make payment under RCW 23B.13.250 within sixty
days after the date set for demanding payment; or

C-6
<PAGE>

(c) The corporation does not effect the proposed action and does not return
the deposited certificates or release the transfer restrictions imposed on
uncertified shares within sixty days after the date set for demanding payment.

(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.

23B.13.300. Court action
- -------------------------

(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.

(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.

(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.

(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.

(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.

C-7
<PAGE>

(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under RCW
23B.13.270.

23B.13.310. Court costs and counsel fees
- -----------------------------------------

(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceedings, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under RCW 23B.13.280.

(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:

(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of RCW 23B.13.200 through 23B.13.280; or

(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by chapter 23B.13 RCW.

(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.

C-8
<PAGE>

APPENDIX D

30.49.090. Rights of dissenting shareholder-Appraisal-Amount due as debt
- -------------------------------------------------------------------------

The owner of shares of a state bank which were voted against a merger to
result in a state bank, or against the conversion of a state bank into a
national bank, shall be entitled to receive their value in cash, if and when the
merger or conversion becomes effective, upon written demand made to the
resulting state or national bank at any time within thirty days after the
effective date of the merger or conversion, accompanied by the surrender of the
stock certificates. The value of such shares shall be determined, as of the
date of the shareholders' meeting approving the merger or conversion, by three
appraisers, one to be selected by the owners of two-thirds of the dissenting
shares, one by the board of directors of the resulting state or national bank,
and the third by the two so chosen. The valuation agreed upon by any two
appraisers shall govern. If the appraisal is not completed within ninety days
after the merger or conversion becomes effective, the director shall cause an
appraisal to be made.

The dissenting shareholders shall bear, on a pro rata basis based on the
number of dissenting shares owned, the costs of their appraisal and one-half of
the cost of a third appraisal, and the resulting bank shall bear the cost of its
appraisal and one-half of the cost of the third appraisal. If the director
causes an appraisal to be made, the cost of that appraisal shall be borne
equally by the dissenting shareholders and the resulting bank, with the
dissenting shareholders sharing their half of the cost on a pro rata basis based
on the number of dissenting shares owned.

The resulting state or national bank may fix an amount which it considers
to be not more than the fair market value of the shares of a merging or the
converting bank at the time of the stockholders' meeting approving the merger or
conversion, which it will pay dissenting shareholders of the bank entitled to
payment in cash. The amount due under such accepted offer or under the
appraisal shall constitute a debt of the resulting state or national bank.

D-1
<PAGE>

Appendix E
COLUMBIA
FINANCIAL
ADVISORS, INC.
1000 Second Avenue
Suite 3650
Seattle, WA 98104-1045
(206) 682-5677
FAX (206) 682-7747

October __, 1997

Board of Directors
Cascade Bancorp, Inc.
P.O. Box 1996
Auburn, Washington 98071

Members of the Board:

You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Cascade Bancorp, Inc. and its subsidiary,
Cascade Community Bank ("Cascade" or the "Company"), of the consideration to be
received by such shareholders pursuant to the terms of the Merger Agreement and
Plan of Merger, dated June 30, 1997, (the "Agreement") between Cascade and
Columbia Banking System, Inc. ("COLB").

In connection with the proposed merger transaction (the "Merger") whereby
Cascade will be merged into COLB each issued and outstanding share and option of
the Company common stock (along with its associated rights) at the effective
time of the Merger (other than (i) shares of holders of which are exercising
appraisal rights pursuant to applicable law and (ii) shares held directly by or
indirectly by Cascade, its parent company or any subsidiary thereof other than
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall be converted into the right to receive 2.27 shares of COLB
common stock (the Merger "Consideration"), except for fractional shares which
will receive a proportional amount of cash.

Columbia Financial Advisors, Inc. ("CFAI") as a part of its investment
banking services, is periodically engaged in the valuation of banks and advises
the directors, officers and shareholders of both public and private banks and
thrift institutions with respect to the fairness, from a financial point of
view, of the consideration to be received in transactions such as that proposed
by the Agreement. With particular regard to our qualifications for rendering an
opinion as to the fairness, from a financial point of view, of the Consideration
to be received by holders of the shares from COLB pursuant to the Merger, CFAI
has advised Washington and Oregon community banks regarding fairness of capital
transactions. Cascade has agreed to pay CFAI a fee for this opinion letter.

E-1
<PAGE>

Board of Directors
Cascade Bancorp, Inc.

October __, 1997

In connection with rendering this opinion, we have, among other things: (I)
reviewed the Agreement; (ii) reviewed Cascade's financial information for the
twelve months ended December 31, 1996 and the three months ended March 31, 1997;
(iii) reviewed certain internal financial analyses and certain other forecasts
for the Company prepared by and reviewed with the management of the Company;
(iv) conducted interviews with senior management of the Company regarding the
past and current business operations, results thereof, financial condition and
future prospects of the Company; (v) reviewed the current market environment
generally and the banking and thrift environment in particular; (vi) reviewed
the prices paid in certain recent mergers and acquisitions in the banking and
thrift industries on a regional basis; (vii) reviewed COLB's audited financial
information for the fiscal year ended December 31, 1996 and financial
information for the 3 months ended March 31, 1997 including the Form 10-KSB and
the Form 10-QSB filed with the U.S. Securities and Exchange Commission; (ix)
reviewed the price ranges and dividend history for COLB common stock; (x) and
reviewed such other information, studies and analyses and performed such other
investigations and took into account such other matters as we deemed
appropriate.

In conducting our review and arriving at our opinion we have relied on the
accuracy and completeness of all information supplied or otherwise made
available to us, and we have not independently verified such information nor
have we undertaken an independent appraisal of the assets or liabilities of the
Company or COLB. With respect to the financial forecasts referred to above, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgment of the senior management of the
Company. This opinion is necessarily based upon circumstances and conditions as
they exist and can be evaluated as of the date of this letter. We have not been
authorized to solicit and did not solicit other entities for purposes of a
business combination with Cascade.

This opinion is based upon the information available to us and facts and
circumstances as they exist and are subject to evaluation on the date hereof.
We are not expressing any opinion herein as to the prices at which shares of
COLB Common Stock have traded or may trade at any future date.

This opinion is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote with respect to the
merger.

In reliance upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the Merger Consideration to be received by the shareholders
of Cascade pursuant to the Agreement is fair, from a financial point of view, to
the shareholders of Cascade.

E-2
<PAGE>

Board of Directors
Cascade Bancorp, Inc.

October __, 1997

We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction.

Very truly yours,

COLUMBIA FINANCIAL ADVISORS, INC.

/s/ Robert J. Rogowski
By: ____________________________
Robert J. Rogowski
Principal

E-3
<PAGE>

Appendix F

COLUMBIA
FINANCIAL
ADVISORS, INC.
1000 Second Avenue
Suite 3650
Seattle, WA 98104-1045
(206) 682-5677
FAX (206) 682-7747

October __, 1997

Board of Directors
Bank of Fife
1507 54th Ave. East
Fife, Washington 98424

Members of the Board:

You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Bank of Fife (the "Bank"), of the consideration
to be received by such shareholders pursuant to the terms of the Merger
Agreement and Plan of Merger, dated July 30, 1997, (the "Agreement") between the
Bank and Columbia Banking System, Inc. ("COLB").

In connection with the proposed merger transaction (the "Merger") whereby
the Bank will be merged into COLB each issued and outstanding share and option
of the Company common stock (along with its associated rights) at the effective
time of the Merger (other than (i) shares of holders of which are exercising
appraisal rights pursuant to applicable law and (ii) shares held directly by or
indirectly by the Bank, its parent company or any subsidiary thereof other than
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall be converted into the right to receive a varying amount of
COLB common stock when COLB trades between $18.00 and $22.00 per share and, as
of June 30, 1997, 1.45797 shares of COLB common stock (the Merger
"Consideration"), except for fractional shares which will receive a proportional
amount of cash.

Columbia Financial Advisors, Inc. ("CFAI") as a part of its investment
banking services, is periodically engaged in the valuation of banks and advises
the directors, officers and shareholders of both public and private banks and
thrift institutions with respect to the fairness, from a financial point of
view, of the consideration to be received in transactions such as that proposed
by the Agreement. With particular regard to our qualifications for rendering an
opinion as to the fairness, from a financial point of view, of the Consideration
to be received by holders of the shares from COLB pursuant to the Merger, CFAI
has advised Washington and Oregon community banks regarding fairness of capital
transactions. The Bank has agreed to pay CFAI a fee for this opinion letter.

F-1
<PAGE>

Board of Directors
Bank of Fife

October __, 1997

In connection with rendering this opinion, we have, among other things: (i)
reviewed the Agreement; (ii) reviewed the Bank's financial information for the
twelve months ended December 31, 1996 and the three months ended March 31, 1997;
(iii) reviewed certain internal financial analyses and certain other forecasts
for the Bank prepared by and reviewed with the management of the Bank; (iv)
conducted interviews with senior management of the Bank regarding the past and
current business operations, results thereof, financial condition and future
prospects of the Bank; (v) reviewed the current market environment generally and
the banking and thrift environment in particular; (vi) reviewed the prices paid
in certain recent mergers and acquisitions in the banking and thrift industries
on a regional basis; (vii) reviewed COLB's audited financial information for the
fiscal year ended December 31, 1996 and financial information for the 3 months
ended March 31, 1997 including the Form 10-KSB and the Form 10-QSB filed with
the U.S. Securities and Exchange Commission; (ix) reviewed the price ranges and
dividend history for COLB common stock; (x) and reviewed such other information,
studies and analyses and performed such other investigations and took into
account such other matters as we deemed appropriate.

In conducting our review and arriving at our opinion, we have relied on the
accuracy and completeness of all information supplied or otherwise made
available to us, and we have not independently verified such information nor
have we undertaken an independent appraisal of the assets or liabilities of the
Bank or COLB. With respect to the financial forecasts referred to above, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgment of the senior management of the
Bank. This opinion is necessarily based upon circumstances and conditions as
they exist and can be evaluated as of the date of this letter. We have not been
authorized to solicit and did not solicit other entities for purposes of a
business combination with the Bank.

This opinion is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote with respect to the
merger.

In reliance upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the Merger Consideration to be received by the shareholders
of the Bank pursuant to the Agreement is fair, from a financial point of view,
to the shareholders of the Bank.

F-2
<PAGE>

Board of Directors
Bank of Fife

October __, 1997

Very truly yours,

COLUMBIA FINANCIAL ADVISORS, INC.

/s/ Robert J. Rogowski
By: ____________________________
Robert J. Rogowski
Principal

F-3
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Articles of Incorporation of CBSI provide, among other things, for the
indemnification of directors, and authorize the Board of Directors to pay
reasonable expenses incurred by, or to satisfy a judgment or fine against, a
current or former director in connection with any personal legal liability
incurred by the individual while acting for CBSI within the scope of his or her
employment, and which was not the result of conduct finally adjudged to be
"egregious" conduct. "Egregious" conduct is defined as intentional misconduct,
a knowing violation of law, or participation in any transaction from which the
person will personally receive a benefit in money, property, or services to
which that person is not legally entitled. The Articles of Incorporation also
include a provision that limits the liability of directors of CBSI from any
personal liability to CBSI or its shareholders for conduct not found to have
been egregious.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits. The following is a list of Exhibits to this Registration
Statement.

2(a) Plan and Agreement of Reorganization and Merger dated as of June 30,
1997 among Columbia Banking System, Inc., Columbia State Bank,
Cascade Bancorp, Inc. and Cascade Community Bank (included in Part I
and annexed as Appendix A to the Joint Proxy Statement/Prospectus
included in this Registration Statement).

2(b) Plan and Agreement of Reorganization and Merger dated as of July 30,
1997 among Columbia Banking System, Inc., Columbia State Bank and
Bank of Fife (included in Part I and annexed as Appendix B to the
Joint Proxy Statement/Prospectus included in this Registration
Statement).

3(a) Restated Articles of Incorporation of Columbia Banking System, Inc.
(filed as an exhibit to the Registrant's Registration Statement on
Form S-1, Registration No. 33-47711, declared effective on June 16,
1992 and incorporated herein by reference).

3(b) Restated Bylaws of Columbia Banking System, Inc. (filed as an exhibit
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 and incorporated herein by reference).

5 Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim,
P.L.L.C. regarding the legality of the securities being registered
(filed as an exhibit to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-35037) and incorporated herein by
reference).

8 Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim,
P.L.L.C. regarding tax matters. (Filed as an exhibit to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-35037) and incorporated herein by reference.)

II-1
<PAGE>

10(a) Amended and Restated Stock Option Plan of Columbia Banking System,
Inc. (included as Exhibit A to the Registrant's Proxy Statement for
its 1997 Annual Meeting of Shareholders and incorporated herein by
reference).

10(b) Amended Employment Agreement dated December 30, 1993 between the
Registrant and A.G. Espe (filed as an exhibit to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1993 and
incorporated herein by reference).

10(c) Amended Employment Agreement between the Registrant and A.G. Espe
dated as of September 25, 1996, effective as of January 1, 1997
(filed as an exhibit to the Registrant's Registration Statement on
Form S-2, Registration No. 333-14465, declared effective on November
12, 1996 and incorporated herein by reference).

10(d) Amended Employment Agreement between the Registrant and W.W. Philip
dated December 31, 1993, as further amended effective December 29,
1995 (filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated herein by
reference).

10(e) Amended Employment Agreement between the Registrant and W.W. Philip
dated as of September 25, 1996, effective January 1, 1997, except
with respect to Section 4.3 (granting restricted stock award) which
is immediately effective (filed as an exhibit to the Registrant's
Registration Statement on Form S-2, Registration No. 333-14465,
declared effective on November 12, 1996 and incorporated herein by
reference).

10(f) Amended Agreement granting options to NorCap, Ltd. to purchase
shares of common stock of the Registrant dated September 26, 1990
(filed as an exhibit to the Registrant's Registration Statement on
Form S-1, Registration No. 33-47711, declared effective on June 16,
1992 and incorporated herein by reference).

10(g) Data processing servicing agreement dated May 3, 1993 between the
Registrant and M&I Data Services (filed as an exhibit to the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1993 and incorporated herein by reference).

11 Statement regarding computation of per share earnings (filed as an
exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).

16 Letter concerning the change in the Registrant's Certifying
Accountant (filed as an exhibit to Amendment No. 1 to Registrant's
Current Report on Form 8-K/A dated March 14, 1997 and incorporated
herein by reference).

23(a) Consent of Price Waterhouse LLP. (Filed as an exhibit to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-35037) and incorporated herein by reference).

23(b) Consent of Knight Vale & Gregory, Inc. P.S. (Filed as an exhibit to
the Registrant's Registration Statement on Form S-4 (Registration No.
333-35037) and incorporated herein by reference).

II-2
<PAGE>

23(c) Consent of Columbia Financial Advisors, Inc. (included in the
fairness opinions of Columbia Financial Advisors, Inc. which are
included in Part I and annexed as Appendix E and Appendix F to the
Joint Proxy Statement/Prospectus included in this Registration
Statement).

23(d) Consent of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim
P.L.LC. (included in the opinion filed as Exhibit 5).

23(e) Consent of Thomas L. Matson (filed as an exhibit to the Registrant's
Registration Statement on Form S-4 (Registration No. 333-35037) and
incorporated herein by reference).

24 Power of Attorney (filed as an exhibit to the Registrant's
Registration Statement on Form S-4 (Registration No. 333-35037) and
incorporated herein by reference).

99(a) Form of Proxy of Cascade Bancorp, Inc.*

99(b) Form of Proxy of Bank of Fife*

----------------

* Filed herewith.

(b) Financial Statement Schedules.

Not applicable

Item 22. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 11 of this Form, within one business day of receipt of such request, and to
send the incorporated documents by first

II-3
<PAGE>

class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tacoma,
State of Washington, on October 16, 1997.

Columbia Banking System, Inc.

By: /s/ A.G. Espe
--------------
A.G. Espe
Chairman of the Board
and Chief Executive Officer

Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE
--------- -----

PRINCIPAL EXECUTIVE OFFICER:

/s/ A.G. ESPE Chairman of the Board and
-------------- Chief Executive Officer
A.G. Espe

PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:

/s/ GARY R. SCHMINKEY Chief Financial Officer
----------------------
Gary R. Schminkey

A MAJORITY OF THE BOARD OF DIRECTORS:

/s/ W. BARRY CONNOLEY* Director
-----------------------
W. Barry Connoley

/S/ RICHARD S. DEVINE* Director
-----------------------
Richard S. Devine

/S/ ARNOLD G. ESPE* Director
--------------------
Arnold G. Espe

II-4
<PAGE>

/S/ JACK FABULICH* Director
-------------------
Jack Fabulich

/S/ JOHN P. FOLSOM* Director
--------------------
John P. Folsom

/S/ JONATHAN FINE* Director
-------------------
Jonathan Fine

/S/ MARGEL S. GALLAGHER* Director
-------------------------
Margel S. Gallagher

/S/ W.W. PHILIP* Director
-----------------
W.W. Philip

/S/ ROBERT E. QUOIDBACH* Director
-------------------------
Robert E. Quoidbach

/S/ DONALD RODMAN* Director
-------------------
Donald Rodman

/S/ FRANK H. RUSSELL* Director
----------------------
Frank H. Russell

/S/ SIDNEY R. SNYDER* Director
----------------------
Sidney R. Snyder

/S/ JAMES M. WILL, JR.* Director
------------------------
James M. Will, JR.

*By: /s/ J. JAMES GALLAGHER Attorney In Fact
-----------------------
J. James Gallagher

II-5
<PAGE>

EXHIBIT INDEX

EXHIBIT
No.:
-------

8 Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim,
P.L.L.C. regarding tax matters (filed as an exhibit to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-35037) and incorporated herein by reference).

23(a) Consent of Price Waterhouse LLP. (Filed as an exhibit to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-35037) and incorporated herein by reference.)

23(b) Consent of Knight Vale & Gregory, Inc. P.S. (Filed as an exhibit to
the Registrant's Registration Statement on Form S-4 (Registration No.
333-35037) and incorporated herein by reference.)

23(d) Consent of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim
P.L.LC. (included in the opinion filed as Exhibit 5).

23(e) Consent of Thomas L. Matson (filed as an exhibit to the Registrant's
Registration Statement on Form S-4 (Registration No. 333-35037) and
incorporated herein by reference).

24 Power of Attorney (filed as an exhibit to the Registrant's
Registration Statement on Form S-4 (Registration No. 333-35037) and
incorporated herein by reference).

99(a) Form of Proxy of Cascade Bancorp, Inc.*

99(b) Form of Proxy of Bank of Fife*

---------------------------

* Filed herewith.

<PAGE>

EXHIBIT 99(a)

REVOCABLE PROXY OF CASCADE BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS

November 20, 1997

The undersigned hereby appoints Donald W. Lisko and Thomas L. Matson, and
each of them (with full power to act alone) as proxies, with full power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Cascade Bancorp, Inc. ("Cascade") common stock, $1.00
par value per share, held of record by the undersigned on October 15, 1997, at
a Special Meeting of Shareholders to be held at Cascade's principal office
located at 25 - 16th Street N.E., Auburn, Washington on November 20, 1997, at
7:30 p.m., local time, and at any and all adjournments of such Meeting, as
follows:

<TABLE>
<S> <C> <C> <C>
1. Merger Proposal. A proposal to approve the merger of FOR AGAINST ABSTAIN
Cascade with and into Columbia Banking System, Inc., --- ------- -------
with Columbia Banking System, Inc., as the survivor, [ ] [ ] [ ]
pursuant to the Agreement and Plan of Reorganization and
Merger dated as of June 30, 1997.
</TABLE>

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ABOVE PROPOSAL.

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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING. HOWEVER, IF ANY OTHER MATTERS ARE
PROPERLY PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF MANAGEMENT. THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS.
- --------------------------------------------------------------------------------

Please sign exactly as your name appears on this form of proxy. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder must sign. In the
event that you are present and elect to vote at the Special Meeting or at any
adjournment thereof, you must notify the Secretary of Cascade at the Special
Meeting of your decision to terminate this proxy, and then the power of said
attorneys and proxies shall be deemed terminated and of no further force and
effect.

The undersigned acknowledges that prior to the execution of this proxy, he
or she received from Cascade, notice of the Special Meeting and a Joint Proxy
Statement/Prospectus dated October 16, 1997.

Dated: ____________________, 1997

__________________________________ ___________________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER

__________________________________ ___________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER

- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE.
- --------------------------------------------------------------------------------

<PAGE>

EXHIBIT 99(b)

REVOCABLE PROXY OF BANK OF FIFE
SPECIAL MEETING OF SHAREHOLDERS

NOVEMBER 20, 1997

The undersigned hereby appoints James L. Davis and Robert Oldright, and
each of them (with full power to act alone) as proxies, with full power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Bank of Fife common stock, $0.50 par value per share,
held of record by the undersigned on October 15, 1997, at a Special Meeting of
Shareholders to be held at the Bank's office located at 5501 Pacific Highway
East, Fife, Washington on November 20, 1997, at 5:30 p.m., local time, and at
any and all adjournments of such Meeting, as follows:
<TABLE>
<S> <C> <C> <C>
1. Merger Proposal. A proposal to approve the merger of FOR AGAINST ABSTAIN
the Bank of Fife with and into Columbia State Bank, with --- ------- -------
Columbia State Bank as the survivor, pursuant to the [ ] [ ] [ ]
Agreement and Plan of Reorganization and Merger dated
as of July 30, 1997.
</TABLE>

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ABOVE PROPOSAL.

Please sign exactly as your name appears on this form of proxy. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder must sign. In the
event that you are present and elect to vote at the Special Meeting or at any
adjournment thereof, you must notify the Secretary of the Bank of Fife at the
Special Meeting of your decision to terminate this proxy, and then the power of
said attorneys and proxies shall be deemed terminated and of no further force
and effect.

The undersigned acknowledges that prior to the execution of this proxy, he
or she received from the Bank of Fife, notice of the Special Meeting and a Joint
Proxy Statement/Prospectus dated October 16, 1997.

Dated: ____________________, 1997

__________________________________ _______________________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER

__________________________________ _______________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER

________________________________________________________________________________
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE.
________________________________________________________________________________