EXHIBIT 10.1
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                        SEPARATION AND RELEASE AGREEMENT

     THIS SEPARATION AND RELEASE AGREEMENT ("Agreement") is made by and between
J. James Gallagher ("Executive") and Columbia Banking System, Inc., a Washington
corporation ("CBSI") together with Columbia State Bank, a Washington banking
corporation ("Columbia Bank") (collectively "Employer") and is in consideration
of their mutual undertakings as set forth in this Agreement.

1.   TERMINATION OF EMPLOYMENT: Executive agrees that his employment as Vice
     Chairman and Chief Executive Officer of CBSI and Vice Chairman of Columbia
     Bank, and his position as a Director of Employer, terminated effective July
     1, 2002. Executive agrees that from that date forward, he has no authority
     to discharge contracts, enter into agreements, or engage in personnel
     activities on behalf of Employer.

2.   SEVERANCE PAYMENT: In consideration of the mutual and other promises and
     benefits herein, Executive hereby foregoes the severance payment set forth
     in Section 5.1 (b) of the December 20, 2000 Amended Employment Agreement.

3.   ENHANCED SEVERANCE BENEFITS: Except as provided in this Agreement,
     Executive agrees that Employer has no obligation beyond July 1, 2002 to pay
     the costs of covering Executive under Employer's group medical, dental
     and/or vision plans, as well as Employer's disability and life insurance
     plans.

In consideration of this Agreement, Employer will grant or provide to Executive
the enhanced severance benefits set forth in Sections 3.1 through 3.5 below
(collectively, "Enhanced Severance Benefits"). Executive acknowledges that the
Enhanced Severance Benefits are something of value or a benefit that to which
Executive is not otherwise entitled.

     3.1  PREMIUMS FOR BENEFITS CONTINUATION. Executive and his covered
          dependents may elect COBRA medical, dental and vision plan
          continuation coverage for himself and/or his eligible dependents for
          the time period and under such conditions as are provided by COBRA.
          Employer shall pay the cost of COBRA premiums for a period of
          twenty-four (24) months from July 1, 2002, or until COBRA coverage
          ceases, whichever first occurs. If COBRA coverage ceases before the
          end of twenty-four (24) months, then Employer shall continue to pay
          Executive an amount not to exceed the cost of the COBRA premiums to
          offset the cost of private health insurance for the balance of the
          twenty-four (24) months. Executive will be responsible for payment of
          COBRA coverage for his dependents.

     3.2  EXECUTIVE SUPPLEMENTAL COMPENSATION AGREEMENT. Executive shall be
          entitled to benefits as set forth in Section 3.2 of the August 1, 2001
          Executive Supplemental Compensation Agreement between Employer and
          Executive (the "ESCA") because the services provided under Section 5
          of this Agreement constitute services in connection with a consulting
          agreement, and to have

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          benefits commence at an "Applicable Percentage" (as defined in the
          ESCA) of 60% on August 1, 2004.

     3.3  STOCK OPTIONS AND RESTRICTED STOCK. Non-qualified stock options
          granted to Executive pursuant to that certain grant of December 20,
          2000 in the original amount of ten thousand (10,000) shares at an
          original option price of thirteen dollars and twelve and one-half
          cents ($13.125) per share (currently eleven thousand five hundred and
          fifty (11,550) shares and an option price of eleven dollars and
          thirty-six cents ($11.36) per share) shall be vested and
          nonforfeitable as of July 1, 2002. Executive may exercise these
          options until July 1, 2004. The term to exercise the nonqualified
          stock options granted to Executive pursuant to that certain grant of
          July 1, 1998 in the original amount of thirty seven thousand five
          hundred (37,500) shares, at an original option price of twenty-six
          dollars ($26) per share shall be extended to June 30, 2006. The
          restricted stock award made to Executive pursuant to that certain
          Restricted Stock Award Agreement dated April 22, 1998 (the "Award
          Agreement") shall be released from escrow on April 22, 2003.

     3.4  LONG TERM CARE PREMIUM. Employer shall waive repayment of $56,449 for
          Executive's long term care premium.

     3.5  LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR AGREEMENT. Employer
          agrees to continue in effect at its expense and in accordance with
          their respective terms as they were on August 1, 2002, the Life
          Insurance Endorsement Method Split Dollar Agreement entered into on
          August 1, 2001 between Employer and Executive (the "Life Insurance
          Agreement"). Executive will be deemed employed by Employer for
          purposes of the Life Insurance Agreement as long as the Consulting
          Agreement remains in effect.

4.   NONCOMPETITION AND NONSOLICITATION PROVISION: The noncompetition agreement
     in Section 6 of the ESCA is hereby superseded by this Section 4.

     4.1  The noncompetition and nonsolicitation restrictions in this Section 4
          shall be the same as and coincident with the Consulting Period. If
          Executive enters into Competitive Activity or Solicitation in
          Employer's market area during the first twelve (12) months of the
          Consulting Period, then the Enhanced Severance Benefits and the
          balance of payments under the Consulting Agreement will terminate
          unless such activity or solicitation is terminated within fifteen (15)
          days of Executive's receipt of written notice from Employer. If
          Executive enters into Competitive Activity or Solicitation in
          Employer's market area during the balance of the Consulting Period,
          then the amount to be paid under the Consulting Agreement will be
          reduced by 20% and, with respect to the other Enhanced Severance
          Benefits, the Employer's obligations under Section 3.1 will terminate,
          and the Applicable Percentage under the ESCA, as described in Section
          3.2, will be reduced from 60% to 40%. "Competitive Activity" means
          Executive, or a company owned or controlled by Executive, acting as an
          employee, consultant, agent, officer, director or manager, or in any
          other representative capacity, for or on behalf of any bank or
          financial institution or owning more than ten percent (10%) of the
          shares in or

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          ownership interest in a bank or financial institution which does
          business in Employer's market area. "Solicitation" means soliciting or
          attempting to solicit any employee of Employer or its affiliates to
          leave the employ of those companies, or in any way interfere with the
          relationship between Employer and any employees of Employer or its
          affiliates. Employer's market area is defined as the following
          counties in the State of Washington in which Employer maintains a
          branch or other offices, now or during the Consulting Period: King,
          Kitsap, Pierce, and Thurston. As used herein, "banks and financial
          institutions" consist of banks, credit unions, and savings and loan
          associations.

     4.2  Notwithstanding the foregoing, Employer agrees to Executive's
          participation in a joint venture that he contemplates with Economic
          Investment Advisors and Northrim Bank, Anchorage, Alaska, which, if
          carried out, will offer, construct, provide and manage investment
          portfolios and associated products for investment customers, which are
          delivered or distributed through various means and channels, including
          banks and other financial institutions. Employer acknowledges that
          such participation by Executive will not be deemed to be a Competitive
          Activity so long as such joint venture does not make commercial or
          consumer loans or accept deposits in Employer's market area.

5.   CONSULTING PERIOD:

     5.1  Executive shall serve as a consultant with Employer from July 1, 2002
          through August 1, 2004 ("Consulting Period"). During the Consulting
          Period Executive shall (a) represent and promote the goodwill of
          Employer and its affiliates in the Washington communities served by
          Employer and its affiliates, (b) maintain communication with
          management by meeting twice annually with the President and Chairman
          of the Board of the Bank at their invitation, (c) provide consultation
          on banking matters as an experienced bank executive, and (d) comply
          with all written policies of Employer applicable to his activities as
          a consultant or otherwise. Executive shall not participate in
          establishing or administering policy of Employer. There shall be no
          "on premises" requirement for Executive.

     5.2  In consideration, Executive shall be paid at an annual rate of Two
          Hundred Thirty Five Thousand Dollars ($235,000), in proportionate
          monthly installments. Executive shall be responsible for all state,
          federal, and local taxes, including estimated taxes, and employment
          reporting for Executive and any agents, employees, associates or
          subcontractors of Executive. Executive agrees to indemnify and hold
          harmless Employer to the fullest extent permitted by law against and
          from any and all liability for such taxes, reporting or other similar
          costs or expenses arising from or related to the services provided by
          Executive during the Consulting Period and any agents, employees,
          associates or subcontractors of Executive pursuant to providing
          consulting services under this Agreement.

     5.3  Executive and Employer will enter into a Consulting Agreement
          implementing the terms of this Section 5 (the "Consulting Agreement").
          Executive and

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          Employer will characterize his relationship with Employer during the
          Consulting Period as that of a "consultant." Performance by Executive
          of his duties as a consultant during the Consulting Period shall be
          considered "employment" for purposes of the ESCA, the Award Agreement,
          and the Life Insurance Agreement. Executive may elect, at his
          discretion, to perform his consulting duties described in this Section
          5 in the name of, and have the corresponding payments required to be
          made by Employer made to, J. James Gallagher & Company, a company
          wholly owned and controlled by Executive so long as (a) the services
          are in fact provided by Executive, (b) the Consulting Agreement
          terminates on the death of Executive, and (c) J. James Gallagher &
          Company agrees to keep all non-public information received from
          Employer confidential. In the event and to the extent of such an
          election, the term "Executive" will be deemed for purposes of this
          Section 5 to include such company.

6.   RELEASE OF CLAIMS: In exchange for those benefits described herein to which
     Executive is not otherwise entitled, Executive and his successors and
     assigns forever release and discharge Employer, any of Employer's parent,
     subsidiary or related entities, any Employer-sponsored Executive benefit
     plans in which Executive participates, and all of their respective
     officers, directors, trustees, members, agents, Executives, Executives'
     spouses, and all of their predecessors, successors and assigns
     (collectively "Releasees") from any and all claims, actions, causes of
     action, rights, or damages, including costs and attorneys' fees
     (collectively "Claims") which Executive may have on behalf of himself,
     known, unknown, or later discovered which arose prior to the date Executive
     signs this Agreement. This release includes but is not limited to, (i) any
     claims under any local, state, or federal laws regulating employment, or
     comparable state, county or city laws; (ii) claims under the Employee
     Retirement Income Security Act of 1974, as amended; (iii) claims under any
     local, state, or federal wage and hour laws alleging any legal restriction
     on Employer's right to terminate its Executives, or personal injury Claims,
     including without limitation defamation, tortious interference with
     business expectancy, or infliction of emotional distress. Executive
     represents that he has not filed any claim against Employer or the
     Releasees, and that he will not do so at any time in the future concerning
     claims released in this Agreement; provided, however, that this will not
     limit Executive from filing a claim to enforce the terms of this Agreement.
     Nothing in this Section 6 will be construed to limit, waive, amend, modify
     or otherwise affect any and all obligations of Employer to indemnify and
     defend Executive against and hold him harmless from and in respect of
     Claims that may be made against him. Employer represents and warrants to
     Executive that, without review or investigation of their files, the
     Executive Officers of the Employer are not aware of any claims that the
     Employer may have against Executive. For purposes of his provision, the
     Executive Officers consist of William Weyerhaeuser and Melanie Dressel.

7.   NONDISPARAGEMENT: The parties pledge that they will make no private or
     public comments, statements, or writings critical of the other party or the
     Releasees, but this restriction will not prevent either party from
     instituting legal action against the other.

8.   SUCCESSORS: This Agreement shall be binding upon the parties, and their
     heirs, representatives, executors, administrators, successors, and assigns,
     and shall enure to the

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     benefit of each and all of the Releasees, and to their heirs,
     representatives, executors, administrators, successors, and assigns.

9.   NO ADMISSION OF LIABILITY: This Agreement shall not be construed as an
     admission of a violation of any statute or law or breach of any duty or
     obligation by either Executive or Employer.

10.  CONFIDENTIALITY: The parties will use their best efforts to keep the terms
     of this Agreement confidential. Employer and Executive may acknowledge to
     third persons that their parting was on mutually satisfactory terms. Either
     party may disclose the terms of this Agreement to their respective
     attorneys, accountants, financial advisers, auditors, or similar advisors,
     or in response to government requests. Employer may disclose the terms of
     this Agreement to its officers, directors, shareholders, or managers who
     have a need to know, and may make reference to and attach it as part of
     Employer's reports to governmental agencies and its shareholders. Either
     party may disclose the terms of Section 4, the noncompetition provision, as
     necessary in order to ensure compliance with its terms. Third persons
     informed of the terms of this Agreement shall in turn be advised of this
     confidentiality provision and requested to maintain the same.

11.  ANNOUNCEMENT OF SEPARATION: The parties will mutually agree upon the timing
     and content of an announcement regarding Executive's termination of
     employment.

12.  MISCELLANEOUS:

     12.1 In the event that a provision of this Agreement is judicially
          determined to be unenforceable as written, such provision shall be
          construed so as to give it the maximum effect permitted under
          applicable law. In addition, if any of the provisions of this
          Agreement are held to be invalid or unenforceable, the remaining
          provisions will nevertheless continue to be valid and enforceable.

     12.2 This Agreement is made and shall be interpreted and enforced under the
          laws of the United States and the State of Washington.

     12.3 This Agreement may not be altered or amended except by a written
          document executed by all of the parties.

     12.4 Notwithstanding anything in this Agreement to the contrary, if the
          making of any payments under this Agreement or the Consulting
          Agreement is or becomes prohibited by the Federal Deposit Insurance
          Act or the rules and regulations of the Federal Deposit Insurance
          Corporation, such payment need not be made so long as and to the
          extent such prohibition continues.

13.  IMPACT ON CHANGE OF CONTROL: The provisions regarding change of control in
     Section 5.4 of the ESCA are hereby terminated and shall be of no further
     force or effect.

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     Executive acknowledges that in signing this Agreement, he has not relied
upon any representation or statement not set forth in this Agreement made by
Employer or any of its representatives.

PLEASE READ CAREFULLY. THIS AGREEMENT CONTAINS A RELEASE OF KNOWN AND UNKNOWN
CLAIMS.

EMPLOYER:                                   EXECUTIVE:

COLUMBIA BANKING SYSTEM, INC.


By: /s/ William T. Weyerhaeuser             By: /s/ J. James Gallagher
   -----------------------------------         ---------------------------------
    WILLIAM T. WEYERHAEUSER                     J. JAMES GALLAGHER
    Its Interim Chief Executive
    Officer

Dated:  8/27/02                             Dated:  8/30/02
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COLUMBIA STATE BANK


By: /s/ Melanie J. Dressel
   -----------------------------------
    MELANIE J. DRESSEL
    Its President and Chief Executive
    Officer
















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